What effect does external administration have on legal proceedings?


Under the Corporations Act 2001 (the Act) there are several provisions which have the effect of preventing an entity from continuing or commencing legal proceedings against a company in external administration.

Voluntary Administration

Section 440D of the Act states that:

  1. During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:
  • With the administrator’s written consent; or
  • With the leave of the Court and in accordance with such terms (if any) as the Court imposes.
  1. Subsection (1) does not apply to:
  • A criminal proceeding; or
  • A prescribed proceeding.

There are currently no prescribed proceedings under the Corporations Regulations 2001.

Section 58AA of the Act defines “court” as “any court”. This is contrasted with the definition of “Court” in section 58AA of the Act which is defined as the Supreme Court, Federal Court or the Family Court of Australia. Case law has interpreted the definition of “court” to also include various tribunals and commissions depending on the statutory nature of the duty and the powers of those quasi-judicial bodies.

Winding up in insolvency or by the Court

Similar to voluntary administration, section 471B of the Act states that:

While a company is being wound up in insolvency or by the Court, or a provisional liquidator of the company is acting, a person cannot begin or proceed with:

(a) a proceeding in a court against the company or in relation to property of the company; or

(b) enforcement process in relation to such company,

except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.

This section is similar to section 440D of the Act, however it does not allow for the administrator to consent to legal proceedings being commenced or continued.

Voluntary Liquidation

There are two types of voluntary liquidation, and depending on which method is being used, determines what kind of legal proceedings are stayed. These two types are:

  1. Members’ voluntary liquidations; and
  1. Creditors’ voluntary liquidations.

A members’ voluntary liquidation is the process for a solvent company and occurs when its members no longer wish to continue trading due to a variety of reasons, including, but not limited to, retirement, changes in economic or environmental factors or internal conflict.

A creditors’ voluntary liquidation occurs when the shareholders of a company determine that the company is insolvent and cannot continue its operations or be rehabilitated. There are also various forms of a creditors’ voluntary liquidation.

Section 500(2) of the Act states that:

After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.

This section appears under the heading “Creditors’ Voluntary Winding Up” in the Act. In Awada v Linkdarf Ltd (in liq) [2002] NSWSC 873 the New South Wales Supreme Court held that section 500(2) of the Act applied only to creditors’ voluntary liquidations and did not extend to members’ voluntary liquidations. As a result, during a members’ voluntary liquidation, there is no stay that prevents the commencement or continuation of legal proceedings against a company in liquidation.


In summary, various actions are stayed during the different types of external administration. In a court ordered liquidation, section 471B prevents both civil and criminal proceedings from being commenced or continued. This is contrasted with a voluntary administration that does not prevent criminal proceedings from being commenced or continued. Further, a creditors’ voluntary liquidation, through the use of section 500(2) of the Act, prevents civil proceedings from being proceeded with or commenced whereas a members’ voluntary liquidation has no such protection.

If you have any questions regarding insolvency or bankruptcy, please don’t hesitate to contact me.

Tagged in: , , , , , , , , , , , , , , ,

You may also be interested in:

6 Things You Can Expect When Declaring Bankruptcy

Declaring bankruptcy should be your last resort when you are faced with financial difficulties, whether as an individual or as a business owner. It is not exactly a “Get Out of Jail Free” card, as it comes with many adverse consequences, which may significantly impact your financial standing over a considerable period. So what consequences continue reading

How do you determine if a company is insolvent?

The answer to the question “How do you determine if a company is insolvent?” is important because there are serious consequences for a director if debts are incurred after the company has become insolvent, including civil penalties, compensation proceedings and criminal charges. However, it is often difficult to know when a company has crossed the continue reading

What to do if you receive an ATO Director Penalty Notice

Did you know that company directors may potentially become personally liable for unremitted Pay As You Go (PAYG) deductions and Superannuation Guarantee Charges (SGCs)? The Australian Taxation Office (ATO) has significant powers to recover a company’s unpaid liabilities personally through its directors and may issue a Director Penalty Notice (DPN). This article focuses on the continue reading

Liability Limited by a scheme approved under professional standards legislation | Website by VA