FEDERAL COURT OF AUSTRALIA

Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed) [2017] FCA 486

FEDERAL COURT OF AUSTRALIA

Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed) [2017] FCA 486

ADDENDUM

GLEESON J:

1    These reasons incorrectly state that the orders were made pursuant to s 90-15 of Schedule 2 to the Corporations Act 2001 (Cth), which is titled “Insolvency Practice Schedule (Corporations)”.

2    Contrary to [26] of my reasons, the commencement date of ss 45-1 and 90-15 of the Insolvency Practice Schedule (Corporations) is 1 September 2017.

3    Accordingly, the source of power to make the orders in this case is ss 479(3), 506(1)(b) and 511 of the Corporations Act 2001 (Cth). Sections 479(3) and 511 continue to operate until 1 September 2017 by virtue of reg 10.25.02(3)(h) of the Corporations and Other Legislation Amendment (Insolvency Law Reform) Regulation 2016 (Cth).

Associate:

Dated:    25 August 2017

ORDERS

THE COURT ORDERS THAT:

1.    The first plaintiffs are justified in remaining in their role as the appointed liquidators in the winding up of the second plaintiff (“Company”).

2.    The costs of the application be the costs of the first plaintiffs, and are not to be met by the Company or from any realisation of assets in the winding up of the Company.

3.    Any creditor of the Company or other person demonstrating sufficient interest in these orders have liberty to apply on 3 days’ notice.

4.    The first plaintiffs are to notify creditors of the Company within 14 days of the terms of these orders together with a written explanation of the nature of the application and the outcome, with such notification being provided by email or (where unavailable) post.

5.    Order 3 of the orders made on 31 March 2017 be extended until further order.

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

REASONS FOR JUDGMENT

GLEESON J:

1    On 19 April 2017, I made an order that the first plaintiffs (“liquidators”) are justified in remaining in their role as the appointed liquidators in the winding up of the second plaintiff (“Poles & Underground”) as well as ancillary orders. The orders were made pursuant to s 90-15(1) of the Insolvency Practice Schedule (Corporations), which is Schedule 2 to the Corporations Act 2001 (Cth) (“Act”).

2    These are my reasons for making those orders.

Background facts

3    Poles & Underground conducted a business of the provision of overhead and underground transmission infrastructure services. The third plaintiff (“Icon”) provided equipment to Poles & Underground to conduct its business.

4    The liquidators were appointed liquidators of Poles & Underground and Icon on 9 February 2017, following a resolution by the creditors of each of those companies pursuant to s 436C(c) of the Act.

5    The liquidators’ appointment followed their appointment as administrators of the companies on 9 November 2016 by a resolution of the board of directors of each of those companies pursuant to s 436A of the Act.

6    Prior to these events, on about 19 April 2016, PPB Advisory (being the liquidators’ firm) was initially engaged by Poles & Underground to provide certain accounting services. The services provided under the engagement included a review of Poles & Underground’s financial affairs and performance as well as the provision of a report arising from that review. The engagement came to include the provision of reports to the National Australia Bank (Poles & Underground’s secured creditor) and also weekly and monthly reports. Mr Daniel Walley (one of the liquidators) was the lead partner at PPB Advisory who worked on the engagement.

7    PPB Advisory’s initial report to Poles & Underground dated 24 May 2016 included an integrated financial forecast and identified the ability of the company to remain within its overdraft limit until 31 July 2016. Weekly reports and status update reports of 22 July 2016, 8 August 2016, 25 August 2016, 7 October 2016 and 12 October 2016 were prepared. None of the reports expressed any view as to the solvency of Poles & Underground, however the reports did provide commentary on the company’s financial position.

8    PPB Advisory charged and received $95,289.24 plus GST in respect of the engagement with Poles & Underground prior to the company going into external administration.

9    Following their appointment as joint and several administrators, the liquidators (in their capacity as administrators) sent a notice to creditors of the two companies which included a Declaration of Independence, Relevant Relationships and Indemnities (“DIRRI”). The DIRRI described the previous investigating accountant engagement and set out the reasons why the administrators considered that the engagement did not give rise to any “impediment or conflict”. The DIRRI disclosed the receipt of $95,289.24 for services provided pursuant to the engagement.

10    The administrators’ report pursuant to s 439A of the Act, dated 1 February 2017, recommended that Poles & Underground be wound up in the absence of a deed of company arrangement proposal. An amended DIRRI was included with the report, which included details of the meetings held between staff of PPB Advisory and the management of Poles & Underground prior to it going into external administration.

11    On 9 February 2017, the second meeting of creditors was convened. It was determined at the meeting that Poles & Underground be wound up, there being no proposal for a deed of company arrangement. Following the carrying of the motion to wind up Poles & Underground, the minutes record, in “Other Business”, the following:

The Chairperson asked if creditors wished to discuss any other matters.

The question was raised from the floor whether there was any potential conflict of the administrators being appointed as liquidators due to the pre-appointment work they performed. The Chairperson advised that he would seek independent legal advice regarding any potential conflict at PPB Advisory’s cost.

12    Following the second creditors meeting, the liquidators considered the issue of conflict and sought legal advice.

13    Since the liquidators’ appointment in February 2017, no recovery actions or substantive investigations into actions have commenced, including any claims against parties in respect of unfair preferences.

Potential conflict of interest

14    As a result of obtaining legal advice, the liquidators identified two matters which might give rise to a conflict of interest. They are:

(1)    the fees of $95,289 plus GST paid to PPB Advisory in respect of the engagement with Poles & Underground prior to 9 November 2016; and

(2)    the liquidators’ work on that engagement.

15    As to the first matter, the conflict has been addressed by the repayment of the fees to the bank account maintained for Poles & Underground by the liquidators.

16    As to the second matter, the second-named first plaintiff, Mark Robinson, gave an example of how a conflict might arise. Mr Hynes, counsel for the plaintiffs, confirmed that the example is not based on any particular knowledge of any particular facts or events that have happened that suggest a potential conflict. That is, the prospect that the liquidators’ prior engagement might give rise to a conflict of interest is a theoretical prospect.

17    Mr Robinson gave evidence that, in his experience, it is extremely common for liquidators to have engagements as investigating accountants prior to formal appointments as administrators and/or liquidators and to do so without any issues of conflict arising.

18    Mr Robinson’s belief is that it is in the best interests of the creditors that the liquidators remain as the appointed liquidators of Poles & Underground. Mr Robinson gave evidence that if, at some stage in the future, an issue of conflict arises concerning the liquidators’ prior engagement, he will approach the Court for further directions.

Procedural matters

19    The liquidators made their application on an ex parte basis.

20    In support of the application, the liquidators relied upon three affidavits sworn by Mr Robinson, dated 1 December 2016, 30 March 2017 and 18 April 2017.

21    The liquidators relied upon written submissions prepared by Mr Hynes of counsel dated 30 March 2017 and Mr Hynes’ oral submissions.

22    The application was first listed for hearing on 31 March 2017. On that occasion, I decided that the creditors of Poles & Underground should be notified of the application and given an opportunity to seek to appear on the application. Accordingly, I made the following orders:

1.    The first plaintiff’s interlocutory process filed on 31 March 2017 is stood over to 19 April 2017 at 10.15 am.

2.    The first plaintiffs are to notify the creditors of the second plaintiff within 7 days of the terms of the application and these orders, together with such other information as the first plaintiffs consider appropriate, with such notification being provided by the usual means of communication in the liquidation.

3.    Pursuant to s 37AF of the Federal Court Act of Australia 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice, paragraphs 51(b) and 55 of the affidavit of Mark Julian Robinson sworn on 30 March 2017 and paragraphs 10(b), 11 and 23(b) of the Liquidators’ Outline dated 30 March 2017 are not to be published and/or accessed except pursuant to an order of the Court. This order has effect until 5.00 pm on 19 April 2017

23    Consequently, the liquidators caused a circular to be sent to the known creditors of Poles & Underground and Icon, notifying them of the application. The circular was sent to 385 creditors of the companies, and was posted on PPB Advisory’s website. Relevantly, the circular informed the creditors of the hearing on 19 April 2017 and requested them to ensure that they (or a legal representative) attended the hearing if they had any objection to the liquidators continuing in their role as the appointed liquidators of Poles & Underground, in order that their position could be made known to the Court.

24    No creditor sought to appear at the hearing on 19 April 2017.

25    Mr Robinson’s evidence was that, when he swore his affidavit on 18 April 2017, he was not aware of any creditor who had either contacted PPB Advisory by telephone or sent any correspondence to PPB Advisory’s office in response to the circular or otherwise with respect to the liquidators’ application or the liquidators continuing in their current role with the companies.

Legal framework

Statutory provisions

26    The liquidators sought orders under s 45-1 and/or s 90-15 of Schedule 2 to the Act, which is entitled “Insolvency Practice Schedule (Corporations)”. The Insolvency Practice Schedule (Corporations) is given effect to by s 600K of the Act and has been in force since 1 March 2017.

27    Section 45-1 provides:

(1)    The Court may make such orders as it thinks fit in relation to a registered liquidator.

(2)    The Court may exercise the power under subsection (1):

(a)    on its own initiative, during proceedings before the Court; or

(b)    on application under subsection (3).

(3)    Each of the following persons may apply for an order under subsection (1):

(a)    the registered liquidator;

(b)    ASIC.

(4)    Without limiting the matters which the Court may take into account when making orders, the Court may take into account:

(a)    whether the registered liquidator has faithfully performed, or is faithfully performing, the registered liquidator’s duties; and

(b)    whether an action or failure to act by the registered liquidator is in compliance with this Act and the Insolvency Practice Rules; and

(c)    whether an action or failure to act by the registered liquidator is in compliance with an order of the Court; and

(d)    whether any person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the registered liquidator; and

(e)    the seriousness of the consequences of any action or failure to act by the registered liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.

(5)    This section does not limit the Court’s powers under any other provision of this Act, or under any other law.

28    Section 90-15 provides:

Court may make orders

(1)    The Court may make such orders as it thinks fit in relation to the external administration of a company.

Orders on own initiative or on application

(2)    The Court may exercise the power under subsection (1):

(a)    on its own initiative, during proceedings before the Court; or

(b)    on application under section 90‑20.

Examples of orders that may be made

(3)    Without limiting subsection (1), those orders may include any one or more of the following:

(a)    an order determining any question arising in the external administration of the company;

(b)    an order that a person cease to be the external administrator of the company;

(c)    an order that another registered liquidator be appointed as the external administrator of the company;

(d)    an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company;

(e)    an order in relation to any loss that the company has sustained because of a breach of duty by the external administrator;

(f)    an order in relation to remuneration, including an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company.

Matters that may be taken into account

(4)    Without limiting the matters which the Court may take into account when making orders, the Court may take into account:

(a)    whether the liquidator has faithfully performed, or is faithfully performing, the liquidator’s duties; and

(b)    whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and

(c)    whether an action or failure to act by the liquidator is in compliance with an order of the Court; and

(d)    whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and

(e)    the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.

Costs orders

(5)    Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include an order that:

(a)    the external administrator or another person is personally liable for some or all of those costs; and

(b)    the external administrator or another person is not entitled to be reimbursed by the company or its creditors in relation to some or all of those costs.

Orders to make good loss sustained because of a breach of duty

(6)    Without limiting subsection (1), an order mentioned in paragraph (3)(e) in relation to a loss may include an order that:

(a)    the external administrator is personally liable to make good some or all of the loss; and

(b)    the external administrator is not entitled to be reimbursed by the company or creditors in relation to the amount made good.

Section does not limit Court’s powers

(7)    This section does not limit the Court’s powers under any other provision of this Act, or under any other law.

29    By s 5-15 of the Insolvency Practice Schedule (Corporations), a company is taken to be under external administration if, relevantly, a liquidator has been appointed in relation to the company.

30    Section 1576 of the Act provides that the Court may exercise its powers to make an order under section 45-1 of the Insolvency Practice Schedule (Corporations), whether or not the action or failure to act in relation to which, or because of which, the order is made occurs before, on or after the commencement day.

31    Section 1615 provides that Div 90 of the Insolvency Practice Schedule (Corporations) applies in relation to an ongoing external administration whether or not the matter to be reviewed occurred before, on or after the commencement day.

32    The liquidators submitted that the Court’s supervisory powers under the new provisions are as broad, or broader than, its powers under the previous provisions, being the former ss 479(3) and 511 of the Act.

33    Section 479(3) allowed a Court-appointed liquidator to apply to the Court for directions in relation to a matter arising under a winding up. The function of a liquidator’s application for directions under s 479(3) was to give the liquidator advice as to the proper course of action for him or her to take in the liquidation: Re MF Global Australia Ltd (in liq) [2012] NSWSC 994; (2012) 267 FLR 27 (“MF Global”) at [7].

