A PHP Error was encountered

Severity: Warning

Message: Invalid argument supplied for foreach()

Filename: laworld-theme/content.php

Line Number: 8

A PHP Error was encountered

Severity: Warning

Message: Invalid argument supplied for foreach()

Filename: laworld-theme/content.php

Line Number: 55

Does The Appointment Of A Voluntary Administrator Stop Play?

Australian law is changing.  The appointment of a voluntary administrator does not mean your civil action cannot proceed. Polczynski Lawyers from Sydney, Australia, explain how to navigate this treacherous path.

A common scenario: Proceedings have been set down for hearing. The trial date is imminent. The barristers are sharpening their claws for cross-examination. Witnesses are lined up to give evidence. The final flurry before hearing is in full swing. But wait! The defendant has called time out! A voluntary administrator has been appointed in the countdown to kick-off. What now? 

Polczynski Lawyers was recently involved in such a case and was able to play on, obtaining leave to proceed and then judgment within a short time.   We’ll explain the steps.

The time out whistle 

Section 440D of the Corporations Act 2001 (Cth) provides for a freeze of proceedings against a company in administration unless and until either the administrator consents to a continuation or the Supreme or Federal Court grants leave to proceed. 

Permission to play on 

The Courts’ traditional stance has been that leave to proceed will rarely be granted. The Courts have been concerned about administrators being diverted from their core responsibilities and incurring legal costs running litigation on behalf of the company. 

The idea that leave should only be granted in rare cases has, however, been challenged in recent years. We can now tentatively say it no longer represents the status quo. 

In Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd (2011) 285 ALR 207, Justice Hammerschlag said that, whilst a stay is the starting point, each case must be looked at on its own merits to decide whether or not leave should be granted. 

Our client’s recent match 

In our case, the administrator was appointed only days before a hearing was to commence in the District Court. The plaintiff’s claim related to unpaid invoices and was not disputed, however the defendant had filed a cross-claim seeking damages due to the supply of allegedly faulty products. 

In granting leave to proceed, Justice Brereton noted that the administrator must have conducted some enquiries into the company before consenting to act. He should, therefore, have been aware of the proceedings and the impending hearing date. The eleventh hour appointment of the administrator afforded no reason to interfere with the progress of the proceedings, at least so far as the plaintiff’s claim was concerned. 

Section 440D does not operate to stay a cross-claim filed by the company in administration. Therefore, the administrator could take his own course on the cross-claim and could seek an adjournment of the hearing the following day. 

With leave granted, the plaintiff called game on and judgment was entered on the plaintiff’s claim. The defendant’s cross-claim was dismissed by the District Court Judge with a limited right to file any fresh proceedings within one month. 

Post-match review 

Litigants, as well as prospective administrators, should be aware that their appointment does not necessarily mean time out will be called on any litigation the company is involved in. In particular, where a hearing date looms an administrator may be told to play on and cannot assume a stay will remain in place. The administrator must, therefore, look at any litigation the company is involved in prior to appointment and formulate a game plan. 

Key questions the administrator should ask include: 

1. What stage are the proceedings at? Has a hearing date been set? If so, when is it? 

2. What are the prospects of success for the case? What are the consequences of failure? 

3. What are the costs of continuing to run the matter to trial? How is that litigation to be funded? 

4. What are the reasons for the appointment of an administrator? Is the appointment simply an attempt to frustrate the claim by imposing a stay? 

There are real risks to an administrator that tend to increase in severity when the appointment is late in the proceedings.  An administrator may be personally liable for legal costs of the litigation after his or her appointment. Accordingly, before getting swept up in the litigation, the administrator should ensure the assets of the company are sufficient to provide an indemnity for those costs. 

Plaintiffs that are facing a late appointment of an administrator for a defendant company should note that  this does not necessarily mean they should retire to the locker room. They should consider whether an application for leave to proceed should be filed.

Where the defence consists of a cross-claim and the principal claim is not really in dispute, there may be grounds for the stay to be lifted, particularly where a judgment would not give the plaintiff priority or any other special advantage over other creditors. 

As is often the circumstance in law, each case is unique and will need to be considered separately. To find out more, get in touch with Claire Latham or Stephen Polczynski. 

Stephen Poczynski Managing Partner P: 02 9234 1501 E: spolczynski@plawyers.com.au

Claire Latham Senior Associate P: 02 9234 1503 E: clatham@plawyers.com.au 

Polczynski Lawyers

Level 12, 77 King Street

Sydney NSW 2001

Silicon Valley leads avalanche of quarterly reports
Fri, 22 Jul 2016 23:16:29 -0400
SAN FRANCISCO (Reuters) - A quartet of technology heavyweights will be part of an avalanche of quart...
U.S. government's bid to block insurance mergers could spawn new ones
Fri, 22 Jul 2016 19:24:53 -0400
(Reuters) - The potential bust-up of two mega deals among America’s largest health insurance compa...
Verizon emerges as front-runner in Yahoo auction: sources
Fri, 22 Jul 2016 15:17:18 -0400
(Reuters) - Yahoo Inc is focusing on U.S. telecommunications company Verizon Communications Inc as...
Fiat Chrysler recalling 410,000 vehicles
Fri, 22 Jul 2016 18:41:12 -0400
WASHINGTON (Reuters) - Fiat Chrysler Automobiles NV said on Friday it is recalling nearly 410,000 v...

Europe/Middle East Regional Meeting and Lawyers Next Generation (Budapest) from 5pm on Friday the 16th of September, 2016 to 5pm on Saturday the 17th of September, 2016

See All Events
 
LAWorld
Email: mail@laworld.com
© LAWorld. Website Developed by Redstudio Design Limited

A PHP Error was encountered

Severity: Warning

Message: Invalid argument supplied for foreach()

Filename: controllers/welcome.php

Line Number: 29

A PHP Error was encountered

Severity: Notice

Message: Undefined index: category

Filename: controllers/welcome.php

Line Number: 47

A PHP Error was encountered

Severity: Notice

Message: Undefined index: content_id

Filename: controllers/welcome.php

Line Number: 54

A PHP Error was encountered

Severity: Notice

Message: Undefined property: Welcome::$assignedGallery

Filename: controllers/welcome.php

Line Number: 126

LAWorld News

Business News

Upcoming Events