Key Takeaways

Administrators need to ensure they make their own enquiries of a secured Creditor who is seeking their consent to be appointed under s436C Corporations Act (the Act). They cannot accept, without enquiry, that the secured Creditor’s right to do so has arisen.

It is incumbent on an Administrator to form his own view on this matter and not accept the secured Creditor’s appointment unless so satisfied. An Administrator should seek their own legal advice if there is any doubt as to the validity of the Creditor’s right to appoint.

Brief Facts

The recent judgment in Patel v Pleash (FCA 2025) has highlighted the care that Administrators must take before accepting a referral to act as an Administrator, when the appointment is being made by a secured Creditor under s436C of the Act.

In this matter, the Creditors claimed a debt owing based on a Brokerage/Success Fee Agreement (the Agreement) which on its face included security to be taken from the debtor over all of its personal property. The Agreement provided relevantly for the Creditor to source a loan of between $10-15,000,000 for a term of three years for the purpose of a property development.

As it happened, the only loan sourced was for the sum of just over $3,500,000 for a term of three months. The debtor wrote to the Creditor advising that the terms of the proposed loan were not acceptable and advised they would source their own funds to complete the development of the property, which they did.

Over six months after that notification, the Creditor registered a security interest against all present and after acquired property of the debtor and sent a tax invoice for $259,000 for what was described as the Mandate fee together with further charges for legal fees.

The fees were not paid and the Administrator was appointed on 2 December 2022.

The Administrator accepted an appointment to act as Administrator based upon a PPSR registration provided to him by the secured Creditor founded on the alleged breach of the Agreement.

Judgment

On the facts of this matter, Cheeseman J of the Federal Court held the secured Creditor did not have a presently enforceable security interest over all or substantially all of the debtor’s property and that the purported appointment of the Administrator was for the purpose of trying to recover the debt it claimed was owing to it.

There had been no compliance by the Creditor with its obligations under the Agreement, and no fee had become payable. The Judge found, on the evidence, that the Creditor had sought advice from the Administrator prior to the appointment on the use of the administration process as a means of debt recovery.

Cheeseman J reiterated that debt recovery is clearly outside the objectives of Part 5.3A of the Act and the Administrator was aware that this was the purpose for which the Creditor was seeking the Administrator’s appointment.

Further, Cheeseman J also found that the Administrator had failed to take appropriate steps to satisfy himself that the Creditor was in fact entitled to appoint him as an Administrator under s436C. In this matter, the documents provided to the Administrator, said to justify the basis for his appointment, ought to have led to obvious enquiries being made of the secured Creditor which would have shown that such right did not exist. In addition, the Security interest had not been registered within time and had vested in the debtor upon the Administrator’s appointment.

The appointment of the Administrator was found to be invalid. Further, the Court ordered that the company’s costs be paid by all of the Creditor, the Creditor’s sole director and the Administrator.

Implications

Administrators may have their appointment declared void, and risk orders for costs, and perhaps even damages being awarded against them (although no such claim was made in this case against the Administrator) if they do not take proper steps to ensure a secured Creditor has a valid right to appoint under s436C of the Act.