Fung, in the matter of VeroGuard Systems Pty Ltd (Subject to Deed of Company Arrangement) [2026] FCA 539

VeroGuard Systems entered voluntary administration on 16 January 2026. The Court said the company was in a perilous financial position immediately before the appointment and had limited cash and readily realisable assets. Even so, the administrators formed the view that creditors would be better served if the business kept trading during the administration. Their commercial reasoning was that continued trading would optimise the prospect of a successful going-concern sale, rather than a shutdown that would likely destroy value.

That created a practical problem straight away. The administrators did not consider they could accept the appointment unless funding was secured to meet their remuneration, costs and expenses and to support ongoing trading. So, on the same day and just before their appointment, they entered into a funding deed with the company and Seppeltsfield Pty Ltd as trustee of the Seppeltsfield Estate Trust.

The funding deed provided AUD 1,778,000 excluding GST to cover the administrators' costs and expenses, including six weeks of trading costs, remuneration, legal fees and sale process costs. It also said the administrators would not be personally liable for repayment, and that on liquidation the funder's entitlement to repayment would rank pari passu with other relevant liabilities and be limited to the assets of the company available to the administrators, subject to their indemnity. The funding carried interest at 10% per annum.

The administrators later drew down on the facility to fund operating expenses, continued employment of staff, employee entitlements as they fell due, and administration costs. A further $162,500 was advanced for pre-appointment wages and associated PAYG tax and superannuation. During the administration, RWG Technology Pty Ltd put forward a deed of company arrangement proposal. Creditors accepted that proposal on 20 February 2026, and on 27 February 2026 the DOCA and an asset sale agreement were executed.

After the company moved into the DOCA phase, the deed administrators applied to the Federal Court for retrospective orders. They wanted the Court to ensure that the former administrators would not be personally liable under the funding deed beyond the amount recoverable from company property through their statutory indemnity.

The legal tension came from the interaction between the funding deed and the Corporations Act. Under section 443A, administrators can be personally liable for debts they incur in carrying out their functions, including borrowed money and interest. Under section 443D, they have a right to be indemnified from company property for debts or liabilities incurred during the administration. But that indemnity does not eliminate all risk. If there is not enough company property available, the administrators may still face personal exposure for the shortfall.

That mattered here because the funding deed had already been drafted on a limited-recourse basis. It said the administrators would not be personally liable for repayment and that the funder's recovery would be limited in substance to company assets available through the administrators' indemnity. The funder also agreed to assist with an application under section 447A. Even so, the deed administrators were concerned that the statutory regime might still impose personal liability despite the contract.

So the application was not an attempt to rewrite a commercial deal after the event. It was an application to make Part 5.3A operate consistently with the bargain already struck and with the commercial purpose of the funding. The administrators had borrowed the money to keep the business operating and to support a sale and restructuring process. They wanted the Court to confirm that, if the company's property available for indemnity proved insufficient, they would not be personally liable for the gap.

The application was also retrospective. By the time the matter came before the Court, the funding had already been drawn down and used. That meant the Court had to consider not only whether the arrangement was appropriate in substance, but also whether it was proper to grant relief after the borrowing had already occurred.

The central legal issue was whether the Federal Court should use section 447A of the Corporations Act to modify the operation of Part 5.3A so that the former administrators' liability under section 443A for amounts owed under the 16 January 2026 funding deed was limited to the amount for which there was company property available to indemnify them under section 443D. The deed administrators also sought protection from personal liability for any shortfall if the indemnity was insufficient.

The judgment explains that section 447A gives the Court a broad power to modify how Part 5.3A operates in an appropriate case. The objects of the voluntary administration regime, set out in section 435A, are to administer an insolvent company in a way that either maximises the chances of the company, or as much as possible of its business, continuing in existence, or if that is not possible, results in a better return for creditors and members than an immediate winding up.

The Court referred to established authority showing that orders limiting administrators' personal liability are commonly sought where a company borrows funds from an external financier to fund ongoing trading during administration. The judgment also confirms that, in appropriate circumstances, section 447A can be used to exclude personal liability where that enables the company's business to continue to trade for the benefit of creditors.

The principles the Court drew from earlier cases included these. First, the proposed arrangement should be in the interests of creditors and consistent with the objectives of Part 5.3A. Second, these arrangements typically support continued trading for creditors' benefit. Third, creditors should not be prejudiced or disadvantaged by the orders sought and should stand to benefit from the administrators entering into the arrangement. Fourth, notice should be given to those who may be affected. The Court also accepted that relief can be granted retrospectively after the borrowing has already been incurred.

