When it comes to external administrations, not all creditors are created equal. Some, in fact, may not look like creditors at all. In its recent decision in EVP Opportunities Master Pty Ltd v Strong Room Technology Pty Ltd (Administrators Appointed) [2025] FCA 594, the Federal Court explores how subordinated creditors may still get a seat at the creditors’ table through the discretion available to the Court under section 600H of the Corporations Act.
Key Takeaways
- In exercising its discretion under section 600H, the Court will consider whether a subordinated creditor has a real financial interest in the administration.
- A share subscription may be a sufficient basis for a subordinated creditor to be granted an order for voting power under section 600H, even without a formal share certificate.
- Courts will rely on surplus projections when determining whether a subordinated creditor has a sufficient interest in the administration.
Legal Framework
A creditor is generally defined as an individual or entity to whom a company owes a debt. However, the Act distinguishes between ordinary creditors and those whose claims are ‘subordinate’.
Subordinate claims are defined under section 563A to include claims which arise from buying, holding, selling or otherwise dealing in shares of the company. Such claimants could be shareholders, a share subscriber, an option holder, etc. Subordinate claims are postponed until all other debts payable by the company are satisfied (i.e. any surplus is achieved), and such creditors are not entitled to vote at meetings. However, where a claim is postponed, the Court has the power under section 600H to order that the subordinated creditor have an entitlement to vote as a creditor at meetings held during the external administration.
Recent case law emphasises that this discretion can be exercised where the applicant can demonstrate a real financial interest in the outcome of the administration rather than merely a theoretical interest.
A recent decision: EVP Opportunities Master Fund v Strong Room Technology Pty Ltd (Administrators Appointed) [2025] FCA 594
In EVP, the facts reveal that the applicant invested approximately $10.4 million in Strong Room Technology Pty Ltd (Strong Room). As is well known, Strong Room recently entered voluntary administration. The Court found that, to the extent EVP is a subordinated creditor, it was permitted to vote in its capacity as a creditor at any meeting held during the external administration of Strong Room. The Court was satisfied that there is a reasonable possibility that EVP holds a subordinate claim, given its likely shareholder status, and the administrators’ analysis revealed that a surplus may be available to EVP, even if its claim is subordinated. The facts supported the finding that EVP has a real financial interest in the outcome of the administration.
The decision in EVP affirms previous approaches to section 600H. In Re SurfStitch Group Limited [2018] NSWSC 164, the Court observed that the objective of the provision is to reduce costs and improve the efficacy of external administration. Only a claimant who can show a real financial interest in the outcome will enjoy the benefits of section 600H. As in EVP, it was unclear in Ingram, in the matter of 5Star Sinai Limited (administrators appointed) [2018] FCA 734 whether the claimants had received shares in exchange for their investments. One of the issues before the Court was whether individuals who had subscribed for shares, but had not received share certificates, should receive the benefits of voting rights at creditors’ meetings. The Court found that holding a share subscription can amount to a sufficient ‘dealing’ under section 563A of the Act, even where no share certificates have been issued.
Lessons for Stakeholders
- Administrators should conduct their own analysis to determine whether subordinated creditors are likely to receive a surplus from the administration. That should inform their approach to such applications. The Courts will give weight to the considered opinions of administrators and such assessments will be critical in determining whether subordinated creditors get a seat at the table.
- Holder of share subscriptions, shareholders or other potential creditors who have a claim arising from “buying, holding, selling otherwise dealing in shares” have a way in if they can demonstrate a real financial interest in the outcome of the administration. Advice should be sought about obtaining voting rights if there is a chance of a surplus and a desire to try to influence the result of creditors’ meetings with voting rights.
- Administrators should anticipate challenges at meetings from creditors with a financial interest in excluding subordinate creditors from voting. It is important to be prepared to support or oppose a Court application to obtain voting rights under section 600H.
If you have any questions about navigating subordinated claims or creditor entitlements, please get in touch with our Commercial Litigation & Dispute Resolution and Insolvency & Restructuring teams.