In the recent Supreme Court of New South Wales decision of Mizuho Bank Ltd v Ackroyd, the Court confirmed that proceedings to enforce a guarantee which have already been commenced prior to an administrator being appointed may be continued and will not be stayed by s 440J of the Corporations Act 2001. 

In short, Mizuho Bank Ltd (the Bank) lent National Plant & Equipment Pty Ltd (the Company) the sum of $44,481,375.87, of which $20,040,000 was guaranteed by the director. The Bank commenced proceedings against the director, however the Company had administrators appointed shortly after the proceedings were commenced.

The director brought an application seeking a stay of the proceedings pursuant to s 440J which in summary prevents a party from enforcing a guarantee against a director of a company in administration.

Justice Hammerschlag determined the question of whether s 440J prevents a creditor from continuing to pursue proceedings begun before the administration and ultimately held that the purpose of the section is so that directors are not discouraged from appointing an administrator to the company if, immediately upon the appointment, that guarantee became enforceable. As such, his Honour was of the view that because the section specifically prevents beginning proceedings, that indicates that the legislature did not intend that the continuation of proceedings should be prevented or otherwise affected.

His Honour referred to decision of the Queensland Supreme Court in Bank of Western Australia Ltd v Clift (2010) 80 ACSR 163 as authority for the position that the continuation of proceedings to enforce a guarantee that started prior to the appointment of an administrator did not offend section 440J.

For more information, contact us.