Recent NSW Court of Appeal decision provides guidance on its powers on casting votes at creditors Meetings.

In the matter of Glenfyne International Holding Limited v Glenfyne Farms International AU Pty Ltd (In Liq) [2019] NSWCA 304, an appeal that a casting vote at a Creditors meeting preventing the appointment of a Liquidator be overturned sheds some light on the far reaching powers of the Courts under the Insolvency Practice Rules, 2016 (Corporations) (“IPR”).

Background

At a Second Creditors Meeting of Glenfyne Farms International AU Pty Ltd (Administrator Appointed) a resolution was passed to place the Company in Liquidation. Glenfyne International Holding Limited (“Glenfyne International”), being the majority Creditor, put a resolution to Creditors to appoint their preferred Liquidator which was not the current Administrator.

The result was a split decision with the majority in value (Glenfyne International) voting in favour of the resolution while a majority in number voted against the decision. As a result of the split decision the Administrator decided to exercise a casting vote as the resolution did not deal with the removal of an External Administrator or their remuneration. Ultimately, as no Liquidator was resolved to be appointed, the Administrator was deemed to be Liquidator.

Glenfyne International sought orders in the NSW Court of Appeal to overturn the resolution on the grounds that an Administrator cannot vote against a resolution for the removal of an External Administrator under the IPR and the above resolution to appoint a Liquidator was a resolution to remove an Administrator. Further, the appeal was bought on the ground that the Court had the power to scrutinise the casting vote of the Chairperson.

The relevant circumstances surrounding the appeal were as follows:-

  • Glenfyne International claimed the Director failed in his duties as Director of the Company;
  • The Creditors who voted against the resolution in majority of number were the Director, the Directors solicitor and the Director’s external accountant. Further the amounts these Creditors claimed were insignificant in value compared to the major Creditor, Glenfyne International;
  • Glenfyne International had offered to pay out the debts of the solicitor and accountant in full which was refused by the Creditors; and
  • The accountant referred the matter to the current Administrator.

Outcome

In light of these circumstances, the Court of appeal considered that it appeared there may be further investigations into the conduct of the Director and the circumstances of failure of the Company. The Court considered that it would be preferable if these investigations were carried out by an independent Liquidator with no previous association with the Company or Director. Further, the refusal of the solicitor and accountant to have their debts extinguished fully was found to be not acting in the best interests of Creditors and for an ulterior purpose, i.e. to confirm the appointment of the Administrator as Liquidator.

Accordingly, the Court exercised its discretion and ordered that the resolution had passed and the alternate Liquidator was taken to be appointed.

Comment

This decision provides useful guidance not only on the power of the Courts to make orders to the benefit of the body of Creditors but also to the ongoing duties of external Administrators to act for the interests of Creditors. External Administrators must be careful to ensure they maintain independence and to act with the intention of maximising return to Creditors.