Perception is paramount: Administrator denied appointment as liquidator

This week’s TGIF article looks at the decision of Hooke v Bux Global Ltd (No 6) [2018] FCA 1545, where Bux Global Ltd (Bux Global) was wound up on just and equitable grounds and the perceived independence of a director-appointed liquidator was questioned.

Background

Bux Global was established to conduct a business relating to a mobile phone application (Bux App) that would facilitate international transfers of funds by enabling users to transfer funds in different currencies from one Bux App account to another.

Over a number of years, investors contributed at least $65 million to Bux Global for the development of Bux App. Bux Global made representations to the effect that the company which ultimately managed Bux App would undergo an initial public offering (IPO) and the investors would then hold shares that could be publicly traded. An IPO never occurred.

Although Bux Global was established as an Australian publicly listed company, there was a failure to comply with the prospectus provisions of the Corporations Act 2001 (Cth) (Act) when making offers of shares.

Also it became apparent that the money invested in the company was not always used for company purposes. At least $1.2 million was transferred to the wife of Bux Global’s founder for personal use and other amounts were also used for personal expenses of company associates.

On 4 October 2018, the directors resolved that the company was insolvent and appointed Graeme Robert Beattie as administrator. Mr Beattie provided evidence that in the lead up to the hearing the Bux App business was phoenixed into another company.

Are there just and equitable grounds for winding up the company?

Colvin J sets out the three questions that are significant when determining whether there are just and equitable grounds for winding up a company under s 461(1)(k) of the Act:

(a) Is there a justifiable lack of confidence in the conduct and management of the relevant company or its affairs?

(b) Is there a real risk to the public or public interest that warrants protection by such an order and the incidents flowing from liquidation?

(c) Is the company solvent?

Given the serious matters raised in respect of the management of the company, Colvin J decided to make an order under s 461(1)(k) of the Act to wind up Bux Global.

Administrator to liquidator – is a head start appropriate?

Having ordered the company be wound up, Colvin J was required to consider who should be appointed liquidator of Bux Global. It is clear that liquidators must be and be seen to be independent.[1]

Mr Beattie contended that he was an appropriate choice as liquidator and his position as administrator of the company gave him a head start over any other person who may be appointed as liquidator.

Mr Beattie offered the following reasons why he should be appointed liquidator:

(a) he was suitably qualified;

(b) he had undertaken a significant amount of work in investigations since his appointment as administrator and there would be duplication of costs if another practitioner were appointed;

(c) he was capable of bringing an independent mind to the appointment and would not feel restrained from bringing proceedings against directors and former directors;

(d) he had possession of a number of company books and records; and

(e) as to location, Bux Global appears to have been conducted out of offices in New South Wales, a number of key stakeholders were based in Sydney and records available indicate that a majority of non-related creditors were from New South Wales.

Mr Beattie received an upfront payment of $60,000 from Shampagne Australia Pty Ltd (Shampagne) to cover his initial remuneration and expenses associated with administration of the company. Shampagne, which claimed to be a secured creditor of Bux Global, was a related entity of Bux Global, as a company associated with Mr Webber. Bux Global was trading only with the support of Shampagne.

Ultimately, Colvin J determined that Mr Beattie could not be seen to be sufficiently independent, because he was appointed by persons in control of Bux Global, some of whom were described as being involved in fraud, and he received funds from Shampagne which was the same related entity that was enabling Bux Global to continue trading.

In light of the circumstances, Mr Beattie’s application was denied and the provisional liquidators were appointed as liquidators.

Conclusion

In the usual course, it may be appropriate for the administrator of the company to be appointed as the liquidator. This case is a reminder that the Courts consider the appropriateness of the appointment in the context of all of the circumstances, with the independence of the liquidator, including perceived independence, being a critical consideration.