ERA Legal has successfully protected the subsequent purchasers of intellectual property acquired from the administrators of a company, in proceedings undertaken in which orders were sought to have the subject sale set aside.

It was argued that the sale agreement should be set aside pursuant to section 447E(1) of the Corporations Act 2001 (Cth) (the Act) or 1321 (1) of the Act.  Section 447E(1) gives the Court power to make orders where the Court is satisfied that the administrator has managed the company’s business or property in a manner which is prejudicial to the interests of some of the company’s creditors or members or has acted in such a way that is or would be prejudicial to such interests.  Section 1321(1) provides that a person aggrieved by an act by an administrator may appeal to the Court to reverse or modify the relevant act.

The dispute arose as a result of what became essential

ly an auction between two bidders for the intellectual property.  The plaintiffs were creditors of the company and the unsuccessful bidder for the intellectual property.  The plaintiffs originally claimed that the successful purchaser of the intellectual property was knowingly involved in the administrator’s wrongdoing, however that allegation was abandoned prior to the hearing.

Although the Court’s decision was based on the events which are detailed in the judgment of his Honour Justice Yates in Robit Nominees Pty Ltd v Oceanlinx Limited (in liq) (Receivers and Managers Appointed), in the matter of Oceanlinx Limited (in liq) (Receivers and Managers Appointed) [2016] FCA 225, the Court made the following observations and findings of note:

• The courts are reluctant to interfere with the exercise of power involving business and commercial judgments;

• The administrators in disposing of the intellectual property were not under a duty to obtain “the best possible price” but were entitled to take into account a wide range of considerations;

• In considering the existence or likelihood of prejudice, one is concerned with actual and not theoretical prejudice;

• The administrators tested the market which resulted in effectively only two interested parties;

• Although the unsuccessful offerwas superior to the successful bid in terms of providing a higher return to creditorsr there was a sufficient basis for the administrators to be concerned as to whether the superior offer was capable of completion;

• The administrators pressed for certainty and comfort with respect to the superior offer, which was ultimately not forthcoming;

• The administrators did not want to risk losing the ultimate successful bid which was the subject of a threat of withdrawal and which had been supported with proof of funding;

• The administrators had to weigh up the risk of alternative courses of action and to come to a commercial decision on which course to follow exercising their business judgment;

• No valid criticism could be levelled at the administrators because they proceeded with the ultimate successful bid which was based on a fully funded proposal rather than a competing proposal which had all the appearances of being unfunded;

• There was no evidence to support the position that the acceptance of the unsuccessful bid would have produced  a better return to creditors;

• The plaintiffs failed to establish the sale of the intellectual property involved an act or omission that was prejudicial to their interests.

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