The Federal Court has relaxed some statutory obligations for company administrators and assisted them to deal with practical impediments following the Government’s COVID-19 restrictions
A recent Federal Court decision (Eagle, in the matter of Techfront Australia Pty Limited (admin appt) [2020] FCA 542) shows the potential difficulties faced by company administrators in complying with statutory obligations and the usual practicalities in the COVID-19 era. This decision, and the recent Colette decision, may provide valuable direction if you find yourself in a similar boat.
Background
Three companies in the Global Sports Commerce group (GSC) went into voluntary administration on 7 April 2020.
The administrators were concerned about meeting all their statutory obligations within the required time, including the requirement to hold creditors’ meetings in person and give five business days’ notice of each meeting in the required form.
By the time the company went into voluntary administration, the Commonwealth Government had introduced restrictions on public and private gatherings to try to arrest the spread of the COVID-19 virus.
These restrictions meant the administrators faced a practical impediment in holding the meeting in person. Other issues also arose due to the restrictions, for example:
- Most of the administrators’ staff were either working remotely or unavailable, which meant they were impeded by the inability to attend the GSC companies’ premises to collect important information and value assets
- The administrators’ ability to review and assess company records and books was delayed
- The delays put pressure on the time requirements for notice of creditor meetings
- Creditor meetings could not be held in person due to restrictions on public gatherings
Administrators’ application to Federal Court
Faced with the dilemma of meeting statutory obligations while complying with COVID-19 restrictions, the administrators applied to the Federal Court for orders to address these practical challenges.
The Court’s decision
The Federal Court made orders to allow:
- The administrators to send out creditors’ meeting notices by email rather than post or fax
- Creditors’ meetings may be conducted exclusively by video conferencing or telephone rather than in person
Importantly, the Court granted a two-week extension of time for the administrators to decide whether to remain in occupation of leasehold property and excused the administrators from any personal liability during the extension. See our note of the Colette decision, which was applied by the Federal Court in this case.
If a Committee of Inspection were to be formed, the Court ordered that it would be allowed to meet by phone or audiovisual conferencing (rather than in-person).
Our thoughts
In making the orders, the Court recognised the highly unusual and practical restrictions on company administrators during the COVID-19 pandemic. It highlighted its desire for the statutory functions to continue as efficiently as possible. It is encouraging that the Court was willing to adopt flexible measures to allow the administrators to comply with their statutory obligations and extend their protection from personal liability due to COVID-19 factors.
However, this decision does not open the floodgates for a permanent relaxing of the usually strict requirements. If you find yourself unable to comply with statutory time limits or need more time to come to decisions before personal liability is incurred, you should consider obtaining Court orders sooner rather than later.
We can assist you to prepare an urgent application seeking relief from the Court.
Further Information
For more information about voluntary administration issues during the COVID-19 pandemic, contact Trevor Withane: