Federal Court of Australia

Scott (Administrator), in the matter of Brookhollow Investments Pty Ltd (Administrators Appointed) (No 2) [2026] FCA 833

ORDERS

THE COURT ORDERS THAT:

1.    A direction be made pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), Schedule 2 to the Corporations Act 2001 (Cth), that the Plaintiffs as joint and several liquidators of Brookhollow Investments Pty Ltd (In Liquidation) (Receivers and Managers Appointed) ACN 604 869 203 (Brookhollow), are justified in admitting the Proof of Debt lodged by Paintball Developments Pty Ltd (Subject to a Deed of Company Arrangement) (Receivers and Managers Appointed) ACN 647 864 319 (Paintball), in the amount of $1,836,702.59 in the liquidation of Brookhollow but pay out no more than 50% of the principal debt paid out by Paintball, being the proportion for which Brookhollow is justly liable.

2.    The Plaintiffs give notice of these orders to the Australian Securities and Investments Commission on 29 June 2026 by email to the address rl.legal@asic.gov.au.

3.    The Australian Securities and Investments Commission be granted liberty to apply on written notice to the Plaintiffs within seven days from the date of these orders to vary or discharge these orders.

4.    The costs of and incidental to this application, including the Plaintiffs’ legal costs, be paid from the assets of Brookhollow held in its capacity as bare trustee of the Brookhollow Unit Trust, as a cost of the liquidation of Brookhollow.

5.    These orders be entered forthwith.

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

REASONS FOR JUDGMENT

YOUNAN J:

Introduction

1    By interlocutory application filed on 24 June 2026, the plaintiffs, Andrew Scott and William Honner in their capacities as joint and several liquidators of Brookhollow Investments Pty Ltd (In Liquidation) (Receivers and Managers Appointed), apply for a direction under s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS), being Schedule 2 to the Corporations Act 2001 (Cth). The plaintiffs rely on the affidavit of William Anthony Honner sworn on 24 June 2026.

2    The direction sought is that the liquidators would be justified in admitting a proof of debt lodged by the deed administrators of Paintball Developments Pty Limited, in the amount of $1,836,702.59 in the liquidation of Brookhollow, but pay out no more than 50% of the principal debt paid in full by Paintball. While not a party to this proceeding, the evidence is that Paintball, in turn, accepts that any payment to it by Brookhollow would be capped at 50%.

3    The issue for the liquidators, and which led to the present application, is that Mr Scott is in a position of conflict given his dual role as:

(1)    one of the deed administrators of Paintball, and in that capacity has lodged the Paintball proof of debt; and

(2)    one of the joint liquidators of Brookhollow, in which capacity he will receive the proof of debt and adjudicate on the amount to be admitted in the liquidation.

4    The direction sought by the liquidators is intended to shield the liquidators from any liability in relation to the identified conflict should they take their proposed course, which is to admit the proof of debt.

5    On 24 June 2026, the proceeding came before me as duty judge on an urgent basis, as the liquidators contended that if they were not able to admit and pay the proof of debt before 30 June 2026, it would result in a loss of an estimated Capital Gains Tax benefit of $744,957, and materially reduce the dividend payable to unsecured creditors.

6    I was not satisfied that the matter should be dealt with as a matter of urgency outside the usual course of proceedings, and accordingly, I made an order referring the proceeding to the National Operations Registrar for allocation to a docket judge. In that capacity, I heard the application on 25 June 2026.

Background

7    The amount claimed by Paintball against Brookhollow arises from a Deed of Indemnity and Guarantee (Deed of Guarantee) entered into on 6 March 2018 by Assetinsure Pty Ltd ACN 066 463 803 as agent for Swiss Re International SE ARBN 138 873 211 and Quasar Constructions (Commercial) Pty Limited ACN 155 251 808; together with Brookhollow, Quasar Constructions Pty Ltd, Crawford 6 Pty Ltd (in its own right and as trustee for the Quasar Unit Trust), and Mr James Crawford.

