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You got a licence to do that?

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4 Dec 2018

Administrators, receivers and trustees in bankruptcy are appointed over businesses every day of the week. Many of those businesses hold a licence of one kind or another. Does such an appointment affect the operation of the licence? If so, does the appointee actually have any business to operate or sell at all once appointed?

A recent decision of the NSW Court of Appeal[1] considered the possible conflict between the role of Administrators and the broad objectives of Part 5.3A of the Corporations Act 2001 against the restriction imposed by the NSW Security Industry Regulation.

Background

Shumit Banerjee and Jason Porter of SV Partners (Administrators) were appointed as Administrators to United Security Enterprises Pty Ltd (United). United provided security services to government and other organisations. In order to operate that business, the company was required to hold a master security licence under the Security Industry Act 1997 (NSW). Regulation 13 to that Act required the Commissioner of Police to automatically revoke the master security licence upon the company entering voluntary administration.[2]

The effect of the revocation of the licence meant the Administrators could not conduct or sell the business of United, unless the licence was reinstated.

Justice Sackar of the NSW Supreme Court referred the following question of law to the Court of Appeal:

Whether clause 13(3) of the Security Industry Regulation 2016 (NSW), in its operation pursuant to sections 15(4) and 26(1A) of the Security Industry Act 1997 (NSW), is inconsistent with the provisions of Part 5.3A of the Corporations Act 2001 (Cth) and therefore invalid or inoperative to the extent of any inconsistency by reason of s 109 of the Commonwealth Constitution.

No inconsistency = no licence

In the past, insolvency practitioners have been unsuccessful when contesting such restraints to obtain approvals or licenses following their appointment.  A good case in point is Correa Whittingham[3] where the NSW Court of Appeal confirmed that an Administrator was invalidly appointed to the Spanish Club Ltd in Sydney because the Administrator (who had not been appointed by the NSW Supreme Court) had not been approved to act by the Independent Liquor and Gaming Authority in NSW, as required by the NSW Registered Clubs Act.

This time, the Administrators took a different, and somewhat novel approach, asserting that the restraint imposed by Regulation 13 of the Security Industry Regulation was “inconsistent” with the objectives of the administration process in Part 5.3A of the Corporations Act, and therefore s109 of the Constitution invalidated the operation of the Regulation. 

Section 109 of the Commonwealth Constitution provides that:

When a law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail, and the former shall, to the extent of the inconsistency, be invalid.

The Court of Appeal held that, for the purposes of s109 of the Constitution, “inconsistency” arises where, either expressly or by implication, a Commonwealth law provides for an immunity from a class of state laws, which immunity would be qualified, altered or impaired by the operation of a State law within that class[4].

It went on to find that Part 5.3A of the Corporations Act reveals no intention to confer on a company under administration, or the administrators of that company, immunity from the operation of State laws, beyond any immunity found within the Part’s express terms[5]. The Part’s purpose, identified in s 435A, is entirely consistent with the carrying on of the company’s business under administration being subject to the general laws of the State.

On that basis, the matter was remitted back to the NSW Supreme Court.  It is yet to be dealt with by that Court.

The strict effect of the decision is that United’s master security licence was immediately and automatically revoked upon appointment of the Administrators. Without the licence, the Administrators cannot continue to trade or sell the business as a licenced security business. 

Caution begins before your appointment

This case is yet another warning to insolvency practitioners to be extremely cautious in accepting an appointment as an Administrator, or any role that could involve the continued trading of the business of the entity to which they are appointed. There is a vast array of businesses that require a licence or permit of some kind in order to operate.  Businesses such as tobacco sales; security firms; gaming and liquor sales; firearms sales; food manufacture and retail; restaurants and cafes; broadcasting; aviation; doctors, pharmacies and other health-related businesses; and even law firms (heaven forbid) all require strict licence compliance. And that list is by no means exhaustive.

A handy place to start is at Australian Business Licence and Information Service (https://ablis.business.gov.au/ ) which can provide summaries of various licences and registrations an insolvency practitioner may need in order to operate the business legally in a State or Territory in Australia.  However, it would be prudent for a practitioner to thoroughly check this before his or her appointment, since there appears to be little sympathy from the Courts to practitioners who take what could immediately become an automatically invalid appointment.

 

[1] Banerjee and Anor v Commissioner of Police [2018] NSWCA 283, 22 November 2018.  See also Re Belmont Sportsmans Club Co-operative Ltd [2018] NSWSC 2;

[2] You might wonder why the administration of a security company should revoke its security licence. In theory, if the company is broke, yet is tasked to protect valuable property, there may be a greater incentive to purloin the property than protect it.

[3] [2013] NSWCA 263

[4] At [22]

[5] At [39]