Limiting Personal Liability of Administrators – True North Copper Limited (Administrators Appointed) [2024] FCA 1329

The decision of the Federal Court in True North Copper Limited (Administrators Appointed) [2024] FCA 1329 demonstrates the exercise of the Court’s discretion in giving effect to the objects of Pt 5.3A of the Corporations Act 2001 (Cth), whilst offering protection to administrators against liabilities which may arise when making commercial decisions in the course of discharging their duties effectively.

Introduction

This case concerns an urgent application by the Administrators of True North Copper Limited (Administrators Appointed) (“Company“) seeking orders pursuant to s 447A of the Corporations Act 2001 (Cth) (“the Act“) to limit the Administrators’ personal liability, as prescribed within s 443A of the Act. Such an order was necessary, as it was a condition precedent to a Loan Agreement entered into on behalf of the Company with its major creditor, Nebari Natural Resourced Credit Fund II, LP (“Nebari“), for the purpose of continuing operations whilst the Administrators put forward DOCA proposals, facilitated recapitalisation and negotiated terms of sale of the Company.

Further to the orders sought, the Administrators requested a direction under s 90-15 of the Insolvency Practice Schedule (“IPS“) that entry into the Loan Agreement was justified.¹That section recognises the Courts’ ability to make orders relating to a question arising in the external administration of a company. 

The Court granted the requested orders and declaration for the reasons discussed below. 

Background

On 21 October 2024, the Directors of the Company appointed Voluntary Administrators.² Following an urgent assessment of the Company,³ the Administrators found that without additional funding, the Company would be forced to shut down by November 2024. Consequently, there would be a significant loss of potential realisable value for the Company’s assets.

On 6 November 2024, the Administrators entered into a conditional loan agreement with Nebari for the payment of up to US$1.65 million to be applied towards specified purposes with the objective of supporting the continued operations of the Company (“Loan Agreement“).⁴

The Administrators gave evidence that:

1. it was unlikely that the Company would be able secure a loan from an alternative source on better terms than those contained in the Loan Agreement; and
2. there would not be any material prejudice against the other creditors who would ultimately benefit from the objectives that entry into the Loan Agreement sought to achieve.⁵ However, if the loan funds could not be accessed, it was likely that the Company would enter into liquidation at the second creditors’ meeting.

The Court’s Determination

Banks-Smith J stated that “it is well established that the court has power under s 447A of the Corporations Act to make orders to limit an administrator’s personal liability under s 443A. The courts have been satisfied on a number of occasions that it is not to be expected that the administrators should expose themselves to substantial personal liabilities.“⁶

By reference to the leading cases discussing the application of s 447A,⁷ the Court considered the following principles in making the orders limiting the liability of the Administrators under the Loan Agreement:

1. orders limiting an administrator’s liability are often made when the Court is satisfied that an administrator has entered into a loan agreement to enable the company’s business to continue to trade for the benefit of the company’s creditors;⁸
2. in these cases it is not expected that the administrators should expose themselves to substantial personal liabilities;⁹
3. such orders will permit administrators to make commercial decisions to promote continued operations;¹⁰
4. the material consideration when deciding whether to make orders limiting the liability of an administrator is whether the proposal is within the interests of the creditors and is consistent with the objectives of part 5.3A of the Act;¹¹ and
5. notice must be given to those who may be affected by the order.¹²

Banks-Smith J had regard to the recent matter of IG Power (Callide) Ltd (Administrators Appointed) (No 2) [2024] FCA 1244 at [15] –[16] (per Justice Derrington), in which the above principles were applied. There it was established that “the most important consideration is that the company’s creditors are not prejudiced or disadvantaged by the court’s exercise of power.”

In considering the above principles, Banks-Smith J was satisfied that making the order for the limitation of liability of the Administrators in respect of the Loan Agreement was in accordance with the objectives of Part 5.3A and would not prejudice the Company’s creditors.¹³ Justice Banks Smith gave the following reasons for making this determination:

1. the orders were a condition precedent to the Loan Agreement and therefore were necessary to enable the Company to draw down on the loan funds;¹⁴
2. these funds would support the continued operations of the Company which in turn, afforded additional time to the Administrators for the negotiation of restructuring and sale agreements;¹⁵
3. it was accepted that no real prejudice was faced by Nebari, a secured creditor of the Company. Further, the remaining creditors were considered to have received sufficient notice of the Administrators’ proposal to enter into the Loan Agreement;¹⁶ and
4. given that Nebari was the only secured creditor(who also held a statutory lien over the funds paid under the Loan Agreement) of the Company, the orders would not disadvantage other creditors, particularly when considering that part of the loan funds would be directed to paying employee creditors, to ensure the continued operations of the Company.¹⁷