8    Under the Deed of Guarantee, Brookhollow was a guarantor in its own right and as trustee for the Brookhollow Unit Trust, and was jointly and severally liable for the guarantee of Quasar’s performance of certain obligations to Assetinsure (debt).

9    Quasar entered into voluntary administration on 23 September 2024, and Assetinsure served a statutory demand on Brookhollow on 31 October 2024 for payment of the debt under the guarantee. As at 18 June 2025, when Brookhollow entered into voluntary administration, the debt due and payable to Assetinsure was $1,836,702.59.

10    Paintball became jointly and severally liable (as “new guarantor”) for the debt to Assetinsure pursuant to a Transaction and Standstill Deed dated 18 June 2025, under which it guaranteed and indemnified the obligations of the existing guarantors, including Brookhollow. Mr Scott and Ms Humann were appointed joint and several voluntary administrators of Paintball on 4 September 2025.

11    On 21 November 2025, Brookhollow’s creditors resolved to wind up the company, and Mr Scott and Mr Honner were appointed as liquidators. On 25 March 2026, Paintball entered into a deed of company arrangement, and Mr Scott and Ms Humann were appointed deed administrators.

12    Between 1 June 2026 and 2 June 2026, Paintball paid to Assetinsure a total sum of $2,104,925.70, discharging the common liability owed by Paintball and Brookhollow as co-guarantors under the Deed of Guarantee and Standstill Deed.

13    On 9 June 2026, the Paintball deed administrators lodged a proof of debt in the liquidation of Brookhollow in the amount of $1,836,702.59, on the basis that this was the amount due and payable by Brookhollow to Assetinsure at the date of liquidation, and Assetinsure’s rights were assigned to Paintball following its June 2026 payment of the debt. However, Paintball accepted that any payment to it would be capped at 50% of the total amount paid by Paintball to Assetinsure in June 2026, “being the proportion which Brookhollow is justly liable for”. This was said to “avoid any inequity”.

14    In the event that the proof of debt is admitted (either for the full amount or the amount proposed by the liquidators), Brookhollow will have an enforceable right of indemnity against Quasar (being the principal debtor) for that amount (Quasar debt). However, Quasar is insolvent and there is no prospect of recovery from Quasar. The liquidators’ proposition, therefore, is to seek creditor approval to formally release Quasar from the debt, for the purpose of claiming a tax benefit which would then be available for distribution to Brookhollow’s creditors.

15    The evidence is that, despite the liability under the Deed of Guarantee being split as between Brookhollow, Paintball, Mr James Crawford, and Crawford 6 (Quasar Constructions Pty Ltd having been released as guarantor on 12 April 2021), there is little prospect of recovery from the latter two of those guarantors, as: (i) the first entered bankruptcy on 2 April 2026, and no material dividend is likely to be paid from the assets of the bankrupt estate; and (ii) the second was deregistered on 7 June 2026 such that there are unlikely to be any funds available to pay creditors.

16    In a letter dated 9 June 2026, accountants retained by the liquidators on behalf of Brookhollow advised that in order to realise the capital loss identified above in relation to the contribution claim against Quasar, Brookhollow would be required to do the following before 30 June 2026: (i) pay to Paintball the sum of $1,050,963; (ii) make a contribution claim against Quasar for the same; and (iii) legally release Quasar from payment of the debt (or potentially write off the debt).

17    In a report to creditors on 10 June 2026, Mr Scott stated that it may be necessary to obtain Court approval to admit the Paintball proof of debt in the liquidation of Brookhollow, given the “potential conflict with dual roles as Deed Administrators and Liquidators”. In oral submissions, counsel for the plaintiffs accepted that there was an actual conflict.

18    The liquidators seek that the proposed direction be made to allow the proof of debt to be admitted prior to 30 June 2026, in order for the capital loss benefit identified above to be realised in the 2026 financial year. It should be noted that any direction from the Court is not a predicate to, nor a requirement of, admitting the proof of debt.

19    Nevertheless, on the evidence before me, and for the reasons that follow, I am satisfied that the direction sought by the liquidators should be made.

