TGIF 29 October 2021 – Changing hats: receiver becomes liquidator despite shareholder challenge

This week’s TGIF considers In the matter of Austral Alloys Pty Ltd [2021] NSWSC 1242, a New South Wales Supreme Court decision that focused on the circumstances in which a court will appoint a liquidator, where that liquidator was previously the receiver of the company in question.

Key Takeaways

• Insolvency practitioners must maintain an independent role and a change in capacity, for example, from receiver to liquidator does not, in itself, give rise to any difficulty as to independence.
  
  
• If a receiver is to be appointed liquidator, and a claim for their remuneration as receiver will exceed $5,000, leave of a court is required under section 523 of the Corporations Act 2001 (Cth). 

What happened?

On 9 June 2020, an application was filed to wind up the first defendant (the Company) on just and equitable grounds.

At the hearing of the application, consent orders were made which provided that, instead of the Company being wound up, a receiver would be authorised to sell the assets, with a liquidator appointed following the sale. A notation was made on the orders that the applicants (each shareholders in the Company) would consent to and not oppose the later appointment of the receiver as liquidator.

Once the sale was completed, an application was filed by one of the shareholders (the Plaintiff) which opposed the receiver being appointed liquidator and, in effect, sought to reverse the position previously taken.

The Plaintiff’s contentions

The Plaintiff pointed to a number of reasons why he believed that a liquidator other than the receiver should be appointed. Those reasons, among others, were that:

• the receiver was not independent and required leave under section 532 of the Corporations Act 2001 (Cth) (the Act) to be appointed liquidator (as he was a creditor in an amount exceeding $5,000 by reason of his claim for remuneration as receiver);
  
  
• there were difficulties with independence in that the receiver would be required to address, as liquidator, his claim for remuneration as receiver; and
  
  
• the Plaintiff held concerns regarding the sale of the Company’s assets. To that end, a claim under section 420A of the Act was foreshadowed and thus difficulties for the proposed liquidator in assessing the merits of a claim against himself.

Decision

In finding against the Plaintiff, Black J considered each of his contentions as to why a liquidator other than the receiver should be appointed.

As a preliminary matter, his Honour noted it was irrelevant that the Plaintiff had withdrawn consent for the liquidator’s appointment as that decision was a matter for the Court to decide. Further, given the prior consent was recorded in a notation by the Court (and not in the earlier orders made), leave was not required by the Plaintiff to change from his previous position.

In respect of the Plaintiff’s contentions, Black J observed:

• the fact that the capacity of an insolvency practitioner changes (from receiver to liquidator or voluntary administrator to liquidator) does not, in itself, establish a lack of independence;
  
  
• given the Plaintiff would likely be granted leave to oppose a claim for remuneration by the receiver, the issue with respect to the liquidator addressing his claim for fees did not create a difficulty and, if appropriate, a special purpose liquidator could be appointed to consider the matter; and
  
  
• a claim under section 420A could, subject to leave, be brought by the plaintiff as a derivative action on behalf of the Company (rather than the Company itself and by the liquidator against himself).

Ultimately, Black J concluded he was “not satisfied that any issue has arisen which takes this matter out of the usual position, where there will be a transition of status of an insolvency practitioner, here from receiver appointed by the Court to liquidator”.

The Court ordered that the Company be wound up and that the receiver be appointed as liquidator. In doing so, the Court granted the required leave under section 532 of the Act.

Comment

This decision is a helpful reminder that applications for leave under section 532 of the Act, insofar as they concern an insolvency practitioner’s change of capacity in respect of a particular company, are commonplace and that the Court will take a holistic view when determining whether independent judgment will nevertheless be available.