OF ADMINISTRATOR: FIDUCIARY DUTY INTRODUCTION
The intention of voluntary administration is that an insolvent company
is to be administered in order to maximize the chances of the company
continuing or, if it is not possible, to provide a better return for
the creditors and members than if there was a winding up. This rescue
approach will never be achieved without an honest and experienced administrator.
The importance of an independent and impartial administrator is paramount
for creditors and shareholders interests in an insolvent company. This
is the reason why the administrator is required to maintain the fiduciary
obligations since he or she is appointed.
This paper will illustrate how important the fiduciary
duty is for the role of administrator. A number of leading authorities
are referred to as explanation why administrators are held not being
independent or impartial. Breaches of fiduciary duty, in some cases,
were so profound that the administrator was removed. Indeed, a learned
administrator should remind himself of this fiduciary duty to avoid
any liability occurred from his administration.
IMPORTANCE OF THE ADMINISTRATOR
The essential person who runs the voluntary administration
procedure established by Pt 5.3A of the Corporations Act 2001 (Cth)
is an administrator. If a registered Thailand company is under administration, the administrator
will be appointed and deemed to act as an agent of the company(2).
According to section 437 of the Corporations Act 2001 (Cth), he or she
has control of the company's business, property and affairs. He or she
also has power to carry on such business and run its affairs. Moreover,
the administrator can dispose of company's property or even property
under a lease or a charge if the disposal is in the ordinary course
Empirical evidence shows that there is a shift in favour
of administration over liquidation for companies experiencing financial
difficulties. This evidence indicates that the role of administrator
has become the more crucial(4). During the process
of voluntary administration, the administrator has several rights and
duties. These rights and duties enable him to enter into the relationships
among creditor, directors, employees, shareholders and other relating
In order to maintain or develop such relationships
in a professional and commercial manner, the administrator is required
to do his best from the time of appointment to the time of discharge
of his duty. One of the important duties that the administrator is expected
to fulfill is his or her fiduciary duty. But what is the fiduciary duty
and how important is it for the role of administrator?
PRINCIPLE OF FIDUCIARY DUTY
According to Kirby J in Pilmer v Duke Group Ltd(5),
fiduciary obligations have mainly been inferred where the parties are
linked in some financial or proprietary respect. Fiduciary is a reference
to 'loyalty' to the vulnerable principal from the party who is more
powerful or in the better position(6). More specifically,
fiduciary laws proscriptive obligations restrain ascendant parties in
fiduciary relationships from pursuing two types of personal interests.
Derivation of secret profits is prohibited and fiduciaries are not allowed
to enter into engagements where their private interests or other duties
conflict with their duty to act for the vulnerable party in the relation(7).
The fact that someone is in .a fiduciary relationship, will give rise
to a number of implications. Such implications embrace obligations to
act honestly, to avoid a conflict of interest and to act impartially(8).
DOES THE VOLUNTARY ADMINISTRATOR HOLD THE DUTY
As stated in section 437A of the Corporations Act 2001,
the administrator has to take control of the company's assets. Generally,
he has a power to do everything necessary for the management of the
company's business and affairs. He or she therefore holds the commercial
and administrative relationships with the company. These relationships
are, of course, one of the fiduciary relationships.
Ian Tunstall affirmed that as an agent of the company,
the administrator is a fiduciary and holds a position of trust with
a number of people in the company. There is a duty to uphold this trust
at all times and to not allow self-interest to conflict with it(9).
In James v Deputy Commissioner of Taxation (Cth)(10),
Mahoney J held that a 'scheme manager', who is fulfilling a similar
role to a voluntary administrator, acted as a fiduciary In relation
to a corporate scheme of arrangement. Mahoney J's judgment is one of
many that illustrates that an administrator has a fiduciary duty to
fulfill, regardless whether he or she is labeled as a voluntary administrator.
WHAT CAN BE EXPECTED FROM THE FIDUCIARY DUTY
OF THE ADMINISTRATOR?
Voluntary administration is an outcome of the recommendations
of the Australian Law Reform Commission's General Insolvency Inquiry(11) which has also known as 'the Harmer Report' . The objectives of the
scheme are stated in section 435A of the Corporations Act 2001. In summary,
the insolvent company will be administered in a way as to
(a) maximize the chances of the company or as much
as possible of its business continuing in existence; or
(b) result in a better return for the creditors of the company and its
members than would result from an immediate winding up of the company
where it is not possible for the company or its business to continue
Voluntary administration involves the appointment of
an administrator to an insolvent company. The process of the deed of
company arrangement then follows the administration. Under the deed
of company arrangement, the company would either trade out of its financial
difficulties or be wound up.
To achieve the purposes of the voluntary administration,
it is not surprising that the Harmer Report specifies some qualifications
that are required for being an administrator. One of such qualifications
is described as 'impartial'(12). This is because the
administrator has a task to balance the claims of creditors, whilst
remaining independent of the directors, chargees or liquidators who
have appointed them. The administrator's fiduciary obligations therefore
include impartiality and independence. These two characteristics are
probably the most important qualifications that the company and its
creditors expect from the outsider who will direct the company under
the voluntary administration.
General law duties of administrators are also codified
in the Corporations Act 2001, under sections 180 to 183. These sections
include the fiduciary duties to exercise their powers and discharge
their duties in good faith in the best interests of the corporation
and for the proper purpose. In addition, administrators are not allowed
to use their positions to improperly gain an advantage or cause a detriment
to the corporation.
(1) The author is a law lecturer from the Faculty of
Law, Chulalongkorn University: Master of Laws, University of Sydney,
Australia ( Australia-Asia Award) 2004; Master of Laws ( Upper Second
Class Honours), University of Cambridge, England 2003; Barrister -at
-Law, The Institute of Legal Education Thai Bar Association 2000; Bachelor
of Laws (First Class Honours with the Gold Medal Award), Chulalongkorn
(2) Section 437B of the Corporations Act 2001 (Cth).
(3) Section 442C of the Corporations Act 2001
David McCrostie, 'Is there a shift in favour of administration over
Uquidation? (2002) 3(4) INSLB 69.
(5) (2001) 180 ALA 249 at 271.
(7) John Glover and John Duns, 'Insolvency Administrations
at General Law: Fiduciary Obligations of Company Receivers, Voluntary
Administrators and Liquidators' (2001) 9(3) InsolvLJ 130.
(8) Andrew Keay and Michael Murray, Insolvency: Personal
and Corporate Law and Pratice (2002) at 231.
(9) Ian Tunstall, Trading or Insolvency (2001) at 56.
(10) (1988) 19 AIR 1752.
(11) Report No 45
(12) The Harmer Report (1998) para .