The External Administration

By identifying what ended up being the critical legal question at the start of the administration, conducting detailed upfront analysis and reaching a clear position, Mackay Chapman put the Administrators in a position where they could proceed with the administration underpinned by a confident position.

Facts

• Client: insolvency practitioners appointed external administrators of a small proprietary IT company
• Location: Melbourne
• Situation: a dispute over a key contract in relation to the administration and viability of the company overshadowed the administration. A protracted legal dispute could destroy all value in the company.  It was critical the administrators’ position on this key issue was properly informed and considered, as it would be the position they may have to take in court. Early advice could help avoid court action.
• Outcome: company and creditors entered deed of company arrangement without litigation occurring.
• Key elements of success: upfront assessment; legal expertise; detailed consideration and practical advice upfront.

The outcome of the external administration of a small IT company would be defined by the interpretation of one contract.  With the potential for litigation to break out and swallow the value of the company, it was critical that the administrators formed a considered position on this key issue as early as possible, with the direction of the administration hinging upon it.

Mackay Chapman cut to the chase undertaking a detailed analysis of this key issue.  It was a complex question of interpretation of commercial contracts in this context, and there was no straightforward answer.  That being the case, we managed to push through to form a considered view on a necessarily uncertain issue. We gave the administrators detailed, practical advice on the competing interpretations and our view of the best one.

The administrators adopted this position with stakeholders, and despite initial objections from interested parties, no litigation occurred.  A DOCA was put forward and approved and the company moved from external administration.

The early clarity on the key issue framed the small administration and avoided the potential for opportunistic litigation late in the process.

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