Corporate Law: Options Available to an Administrator for a Company in Financial Distress

Running head: CORPORATE LAW
CORPORATE LAW
Name of the Student
Name of the University
Author Note

1CORPORATE LAW
Issue
Darwin Soil and Water Testing Pty Ltd is a company owned by Ravi who is the sole
shareholder and director. The company was incorporated in 2016 and reported a good profit at
the end of the year. This was mainly due to the growing global environmental concerns which
made companies carrying on these business activities increasingly popular. When incorporating
the company Ravi sold the sole-trader business (the previous business structure of the company)
to the company at an inflated price and loaned the company $90,000 in the same process. This
loan was secured against a plot of land that was owned by the company. The company’s primary
contractor was the Department of Defense who since 2017 decided to employ internal personnel
for soil and water testing. Due to this the company suffered a rapid fall in revenues earned by the
company. Ravi was aware of the company’s financial stand and predicted that the company
would soon become insolvent. This lead to the appointment of an administrator for the affairs of
the company. The administrator assessed that the total assets of the company were $95,000 and
the total debts of the company amounted to $210,000. This included Ravi’s debt as the sole
secured creditor. The issue here is to determine the options available to the administrator and the
amount that will be paid to the unsecured creditors at the end of the administration process.
Rule
Corporations functioning within the jurisdiction of the Australian commonwealth are
governed by the provisions of the Corporations Act, 2001 (Coffee, Sale and Henderson 2015).
The act defines and regulates the functioning of companies and provides for its debts and
liabilities in case the company needs to be wound up. Part 5.3A of the Corporations Act, 2001

2CORPORATE LAW
deals with Administration of a corporation’s affairs with the view of executing a deed of
company arrangement (Bottomley 2016). This is the part that provides for the appointment of an
administrator for the affairs of the company and the options available to the administrator so
appointed.
Section 436A of the Corporations Act, 2001 deals with the concept of the appointment of
an administrator and provides that in case a company is or will evidently become insolvent an
administrator maybe appointed to take care of the affairs of the company (Hiller 2013). In such a
case a company does not go into liquidation and has a chance of revival through the acts of the
administrator. In this case the company itself appoints an administrator. As per Section 436C of
the Corporations Act, 2001 a person who can claim an enforceable secured securities interest in
the company can appoint an administrator for the company in case the company is or will
evidently become insolvent (Hanrahan, Ramsay and Stapledon 2013). Section 436DA (2) of the
Corporations Act, 2001 provides that when such an administrator is appointed by virtue of the
provisions of this part of the act, the administrator must issue a formal declaration of the
indemnities and relationships that the company owes or are owed to the company (Sealy and
Worthington 2013). Refraining from making such a declaration would place the administrator in
breach of the provisions of the Corporations Act, 2001.
An administrator so appointed under the provisions of Part 5.3A of the act is also tasked
with the responsibility of holding the first creditors meeting (Hannigan 2015). This meeting is
when the indemnities and the liabilities of the company are discussed and the strategies to be
employed to discharge these liabilities are formulated. The time and purpose of such a meeting is
defined in the provisions of Section 436E of the Corporations Act, 2001 (McQueen 2016). This
section mandates that the meeting so defined must be held within 8 days from the date of