Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

Special administration of an Aboriginal Corporation – Urapuntja Health

A major Aboriginal corporation in Australia’s Norther Territory – the Urapuntja Health Service Aboriginal Corporation – has been placed under the control of “special administrators” by the Registrar of Indigenous Corporations.[1]

This followed serious upheavals in the local communities and physical and other risks to staff of the Service, and the potential disruption of essential health services.

The process is similar to an insolvent external administration under the control of a registered liquidator under the Corporations Act, but with grounds for control being imposed extending well beyond insolvency. Disruptive disputes between members and the board are one basis for control, but special administration more frequently arises from financial and governance issues following an examination of the corporation’s books by the Registrar.[2] Here, the issues are more serious.

According to the Registrar, Urapuntja Health provides primary health care services for around 1000 Indigenous people living in or visiting the Utopia homelands region in the Norther Territory of Australia, located about 270km north east of Alice Springs. It delivers services through a primary clinic as well as an outreach service to 16 outstation communities every week. The Utopia Clinic has its own small community with housing available for clinic staff and a small clinic school available for health workers families.

Here, the appointment was made urgently given the risks to staff and the disruption of a range of essential health services.

The CATSI Act

The Corporations (Aboriginal and Torres Strait Islander) Act 2006 (the CATSI Act) governs the regulation of Aboriginal and Torres Strait Islander (ATSI) corporations, including the external administration of those corporations.

Special administration is a form of external administration unique to the CATSI Act. It enables the Registrar to provide early proactive regulatory assistance when a corporation experiences financial or governance difficulties. Only the Registrar can place an ATSI corporation under special administration; no court order is required. Special administrators are not required to be liquidators, two lawyers from Marrawah Law being appointed in this case. And the Registrar of Aboriginal and Torres Strait Islander Corporations is the equivalent of ASIC.

It is quite different to a receivership or voluntary administration under the Corporations Act, which are usually driven by the interests of creditors, those these can co-exist.

The process

The grounds for placing a corporation under special administration are broad and go beyond insolvency.

They allow early intervention once certain risk factors are present, for example, when there are intractable disputes, oppression, financial instability and other grounds related to the nature of ATSI corporations. The directors or the members can themselves request the Registrar to place their corporation under special administration.

Before a corporation is placed under special administration it is usually accorded natural justice through a show cause procedure though in urgent situations the Registrar may act immediately, for example to prevent the loss of public money or to prevent a corporation ceasing to provide essential services for a particular community— section 487.10(2).

The Registrar’s decision is reviewable internally and then by the Administrative Appeals Tribunal.[3] The special administrator continues to administer the corporation pending the outcome of any review.

The Registrar appoints a special administrator for a specified period of time who is then responsible for the conduct of the affairs of the corporation during that period —section 499.1. Here, the special administrators are appointed from 28 January to 8 May 2020.

The special administrator’s role and powers

Generally, the special administrator’s role will include attending to critical financial and other issues, restoring good operational order and implementing improved policies and practices and ensuring that a best practice governance framework is in place and is applied.

A special administrator has broad powers under the CATSI Act— section 499.5. These include to control of the corporation’s business, property and affairs, carry on its business and manage its property, end or dispose of all or part of any business, or property, engage or discharge employees and can ultimately apply to the court for a winding up order.

Creditors

Generally the creditors do not have any role to play and once a special administration begins, charges are unenforceable and no legal proceedings may start or be continued by creditors, including enforcement process, except with the consent of the special administrator or leave of the court. A creditor cannot apply to the court to wind up an ATSI corporation under special administration.

A special administrator is personally liable for debts incurred by a corporation after, but not before, their appointment; an indemnity out of the corporation’s assets for debts incurred is available.

The Registrar requires written reports throughout from a special administrator, the first being an initial report within seven days of appointment outlining key findings and the special administrator’s plan of action.

The Registrar determines the special administrator’s remuneration— section 511.1(1) and the Registrar also has the power to determine how and by whom that remuneration, and charges and expenses, are to be borne— section 511.1(4).

A special administrator is protected from civil legal liability under section 609.1 provided they act in good faith.

Qualifications of special administrators

There are no prescribed qualifications in the CATSI Act for a special administrator. The Registrar, however, reports that he maintains a panel of people with demonstrated skills, experience and qualifications to be appointed. Generally, appointments are only made from this panel which is re-advertised at regular intervals.

Insolvency provisions

Certain Corporations Act insolvency provisions apply to corporations under special administration including much of Part 5.3A. As to insolvent trading and employees:

  • s 531.1 of the CATSI Act applies the Corporations Act insolvent trading provisions to ATSI corporations.
  • S 5 provides that s 588G prevails over conflicting Native Title legislation obligations. That is, in the event of a conflict between the duty of a director of an ATSI corporation to ensure that the corporation complies with its Native Title obligations and the director’s duty under section 588G of the Corporations Act, the s 588G duty prevails; and
  • s 536.1 applies Corporations Act employees’ entitlements provisions to ATSI corporations.

Priority of special administration over other forms of external administration (excluding winding up)

Broadly, special administration is given priority in the CATSI Act over voluntary administration and receivership under the applied Corporations Act provisions.[4]

Also:

  • a voluntary administrator cannot be appointed if the corporation is under special administration—section 521-10(1)(a). Unless the Registrar consents, a voluntary administrator cannot be appointed if the show-cause procedure is under way— section 521-10(1)(b).
  • conversely, the Registrar may place a corporation under special administration notwithstanding that it is being administered under the Corporations Act — section 487-1(3)(b). The court may order an end to the voluntary administration— section 521-15(2).
  • an administrator or receiver cannot exercise any powers—section 496-10—or deal with the corporation’s property—section 496-15—without the special administrator’s written approval.
  • a voluntary administration under the applied Corporations Act provisions may resume after the special administration ends—section 508.1(2)(b).

Special administration and winding up

Note that:

  • The Registrar may not determine a corporation is to be under special administration if the corporation is being wound up — section 487.1(3).
  • However, a corporation under special administration cannot resolve that it be wound up voluntarily— section 526.20(2)(a).
  • If a corporation is under special administration only the Registrar or the special administrator, not a creditor, may apply to court for an order that the corporation be wound up—section 526.15(1) and (3).

The special administration of a corporation ends when a liquidator is appointed or a winding up of the corporation.

Much of this analysis comes from the Registrar’s excellent PS-20, see footnote 2.

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[1] See Registrar triage: NT health service requires special care.

[2] See s 453.1. See also Registrar’s PS-20: Special administrations, 21 February 2017

[3] See PS-14: Review of reviewable decisions.

[4] See Kazar v Duus where a voluntary administrator was appointed after notice was given that an administrator would be appointed: (1998) 88 FCR 218; [1998] FCA 1378.

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