Moreover, Banks-Smith J found that the Administrators acted appropriately in seeking a declaration of their entitlement to enter into the Loan Agreement on behalf of the Company as the circumstances of the application did in fact give rise to questions of propriety and reasonableness, which establishes the right for the Administrators to seek judicial advice under the IPS.¹⁸  The relevant factors included the urgency of the Application and need for funding, the significant quantum of funds the subject of the Loan Agreement, the complexity of the corporate structure and assets held, and the fact that orders limiting the liability of the Administrators was a condition precedent to entry into the Loan Agreement.

Ultimately, it was found that the Loan Agreement supported the interests of the creditors given that its objective was to maintain the operations of the business and to maximise its value. Accordingly, the making of the orders sought were said to be consistent with the objectives of the IPS.

Recent Application of True North Copper

More recently, in March 2025, the Federal Court handed down its judgment in respect of Jones (Administrator) v Realtek Semiconductor Corporation in the matter of Nuheara Limited (administrators appointed) (No 2) [2025] FCA 276 (“Jones”). In this case, the administrators of the Company cited True North Copper in support of their application to enter into a Syndicate Funding Agreement and for orders limiting their personal liability.¹⁹ It was submitted that “such orders are standard in insolvency cases and allow administrators to act in the best interests of creditors without undue risk.”²⁰ O’Sullivan J accepted the Administrators’ submissions and granted the orders sought.

Conclusion

It is well established that the objects of the Act and of the IPS operate to support positive outcomes of administration for the benefit of creditors. Where administrators are taking active steps to maximise enterprise value for the benefit of the Company’s creditors, they should not hesitate to apply to the Court to limit their personal liability and to have their proposed plan “blessed” by the Court prior to execution.  The caselaw makes clear that the Court is prepared to exercise its discretion to give effect to Pt 5.3A of the Act and provide much-needed  protection to administrators against liabilities which may arise when making commercial decisions, ensuring administrators are able to discharge their duties effectively.

1. Tucker (Administrator), in the matter of True North Copper Limited (Admins Apptd) [2024] FCA 1329(“True North Copper”) [5].
2. 22 October 2024, ASC Announcement ASX: TNC.
3. Ibid.
4. True North Copper [14].
5. Ibid [16]-[17].
6. True North Copper [28] citing Unlocked Ltd (administrators appointed) [2018] VSC 345 (“Unlocked“) at [61].
7. See Unlocked (per. Sloss J), Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (No 2) [2020] FCA 71 (Middleton J) (“Strawbridge“), and Park, in the matter of IG Power (Callide) Ltd (Administrators Appointed) (No 2) [2024] FCA 1244 (Derrington J)(“Park“).
8. True North Copper [28] citing Secatore, in the matter of Fletcher Jones and Staff Pty Ltd (admins apptd) [2011] FCA 1493 (“Secatore“), at [23] (Gordon J). See also Re Mentha (in their capacities as joint and several administrators of the Griffin Coal Mining Company Pty Ltd (admins apptd) (2010) 82 ACSR 142; [2010] FCA 1469 [64] (“Mentha“).
9. Unlocked citing Re Renex Holdings (Dandenong) 1 Pty Ltd [2015] NSWSC 2003 [13] (Black J); Preston, in the matter of Hughes Drilling Limited [2016] FCA 1175 at [18] (Yates J). See also Korda, in the matter of Ten Network Holdings Ltd [2017] FCA 1144, [43] –[44] (Markovic J).
10. Unlocked [62]; Re Malanos [9] and Re View [17].
11. Unlocked [63] citing Re Great Southern Infrastructure Pty Ltd [2009] WASC 161 (“Great Southern“) [13] ; Re View at [18], and also Re Application of Fincorp Group Holdings Pty Ltd [2007] NSWSC 628 [17].
12. Mentha [64] citing Great Southern [12].
13. True North Copper [37].
14. Ibid [38].
15. Ibid [39].
16. Ibid [40]-[41].
17. Ibid [42]-[43].
18. Ibid [36].
19. Jones [28].
20. Ibid.