Importantly, those principles do not create an automatic entitlement. The Court still had to decide whether, on the actual evidence in this administration, the proposed modification was appropriate and justified.

Anderson J granted the application. The Court ordered that Part 5.3A operate so that the former administrators' liability under section 443A for amounts owed under the funding deed was limited to the amount for which there was property of VeroGuard Systems available to indemnify them under section 443D. The Court also ordered that if the indemnity was insufficient, they would not be personally liable to repay the amount of the insufficiency.

The reasons make clear that this result was not automatic. The Court was satisfied that relief was appropriate and justified because of the evidence put forward by the deed administrators. First, the administrators had made a bona fide determination that external finance was necessary to fund the administration and that the finance was in creditors' best interests. VeroGuard Systems did not have sufficient readily realisable assets to meet remuneration, out-of-pocket expenses and disbursements or to fund continued trading during the administration. Without funding, the administrators would have needed to cease operations, which would likely have resulted in termination of all employees and a material diminution in the saleable value of the business and assets.

Second, the Court accepted that the additional time and opportunity created by the funded administration enabled the proposal to be put forward and the DOCA to be executed. The judgment records favourable outcomes compared with the liquidation counterfactual. Employees were transferred to the proponent on the same employment terms, and where transfer was not agreed, employee entitlements and superannuation were paid out. Secured creditors received either repayment of part of their secured debt or a satisfactory reallocation or compromise under the DOCA. Unsecured creditors were to receive a share of a $300,000 cash contribution provided by the proponent as a pari passu dividend.

Third, the Court accepted the administrators' view that the terms of the funding deed, including unsecured finance at 10% interest per annum on a limited-recourse basis, were fair and reasonable given the short-term nature of the deed and the company's distressed financial position. The administrators had determined that the terms were better than could have been obtained from a third party in the market, particularly given the funder's motivation to support an administration that would allow its related entity to put forward the DOCA proposal.

Fourth, the proposed limitation of liability matched the bargain already reflected in the funding deed. Fifth, the Court accepted the explanation for why the application was made retrospectively rather than during the administration. The administrators' time and resources were constrained, their efforts were directed to achieving a favourable restructure and sale, and they were not otherwise before the Court because no extension of the convening period was sought. Sixth, the funder, the proponent, ASIC and creditors had all been notified of the application and no objections were received.

The Court also built in procedural safeguards. Notice of the order had to be published to creditors on the KordaMentha website within three business days, and any person with sufficient interest was given liberty to apply to discharge or vary the key order on reasonable notice.

This case is useful because it shows the kinds of documents and conduct the Court was prepared to rely on. The funding deed itself mattered. It did not simply provide money. It set out the amount to be advanced, the purposes for which the money would be used, the interest rate, the intended ranking on liquidation, the limited-recourse position and the funder's agreement to assist with a section 447A application. That made it easier for the Court to see the commercial bargain the parties had actually struck.

The administrators' conduct also mattered. They formed the view before appointment that funding was necessary and that they could not accept the role without it. They used the funds for the purposes identified in the deed, including trading costs, employee-related payments and administration costs. They also recommended the DOCA proposal to creditors on the basis that it would provide a superior return compared with other scenarios. The Court treated those matters as part of the factual context showing that the funding was directed to the objectives of administration rather than to some collateral purpose.

Transparency was another important feature. The judgment specifically records that the funder, the proponent, ASIC and creditors were notified of the application and that no objections were received. The Court then required publication of the orders and gave interested persons liberty to apply to vary or discharge them. For businesses and advisers, that is a practical reminder that notice and openness are not side issues. They can be central to whether the Court is comfortable granting relief.

The related-party context did not prevent relief, but it did make the evidence more important. One of the funder's directors was related to eight of the 13 secured noteholders and was also a director of the DOCA proponent. The Court still granted the orders because the administrators' evidence addressed necessity, fairness, creditor benefit and process. The case therefore shows that related-party involvement is not fatal, but it does increase the need for careful documentation and a clear explanation of why the arrangement benefits creditors overall.

For directors and founders of distressed companies, the case shows that a trading administration may still be viable even where the company has very limited cash, provided there is a realistic prospect that continued trading will preserve value and improve returns to creditors. But it also shows that administrators may be unwilling to take the appointment unless funding is secured and the personal liability position is addressed.

For funders and related parties, the case shows that limited-recourse administration funding can be workable, including where the funder has a commercial interest in a restructuring outcome. However, the Court will look closely at whether the terms are fair and reasonable in the distressed circumstances and whether the arrangement genuinely supports the objectives of Part 5.3A.