34    A direction could be made in a voluntary liquidation, by reason of the combined operation of ss 479(3), 506(1)(b) and 511: cf Warne v GDK Financial Solutions; Peridon Village Nominees, application of Billingham [2006] NSWSC 464; (2006) 24 ACLC 1019 at [63]; MF Global at [7]; Re ICS Real Estate Pty Ltd (in liq); and Re Independent Contractor Services (Aust) Pty Ltd (in liq) [2014] NSWSC 479 (“ICS Real Estate”) at [23]-[25]; Warner, re GTL Tradeup Pty Ltd (in liq) [2015] FCA 323; (2015) 104 ACSR 633 at [2]; Parker (Liquidator) v SSL Management Pty Limited T/As Sunrise Supported Living (In Liq); Re SSL Management Pty Limited T/As Sunrise Supported Living (In Liq) [2016] FCA 1053 at [16].

35    In Re Ansett Australia Ltd and Korda [2002] FCA 90; 115 FCR 409, concerning s 479(3), Goldberg J explained at [44]:

When liquidators and administrators seek directions from the Court in relation to any decision they have made, or propose to make, or in relation to any conduct they have undertaken, or propose to undertake, they are not seeking to determine rights and liabilities arising out of particular transactions, but are rather seeking protection against claims that they have acted unreasonably or inappropriately or in breach of their duty in making the decision or undertaking the conduct. They can obtain that protection if they make full and fair disclosure of all relevant facts and circumstances to the Court. In Re G B Nathan & Co Pty Ltd (1991) 24 NSWLR 674, McLelland J said at 679-680:

The historical antecedents of s 479(3) …, the terms of that subsection and the provisions of s 479 as a whole combine to lead to the conclusion that the only proper subject of a liquidator’s application for directions is the manner in which the liquidator should act in carrying out his functions as such, and that the only binding effect of, or arising from, a direction given in pursuance of such an application (other than rendering the liquidator liable to appropriate sanctions if a direction in mandatory or prohibitrary form is disobeyed) is that the liquidator, if he has made full and fair disclosure to the court of the material facts, will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him in accordance with the direction.

...

Modern Australian authority confirms the view that s 479(3) ‘does not enable the court to make binding orders in the nature of judgments’ and that the function of a liquidator’s application for directions ‘is to give him advice as to his proper course of action in the liquidation; it is not to determine the rights and liabilities arising from the company’s transactions before the liquidation’: [cases cited omitted].

36    At [65], Goldberg J concluded:

[T]he prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. There must be some issue which arises in relation to the decision. A court should not give its imprimatur to a business decision simply to alleviate a liquidator’s or administrator’s unease. There must be an issue calling for the exercise of legal judgment.

37    In Woodings, re Bell Group Ltd (No 2) [2016] FCA 1126 at [11], McKerracher J concluded that where there may be a perception that in making a decision the liquidator is in a position of potential or apparent conflict of interest or duty, that circumstance raised an issue of propriety making it an appropriate case for directions.

38    Generally speaking, applications under s 511 were treated in the same manner as applications for directions in a Court-ordered winding up under s 479(3): ICS Real Estate at [23], citing Dean-Willcocks v Soluble Solution Hydroponics (1997) 42 NSWLR 209 (“Soluble Solution Hydroponics”) at 212; Crawford v Oswald Park Pty Ltd (in liq) [2006] NSWSC 987 at [10]; S & D International (in liq) v MIG Property Services [2010] VSC 336; (2010) 79 ACSR 373 (“S & D International”) at [7]; Re Purchas as liquidator of Astarra Asset Management Pty Ltd (in liq) [2011] NSWSC 91 (“Re Purchas”) at [33]; Re 7 Steel Distribution Pty Limited (in liq) (recs and mgrs apptd) [2013] NSWSC 669 at [20].

39    Under s 511(2), the power under s 511 was only to be exercised if the determination of the relevant question or the exercise of power sought “will be just and beneficial”: Re Willmott Forests Ltd (No 2) [2012] VSC 125; (2012) 88 ASCR 18 at [46]. The Court could exercise the discretion where the relief sought by the liquidator is “of advantage to the liquidation”: Re Purchas at [34], citing Soluble Solution Hydroponics at 212 and S & D International at [7].

40    In Soluble Solution Hydroponics at 213, Young J saw no reason why, in a proper case, the Court could not exercise its powers under s 511 on an ex parte application.

41    I was satisfied that the Court had power to make the orders sought pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) and that the question of whether to exercise that power was to be answered by reference to the principles that applied to the exercise of the discretions previously contained in s 479(3) and s 511 of the Act.

42    The scope of s 45-1 is less clear. On its face, s 45-1 is expressed in very general terms, and may provide power to make an order of the kind sought in this case. It was unnecessary to resolve whether s 45-1 was enlivened, in light of the power conferred by s 90-15.

