SPOTLIGHT ON LAW: CASE COMMENTARY ACCEPTING AN APPOINTMENT AS ADMINISTRATOR

The appointment of a Voluntary Administrator to a company is a serious development.  Creditors and the public at large, are entitled to know that the process for the appointment is sound, scrutiny is applied to ensure the appointment is for the correct purpose and reflects the standards applied to the insolvency industry.   

The cases relating to this matter will be of interest to directors and potential appointees. This issue was considered in the recent case Patel v Pleash, which was decided in February 2025. 

The Facts

Mr Patel and another were directors of Jubilee Infrastructure Pty Ltd, which was the owner of a property in South Australia.  In early 2022, the Directors sought funding to purchase and develop the Property.  They signed a Brokerage Agreement with a broker iLend, on the basis iLend would source finance for Jubilee of around $12M, to fund the development.  iLend would be paid a brokerage fee.   Securing the Brokerage included providing security.

Ultimately, a loan offer was made of a much lesser sum, and at higher rates than those in the agreement.   That offer was rejected by the Directors.  In October 2022 Jubilee was informed that it defaulted in the payment of the brokerage fee and iLend registered an ALLPAAP.  In December 2022 iLend appointed an Administrator under section 436C of the Corporations Act.

On 16 December 2022, the Federal Court ordered the administration of Jubilee to be ended.  However, the Case as ultimately determined in February 2025 in relation, amongst other matters, costs.

Decision

The Court held (a) iLend did not perform its obligations under the Brokerage Agreement and was not entitled to the fee and (b) iLend did not have an enforceable security interest against Jubilee and could not appoint an administrator.  
While the case largely concerned the conduct of iLend and its Director, in considering the role of the Administrator in his appointment, Cheeseman J commented that:

• The requirement for consent from a liquidator experienced in insolvency and regulated by ASIC, is an important guardrail on a secured creditor’s ability to appoint an administrator under section 436C.
• The Administrator should exercise care to satisfy themselves that the power under section 436C was being deployed for a proper purpose before consenting to the appointment. 
• An administrator’s function includes to taking reasonable steps to be satisfied, based on the information available to the administrator, that the appointor is entitled within the confines of section 436C to make the appointment before consent is given to accept the appointment.
• In this case, the appointment of the administrator was a debt-recovery strategy inconsistent with the purpose of Part 5.3A and was an abuse of process by iLend.
• iLend engaged in unconscionable, misleading or deceptive conduct by misrepresenting the nature of the brokerage agreement, and the enforceability of security interests. However, the Administrator should have been satisfied that iLend was a creditor with a debt that was payable and properly secured over Jubilee's property.   
• The Administrator agreed that before accepting the appointment, it was incumbent upon them to form their own view as to whether there was a relevant current security interest which was enforceable.

The Judgement can be found here Patel v Pleash [2025] FCA 77

Paragraph 121: In the context of an appointment under s436A, it has been recognised that an administrator has an obligation to take some steps to satisfy themselves as to the validity of their appointment, at or immediately after the time of their appointment.  There are however limits on the administrator’s obligation in this regard…. By contrast, if it is “as plain as a pikestaff” that the appointment is for an extraneous purpose, the administrator would fail to discharge their responsibilities by accepting the appointment.

Paragraph 125:  Paragraph 125:  In construing s436C, it is relevant to take into account the whole of the context. That context includes the object of Part 5.3A as set out in s435A, the significant impact that the appointment of an administrator may have on a company’s fortunes … Viewed in this context, the administrator’s statutory function under s436C extends to taking reasonable steps to be satisfied based on the information available to the administrator that the appointor is entitled within the confines ofs436C to make the appointment before consent is given to accept the appointment.