FEDERAL COURT OF AUSTRALIA

Naudi, in the matter of ACN 156 335 787 Pty Ltd (in liq) [2017] FCA 815

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiffs be heard as to the form of the orders.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BESANKO J:

introduction

1    There are three plaintiffs to this proceeding and they are Mr Robert Naudi, Mr Austin Taylor and Mr Stuart Reid. Mr Naudi is a chartered accountant, a registered liquidator and a registered trustee in bankruptcy practising in South Australia and elsewhere. Mr Taylor is a chartered accountant and a registered liquidator practising in South Australia. Mr Reid is a certified practising accountant, a registered liquidator and a registered trustee in bankruptcy practising in the Northern Territory and elsewhere.

2    Until recently, all plaintiffs practised in a firm of chartered accountants which carried on business under the firm name and style of Meertens Chartered Accountants (Meertens). Mr Naudi and Mr Taylor practised together at offices located in Adelaide, South Australia and Darwin in the Northern Territory and Mr Reid was employed by Meertens as an associate.

3    Mr Naudi and Mr Taylor are the joint and several liquidators of 17 companies and of an association incorporated under the Associations Act (NT). By reason of s 72 of the Associations Act, the Corporations Act 2001 (Cth) (the Act) applies to an external administration of an association incorporated under the Associations Act. Mr Naudi and Mr Reid are the joint and several liquidators of three companies. Mr Taylor is the sole liquidator of three companies and Mr Reid is the sole liquidator of one company.

4    Mr Naudi tendered his resignation with Meertens with effect from the close of business on 22 June 2017 in order to start practice on his own account. He is unable, conveniently, to discharge the duties of his office as the joint and several liquidator of the various companies. He has agreed with Mr Taylor and Mr Reid to remove himself from those administrations and allow Meertens to retain the conduct of those administrations.

5    Mr Naudi expresses the opinion that it is generally preferable to conduct every external administration either jointly or jointly and severally with another external administrator. This is particularly the case (he states) in a firm such as Meertens which has offices in Adelaide and Darwin as well as several appointments in remote and rural locations. Each of Mr Taylor and Mr Reid express similar opinions. Mr Naudi also expresses the opinion that the size and complexity of some of the administrations warrant the appointment of two joint and several external administrators and he submits that the interest of creditors will be best served by the appointment of two external administrators to act jointly and severally. Mr Taylor expresses a similar opinion in relation to three companies as does Mr Reid in relation to one (different) company.

6    Mr Naudi seeks orders that he be removed as liquidator of certain companies and replaced by Mr Reid in those cases where Mr Taylor is the other liquidator and replaced by Mr Taylor in those cases where Mr Reid is the other liquidator. Relevant consents, declarations of independence, relevant relationships and indemnities have been executed.

7    In addition to the orders sought in relation to Mr Naudi’s exit from the firm, Meertens, there are three companies where Mr Taylor is currently the sole liquidator and the appointment of Mr Reid as a second liquidator (joint and several) is sought, and one company where a similar order is sought in circumstances where the position between Mr Taylor and Mr Reid is reversed.

8    The Australian Securities and Investments Commission (ASIC) has been notified of this application and it has indicated that it does not propose to intervene in the proceeding or seek leave to appear at the hearing.

Summary of ORders Sought

9    In order to understand the issues, it is convenient to identify the following categories.

10    Category one consists of 18 entities in liquidation, 17 companies and one incorporated association. Of the 18 entities, eight were wound up (and liquidators appointed) by Court order and 10 were voluntarily wound up by creditors’ resolution. Of the Court ordered liquidations and appointments, three were by order of this Court, four were by orders of the Supreme Court of South Australia, and one was by order of the Supreme Court of the Northern Territory.

11    As to the Court ordered liquidations, the plaintiffs seek an order that Mr Naudi and Mr Taylor be removed as joint and several liquidators and that Mr Taylor and Mr Reid be appointed joint and several liquidators. They rely on s 473(1) and (7) of the Act which provide as follows:

(1)    A liquidator appointed by the Court may resign or, on cause shown, be removed by the Court.

