Where an application is brought under section 447A of the Corporations Act 2001 (Cth) (Act) for the removal of administrators appointed pursuant to section 436C of the Act, indemnity costs may be awarded where the grounds for the application are not sufficiently substantiated.
Section 447A of the Corporations Act 2001 (Cth)
Under the Act the Court is vested with the power to end the administration of a company in certain circumstances. Section 447A provides:
(1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.
(2) For example, if the Court is satisfied that the administration of a company should end:
(a) because the company is solvent; or
(b) because provisions in this Part are being abused; or
(c) for some other reason;
The Court may order under subsection (1) that the administration is to end.
In order to enliven s447A, the plaintiff bears the onus of establishing that the Company is solvent.[1] A company is presumed insolvent where there is a failure to comply with a statutory demand, and so to rebut that presumption, the plaintiff must present the “fullest and best evidence of the financial position of the company”.[2] If a party fails to adduce evidence, an adverse inference will be formed of the litigant and it shall result in a “hopeless case”.
Recent application in the Supreme Court of Western Australia
Pragma recently acted for the Defendants in the Supreme Court decision of Gold Valley Iron v Albarran.[3]
The Defendants were appointed as administrators of GVI pursuant to s436C(1) of the Act by a creditor of the company.
The Plaintiff then brought an application under s447A on 20 February 2020 seeking:
(1) the removal of the administrators;
(2) termination of the administration of GVI;
(3) interim directions and injunctions as to the conduct of the administration pending the final determination;
(4) costs; and
(5) such further orders the Court see fit.
The application was dismissed as the plaintiff could not fulfil the evidentiary requirement to prove their claim of solvency.
The Issue of Costs
As a result, the Second Defendant and the Second Intervenor sought indemnity costs.
The decision relating to the costs issue was handed down on 20 August 2020. The Court awarded full indemnity costs to the Defendants and the Second Intervenor.
His Honour Curthoys J remarked: “I am satisfied that an indemnity costs order will constitute an appropriate sanction marking the disapproval of improper or unreasonable conduct by the plaintiff in persisting with a hopeless case”.
If you require any assistance in relation to indemnity costs, please contact us on (08) 6188 3340 or by email to aaron@pragma.law.
[1] Flynn v Theobald [2008] WASC 263 [64].
[2] Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWCA 163; (2003) 45 ACSR 711 [16].
[3] Gold Valley Iron and Manganese Pty Ltd v Albarran [2020] WASC 297.
