Federal Court Finds Administrators Personally Liable For Costs In Delaying Second Meeting Of Creditors

This week's TGIF considers the recent Federal Court decision of Macpherson v Warringah Bowling Club Ltd (No 2) [2025] FCA 1555 concerning the personal liability of voluntary administrators for the costs of unsuccessful legal proceedings.

Key takeaways

• Administrators will only be personally liable for unsuccessfully defending a claim in "exceptional circumstances" where they have opposed relief unreasonably, unnecessarily or dishonestly.
  
• Administrators who persevere with the 'usual course' of an administration where a change in circumstances renders the company solvent may be acting unreasonably.
  
• In deciding whether an administration should end, a key consideration for Administrators is whether the interests of the creditors and the company are best served by a swift resolution.

Background

In August 2025, the Warringah Bowling Club (the Club) placed itself into voluntary administration after the Commissioner of Taxation issued a number of penalty notices to the directors. During the administration, the Administrators formed the view that the value of the Club's assets would exceed the debts incurred by the Club.

Meanwhile, a number of investors friendly to the Club incorporated FOWB Pty Ltd (FOWB) as a special purpose vehicle which would act as a 'white knight' to pay out the secured and unsecured debts of the Club and advance enough capital to ensure its continued operation.

On 4 November 2025, the chairman of the Club's board of directors, Mr Macpherson, wrote to the Administrators to outline the arrangement with FOWB and to formally request the Administrators convene the second creditors meeting and recommend the voluntary administration be ended. Mr Macpherson explained that, with FOWB's financial backing, the Club would be solvent and in a position to pay its debts.

The Administrators advised they would consider the letter only after meeting with the directors to assist in their investigation into the "quantum of creditors" and the "ongoing trading". The Administrators advised that the meeting with the directors was part of their normal investigations.

During November, Mr Macpherson sought to convince the Administrators that the voluntary administration was no longer necessary and expressed his concern at escalating costs being incurred due to the continuing administration.

In late November, Mr Macpherson applied to the Federal Court for urgent relief to order the end of the voluntary administration. The Court was satisfied that the Club was solvent with the backing of FOWB and ordered the end of the voluntary administration.

The issues

Mr Macpherson requested the Court make the Administrators personally liable for the costs of the proceeding and to deny indemnity from the Club's assets.

Mr Macpherson argued the Administrators had acted unreasonably in delaying the second creditors meeting, which would have ended the voluntary administration. Mr Macpherson submitted it was only because of this delay that the application to the Court had been necessary.

Decision

The Court accepted that an Administrator who unsuccessfully defends an action on behalf of a company in administration will only be made personally liable for costs in "exceptional circumstances", being where the opposition to the relief was unreasonable, unnecessary, or dishonest. There was no suggestion of dishonesty in this case, so the question was whether the Administrators' conduct was unreasonable or unnecessary.

The Administrators had formed the view early in the administration that the Club's assets outweighed its liabilities. The Court noted other lines of investigation pursued by the Administrators over a private tax ruling and a potential contravention of the Registered Clubs Act 1976 (NSW) could not have caused them to reach a different understanding. At the beginning of November, the Administrators were aware the Club had the funding to pay all secured and unsecured creditors and continue solvent trading.

The Court stated whether the Administrators were simply misguided as to their responsibilities, blindly resolute in sticking to the 'usual course' of administrators' investigations and so unresponsive to new circumstances, or knowingly racking up unnecessary fees, did not ultimately matter.

Instead, the key point was that once the FOWB funding became available, it was in the Club's and the creditors' best interests to swiftly end the Administration.

In delaying the second creditors meeting and the end of the administration, the Court found the Administrators had acted unreasonably. In those circumstances, they were denied their right of indemnity from the Club's assets and made personally liable for Mr Macpherson's costs.

Comment

Administrators should be careful to respond appropriately to the changing conditions of a company under administration, particularly where new sources of funding become available which may mean an ongoing voluntary administration process is no longer in the interests of creditors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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