Australian court validates administrator appointment despite challenge over director’s insolvency opinion

The Federal Court of Australia has confirmed the validity of the appointment of Alan Walker of WLP Restructuring as voluntary administrator of Rock Solid Mining Services Pty Ltd, rejecting concerns raised by a shareholder and former director that the company’s sole director may not have genuinely formed the insolvency opinion required to commence administration.

Rock Solid operated primarily as a holding company for all of the shares in Cue Consolidated Mining Pty Ltd, which holds 24 gold mining tenements in the Cue region of Western Australia. The company had only about $4,400 in cash when Walker was appointed, had not prepared financial statements since its incorporation in 2017, and had failed to lodge tax returns with the Australian Taxation Office.

The dispute arose after shareholder and former director Paul Martino, later substituted by Martino International Consulting Pty Ltd, commenced proceedings seeking to restrain Walker from taking steps in the administration, including disposing of Rock Solid’s assets. Walker responded by seeking urgent orders declaring his appointment valid, or alternatively orders under section 447A modifying the operation of Part 5.3A of the Corporations Act so the administration could proceed as if he had been validly appointed.

The challenge focused on whether Luke Connor, Rock Solid’s sole director and secretary at the relevant time, had genuinely formed the opinion required under section 436A that the company was insolvent or likely to become insolvent. The Court accepted that this was a proper ground of doubt for the purposes of section 447C, since an administrator’s appointment will be invalid if the relevant director did not hold the insolvency opinion, or did not hold it genuinely or in good faith.

However, the evidence supported the appointment. The instrument appointing Walker was signed by Connor as sole director and secretary. The company’s minutes recorded resolutions that, in Connor’s opinion, Rock Solid was insolvent or likely to become insolvent at some future time, and that Walker should be appointed administrator. Justice Vandongen treated those minutes as prima facie evidence of the matters recorded in them under the statutory provisions governing corporate books and records.

Although Martino had raised several allegations about Connor and the administration, including doubts about whether the required insolvency opinion had been genuinely formed, the Court found there was no evidence that Connor lacked the required opinion or acted other than in good faith. No submissions were made in opposition to Walker’s application, and Justice Vandongen’s independent review of the record did not identify any evidentiary basis for invalidating the appointment.

The Court therefore declared that Walker’s appointment as administrator was valid because the preconditions in section 436A had been satisfied. Walker’s costs of the proceeding were ordered to be costs in the administration.

Read the decision here.

Patrick Mackenzie of Quayside Chambers, counsel, and McCullough Robertson Lawyers, solicitors, acted for Alan Walker of WLP Restructuring as voluntary administrator of Rock Solid.