Administrators hit with personal costs after court finds conduct unreasonable in failed club administration

The Federal Court has ordered the administrators of Warringah Bowling Club to personally bear the costs of litigation that ended the club’s voluntary administration, finding that their conduct was unreasonable and partisan in the face of clear evidence that the company was solvent and capable of paying all creditors. Justice Stewart held that the proceeding to terminate the administration only became necessary because the administrators refused to convene the statutory second meeting of creditors despite repeated requests and despite an undisputed funding commitment that would have enabled immediate repayment of all debts.

Warringah Bowling Club, whose assets significantly exceeded its liabilities, had secured a commitment from a lender, FOWB Pty Ltd, to provide sufficient funds to repay all creditors and cover the administrators’ remuneration. The club’s board pressed the administrators to call the s 439A meeting and recommend that the administration end. Instead of seeking specific information necessary to form a solvency view, the administrators focused on what Justice Stewart described as “legacy issues”, including historical tax rulings and questions under the Registered Clubs Act that had no material impact on the club’s current solvency.

Justice Stewart noted that the administrators did not raise any genuine concern about the FOWB funding terms until the final hearing, at which point counsel suggested the Court might want comfort that FOWB would not recall the loan immediately. When that concern was put to the directors, they obtained a 12-month undertaking from FOWB within minutes, removing any doubt about solvency.

The Court found that the administrators’ prolonged investigations, pursuit of a two-week adjournment, and failure to identify or request the information they later claimed to require demonstrated a departure from the essential neutrality expected of administrators. The Court concluded that creditors would likely have voted to end the administration had a meeting been convened promptly, and that the administrators’ conduct alone forced the matter into court.

Justice Stewart applied the established principle that insolvency practitioners may be personally liable for costs where their conduct is unreasonable or contributes to unnecessary litigation. He held that the administrators should not be indemnified from the company’s assets for either their own costs of the proceeding or the plaintiff’s costs, and directed that they pay both personally.

Read the decision here.

Ventry Gray of 13th Floor St James Hall (instructed by Somerset Ryckmans) represented Leo Raymond Macpherson (the chairman of the board).