In Re Resource Development Group Limited (Administrators Appointed) [2025] WASC 408, the Court granted relief to the voluntary administrators of Resource Development Group Ltd (RDG) from personal liability under a loan arrangement and extended time for the registration of a related security interest.
Key Takeaway
- Voluntary administrators should seek protective orders under section 447A of the Corporation Act 2001 (Cth) (Act) to be relieved of personal liability when they enter into loan arrangements during the administration, where such arrangements are necessary to maintain the company’s operations and are in creditors’ interest.
- While there is no appellate court authority, where a loan agreement is entered in the course of an administration, the Administrators can seek post-appointment securities to be registered in favour of the lender. Such order is important to enable funding to be accessed during the voluntary administration period.
Case Background
RDG and six subsidiaries entered voluntary administration on 28 July 2025, with Jason Ireland, Robert Brauer and Linda Smith appointed as joint administrators.
The group suffered significant financial distress, owing an estimated $230 million. RDG had only $300,000 in available cash at the time of the appointments. To continue the business operation, the administrators secured a $14.5 million funding facility from Mineral Resources Ltd, documented in a Funding Deed and supported by a General Security Deed (GSD). The administrators then sought orders relieving them of personal liability for debts under the Funding Deed and addressing the registration of the associated security interest.
Such orders were needed due to voluntary administrators incurring personal liability for debts incurred during the administration process, and to facilitate the borrowing opportunity by the provision of security.
Court’s Reasoning
Relief from Personal Liability
Administrators are personally liable for debts incurred in performing their functions under section 443A of the Act, although they can be indemnified out of the company’s property for those debts under section 443D. However, the principal and interest payable under a loan agreement cannot be indemnified because this is a distinct contractual obligation to repay the lender, which is not an expense incurred “in the performance’ of the administration. Therefore, administrators may be personally liable for the repayment of the loan and interest if they cannot secure a court order to limit personal liability.
Courts have consistently used section 447A of the Act to relieve administrators of personal liability if a loan is entered into for company’s continuance of business operations or the creditors’ benefit. The factors that the court will consider were summarised by Gilmour J in Re Mentha (in their capacities as joint and several administrators of the Griffin Coal Mining Company Pty Ltd (admins apptd) [2010] FCA 1469:
- The proposed arrangements should be in the interests of the companies and consistent with the objectives of Part 5.3A of the Act.
- Typically, the arrangements proposed are to enable the company’s business to continue to trade for the benefit of the company’s creditors.
- The creditors of the company are not prejudiced or disadvantaged by the types of orders sought and stand to benefit from the administrators entering into the arrangement.
- Notice has been given to those who may be affected by the order.
Justice Hill accepted that the loan agreement was necessary for RDG’s business to continue to trade and this could benefit creditors. Without entering into the loan agreement, RDG’s value would have been significantly dismissed. The Court was satisfied that granting an order to relieve personal liability was consistent with the objects of Part 5.3A of the Act and in the interest of unsecured creditors. Therefore, the Court exercised its power to vary the operation of sections 443A and 443D to relieve administrators’ personal liability.
Security Interest and section 588FM
Section 267 of the Personal Property Securities Act 2009 (Cth) (PPSA) states that any unperfected security interest at the time of the administrators’ appointment vests in the grantor (ie the company giving security) irreversibly. The Court confirmed that the GSD was a PPSA security interest. Therefore, if the GSD was not perfected, Mineral Resources would lose its security and priority, and the advancement of the loan money would not be possible under the terms of the Funding Deed.
Beyond this general PPSA rule, section 588FL of the Act imposes additional timing requirements on the registration of security interests. In outline, a PPSA security interest vests in the company if:
- it is enforceable and perfected by registration;
- it was registered within six months of the critical time; but
- it was not registered within 20 business days after the grant, unless the Court extends time under section 588FM.
Under section 588FL(7)(a), the “critical time” is the appointment of administrators.
The administrators sought relief under section 588FM of the Act to prevent the security from vesting in RDG. However, there remains divergence in the authorities as to whether section 588FL applies to securities created after the critical time and while the company remains in external administration, and there is no appellate authority for guidance. Referring to its reasoning in Re Yeeda Pastoral [2024] WASC 120, the Court accepted that it was both practical and necessary to grant an extension of time to register the security interest under section 588FM.
Outcome
The Court ordered that the administrators were not personally liable for the debts incurred by entering the Funding Deed and the time for registration of the GSD should be extended.
Further Information
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