Adjourning a winding up application

Recently, in Minister for Environment v Eclipse Resources Pty Ltd (Administrator Appointed) ¹ (click here for the decision), Master Sanderson adjourned a winding up application to enable a DOCA proposal to be put to creditors, even though the administrators were appointed a year after the winding up application began.

Facts

On 30 September 2016, the Minister for Environment (Minister) filed and served an application to wind up Eclipse Resources Pty Ltd (Eclipse).

On 27 September 2017, Eclipse’s directors appointed an administrator to Eclipse.

On 10 October 2017, the administrators received notice of a possible deed of company arrangement (DOCA) proposal.

On 11 October 2017, Eclipse’s administrator filed an application pursuant to, relevantly, section 440A(2)² of the Corporations Act³ to adjourn the winding up application.

Following evidence of:

• the details of the possible DOCA proposal including that the proponent of the DOCA had the financial capacity to complete the transaction proposed; and
• possible voidable transactions that could be valued up to $200m,

the Master made orders adjourning the winding up application over “strenuous objection” from the Minister’s counsel to enable the DOCA to be put to the creditors.

Decision

The Master, at [8] of his reasons, held that section 440A(2) requires:

an evaluation by the court as to whether it is ‘in the interests of the company’s creditors for the company to continue under administration rather than be wound up’.

The party seeking the adjournment is responsible for satisfying the court that the adjournment is in the interests of the creditors.

The Master stated, at [9] of his reasons, that it was clear that there was a real prospect of Eclipse entering into the DOCA and that it seemed in the interests of Eclipse’s creditors to allow the administration to continue.

The Master also made reference to the object of part 5.3A of the Corporations Act which is:

• to provide for an insolvent company to continue in existence; or
• to provide a better return for the company’s creditors and shareholders than a liquidation.

The Master stated, at [18] of his reasons:

What is striking about the administration process is the extent to which it allows the company’s directors, its shareholders, the administrator and the creditors, both secured and unsecured, to determine what will happen to the company.

Lavan comment

Despite the fact that:

• Eclipse had taken the time to exhaust its rights of appeal in relation to the underlying judgment;
• the administrators were appointed almost 12 months after the winding up application was filed; and
• evidence was put forward by both parties that Eclipse was clearly insolvent,

the Master, with reference to section 440A(2) and the object of part 5.3A of the Corporations Act, made orders adjourning the winding up application to allow the DOCA proposal to be put to creditors.

Whilst directors should be cautious when appointing administrators after a winding up application has been filed, if the directors can demonstrate that an alternative could result in a better return to creditors, the courts may adjourn the winding up application to enable the administration to continue.