…

(7)    A vacancy in the office of a liquidator appointed by the Court must be filled by the Court.

12    In the case of the creditors’ voluntary liquidations, the plaintiffs seek an order that Mr Naudi be removed and replaced by Mr Reid and they rely on s 503 of the Act which provides as follows:

The Court may, on cause shown, remove a liquidator and appoint another liquidator.

13    Category two consists of three companies in liquidation, all of which were placed in liquidation by orders of the Court. The orders sought are that Mr Naudi and Mr Reid be removed and Mr Taylor and Mr Reid be appointed and the plaintiffs again rely on s 473(1) and (7) of the Act.

14    Category three consists of three companies in liquidation, all of which were placed in liquidation by Court order where in two cases the Court is this Court and in one case the Court is the Supreme Court of Victoria. Mr Taylor is the sole liquidator (there were originally two liquidators in the case of two companies, but one resigned some time ago) and an order is sought that he be removed and that Mr Taylor and Mr Reid be appointed and the plaintiffs rely on s 473(1) and (7) of the Act.

15    Category four consists of one company which was placed in liquidation by order of the Supreme Court of the Northern Territory. Mr Reid is the sole liquidator and an order is sought that he be removed and that Mr Taylor and Mr Reid be appointed. The plaintiffs rely on s 473(1) and (7) of the Act.

relevant principles

16    The relevant principles concerning ss 473(1) and (7) and 503 are as follows:

(1)    Section 503 of the Act applies to a creditors’ voluntary liquidation and the section refers to removal “on cause shown”. The section applies in cases where there is personal unfitness, impropriety or breach of duty on the part of the liquidator, but is not restricted to such cases. The section is engaged whenever the Court is satisfied that removal is for the better conduct of the liquidation. That could include a case where a liquidator wishes to resign and approaches the Court in order to avoid a gap in the administration (City & Suburban Pty Ltd v Smith (as liquidator of Conpac (Aust) Pty Ltd (in liq)) and Another (1998) 28 ACSR 328 at 336 per Merkel J; Apple Computer Australia Pty Ltd v Wiley and Another [2003] NSWSC 719; (2003) 46 ACSR 729 at [36]-[37] per Barrett J; Emerton Pty Ltd v Referral Marketing Services Pty Ltd & Ors [2009] NSWSC 738 at [19] per Brereton J).

(2)    Where one of two liquidators in a creditors’ voluntary liquidation wishes to resign, an appropriate order may be an order under s 503 removing both original liquidators and appointing one of the original liquidators and a new liquidator (Re Free [2010] NSWSC 1079 at [21] per Barrett J).

(3)    In the case of a creditors’ voluntary winding up, one of two joint liquidators may resign and the remaining liquidator can be removed under s 503 of the Act and then be appointed as sole liquidator (Re Porter and Mansfield [2012] NSWSC 220 at [9] per Black J). The reason for this particular form of order is that the power to remove and appoint is a composite power (McGrath & Anor in their capacity as liquidators of HIH Insurance Ltd (in liq) [2005] NSWSC 506 (McGrath) at [4] per Barrett J).

(4)    In the case of a sole liquidator who has been appointed by the Court, he or she may resign and the Court may fill the vacancy (Re Free at [11] per Barrett J; Re Porter and Mansfield at [6] per Barrett J; Re Gavin Frederick Critchon Thomas and the Corporations Act 2001 [2013] NSWSC 2016 at [6] per Black J).

(5)    Where one of two joint and several liquidators appointed by the Court resigns, the remaining liquidator can continue to act as sole liquidator (s 530 of the Act; Re Gavin Frederick Critchon Thomas and the Corporations Act 2001 at [8] per Black J).

(6)    There is authority to the effect that where one of two joint and several liquidators appointed by the Court resigns and there is a desire that the remaining liquidator continue, but with a new appointee, there is power under s 473(7) for the Court to appoint a new liquidator (McGrath at [8]-[11] per Barrett J). A contrary view was taken in Condon v Watson (2009) 174 FCR 314 (Condon v Watson) where Lindgren J held that for the purposes of s 473(7), there is only a vacancy in the office of a liquidator for the purposes of that subsection where a sole liquidator or all co-liquidators have ceased to hold office (at [63]). Justice Lindgren distinguished McGrath on the basis that since it was decided, s 530 had been inserted into the Act.

