The Supreme Court of New South Wales dismisses an application by a creditor to remove the liquidators of a company. The liquidators had refused to conduct a public examination of the company’s director.
The Court held that they had reasonably formed the view that they should not conduct the examination.
What are the Key Findings?
- Let’s look at the recent decision reached by the Supreme Court of New South Wales, In the matter of ACN 151 726 224 Pty Ltd (in liq) previously Ridley Capital Holdings Pty Ltd  NSWSC 1801. It dismissed an application by a creditor under s 503 of the Corporations Act 2001 (Cth) (the Act) to remove the liquidators of a company. The liquidators had refused to conduct a public examination of the company’s director.
- In conclusion, the Court held that the liquidators had reasonably formed the view that they should not conduct the examination. Further, they stated that their independence was in conflict with the course of action proposed by the creditor.
Facts Surrounding Liquidators Refusal to Conduct Examination
On 18 November 2015, VMA Companies LLC (trading as Corbis Global) (the Creditor) obtained judgment against Ridley Capital Holdings Pty Limited (the Company) in the amount of $660,862.62. Two days after judgment, Messrs Copeland and Whitton were appointed liquidators of the Company in a creditors’ voluntary winding up. However, the liquidators’ searches showed no evidence of any property owned by the Company. In addition, they found only two bank accounts with a balance of $956.36.
The Creditor alleged that the Company had engaged in potential ‘phoenix activity’. This means that the Company transferred its business to related entities within the corporate group. They did this before placing the Company in liquidation.
Therefore, the Creditor advised the liquidators that it would fund a public examination of the Company’s director according to s 596A of the Act. However:
- the Creditor was prepared only to make a “contribution” toward the liquidators’ cost of application and,
- the solicitor of the Creditor was to act for them in the examination.
The liquidators decided that the available documents did not provide grounds to conduct the examination.
As a result, the Creditor applied to the Court for the removal of the liquidators under s 503 of the Act.
In considering if there was cause for removal, the Court drew the following conclusions:
- There was concern that the Creditor’s solicitors faced a conflict of interest. On the one hand their duty to promote the interests of the Creditor. On the other their role to advise the liquidators about the scope of the examination.
- There was also difficulty with the Creditor’s approach to the application. It wanted to remove the liquidators who acted according to the generally preferred approach. Why? Because they would not take a different, rare approach, which the Creditor put forward.
- Besides, it was open to the Creditor to seek other options, including:
- getting permission from ASIC to be an “eligible applicant” to conduct the examination itself,
- appeal the liquidators’ decision not to examine the director, and
- apply to appoint a special purpose liquidator to conduct the examination.
- The Creditor also raised other matters. This included a ‘perceived’ lack of independence and interest by the liquidators in conducting the investigation into the alleged ‘phoenix activity’. On this point, the Court noted that the liquidators did not receive funds to make such inquiries. S 545 of the Act clearly states that they did not need to incur expenses to make such an investigation. It was only necessary if the liquidators received payment or if directed by the Court. The Court considered that these matters raised no real question as to the liquidators’ independence. Nor the adequacy of the performance of their role in an unfunded liquidation.
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