Emerald No 2 (SA) Pty Ltd v Matthews, in the matter of Sapphire (SA) Pty Ltd

This case arose from a long-running insolvency involving Sapphire (SA) Pty Ltd, a company that formerly operated an agricultural commodities business in Murray Bridge, South Australia. By the time the Federal Court heard the application in June 2025, the company had already spent about 11 years in external administration.

The company had not simply gone straight into liquidation. It first entered administration in March 2014. Creditors then approved a deed of company arrangement in May 2014. That earlier deed later failed, and the company was placed into liquidation in February 2016. So the 2025 application was not the start of the insolvency story. It was an attempt to reopen a restructuring path after the earlier one had collapsed.

The application was brought by Mr Brenton Strauss, the company’s director, together with related entities. They asked the Court to remove the existing liquidator, appoint Mr Richard Trygve Rohrt as replacement liquidator, allow Mr Rohrt to appoint himself as voluntary administrator, modify the usual administration process so it could run in a shortened form, stay the winding up while that administration took place, and terminate the winding up if a deed substantially in the identified form was fully carried out.

The existing liquidator consented to being removed and otherwise did not oppose the application. Notice was given to ASIC and the company’s creditors. According to the reasons, none opposed or sought to be heard. That mattered because the Court was being asked to facilitate a process for creditors to consider a proposal, not to resolve a contested trial about misconduct or liability.

The reasons give a practical explanation for why the first deed failed. Mr Strauss said that when the earlier deed was proposed and executed, he understood that National Australia Bank would not participate in it. On that understanding, he believed the participating debts would total around $7 million and that he would need to contribute around $1.3 million.

That assumption turned out to be wrong. NAB later informed the liquidator that it intended to prove for its debt under the earlier deed. That increased the amount Mr Strauss was required to contribute. He was unable to raise the additional funds. He then sought to negotiate a variation to the deed, but creditors did not approve the variation. The earlier deed terminated and the company went into liquidation.

For business owners, that part of the story is important because it shows how a deed can fail even after creditor approval if the funding model depends on assumptions about who will participate and what claims will be admitted. A proposal may look workable at the voting stage but become unworkable if the debt pool changes or if a key funding source cannot meet the revised contribution requirement.

By 2025, the liquidation had produced about $800,000 in realisations, but no dividend had been paid. The Court recorded that there were no realisable assets left in the company and that, if creditors could not vote on the new deed proposal or voted against it, the company would likely be deregistered. That gave the new application its commercial context: liquidation had effectively run its course, and the proposed deed was presented as the remaining path that might produce some return.

The Court had to decide several linked insolvency questions. First, was it just and beneficial to remove the incumbent liquidator and appoint Mr Rohrt instead? Secondly, should the Court give leave for Mr Rohrt, once appointed liquidator, to appoint himself as voluntary administrator? Thirdly, should the Court modify the usual operation of Part 5.3A of the Corporations Act so the administration could proceed in a shortened way, without repeating steps that had little utility after such a long liquidation?

There was also a broader practical question running through the application: was there enough point in moving from winding up to voluntary administration at all? The Court referred to authority showing that, although the test for leave is not onerous, the grant of leave is not a mere formality. The Court still needed to be satisfied that the proposed appointee was appropriate and that there was some real utility in the move.

The reasons make clear that the Court was not deciding whether the proposed deed was commercially attractive in the abstract. Courts generally treat creditors as the people best placed to decide what is in their commercial interests. The Court’s role was narrower. It needed to be satisfied that there was no issue of propriety that should prevent the proposal being put to creditors and that the process sought was appropriate.

That distinction matters. A business owner reading this case should not assume that a court will endorse the merits of a restructuring proposal. What the court may do is allow creditors to consider and vote on the proposal, especially where the alternative is a spent liquidation with no likely dividend.

The Court granted the application. It removed the incumbent liquidator and appointed Mr Richard Trygve Rohrt as liquidator of Sapphire (SA) Pty Ltd. It then gave Mr Rohrt leave to be appointed as voluntary administrator of the company.

The Court also made a series of orders modifying how Part 5.3A would operate for this administration. Those orders included dispensing with the need for a first creditors’ meeting, removing some investigation and reporting requirements that would duplicate work already done during the liquidation, allowing the key creditors’ meeting to be held at any time during the convening period with proper notice, allowing existing proofs of debt from the liquidation to be used in the administration without adjustment for interest, and disapplying the requirement in s 439C(c).

The Court further ordered that the winding up be stayed from the time Mr Rohrt was appointed administrator until the end of the voluntary administration. It also ordered that the winding up be terminated upon written notice to ASIC that a deed of company arrangement substantially in the terms annexed to Mr Strauss’ affidavit had been fully effectuated. There was no order as to costs.

So the practical result was not that the company immediately escaped insolvency. Rather, the Court created a pathway for a replacement appointee to run a shortened administration, put the deed proposal to creditors, and, if the deed was approved and fully carried out, bring the winding up to an end.

