The Federal Court of Australia in KASH Aboriginal Corporation ICN 108 (Administrators Appointed) No 2, held that, in certain circumstances, administrators may be granted protection from personal liability for debts incurred as part of the administration of a corporation.
KASH Aboriginal Corporation operated a drug and alcohol recovery and rehabilitation facility, specifically for indigenous persons. In May 2012, it went into voluntary administration. The administrators commissioned a health and safety report which found that the sewerage treatment system required urgent repair.
The corporation was unable to obtain funds on the open market and the administrators therefore proposed that the corporation enter into a loan and mortgage agreement with a company associated with the administrators. The administrators sought authorisation from the Court to proceed in this way on the basis they would not become personally liable for the resulting debt.
The orders were granted. The Court held that as the repairs were necessary, the need for finance was urgent, and there was no personal benefit to the administrators, the administrators were therefore entitled to protection from personal liability for the loan. Additionally, the financial position of the corporation meant that any practical right the administrators had to an indemnity from the assets of the corporation was likely to be illusory.
See Court decision here.