Peter Wilkinson v Gavin Maher & Ors

A qualifying floating charge holder may justify an out-of-court administrator’s appointment by relying on any continuing Event of Default existing when the appointment was made, even if it was not identified in an earlier demand letter. Contractual definitions distinguishing a Default from an Event of Default must be given effect. A remediable Default becomes an Event of Default if it is not remedied within the contractual period, and thereafter continues unless waived.

A commercial contract will not be rewritten by reference to business common sense where its language is unambiguous. A paragraph 81 application requires an allegation of improper motive, made honestly and on reasonable grounds; the court may then consider whether the alleged improper motive is made out and whether administration’s statutory purpose is likely to be achieved.

Peter Wilkinson challenged the appointment of Gavin Maher and Matthew Mawhinney as administrators of Pocket Renting Ltd. The appointment had been made out of court by Trimont Europe Ltd on behalf of Macquarie Principal Finance Pty Ltd, relying on Macquarie’s qualifying floating charge.

He contended that the charge was not enforceable because the company’s defaults under the facility documents were not continuing, that Macquarie was estopped or contractually prevented from enforcing specified financial covenants, and that the transaction documents were void for common mistake. He also sought an order under paragraph 81 of Schedule B1 to the Insolvency Act 1986 on the ground of improper motive.

The central issues were whether continuing Events of Default existed at the appointment date, whether the alleged common mistake invalidated the transaction documents, and whether the paragraph 81 jurisdiction should be exercised.

1. Validity of appointment. The administrators’ appointment was valid. The facility documents distinguished between a broader category of Defaults and Events of Default. A Default did not automatically become an Event of Default unless the contractual conditions were satisfied. Once an Event of Default arose, it continued unless waived.
2. Macquarie could rely on continuing Events of Default which existed when the administrators were appointed, even though they were not identified in the Demand Letter. The company’s grant of leases exceeding two years breached the unambiguous restriction in clause 23.2(a)(i)(1). The company’s failure to provide required fire risk assessments also matured into continuing Events of Default after the contractual remedy period expired. No waiver arose from Macquarie’s inaction, particularly in light of the express reservation-of-rights provisions.
3. The company’s failure to meet the property-disposal covenant was itself a continuing Event of Default. The disposal proceeds had to be appropriated in accordance with the contractual waterfall and could not be reallocated by the company. The PIK facility was unavailable while a Default was continuing, and in any event no timely Utilisation Request had been served.
4. The alleged Ivy representation was not made. The evidence was inconsistent and uncorroborated, while the contemporaneous documents repeatedly stressed the importance of meeting the contractual sales requirements.
5. The transaction documents were not void for common mistake. There was no general six-month mortgage rule of the asserted kind, and the evidence did not establish a fundamental or radical difference between the parties’ assumed and actual circumstances.
6. The paragraph 81 application was dismissed. The pleaded allegation that Macquarie acted to stifle litigation was unsupported and had not been shown to have reasonable grounds. Protecting Macquarie’s financial interests and pursuing the statutory objectives of administration did not amount to an improper use or abuse of the administration procedure.

The court reserved costs and consequential matters.