Question
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28 June 2019

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Bankruptcy & Liquidation
New South Wales

Asked

Debt recovery - Voluntary administration and court proceedings

I am acting for a plaintiff in a debt recovery matter. The defendant failed to file a defence and we are about to file a motion to seek default judgment.

However, the defendant has gone into voluntary administration. How does this affect the court proceedings?

 

Answered

Thank you for the question.

During the administration period a company has the benefit of a moratorium during which creditors are prohibited from commencing or continuing any action against the company to recover debts except with leave of the court: s 440D Corporations Act 2001 (Cth).

Although the courts recognise that there are situations in administration where it would be appropriate to grant leave, such as where the company is insured against the liability the subject of the proceedings, it will be difficult to obtain leave to continue with proceedings.

The position was addressed by the court in Foxcroft v The Ink Group Pty Ltd (1994) 12 ACLC 1063, SC(NSW) in the following terms:

“The provisions of Part 5.3A ... provide that there shall be a complete freeze of proceedings against the company during the administration so that the administrator can have time to assess the situation, and the company’s creditors have an opportunity to work out the net position and adopt an attitude under section 439C which will be in their common interest. To allow one creditor or potential creditor to proceed would not only take the administrator’s attention from what he needs to do under the division in a relatively short period of time, but it would also involve costs in running the legal action ... as well as perhaps giving the claimant some advantage over other creditors ... Accordingly, it seems to me that an application under section 440D will rarely be granted.”

Unless the court grants leave to continue the proceedings, they are to be discontinued.

Regards

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