By Ariel Borland, Partner, and Dean Brayley, Associate 

The decision of Glenfyne Farms International AU Pty Ltd (in liquidation) [2019] NSWSC 161 is a helpful reminder of when an external administrator can and cannot use their casting vote in relation to a resolution concerning their removal. This position can be contrasted with the prohibition of the use of a casting vote by an external administrator in remuneration resolutions.

Background

Mr Gladman was appointed as administrator of Glenfyne Farms International AU Pty Ltd. At the second creditors meeting, Mr Thai (being a 49% shareholder, former director and the major creditor) proposed that Jason Porter and Fabian Micheletto be appointed as liquidators to replace Mr Gladman.

The resolution to appoint Mr Porter and Mr Micheletto was voted upon, lost on the voices and a poll taken. The result of the poll was as follows:

Accordingly, the vote was deadlocked. Mr Gladman purported to exercise his casting vote against the resolution, and advised that the resolution did not pass. 

Mr Tai made an application under section 75-43 of the Insolvency Practice Schedule (Corporations) (IPS), being Schedule 2 to the Corporations Act 2001 (Cth), seeking that the resolution be passed and that Mr Porter and Mr Micheletto be appointed liquidators. 

Use of casting vote

Section 75-115 of the Insolvency Practice Rules (Corporations) 2016 (IPR) set out when an administrator is entitled to exercise a casting vote. If there is a deadlock and the resolution relates to the removal of an external administrator:

1. the external administrator may exercise a casting vote in favour of the resolution, in which case the resolution is passed; or
2. the external administrator can abstain from exercising his casting vote, in which case the resolution is not passed.

The external administrator cannot exercise his casting vote against the resolution to remove them, however unless they use their casting vote to remove themselves, the result is effectively the same in that they will not be removed.

Accordingly, the Court found that there was no basis for an application under section 75-43 of the IPS, as that section requires that the resolution is not passed because the person presiding at the meeting exercises a casting vote, or refuses or fails to exercise a vote. In this case, the resolution failed not because Mr Gladman either exercised his casting vote, refused to exercise his casting vote or failed to exercise his casting vote, it failed because he was unable to exercise his casting vote. Accordingly, the Court considered that such an application by Mr Tai was ill-founded.

Takeaways

This case is a useful reminder of the changes made by the IPS and IPR, particularly in relation to the use of casting votes by external administrators.

It is important to remember that when resolutions are made proposing the removal of an external administrator, while they cannot use their casting vote to vote against their removal, if they abstain from voting, the position will effectively be the same as the resolution will not pass.

In contrast, if there is a deadlock and the resolution relates to the external administrators remuneration, the IRP provides that the resolution is simply not passed, and there is no opportunity for a casting vote to be used either for or against the resolution.

Should you wish to discuss the use of casting votes and/or the new IPS and IPR, please feel free to contact us to discuss.