Direction properly sought under s 90-15

20    Section 90-15(1) of the IPS provides that the Court may make such orders as it thinks fit in relation to the external administration of a company, including an order determining any question arising in the external administration of the company: IPS s 90-15(3)(a).

21    The Court’s power to make judicial directions under s 90-15(1) is broad, and the applicable principles well-settled.

22    The function of a direction under s 90-15(1) is to confer a level of protection upon the plaintiff. It is not a determination by the Court of the rights of those concerned. Whether or not the direction should be given depends on whether there is a reasonable basis for the plaintiff’s proposal, sufficient to persuade the Court that it is proper to exonerate the plaintiff from liability for implementing the proposal or, conversely, whether there is a good reason why the plaintiff should not proceed as proposed: Banerjee, in the matter of Johnny’s Furniture Group Pty Ltd (in liq) [2024] FCA 838 at [26].

23    In determining whether a proof of debt should be admitted or rejected, a liquidator acts in a quasi-judicial capacity: Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 339 (Brennan and Dawson JJ). It follows that the liquidators are correct in their assessment that it would be inappropriate for Mr Scott to both lodge the proof of debt as deed administrator of Paintball, and to decide whether to admit that proof of debt in his capacity as liquidator of Brookhollow: Re Go Energy Group Ltd [2019] NSWSC 558 at [15].

24    Judicial direction is properly sought on the task of adjudication of a proof of debt where an issue of propriety or reasonableness arises: Re Admiral Cove Pty Ltd (as trustee for the Admiral Cove Property Trust) (No 2) [2026] VSC 210 at [59]. Whether the liquidator is called upon to both submit and adjudicate debts claimed between different entities within a corporate group (Re Admiral Cove at [59]), or, as here, between different entities without a corporate relationship, the same conflict arises due to the necessity of the liquidator exercising his/her powers for the benefit or gain of the company in respect of which s/he owes fiduciary obligations.

25    In such situations, s 90-15 may be used to provide advice that a liquidator is justified in accepting a proof of debt, notwithstanding the conflict; although, in seeking to be excused from their fiduciary duties, the liquidator has an “onerous and exacting task”: Re Admiral Cove at [59]; Go Energy Group at [15], citing Re McGrath; HIH Insurance Ltd [2010] NSWSC 404 at [37].

26    I am satisfied that the direction is properly sought by the liquidators, given the conflict of interest that arises by way of Mr Scott’s dual roles as a deed administrator of the company submitting the proof of debt and a liquidator of the company adjudicating that debt.

27    However, in determining whether to make the direction under s 90-15, the Court does not step into the shoes of the liquidator and make an assessment as to whether a proof of debt ought to be admitted. It is not the Court’s role to substitute its own view about whether a proof of debt ought to be admitted in a liquidation. Rather, the Court is to consider whether the liquidator’s proposal is reasonable, and in that regard, whether the analysis is comprehensive and supported by the available material: Re Admiral Cove at [60].

Liquidators’ proposal is reasonable

28    Counsel for the plaintiffs submitted that the liquidators’ intended course in admitting the proof of debt is uncontroversial and supported by authority, although he conceded that he was unable to locate any authority directly on point.

29    The proposition that Brookhollow should only be required to pay 50% of the total debt claimed by Paintball is said to be supported by the principle in Re Parker [1894] 3 Ch 400, that when one of two co-sureties has paid the creditor the whole of the debt and has taken an assignment of the securities, he is entitled to bring an action against his co-surety, or to prove against his estate, as the assignee of the creditor, for the full amount of the debt, although he can only actually recover the just proportion which, as between the sureties, the co-surety is liable to pay.

30    That principle was said to find resonance in the “rule against double proof”, whereby a guarantor who has paid the whole of the principal debt before the creditor has provided against the estate of a bankrupt co-surety can lodge a proof in her or his own name, but such proof is limited to the bankrupt surety’s share of the principal debt; and in s 3(3) of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW), whereby a co-surety, co-contractor or co-debtor is not entitled to recover from another co-surety, co-contractor or co-debtor “more than the proportion to which, as between those parties themselves, that person is justly liable”.