Conflict issues

43    In Australian Executor Trustees Ltd v Provident Capital Ltd, re Provident Capital Ltd (recs and mgrs apptd) (in liq) [2013] FCA 1461 (“Australian Executor Trustees Ltd”), Rares J said (at [11]-[14]):

11.    It is extremely important that in cases where a person who has been appointed to an office by the Court, such as a liquidator, receiver or trustee, apprehends that a potential conflict of interest or duty or other difficulty confronts him or her in the performance of that office, the officer feels not only free, but obliged, to inform the Court immediately of the problem. It is the Court’s responsibility to supervise, and, if appropriate, protect its officers in the conduct of their functions on its behalf. The Court must be informed of the problem by the officer, whether or not he or she is fully prepared with every item of information that he or she considers might be desirable to bring to the Court’s attention. That is so that the Court can consider for itself how to address the problem and, where appropriate, assist and give relevant directions to the officer as to what is necessary for him or her to put before it.

12.    The officer’s responsibility to bring the matter to the Court’s notice cannot be understated. The officer acts on behalf of the Court, and whilever the problem exists, it has the potential to affect the public’s perception of the independence and integrity of the Court. To take an extreme case, far removed from this, it is not difficult to think what would be of the reaction of the public or third parties as to what the Court were doing, if a Court-appointed trustee were charged with defrauding someone, but continued to exercise the office, where the Court was not even aware of those circumstances.

13.    It is vital that a Court-appointed officer understand that the Court has a role both to assist him or her in a circumstance of difficulty as soon as it arises as well as to protect its own institutional integrity. Sometimes the difficulty may mean that the officer must be discharged from the office, for example, because a real or substantial possibility of a conflict between the personal interests or duties of the officer and those of the Court or some other difficulty is perceived.

14.    The officer conducts a public function on behalf of the Court. It is also critically important for the officer to understand that it is the Court’s, and not the officer’s, responsibility to determine what, if anything, needs to be done about any such potential conflict or other difficulty. The Court can make its decision as soon as it considers appropriate having regard to the issue. The reason for this is not far to seek. The authorities have made clear that it is of the greatest importance that an officer of the Court appear to be, and is in fact, independent, and that his or her position in exercising his or her functions is not open to challenge. In Re Giant Resources Limited [1991] 1 Qd R 107 at 117, Ryan J distilled the ratio decidendi of the Appeal Division of the Supreme Court of Victoria in Re National Safety Council of Australia, Victorian Division [1990] VR 29 at 34 per Young CJ, Murphy and Marks JJ as follows:

A liquidator should not be put in a position where his independence might be open to challenge. It is of the greatest importance that there should be no possibility of criticism attaching to one of the Court’s own officers on the ground of a conflict of interest. The liquidator needs to be seen to be independent in any matter in which his duties as liquidator may require him to investigate.

44    In Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 (“Advance Housing”) at 233-234, Santow J discussed the application of the principle that liquidators must be independent and be seen to be independent in the context of an application for removal of a liquidator as follows:

In Re Chevron Furnishers Pty Ltd (rec and mgr apptd) (in liq); Queensland Amalgamated Industries Pty Ltd v Harris (1993) 12 ACSR 565 the following passage appears at 570:

Much was also said in the course of argument about the necessity for a liquidator not only to be “independent” but also to be “seen to be independent”. In that regard reference was made, inter alia, to Re National Safety Council of Australia Victoria Division [1990] VR 29 at 34 Re Queensland Stations Pty Ltd (1991) 9 ACLC 1341 at 1344; Re Giant Resources Ltd (1991) 1 Qd R 107 and Re Clubs Superstores Australia Pty Ltd (1993) 10 ACSR 730. The principle established by those cases is undoubted. The liquidator must have had no prior or other involvement either with the company in liquidation, its directors and major shareholders, or one of its creditors such that he could not fairly and impartially carry out his duties as liquidator requiring him, in broad terms, to act in the best interests of the general body of creditors. The facts here do not establish any want of independence in that sense.

If the foregoing statement were taken as precluding any association, it being in the circumstances obiter, then even the most limited prior involvement with the company in liquidation could disqualify the relevant firm of accountants from providing one of its partners as liquidator. In my judgment, the correct balance is struck by permitting a liquidator to act as such even if there be a prior involvement with the company in liquidation, provided that involvement is not likely to impede or inhibit the liquidator from acting impartially in the interests of all creditors or be such as would give rise to a reasonable apprehension on the part of a creditor that the liquidator might be so impeded or inhibited. In short the question should be whether there would be a reasonable apprehension by any creditor of lack of impartiality on the liquidator’s part in the circumstances, by reason of prior association with the company or those associated with it, including creditors, or indeed any other circumstance.