(7)    Five of the eight companies in category one, one of the three companies in category three and the company in category four were put into liquidation by orders of a court other than this Court. A question arises as to whether this Court has the power to make the orders sought with respect to those companies.

This issue was considered by Chief Judge Bergin in Re Ambridge Investments Pty Ltd [2015] NSWSC 1671. That case involved (relevantly) a sole liquidator appointed by a superior court other than the Supreme Court of New South Wales who sought to resign and the Supreme Court of New South Wales being approached to appoint a replacement liquidator under s 473(7). Chief Judge Bergin held that “Court” where it last appears in s 473(7) may be read as any of the Courts defined in s 58AA of the Act. Her Honour said (at [13]-[15]):

… However I agree with the approach adopted in the above mentioned authorities and conclude that the expression “Court“ where it secondly appears in s 473(7) may be read as any of the courts defined in s 58AA of the Act.

In the present case this court is not being asked to countermand the order of the Federal Court or the order of the Victorian Supreme Court. Rather this court is asked to make a consequential order in respect of the winding up of those companies by reason of a step taken by the liquidator. The resignations take effect when the liquidator files his memoranda of resignation with the Registrar of the Court pursuant to the Corporations Rules and lodges them with ASIC. It is these steps that create the vacancies. The vacancy must be filled by the court.

I am satisfied having regard to the approach adopted in the authorities referred to above that this court does have the power to make the orders sought by the plaintiffs in these proceedings. …

Analysis

17    There is good reason to make the orders sought. Mr Naudi wishes to retire from his position, a circumstance which will not infrequently arise. It is a sufficient ground for removal. There is a clear benefit to the administrations in ensuring continuity with the one firm (Re Free at [6] per Barrett J). Furthermore, there is good reason for having more than one liquidator. I accept the evidence of each of the plaintiffs in that regard (see also, and by way of example, Re Free at [16] per Barrett J). In the case of the creditors’ voluntary liquidations, meetings of the creditors might be convened. However, Court orders will avoid the cost, delay and inconvenience of such meetings in circumstances where I consider the costs and delay to be wasteful and unnecessary (Re Vouris [2004] NSWSC 384; 49 ACSR 543 at [11] per Barrett J; Condon v Watson at [11] per Lindgren J and Re Free at [6] per Barrett J).

18    I will follow the decision in Re Ambridge Investments Pty Ltd and hold that this Court can make orders under s 473(7) even where the liquidation and the appointment of liquidators was made by another superior court.

19    I will also follow the decision of Condon v Watson. The plaintiffs did not seek to argue that that decision was wrong. A vacancy within s 473(7) does not arise upon the resignation of one of two or more liquidators.

20    I am satisfied that I can make an order under s 473(7) removing all liquidators, including one who wishes to resign and appoint an original liquidator and a new liquidator. That can be done under s 503 and I see no reason why it cannot be done under s 473(7).

21    However, I am not satisfied that I am empowered under s 503 to simply remove and replace one of two or more liquidators. The plaintiffs did not refer to any authority to the effect that I could do that and, in fact, the authority to which I was referred suggests that a different order is appropriate (Re Free at [21] per Barrett J). I do have the power to remove all liquidators and appoint an original liquidator and a new liquidator.

conclusion

22    I am prepared to make the orders sought by the plaintiffs, subject to an amendment to paragraph 3. I will hear from the plaintiffs as to the terms of that amendment.

23    There should also be an order that ASIC be advised of the Court’s orders and, in addition, I will grant liberty to apply. I should make it clear that it is for the plaintiffs to ensure that all additional or consequential requirements of the Corporations Act, Corporations Regulations or Corporations Rules are complied with.

Associate:    

Dated:    24 July 2017

SCHEDULE