No quorum no problem

A recent judgment shows why it doesn’t have to be difficult to validate an appointment resolution passed without a quorum present.

“In considering an application to validate an administrator’s appointment pursuant to a resolution which is defective for want of a quorum, it is relevant to consider whether the director or directors who purported to make the appointment genuinely held the opinion that the company was insolvent.” Justice Scott Nixon.

In the matter of Topknotz Pty Ltd [2025] NSWSC 522 Jones Partners principal Bruce Gleeson was forced to scramble for orders pursuant to s 447A(1) of the Act confirming that, notwithstanding any non-compliance with s 248F, his appointment on 13 May 2025 as administrator of Topknotz Pty Ltd was valid.

Gleeson was alerted to doubts about the validity of the resolution shortly after being appointed via a resolution of one of the company’s two directors and shareholders on May 13.

Lawyers for the director not present at the meeting wrote to Gleeson advising that “there was not a quorum of 2 directors” at the meeting and in those circumstances the resolution “was not passed in accordance with the law and is void”.

Gleeson commenced a validation proceeding on May 19 and on May 20 the two director/shareholders at odds over the solvency of the company made a deal whereby one of them resigned as a director and assigned to the now sole director both the debt owed to him by the Company and his shares in the Company.

This had the effect of confirming the remaining director’s concerns that the company was insolvent or in danger of becoming so.

It also made it straightforward for NSW Supreme Court judge Scott Nixon to invoke Section 447A of the Act, who said: “In considering an application to validate an administrator’s appointment pursuant to a resolution which is defective for want of a quorum, it is relevant to consider whether the director or directors who purported to make the appointment genuinely held the opinion that the company was insolvent,” the judge said.

“Pursuant to s 447A(1) of the Corporations Act 2001 (Cth) (“Act”), Part 5.3A of the Act is to operate in relation to the Second Plaintiff to the effect that notwithstanding any non-compliance with s 248F of the Act, the First Plaintiff was validly appointed as the voluntary administrator of the Second Plaintiff by a resolution of a director of the Second Plaintiff dated 13 May 2025 pursuant to s 436A of the Act.

Inquorate isn’t the end.