Administrator's consent or leave of the court not required to bring a shareholder derivative action

The Federal Court has delivered a decision clarifying the application of section 440D(1) of the Corporations Act. Under the provision, administrator's consent or leave of the court is required before an action is brought or proceeded with against a company under administration or in relation to any of its property.

In MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 383, Justice Barker looked at the question of whether a derivative action brought by a shareholder on behalf of the company for breaches of director's duties was a 'chose of action' and fell within the category of 'in relation to any of the company's property' for the purpose of the section. Justice Barker found that the derivative action was not itself property, nor 'in relation to any of the company's property', and therefore the action did not require consent of the administrator or leave of the court to proceed.

The case confirms that the purpose of s440D is to ensure that where the company is the target of a proceeding or in some relevant way its property is the target of a proceeding, then that proceeding may not be begun or proceeded with, except with the administrator's written consent or with the leave of the court.