Retrospective validation of defective appointment of administrators

A recent decision of the Victorian Court of Appeal highlights that the court has broad powers under s447A of the Corporations Act to retrospectively validate a defective appointment of administrators, possibly even where such retrospective validation may adversely affect accrued rights of other creditors.

In National Australia Bank Ltd and Anor v Horne and Vrsecky (as administrators of Australian Property Custodian Holdings Ltd) (Administrators Appointed) (Receivers and Managers Appointed) [2011] VSCA 280, the court considered its power to retrospectively validate an invalid appointment of administrators under s447A, which permits the court to make such orders 'as it thinks appropriate about how [Part 5.3A of the Corporations Act] is to operate in relation to a particular company'.

The initial appointment of the administrators to the company had been made on the basis of s 436C, under which a person entitled to enforce a charge may appoint an administrator provided that the charge secures the whole, or substantially the whole, of a company's property. The charge in this case only extended to 68 per cent of the company's assets. This was not 'substantially the whole' of the company's property and the appointment of administrators pursuant to s436C was therefore invalid. The trial judge ordered that the purported appointment of administrators be validated under s447A and this decision was affirmed by the Victorian Court of Appeal, although on a different basis to the trial judge. In reaching its decision, the court intimated that s447A could validate an appointment notwithstanding the fact that accrued rights of other creditors might be adversely affected.

This decision highlights that the court's powers under s447A are broad and will be used flexibly by the courts with a view to achieving the objectives of Part 5.3A.