Ariel Borland, Partner at Mills Oakley lawyers, recently authored an interesting article on a bulish Voluntary Administrator who sold assets of a company over which he had been appointed despite those assets being owned by someone else. Ariel’s full article can be found here
The case that gave rise to this article was the decision of the New South Wales Supreme Court in THC Holding Pty Ltd v CMA Recycling Pty Ltd [2014]. As a result of the actions of the Administrator, the case highlights the ways in which administrators (more generally) can be personally liable for disposing of property not owned by the company (or the subject of a security interest) in breach of section 442C of the Corporations Act 2001 (Cth) (Act). (S442C of the Act details with when an Administrator may dispose of encumbered property)
In this instance, a pile of stock was sold by CMA to THC prior to the appointment of the Voluntary Administrator. At the time of the appointment, the stock remained on site at CMA. Shortly after the appointment, THC advised the Administrator that it was the owner of the stock. Despite this notification, the Administrator sold the stock as part of a larger asset sale agreement for all of CMA’s assets. This asset sale was held by the Court not to be in the “ordinary course of business” of CMA (which is a method of disposing of an encumbered asset under this S442C).
From a PPSA perspective, as THC was the owner of the stock it was not a secured party as THC’s interest did not secure the payment or performance of an obligation… ie title had already passed and therefore there was no need for a PPSA registration.
Whilst final orders have yet been made, as a result of the Administrator’s actions he was found to have breached S442C and is liable for damages.
If you have the time, I suggest you give Ariel’s article a read in its entirety
Adrian Hunter 