Ousted deed administrators denied indemnity

Lowe Lippmann partner Gideon Rathner

If a full bench of the Federal Court of Appeal has ruled that creditors were misled, it’s a fair bet that when the costs of the resultant litigation come to be determined, indemnities will be endangered.

In circumstances were that same full bench also found that the architects of the creditors’ nescience were less than forthcoming in submissions to the primary judge whose decision was subsequently overturned well, all bets are off because this is a sure thing.

“The aide memoire provided to the primary judge and the submissions made in reliance upon it led the primary judge into error.” FCA Justices Farrell, Cheeseman and Feutrill.

Last week the Federal Court of Appeal delivered the hammer blow to any hopes the former deed administrators of Toddler Kindy Gamaroo Pty Ltd (Toddler Kindy) had of being insulated from adverse costs orders.

Having earlier ordered that the Toddler Kindy DoCA be terminated, that the company be wound up and Deloitte’s Rob Wood and David Mansfield be appointed liquidators, the appeals court has ordered that the recently ousted deed administrators pay appellant creditor Sino Group International’s (SiNO) costs in two sets of proceedings and be indemnified in neither.

Barring any successful challenge, Gideon Rathner and Matt Sweeney will need to dig deep.

iNO does not suggest any wrongdoing in respect of the impugned report to creditors. The Melbourne-based practitioners did not respond to requests for comment by iNO’s publication deadline.

Much however can be gleaned from the public record, as is outlined in Sino Group International Limited v Toddler Kindy Gymbaroo Pty Ltd [2022] FCA 630 where Sino was at first instance unsuccessful.

The creditor had originally sought to have the Rathner and Sweeney removed as administrators. That issue was dismissed with costs reserved once the Toddler Kindy DoCA was executed. Sino then applied to have the DoCA terminated and the remuneration paid to Rathner and Sweeney in the capacities as administrators reviewed.

An appeal was filed and on July 14 this year judgment was delivered this time in Sino’s favour in Sino Group International Limited v Toddler Kindy Gymbaroo Pty Ltd [2023] FCAFC 110.

The parties returned to court on July 18 where much of the argument centred on where responsibility for costs lay and whether Rather and Sweeney should be deprived of their right of indemnity in their capacities as deed administrators.

“The costs of the DOCA termination aspect of the proceedings can be attributed to the conduct of Messrs Rathner and Sweeny (acting as Administrators) that resulted in execution of the DOCA and, then, acting as Deed Administrators, in the defence of proceedings that were highly likely to end in the DOCA being set aside or terminated,” the court of appeal said.

“Where an administrator chooses to defend his conduct (as he or she is fully entitled to do) and the challenge is successful, it would be an odd result that an administrator is able to do so at the expense of the company, or more accurately its creditors.

“Unless the Deed Administrators are denied their claim to be indemnified, the Sino Creditors, even though successful in obtaining an order for their costs, would end up bearing part of those costs in the form of a reduced return to all creditors in the winding up.”

Further reading:

Appeals court finds 530A Report “misleading”

1 Comment on "Ousted deed administrators denied indemnity"

  1. james Johnson | 4 August 2023 at 11:03 am | Reply

    Whilst it may be said that an External Administrator not appointed by the court is not in a technical sense an “officer of the court” the court continues to regard as a matter of practice that an External Administrator whenever appearing even in adversarial proceedings will do so in a manner to assist the court in the final determination of matters. The statements in the judgement appear to reinforce this expectation.

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