Insolvency practitioners are well aware of the power of directors to appoint an administrator to a company.  However, the question of whether a non-director has the power to make such an appointment is less clear.

The recent case of Ross Ingram and anor as joint and several administrators of GNC Homes P/L (admin apptd) v GNC Homes P/L (admin apptd) shows that in certain circumstances the answer to this question is yes.

In this case, the court held the appointment of administrators to be valid notwithstanding a finding of fact that, prior to the administrators appointment, the sole director who appointed the administrators had been removed as a director by the shareholders of the company

In the particular circumstances of the case, the shareholders asserted that they had passed a resolution removing the sole director and that as a result the appointment of the administrator was invalid.

In dismissing the challenge, the court raised concern with:

1. that there was doubt as to the date when the resolution removing the sole director was actually passed;
2. the sole director had not been notified of his removal;
3. ASIC had not been notified of the removal; and
4. between the date of the apparent resolution concerning the sole director’s removal and the appointment of the administrators, the  sole director had continued to conduct the company’s affairs as if he were the sole director.

The court held that the administrators were entitled to rely on s.128 of the Corporations Act (the Act) which permitted them to presume that the sole director recorded on the ASIC record was duly appointed and had authority to act as a director at the time of the appointment.

In the particular circumstances of the case, the court noted that the company was hopelessly insolvent, and that even if the court was mistaken as to the the administrator’s entitlement to rely on s.128 of the Act, the court would have validated the appointment under s.447A of the Act. In the circumstances of the case, the court did not feel it was necessary to formally validate the appointment in this way.

This decision is a reminder to shareholders to ensure that any resolutions removing directors are promptly notified to ASIC in the ordinary course, and even more importantly when a company may be facing a solvency crisis.

For more information please contact ERA Legal.