Australia: Two liquidators appointed, three's not a crowd: a special purpose liquidator

This week's TGIF considers a decision in which the court appointed an additional liquidator to conduct further investigations alongside the incumbent liquidators in a creditors' voluntary winding up.

What happened?

On 18 July 2014, liquidators were appointed to Ambient Advertising Pty Ltd (Ambient) pursuant to the resolution of creditors under section 439C(c) of the Corporations Act 2001 (Cth).

By originating process, Foot Traffic Media Pty Ltd (Foot Traffic), the largest unrelated creditor of Ambient, sought orders for the appointment of an additional liquidator for certain special purposes (special purpose liquidator).

Foot Traffic was a substantial unsecured creditor and was owed about two thirds of the debt owed by Ambient to unrelated creditors.

As a result of meetings with the liquidators, the liquidators' preliminary investigations and reports to creditors, it had become apparent to Foot Traffic that various rights of recovery against related parties, or parties who were formerly related to Ambient, may not be pursued as the winding up was unfunded and the liquidators had not been able to complete their investigations in a satisfactory way.

The sole director and shareholder of Foot Traffic was prepared to provide funding (Funder) to enable the investigations to be carried out but was not prepared to provide funding if the investigations and proceedings were carried on by the liquidators presently appointed.

This was primarily due to:

• a belief that other persons within the firm of accountants of which the liquidators were members had some association with parties who were related to the parties who managed Ambient; and
• the Funder was not content with the level of energy with which the liquidators had thus far pursued those matters.

The Application

Foot Traffic identified to the Court the matters in which the special purpose liquidator would be appointed to act by means of a schedule which defined the role of the special purpose liquidator and provided a clear and proper delineation of roles.

In support of the application, evidence of minutes of meetings, and the reports prepared by the Administrators were adduced to demonstrate why it would be in the best interests of the creditors of Ambient for the matters to be further investigated.

The Decision

In providing reasons for judgment, Justice Robb observed that the activities of the liquidators who were presently appointed were effectively hamstrung due to the absence of adequate resources to fund the winding up.

In his Honour's view, if he did not make the orders sought by Foot Traffic, it was highly likely that avenues that may be available to obtain recoveries on behalf of the creditors of the company would not be pursued.

His Honour was also satisfied that it would be beneficial to the administration of the winding up, and in the interests of the general body of creditors, for the special purpose liquidator to be appointed to pursue the matters identified in the schedule.

An additional reason to make the orders was that, on the evidence, there was a possibility that the liquidators would institute proceedings against Foot Traffic for recovery of a preference.  Foot Traffic indicated that it would resist such an application.  The Funder gave evidence that it would not be willing to provide any funding to the liquidators in circumstances where they may pursue a claim against Foot Traffic.

Comment

This decision confirms the court's willingness to appoint an additional liquidator in circumstances where an existing liquidator(s) has an impediment which prevents them from pursuing potential claims.  This is undoubtedly good news for unsecured creditors wishing to recover in circumstances where potential claims may not otherwise be pursued.

Given the uncontentious nature of the application in this case, it remains to be seen in exactly what circumstances a court would be unwilling to appoint a special purpose liquidator.

Creditors wishing to make an application for the appointment of a special purpose liquidator should ensure that they provide the court with sufficient evidence as to the limits and scope of the additional liquidator's powers, their qualifications and the terms of their appointment in order to satisfy the court that it is in the best interests of creditors in the winding up of the company.

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