In reality, creditors are frequently well served by an appointment of a liquidator who has some familiarity with the affairs of the company provided that the reasons that led to that familiarity do not give rise to such an apprehension or reflect an actual or perceived conflict; compare, in context of bias generally, R v Watson; Ex parte Armstrong (1976) 136 CLR 248; 9 ALR 551 and Livesey v NSW Bar Association (1983) 151 CLR 288 at 294; 47 ALR 45 .

45    This passage was cited with approval by White J (Jessup and Robertson JJ agreeing) in Australian Securities and Investments Commission v Franklin (liquidator), re Walton Constructions Pty Ltd [2014] FCAFC 85; (2014) 223 FCR 204 at [58] and by Jacobson J in Gorman v Australian Securities and Investments Commission [2008] FCA 962 at [9].

46    In Advance Housing, Santow J decided that the liquidator should be given an opportunity to retire in the light of his Honour’s conclusion that there was an appearance of a possible conflict of interest where the liquidation required an investigation into payments made to the liquidator’s firm in connection with its investigation into the plaintiffs’ financial position prior to the liquidator’s appointment as administrator. At 237, his Honour observed that the investigation placed the liquidator’s firm in a “similar position of at least perceived conflict” to that of an auditor. However, his Honour considered that:

… if these proceedings were to deal more comprehensively with the role played and to dispel that perception, that might lead, with other factors such as the length of time that had passed, to allowing the liquidator to stay in office ‘as a counsel of practical expediency’: compare Re Dunquil Pty Ltd [(1985) 9 ACLR 950] at 958.

47    In Domino Hire Pty Ltd v Pioneer Park Pty Ltd (In Liq) [1999] NSWSC 1046; (1999) 18 ACLC 13 (“Domino Hire”), Hamilton J reached a similar conclusion to Santow J. His Honour concluded that there was a real appearance of lack of independence flowing from the liquidators’ actions as the investigating accountants of the company’s secured creditor, particularly when coupled with events since that time which included omission of relevant information from notices of meeting, misleading communications and the fact of and circumstances surrounding the calling of a meeting of a committee of inspection for the purpose of having that committee support their position as liquidators.

Consideration

48    In contrast with the cases of Advance Housing and Domino Hire, no creditor seeks the removal of the creditors or has otherwise indicated opposition to the liquidators continuing in their current role.

49    The liquidators approached the Court for directions as a result of the question of conflict of interest arising at the meeting of creditors on 9 February 2017, which led to the liquidators obtaining legal advice.

50    The liquidators have now recognised the conflict of interest arising from their receipt of fees for the pre-administration engagement and that conflict has been resolved by the repayment of those fees.

51    The liquidators have also recognised that there is a potential for their prior involvement with Poles & Underground to give rise to a conflict of interest. However, applying the approach of Santow in Advance Housing, the correct balance is struck by permitting a liquidator to act despite a prior involvement with the company, provided that involvement is not likely to impede or inhibit the liquidator from acting impartially or be such as would give rise to a reasonable apprehension on the part of a creditor that the liquidator might be so impeded or inhibited.

52    Having obtained legal advice, the liquidators are not aware of any particular reason why their previous involvement is likely to impede or inhibit them from acting impartially, or to give rise to a reasonable apprehension on the part of a creditor that the liquidators might be so impeded or inhibited. They submitted that the application was made in recognition of the liquidators’ obligation to bring matters of conflict to the attention of the Court, identified in Australian Executor Trustees at [11]-[14] (albeit in relation to the position of a Court-appointed liquidator), and mindful that the issue was raised by a creditor at the second meeting of creditors.

53    No creditor has expressed any apprehension of a lack of impartiality on the part of the liquidators, or raised any complaint concerning the propriety of the liquidators remaining in office. Thus, the circumstances are different from those considered in Advance Housing and Domino Hire.

54    On the available evidence, I accepted that it is in the best interests of the companies that the liquidators continue as liquidators of Poles & Underground, particularly having regard to the fact that the liquidators have substantial knowledge of the affairs of Poles & Underground which is likely to assist in the efficient conduct of the liquidation for the benefit of all creditors. Accordingly, I was satisfied that it was to the advantage of Poles & Underground to make the orders sought by the liquidators.

Associate:

Dated:    9 May 2017