Limits on the assignment of rights by liquidator

In Keith v Verge [2009] WASC 338 (19 November 2009), Sanderson M considered an appeal under s 1321 by a creditor who wished for the liquidator to assign rights to bring actions under Pt 5.7B Div 2 and 3. The company had been fully wound up but an extension of time had been obtained for ASIC to deregister the company.
The court rejected the application on several grounds:

a) s 588M(3) prescribes the only way that creditors may pursue an insolvent trading action because it uses the term 'but not otherwise' (see at [19])

b) s 588FI demonstrates a policy for the voidable transaction provisions to put the company in a position as if the transaction had not been entered into. If an assignment of the right to sue were allowed then the creditor will end up paying the assignee and not the company and so would not have returned the company to its position prior to the transaction, and the creditor could not comply with s 588FI in order to prove in the winding up (see at [18]):

"The aim of the preference provision is for the preferred creditor to 'put the company in the same position as if the transaction had not been entered into'. That is clear from s 588FI(1)(b). Section 588FI(3) then entitles the preferred creditor to prove in the winding up as if the transaction had not been entered into. If a preference claim could be assigned by a liquidator to a third party and was successfully pursued by the third party, then the company will not have been put back in the same position as if the transaction had not been entered into. The preferred creditor will then have been compelled to pay under the preference claim but will be denied the benefit of proving in the liquidation under s 588FI. On this view, an assignment of a preference claim would be inconsistent with s 588FI."

Does the deed administrator have power to sell the asset?

The recent decision in Correa v The Spanish Club Ltd [2009] NSWSC 1225 considers an important point concerning the power of deed administrators to sell assets in order to achieve the purposes of the DOCA. Brereton J granted an interlocutory injunction to prevent the DOCA administrator from selling the company's property without obtaining the approval of the members of the company.
Facts
The Spanish Club Ltd owned 2 properties in Liverpool St Sydney when it entered voluntary administration. The Spanish Club was bound by the Registered Clubs Act 1976 (NSW) s 41J to obtain member approval for any sale of the club's 'core property' (as defined in s 41J). The Club entered voluntary administration and then the creditors agreed to a DOCA proposal that aimed to return the Club to profitability (so not a de facto winding up DOCA-it had a surplus of assets over liabilities but was technically insolvent).
The DOCA specified that member approval was required for the sale of core property (as per s 41J), and that a proposed sale of non-core property should be put to vote by the members but the deed administrator was not bound by the outcome (in respect of non-core property). The administrator proposed to sell both core and non-core assets in one transaction without the approval of the members (as required under the DOCA) which was voted down by the members. The deed administrator obtained a determination by the relevant state Minister that a sale by an administrator did not require compliance with s 41J as Sch 8A gave the administrator the statutory power to sell and would overcome any state law limitation to the sale.
Correa (a member of the Club) applied for an injunction to stop the proposed sale relying upon s 447E.

Issue
Should the deed administrator be stopped from proceeding with the sale against the members' wishes?

Outcome
The Court granted an interlocutory injunction preventing the sale from going ahead (with Correa offering an undertaking as to damages).
There are several key points to take from this case:
1) the protection of members' interests over the wishes of the major creditor-this came from the wording of the DOCA which provided for member votes on proposed asset sales.
2) the recognition that the powers of the deed administrator come from the DOCA, and a DOCA is not the same as a VA.
and most importantly
3) the purchaser was on notice of the limited power of the deed administrator by the fact that the company was stated to be subject to a DOCA (at [26]):
"It also seems to me at least seriously arguable that such a sale is beyond the authority and capacity of the deed administrator, since clause 5.1 imposes limitations on the administrator’s powers of sale, and it is at least seriously arguable that the purchaser would be on notice of any such want of authority – since it is plain on the face of the contract, that the company was subject to a company arrangement, so that the purchaser would be on notice of the contents of the deed of company arrangement and the restrictions it places on the administrator’s powers."