For creditors, the decision is a reminder that Court relief of this kind is meant to support creditor outcomes, not to give administrators a free pass. The Court focused on whether creditors were better off than they would have been in an immediate liquidation, whether anyone was prejudiced, and whether affected parties had notice and an opportunity to respond.

For administrators and advisers, the practical lesson is that a limited-recourse clause in a funding deed may not be enough by itself. If section 443A could still expose administrators personally, a section 447A application may be needed. The evidence should address necessity, fairness, creditor benefit, the use of funds, the reason for any retrospective application and the notice given to affected parties.

Most importantly, businesses should not read this case as creating a blanket rule. The Court granted relief because the evidence in this administration showed that the funding was necessary, the terms were fair in context, the arrangement helped produce a DOCA and sale outcome, and no objections were received after notice. A different factual record could produce a different result.

This decision gives a practical roadmap for businesses facing a cash-starved administration. Start with the immediate trading question. Is there enough underlying value in the business that continued trading could preserve jobs, support a sale process or improve returns to creditors? If the answer may be yes, the next question is whether funding is available on terms that are commercially workable and legally supportable.

Then focus on the documents. A funding deed should clearly identify the amount to be advanced, what it will be used for, the interest position, the intended ranking and the recourse limits. If the commercial intention is that the administrators are not to be personally exposed beyond available company assets, that should be stated clearly. Even then, legal advice may be needed on whether a Court application should be made to align the statutory position with the contract.

Evidence is critical. The Court in this case relied on evidence that the funding was necessary, that the company lacked sufficient readily realisable assets, that continued trading would preserve value, and that the funded administration helped produce a better outcome than immediate liquidation. If those matters cannot be shown, relief may be much harder to obtain.

Finally, process matters. Notify affected parties, including creditors and ASIC where appropriate, and keep a clear record of any objections or lack of objection. Transparency helped the applicants in this case and is likely to matter in others.

A common misunderstanding is that if a funding deed says the administrators are not personally liable, that ends the issue. This case shows that is not necessarily right. The administrators still sought Court orders because section 443A may impose personal liability for borrowed money and interest, and a contractual clause may not fully remove that statutory risk if there is a shortfall in the company property available for indemnity.

Another common question is whether the Court will always approve funding that keeps a business alive for a few more weeks. The answer is no. The Court granted relief here because the evidence showed the funding was necessary, the arrangement was in creditors' interests, the terms were fair and reasonable in the distressed circumstances, and the funded administration actually helped produce a DOCA and asset sale outcome that was better than immediate liquidation.

Businesses also often ask whether related-party funding is automatically suspect. The judgment shows that related-party involvement does not automatically prevent relief, but it does make the surrounding evidence and process more important. The Court recorded the relevant connections and still granted the orders because the administrators explained why the funding was needed, why the terms were fair, and why creditors benefited overall.

Finally, there is the timing question. Although the Court accepted a retrospective application here, that did not mean retrospective relief was guaranteed. The administrators had to explain why the application was not made earlier and why the order remained proper after the event. The Court accepted that explanation on the facts before it.

The company entered voluntary administration on 16 January 2026. The funding deed was entered into on the same day, just before the administrators' appointment. The administrators drew down on the facility on 27 January 2026, and an additional amount for pre-appointment wages and associated PAYG tax and superannuation was advanced on 29 January 2026. Creditors accepted the DOCA proposal on 20 February 2026, and the DOCA and asset sale agreement were executed on 27 February 2026. The Court made orders on 24 April 2026 and delivered reasons on 4 May 2026.

The judgment is a Federal Court decision on administration funding and the use of section 447A to modify the operation of Part 5.3A. It should be read as a case about the Court's discretionary power in a specific factual setting, not as a general approval of all related-party funding arrangements or all retrospective applications.

This explainer is based on the Federal Court of Australia decision Fung, in the matter of VeroGuard Systems Pty Ltd (Subject to Deed of Company Arrangement) [2026] FCA 539. The reasons were delivered by Anderson J on 4 May 2026, following orders made on 24 April 2026. The judgment records the terms of the funding deed relied on by the parties, the principles applied under section 447A, the evidence accepted by the Court and the reasons relief was granted.

The case should be read as a corporations and insolvency decision about administration funding, administrators' personal liability and the Court's power to modify the operation of Part 5.3A. It does not say that all limited-recourse funding deeds will be effective without Court orders, or that all retrospective applications will succeed. The outcome turned on the evidence and the fairness of the arrangement in the circumstances.