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Court confirms its broad power in voluntary administrations

24 May 2012

​The High Court has confirmed its broad power to bypass the strict legislative requirements that otherwise govern voluntary administrations.  Section 239ADO(1) of the Companies Act allows the Court to make any order that it thinks appropriate about how the voluntary administration provisions of the Companies Act are to operate in relation to a particular company. 

Significantly, the Court has confirmed that it may use the section to override the legislation in relation to a particular company.

The creditors of Hartland Construction Limited initially applied for orders putting Hartland into liquidation.  The directors subsequently sought to appoint a voluntary administrator.  However, they were outside of the 10-working day time limit to do so.  To get around this stumbling block, the Court relied on its broad power under section 239ADO to grant leave to appoint an administrator.  The Court considered that voluntary administration would be in the best interests of the company and its creditors, by improving the company’s chances of continued existence, or providing a better outcome than liquidation.

The Court’s decision emphasises that the Court can and will go beyond strict legislative restrictions on voluntary administration if it is in the best interests of creditors to do so.  Voluntary administration is an insolvency process not often used in New Zealand (unlike Australia), and it is encouraging to see the Courts taking a flexible approach that promotes its use.

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