31    It was submitted by counsel that the Court would be satisfied based on the matters deposed in Mr Honner’s affidavit that the review undertaken by the liquidators was comprehensive, and that the position taken by the liquidators was “open”. That affidavit details the basis of the liquidators’ analysis, and, it was submitted, formed the basis upon which the liquidators were able to arrive at their decision.

32    Mr Honner’s affidavit outlines that the liquidators’ proposed course in relation to paying not more than 50% of the principal debt is based on the grounds that Paintball and Brookhollow were co-guarantors or co-sureties in respect of a common liability; that Paintball paid more than its just and proportionate share of that common liability to Assetinsure; and that as between Paintball and Brookhollow, each party should bear an equal share of the amount actually paid by Paintball in discharging the common liability. Mr Honner also notes that the original guarantors under the Deed of Guarantee are insolvent, and have no ability to make any contribution towards the co-ordinate liability shared with Brookhollow.

33    In support of the proposed course to admit the proof of debt, Mr Honner’s affidavit relies on the advice received from accountants retained by the liquidators on behalf of Brookhollow, and outlines the steps that the liquidators intend to take.

34    The liquidators confirm that they notified creditors of the present application in their June report, and requested that any creditor who wished to be served or notified confirm in writing. However, no creditor has provided any notification or raised any issues or concerns regarding the application as at 24 June 2026.

35    Furthermore, the minutes of the 24 June 2026 meeting of creditors, which were provided to the Court after the hearing on 25 June 2026, reveals that a resolution to compromise the Quasar debt in full was passed unanimously. On the basis that the Paintball proof of debt is admitted, it is the liquidators’ intention to declare a final dividend to unsecured creditors prior to 30 June 2026.

36    In determining whether to make the direction sought, I have had regard to the evidence of the steps sought to be taken by the liquidators contained in Mr Honner’s affidavit; the analysis undertaken in respect of the relevant proof of debt; and the documents underlying that analysis, including the statutory report to creditors dated 20 February 2026 detailing the actions taken by the liquidators since their appointment. On that basis, I am satisfied that the liquidators’ analysis is comprehensive and supported by the available material, and that the liquidators would be justified in admitting the Paintball proof of debt in the liquidation of Brookhollow, but pay out no more than 50% of the principal debt paid out by Paintball, being the proportion for which Brookhollow is justly liable.

37    Accordingly, the direction sought by the plaintiffs will be made.

Costs

38    The plaintiffs seek an order that the costs of and incidental to the application, including the plaintiffs’ legal costs, be paid from the assets of Brookhollow held in its capacity as bare trustee of the Brookhollow Unit Trust, as a cost of the liquidation of Brookhollow.

39    The plaintiffs submitted, and I accept, that the order sought is consistent with the proposition that, where a company is trustee of a trading trust and has no other activities (as was submitted in the present case), the liquidators are entitled to be paid their costs and expenses, whether for administering the trust assets or for “general liquidation work”, out of the trust assets: Re AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 [2014] NSWSC 1004 at [13(1)].

Notice to ASIC

40    The liquidators rely on an affidavit sworn by Masiullah Zaki on 25 June 2026 and Exhibit MZ-1 to that affidavit, to prove service of the application on the Australian Securities and Investments Commission (ASIC) at 7.47am on 25 June 2026. The hearing was scheduled for 2.15pm that day. The liquidators received a pro forma response which indicated ASIC’s position regarding service on ASIC a reasonable time before the hearing of the application (which is considered to be 14 days, for most applications).

41    On the evidence, I am not satisfied that ASIC received proper notice of the application so as to formulate and communicate any objection to the liquidators’ proposal. Nevertheless, any concern occasioned by the short service period is allayed by an order granting liberty to ASIC to apply to vary or discharge the orders within seven days of the date of these orders by written notice to the applicants.

Conclusion

42    The plaintiffs’ application for a direction pursuant to s 90-15 of the IPS will be granted.

Associate:

Dated:    29 June 2026