Protection to Administrators acting in the best interest of Creditors

In a recent Supreme Court of NSW Decision, Renex Holdings (Dandenong) 1 Pty Ltd (Administrators Appointed) & Others [2015] NSWSC 2003, Justice Black once again adopted a very practical and encouraging approach whereby he confirmed that Administrators may be protected from personal liability for post appointment debts.

The background to the Administration was that Renex’s Creditors mainly comprised of Secured Creditors and Employees i.e. there were nominal unsecured creditor claims. One of the Secured Creditors agreed to loan funds to the Administrator to continue trading the business in order to protect its value ahead of a future planned sale on a going concern basis, which ultimately would result in a better return to the Creditors.

In light of the above arrangement, the Administrators sought Orders from the Court that they would not be personally liable for the loan from the Secured Creditor, as this would then enable them to make freehand decisions for a better return to the Creditors.

Justice Black made the Orders sought on the following basis:-

  1. It would be in the best interest of the Creditors;
  2. It was mainly consistent with Part 5.3A of the Act i.e. it would allow a fresh start to companies with a prospective future;
  3. The continued trading of the business would result in continued employment opportunities for the employees of the Company; and
  4. This Order would not be disadvantageous for the nominal unsecured claims in this instance.

Whilst a good outcome in this instance, Justice Black’s decision might differ in cases especially where there are a large number of unsecured claims in an administration.

Furthermore, it does leave one with some unanswered questions in terms of the security position of the Secured Creditor due to lack of available security during the Administration period. It would also raise questions relating to the “funding” Secured Creditor’s priority in respect of other ranking security interests.

Notwithstanding the above, it is the writer’s view that with Administrations in circumstances similar to the present case, the above decision will possibly lead to many more successful Administrations and an effective treatment for businesses with prospects which ultimately will mean an effective application of Part 5.3A of the Act.