The Fair Minded Observer

This week’s TGIF considers Ziziphus Pty Ltd v Pluton Resources Ltd (Receivers and Managers Appointed) (in liq) [2017] WASCA 193, where the Court considered the impartiality and independence of liquidators.

BACKGROUND

A company (Pluton) which was engaged in iron ore mining had been struggling for a number of years. In mid-2013, Pluton completed a US$24 million debt funding package with General Nice Recursos Comercial Offshore De Macau Limitada (GNR), and granted security for the performance of its financial obligations to GNR. Pluton became insolvent in April 2014.

On or about 3 November 2014, GNR appointed receivers and managers to Pluton. From mid-2015 Pluton failed to discharge its royalty obligations to the State of Western Australia. Following numerous attempts to raise funds, the company finally received funding from GNR on 8 September 2015 on the condition that it enter into administration and execute a deed of company arrangement (DOCA).

Mr Marsden and Mr Vickers (who were the appointed receivers) were appointed as administrators of the company.

PRIMARY PROCEEDINGS

Ziziphus Pty Ltd (Ziziphus) and Celtic Capital Pty Ltd (Celtic), both shareholders and creditors of Pluton, alleged that Mr Marsden and Mr Vickers failed to provide Pluton’s creditors with adequate information, and sought an order to the effect that the DOCA be terminated and Pluton wound up.

They further argued that, for some nine months, Mr Marsden and Mr Vickers recommended a DOCA and variations to that deed to Pluton’s creditors even though the effect of the deed was, in large part, to fund the liability to GNR companies.

It was then argued that this course of conduct could lead to an apprehension that they were, if not doing the bidding of GNR companies, at least promoting their interests.

The Court was asked to consider:

• whether Mr Marsden and Mr Vickers had too close an association with the principal secured creditor; and

• whether Mr Marsden and Mr Vickers were, and could be seen to be, independent and impartial.

During these proceedings, the Court held that nothing had been produced that suggests that the liquidators would in any way be compromised. Rather, Mr Marsden and Mr Vickers had gained knowledge of the activities of the company and, in the Court’s view were better placed than anyone else to liquidate the company. The Court therefore appointed Mr Marsden and Mr Vickers as the liquidators.

APPEAL

Ziziphus and Celtic allege that the Master erred in law in appointing Mr Marsden and Mr Vickers as liquidators of Pluton. They further submitted that had the Master applied the correct test, he would have found that a fair minded observer might reasonably apprehend that Mr Marsden and Mr Vickers might not discharge their duties as liquidators of Pluton with independence and impartiality because of their:

1. appointment by Pluton’s directors as voluntary administrators of Pluton;

2. conduct as voluntary administrators of Pluton;

3. appointment as deed administrators of Pluton’s DOCA; and / or

4. conduct as deed administrators of Pluton’s DOCA.

Ziziphus and Celtic also contended that Mr Marsden and Mr Vickers opposed the successful application for orders terminating the DOCA with “unusual and unseemly determination and vigour”, which they believed would lead the reasonable observer to “apprehend that there might be something amiss.”

It was argued that the Mr Marsden and Mr Vickers should not have been appointed for the following reasons:

1. liquidators must not only be independent, but must be seen to be independent;

2. Mr Marsden and Mr Vickers were appointed as voluntary administrators by Pluton’s board at a time when the board was controlled by GNR companies;

3. Mr Marsden and Mr Vickers recommended the DOCA and variations to it when:

   1. its effect was, in large part, to fund the liabilities of GNR companies;
   2. it did not provide for anything like sufficient working capital to return Pluton to viability; and
   3. the promoter of the DOCA was unable to carry it out in accordance with its original terms and failed to meet promises to pay money under the DOCA and its variations;

4. whilst not suggesting that Mr Marsden and Mr Vickers were doing the bidding of GNR companies, they were at least promoting their interest by recommending the DOCA to creditors; and

5. in the above circumstances, Mr Marsden and Mr Vickers conducted the administration in a manner that raises an apprehension about a lack of impartiality, and which indicates that they can no longer be seen to be independent.

DECISION

The Court found that the above listed matters do not singly, or collectively, establish that a fair minded observer might reasonably apprehend that the liquidators might not discharge their duties as liquidators with independence and impartiality.

The Court held that Mr Marsden and Mr Vickers opposition to the application to terminate the DOCA, in circumstances whereby the overwhelming majority of creditors voted in favour for it, is not conduct by reason of which a fair minded observer might reasonably apprehend that they might not discharge their duties as liquidators with independence and impartiality.

COMMENT

The decision provides comfort that prior conduct of liquidators, whether in their capacity as receivers or administrators, will not necessarily impugn their independence or create a perception that they are not independent.