On the replacement issue, the Court said it was appropriate to replace the liquidator because there were irreconcilable differences between the liquidator and Mr Strauss. In circumstances where Mr Strauss was proposing a deed, a good working relationship between the director and the external administrator was considered desirable for the conduct of the administration. The incumbent liquidator consented to removal, Mr Rohrt consented to appointment, and the Court saw no apparent conflict of interest.

The Court also found utility and benefit to creditors in the replacement because it would secure the prospect of the deed proposal and the opportunity for creditors to vote on it. That point is important. The Court was not simply accommodating a preference for a different liquidator. The replacement was tied to a practical restructuring path that might produce a better outcome for creditors than the status quo.

On the leave application, the Court noted that the company had been in liquidation for about 11 years, the liquidator had thoroughly investigated the company’s affairs and realised its assets, and no dividend had been paid. There were no realisable assets left in the company. If creditors could not vote on the deed, or voted against it, the company would likely be deregistered. The proposed deed at least offered the prospect of a dividend that liquidation could not provide.

The Court also relied on practical safeguards. Mr Strauss had paid $200,000 into his solicitors’ trust account. The Court treated that as removing the risk that his agreed contribution under the proposal would not be paid. Mr Strauss had also agreed to fund Mr Rohrt’s costs as liquidator and administrator up to an agreed cap, which reduced the risk that the proposal would be consumed by additional administration costs.

The reasons summarise the key terms of the proposed deed. Mr Rohrt would be appointed deed administrator. The deed would bind all creditors and impose a moratorium for its duration. Mr Strauss would pay a contribution of $200,000 towards Mr Rohrt’s costs and to pay a dividend to participating creditors. The Emerald Group Companies and Two Trees would not participate in a dividend and their claims would not be compromised by the deed, but they would be entitled to vote on resolutions put to creditors. They would also execute a deed poll agreeing not to demand payment or enforce their claims unless the company had sufficient property to satisfy them, and they would be bound by a moratorium on their claims for 18 months after effectuation of the deed. Upon payment of a distribution, participating creditors’ debts or claims against the company would be extinguished.

The Court then modified the usual administration process to avoid duplication. Because the company had already been in liquidation for years, the Court accepted that many standard administration steps would add cost without adding real value. Creditors had already had extensive exposure to the company’s affairs through the liquidation. The liquidator had already investigated the company, prepared reports, and dealt with proofs of debt.

That is why the Court dispensed with the first creditors’ meeting, removed the need to repeat certain investigations and director reporting, limited misconduct reporting to conduct after Mr Rohrt’s appointment, allowed the main creditors’ meeting to be held at any time during the convening period with proper notice, and allowed existing proofs of debt to be used without adjustment for interest. The Court described these as accepted forms of truncated administration orders in cases where an administrator is appointed to a company already in liquidation.

For businesses and advisers, the practical point is that the Court may support efficiency where the ordinary process would simply repeat work already done. But the Court still preserved the central creditor protection: proper notice and a meaningful opportunity to vote on the deed proposal.

This decision is useful for directors, creditors and advisers dealing with distressed companies that have been in external administration for a long time. It shows that insolvency pathways are not always strictly one-way. A company can move from administration to a deed, then into liquidation, and in some circumstances still seek a court-approved route back into administration so creditors can consider a new proposal.

But the case should not be read as saying that a director can always ask for another chance. The Court looked for practical utility. It wanted to see that liquidation had effectively reached the end of the road, that creditors were otherwise unlikely to receive a dividend, that the proposed deed had some funding support, that the proposed appointee was suitable, and that the modified process would reduce duplication and cost rather than create confusion or unfairness.

The case is also a reminder that courts usually leave commercial judgment to creditors. The Court did not decide whether the proposed deed was a good bargain in a broad business sense. Instead, it focused on whether there was any issue of propriety that should stop creditors from considering it. If there is no such issue, and the proposal may produce a better outcome than liquidation, the Court may be willing to let creditors decide.

Another practical point is that relationships matter, but only in context. The Court referred to irreconcilable differences between the incumbent liquidator and Mr Strauss and said that a good working relationship was desirable where a deed was being proposed. That does not mean a director can replace an external administrator merely because the relationship is strained. The replacement still had to be just and beneficial and tied to a process that could advantage creditors.

This explainer is based on the Federal Court reasons and orders in Emerald No 2 (SA) Pty Ltd v Matthews, in the matter of Sapphire (SA) Pty Ltd [2025] FCA 695. The judgment date is recorded as 11 June 2025 and the publication of reasons as 26 June 2025.

The available text reviewed for this page includes the orders and substantial reasons, but the extract cuts off near the end of the discussion of the truncated administration orders. The main facts, orders and reasoning are still clear from the published material, but anyone relying on the case in detail should check the complete judgment.