The Supreme Court of Western Australia has delivered a decision limiting an Administrators’ liability for debts incurred.
By way of background:
• s 443A(1) of the Act provides that the administrator of a company under administration is liable for the debts he or she incurs in the performance or exercise of any of his or her functions and powers as administrator.
• s 443A(2) provides that s 443A(1) of the Act has effect despite any agreement to the contrary.
• s 443D of the Act provides the administrator is entitled to be indemnified out of the company’s property
In this case, in order to fund the ongoing trading of the business and to attempt to maximise the return for creditors, the Administrators contemplated borrowing $200k which included the terms that their liability to repay this money was limited to the assets available to them. This is contrary to the above provisions of the Act. So as to protect themselves the Administrators made an application to court to limit their liability under s 443A(1) of the Act to the companies’ property for which they can be indemnified under s 443D, and which can be secured by the lien under s 443F of the Act.
Master Sanderson in Andrew John Saker & Martin Bruce Jones as Joint and Several Voluntary Administrators of Conquest Crop Protection Pty Ltd (Administrators Appointed) and Formworks Merchandise Services Pty Ltd (Administrators Appointed) [2012] WASC 473 held that it was proper and appropriate to make the orders sought to limit the liability of the administrators as contemplated in a loan they had entered to fund operating costs to ensure the companies could continue to trade. This was because it would offer the best chance for all parties to receive maximum returns.
The case demonstrates circumstances where an application to limit the administrators’ liability for debts incurred will be granted.
Adrian Hunter 