Something to Embrace: The scope and power of the court under 90-15 of the IPS (Corporations)

The scope and power of s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS) has been judicially tested on numerous occasions. However, the extent to which the power may be applied and relied upon by external administrators is yet to be fully examined. The judicial limit on the application of s 90-15 is yet to be determined by a superior or appellate court. If the court is satisfied that granting the relief sought is just and necessary for the external administration, the orders sought should ordinarily be made. Those circumstances may become less certain if a creditor or third party can demonstrate a sufficient reason why the court should not exercise its discretion.

The breadth of s 90-15 of the IPS is clearly broad and often, an application would generally be brought on an ex-parte basis. In those circumstances, external administrators must ensure they take steps to discharge their duties to creditors and the court, by ensuring the power is only invoked for proper purposes and by satisfying the court that the relief sought is just.

Under 90-15(1) the court is empowered to “make such orders as it thinks fit in relation to the external administration of a company.” The predecessor to 90-15 was narrower in scope and application, whereas s 90-15 allows the court to decide on a wide range substantive rights. While the IPS includes examples of the type of orders the court may make and the matters the court may consider in exercising its discretion, the list is non-exhaustive. For example, s 90-15(3)(a) allows the court to make an order “determining any question arising in the external administration of the company”. The other examples of orders the court may make under s 90-15(3) are more prescriptive. However, it is clear the inherent discretion conferred on the court and breadth of the power, is expansive.

Historically “in relation to” has judicially been interpreted to have a wide and indefinite import. That interpretation is consistent with the legislative intent as to the potential scope and use of s 90-15 by external administrators.

The power conferred to the court under s 90-15 is often used by external administrators to seek relief both interlocutory relief and substantive final relief. The circumstances in which external administrators may require judicial assistance after often determined by the variables relevant to each administration. The type of external administration, the financial, commercial and legal imperatives at stake, the competing interests of stakeholders and the need to compromise or determine interests rapidly are just some of the factors which might determine how and when an application is made. Regardless of the circumstances, however, it is clear that s 90-15 provides opportunities for external administrators to seek relief in a way that significantly reduces the costs of an external administration and ensures key issues are resolved quickly and commercially. Further, seeking relief under s 90-15 allows external administrators to potentially avoid the significant costs in proceeding in the ordinary way to determine a contentious issue, including the associated downside risks such as adverse costs orders.

Key Take Away

Courts recognise that allowing applications to be brought under s 90-15 not only benefits stakeholders but also permits external administrators to discharge their statutory and equitable duties with certainty. Whether it is in a transactional or contentious context, when external administrators are dealing with stakeholders and an issue or dispute arises, they must always be cognisant as to what, if any, judicial advice or relief should be obtained to allow them to proceed with greater certainty and protection.

With the economic uncertainty and increased insolvencies prevalent across key markets, external administrators should take some comfort from knowing that they can rely on the scope of s 90-15 to seek relief, as and when required.

Given the rise of novel issues external administrators are facing, particularly in connection with administrations that have strong digital economy, data security, fintech and cross-border elements, the ability to obtain rapid court relief will be a significant factor in determining contentious issues and committing to transactions.