This week’s TGIF considers a decision in which the Court held that an administrator who has unsuccessfully defended a proceeding may need to reinstate any remuneration previously received to satisfy the resultant costs order.
The deed administrator of a company subject to a Deed of Company Arrangement (DOCA) rejected proofs of debt submitted by a number of creditors. The creditors successfully appealed against the rejection of the proofs of debt.
An issue then arose concerning whether the deed administrator should personally bear the plaintiffs’ costs.
The general principle is that a liquidator or administrator who is joined to proceedings as a defendant, and who acts appropriately, should not be ordered to pay the successful plaintiff's costs beyond the amount of assets available for the liquidator or administrator to do so.
In this case, the terms of the Deed of Company Arrangement (and a Creditors’ Trust Deed) provided that the deed administrator’s liability to pay a costs order was a ‘disbursement’, ranking in equal priority to other disbursements, but, critically, ahead of the deed administrator’s own remuneration.
Mitchell J noted at the outset that the deed administrator had acted appropriately in defending the proceedings and should not be required to personally pay the costs order. His Honour held that:
- The deed administrator’s liability to pay the costs order was a ‘disbursement’ under the DOCA.
- As the DOCA provided that disbursements payable by the deed administrator had priority over the deed administrator’s own remuneration, the deed administrator was at risk of having to repay remuneration he had previously received to ensure sufficient funding to meet the costs order (and any future disbursements).
- The administrator was aware of the terms of the DOCA and should have framed the decisions he made in the proceeding by reference to those terms. For that reason, it was inappropriate to interfere with the priorities provided for.
This decision demonstrates the importance of deed administrators carefully considering, and acting in recognition of, the priorities created by a DOCA, so as to guard against an outcome where they may have to repay remuneration.