In the matter of Ethan Minerals Limited (Administrators Appointed) [2011] NSWSC 899

Supreme Court New South Wales

Medium Neutral Citation: In the matter of Ethan Minerals Limited (Administrators Appointed) [2011] NSWSC 899 Hearing dates: 25 July 2011 Decision date: 25 July 2011 Jurisdiction: Equity Division - Corporations List Before: White J Decision: Make orders 3, 4, 5, 6 and 8 of the originating process. Exhibit BT1 of Mr Tonks' affidavit may be returned . Catchwords: CORPORATIONS - voluntary administration - application under Corporations Act 2001 (Cth), s 447A for order curing defect relating to appointment of voluntary administrators - where administration initiated by two directors of public company required to have at least three directors - where direction resigned due to concerns as to appropriateness of appointment of voluntary administrators to the company - second meeting of creditors - extension of convening period - extension of time in interest of creditors generally Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Darin Re Palamedia Limited [2010] NSWSC 451 Category: Principal judgment Parties: John Vouris & Bradley Tonks as Administrators of Ethan Minerals Limited (Administrators Appointed) (Plaintiffs) Representation: J Darams (Plaintiffs) Eakin McCaffrey Cox (Plaintiffs) File Number(s): 2011/240528

Judgment 1HIS HONOUR: This is an ex parte application. The plaintiffs were purportedly appointed as voluntary administrators of Ethan Minerals Limited on 1 July 2011. The plaintiffs first seek an order pursuant to s 447A of the Corporations Act 2001 (Cth) to cure any defect relating to their appointment. 2The issue arises from the fact that as at 1 July 2011, shortly before a purported resolution that the plaintiffs be appointed as administrators was passed, the company had three directors. Being a public company, it is required to have at least three directors (s 201A(2)). 3A telephone meeting of the three directors was convened for 1 July 2011 to discuss the appointment of voluntary administrators to the company. One of the directors, a Mr Douglas O'Neill, expressed his concerns as to the appropriateness of that appointment. The other directors indicated that they would be voting in favour of the appointment of administrators to the company. Mr O'Neill immediately tendered his resignation as a director. The other directors then purportedly resolved as directors to appoint the plaintiffs as voluntary administrators of the company. They were then in a difficult position. 4Clause 13.5 of the company's Constitution provides that the directors may at any time appoint a person to be a director to fill a casual vacancy or as an addition to the existing directors. Clause 15.3 of the Constitution provides for a quorum to comprise two directors or such greater number as determined by the directors. 5There may be a question as to whether the directors could have exercised a power under clause 13.5 to appoint a person as a director to bring the number of directors up to three. Assuming, without deciding that that power exists, there would be a real question as to whether a person could be persuaded to assume that office if told by the remaining directors that in their view the company was or was expected to become insolvent. 6In Darin re Palamedia Limited [2010] NSWSC 451, Barrett J held in a case very similar to the present that there is power under s 447A to deem the appointment of voluntary administrators to be valid both where there is not a quorum and where, in the case of a public company, the number of directors falls below three. 7Had Mr O'Neill not resigned, the resolution appointing the plaintiffs as voluntary administrators would have been effective. I do not think that his precipitate resignation should be permitted to affect adversely the position of the company and its creditors. 8Clearly, the remaining directors were of the view that the appointment of voluntary administrators was a preferable course to seeking an appointment of a provisional liquidator. There is no evidence of anyone having objected to the plaintiffs seeking an order for validation of their appointment. A committee of creditors has been established. No one on that committee has challenged the plaintiffs' appointment. Indeed, the committee has voted unanimously in favour of an extension, as sought, of the time for the convening of the second meeting of creditors. In the circumstances, I will make the orders under s 447A. 9So far as the extension of the time for convening the second meeting of creditors is concerned, one has to balance the interests of creditors in a speedy administration with allowing the administrators sufficient time to investigate the company's financial position and to deal with persons who might propose a deed of company arrangement and to negotiate terms. 10I am satisfied on the evidence of Mr Tonks that an extension of time is in the interests of creditors generally. The resolution of the committee of creditors indicates that members of the committee are also of that view. 11For these reasons, I make orders 3, 4, 5, 6 and 8 of the originating process. Exhibit BT1 of Mr Tonks' affidavit may be returned. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 August 2011