Administrators now have the power to transfer shares in the absence of shareholders’ approval pursuant to Sec.444GA of the Corporations Amendment (Insolvency) Act 2007 (Amendment Act) (the Act).
Before the advent of Sec.444GA, an earlier case cast doubt on the ability of the Act to empower an administrator to exercise his powers against shareholder disapproval in selling their shares.
SECTION 444GA
Sec.444GA (1) and (3) provide that an administrator may transfer shares if he has obtained approval from either the owners of the shares in writing or from the court. The court will grant permission where it is satisfied that the interests of the members are not unfairly prejudiced by the transfer.
Midwest Vanadium Pty Ltd v Noble Resources Ltd [2010] WASC 182
In this recent case, it was held that shares can be transferred by an administrator provided:
- prior approval of the shareholders or
- leave of the court was obtained.
THE COURT’S DECISION
- The court will exercise its discretion in granting permission to the administrator where it is satisfied that the transfer would not be inequitable and unfairly prejudice the interests of shareholders.
- The section does not itself provide any guidance beyond the broad test of ‘unfairly prejudice.’
- Courts must also consider the impact of a forced transfer on shareholders where there may be some residual value in the company. Where the shares have no value or if the members are unlikely to receive any distribution in the likelihood of liquidation, for instance, then the effect of unfair prejudice is ruled out.
- On the other hand, a simple transfer of shares without reciprocal compensation will not give rise to unfair prejudice.
BALANCING ACT?
Midwest Vanadium highlights the importance courts will place on securing the interests of members of a company. It also shows that courts will consider these members in their own capacity and not as creditors; and will also look at the interests of all other shareholders.
The legislators recognize the benefits of this section to both administrators and creditors. At the same time it is mindful of the opportunity of unethical practices. Therefore, it is mandatory for the administrator to seek prior approval of the shareholders or leave of the court.