In a land mark decision, the Federal Court of Australia has sought to make inroads toward resolving the widely accepted tension which presently exists between Part 5.3A and Chapter 5C of the Corporations Act when a company, which is the responsible entity for a managed investment scheme, falls into voluntary administration.
On 14 February 2012, the Federal Court of Australia made:
a direction under section 447D of the Corporations Act 2001 (Cwlth) (“Corporations Act”) that the administrators of RiverCity Motorway Management Limited (Administrators Appointed) (Receivers & Managers Appointed) (“RiverCity”) are not “officers” for the purposes of Chapter 5C of the Corporations Act; and
an order under section 447A of the Corporations Act that, until further order, when performing their functions and exercising their powers as administrators of RiverCity under Part 5.3A of the Corporations Act, the administrators may perform their functions and exercise their powers as if sections 292(1), 298(1), 302, 306(1), 314, 319 and 320 of the Corporations Act had no application to RiverCity or the managed investment schemes for which it is the responsible entity.
Mallesons Stephen Jaques, appearing for the administrators of RiverCity, PPB Advisory, submitted that:
the objects and purpose of Part 5.3A of the Corporations Act are paramount in a situation where the responsible entity of a managed investment scheme is placed into administration; and
having regard to the facts and circumstances of the administration, the administrators ought to be relieved from the obligations which would otherwise require them to cause RiverCity to prepare and lodge financial reports for the RiverCity Motorway Group on a consolidated basis.
The Australian Securities & Investments Commission (“ASIC”) appeared as amicus curiae and submitted that Part 5.3A and more particularly section 447A did not apply or confer any jurisdiction in respect of the RiverCity managed investment schemes, which were not subject to any form of external administration.
In his reasons for judgment read out to the Court, Justice Logan repeated the High Court’s sentiments in Australasian Memory Pty Ltd v Brien regarding the wide ambit of the Court’s power under section 447A to make appropriate orders about how Part 5.3A is to operate in relation to a particular company. His Honour also relied on his own comments in ASIC re Storm Financial Limited (Receivers & Managers Appointed) (Administrators Appointed) [2009] FCA 269 regarding the general flexibility which Parliament intended Part 5.3A to have. His Honour decided that section 447A was the appropriate section to grant the relief sought as there was a sufficient nexus with Part 5.3A by virtue of the fact that the administrators were empowered to carry on RiverCity’s business and affairs under Part 5.3A, and in particular, section 437A. His Honour acknowledged that the relief was novel and unprecedented and carefully considered whether in all the circumstances it was appropriate to exercise the discretion.
The evidence before the Court showed, that due to the RiverCity group’s financial position, there were no end users of the financial reports and that to cause the administrators to prepare them would unnecessarily burden the administration with costs for no net regulatory benefit. In the circumstances, His Honour considered that due to the ‘dormant’ status of the RiverCity managed investment schemes, there was no prejudice to their members by granting the relief.
The administrators were also successful in obtaining a direction from the Court under section 447D to the effect that as administrators of RiverCity, they are not “officers” of RiverCity for the purposes of Chapter 5C of the Corporations Act and in particular, section 601FD.
The Honourable Justice Logan considered Justice Finkelstein’s obiter in Norman’s Case [2010] FCA 1274 and the words “unless the contrary intention appears” in section 9 of the Corporations Act in relation to the definition of “officer” (which includes an administrator, a receiver and a liquidator). Having regard to the conflicting duties which would fall on the administrators under Part 5.3A and Chapter 5C of the Corporations Act to creditors and investors respectively if the administrators were held to be officers for the purposes of Chapter 5C, His Honour considered that there was a powerful basis for concluding that a contrary intention existed in Chapter 5C such that an administrator was not to be regarded as an officer for the purposes of that Chapter.
The decision confirms the need for administrators to have regard to the overriding objects and purpose of Part 5.3A and the wide scope of the Court’s power to assist administrators in their role. The decision is also timely given the Corporations and Markets Advisory Committee’s discussion paper dated June 2011 in relation to managed investments schemes and financially distressed responsible entities.
For more information in relation to this decision and its effect, please contact Philip Pan (+61 7 3244 8081) or Luke Bona (+61 7 3244 8065).