TGIF – Change of hat: the receiver becomes liquidator despite the shareholders’ dispute – Insolvency / Bankruptcy / Restructuring

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

Key points to remember

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

What happened?

On June 9, 2020, an application for liquidation by the first defendant (the Society) for just and equitable reasons.

At the hearing of the motion, consent orders were made which provided that instead of the liquidation of the Company, a receiver would be permitted to sell the assets, with a liquidator appointed as a result of the sale. A reference was made to the orders that the plaintiffs (each of the shareholders of the Company) would consent to and would not oppose the subsequent appointment of the trustee as liquidator.

Once the sale was completed, a request was filed by one of the shareholders (the Applicant) who opposed the appointment of the receiver as liquidator and, in fact, sought to reverse the position taken previously.

The applicant’s arguments

The plaintiff indicated a number of reasons why he believed that a liquidator other than the receiver should be appointed. These reasons, among others, were that:

  • the receiver was not independent and needed leave under section 532 of the Companies Act 2001 (Cth) (the
    Act) be appointed liquidator (since he was a creditor of an amount greater than $ 5,000 because of his request for remuneration as receiver);
  • there were independence difficulties in that the trustee would be required to process, as liquidator, his request for remuneration as trustee; and
  • the plaintiff had concerns about the sale of the company’s assets. To this end, a claim under section 420A of the Act has been prefigured and therefore makes it difficult for the proposed liquidator to assess the merits of a claim against himself.

Decision

In his decision against the plaintiff, Black J considered each of his arguments as to why a liquidator other than the receiver should be appointed.

As a preliminary matter, His Honor noted that it was irrelevant that the Applicant had withdrawn his consent to the appointment of the Liquidator, as this decision rested with the Court. In addition, since the prior consent was recorded in a court note (and not in previous orders issued), the applicant did not need permission to change positions.

With respect to the claimant’s claims, Black J observed:

  • the fact that the status of an insolvency practitioner changes (from trustee to liquidator or from voluntary administrator to liquidator) does not in itself establish a lack of independence;
  • since the claimant would likely be entitled to oppose a receiver’s request for remuneration, the question about the liquidator dealing with his request for fees did not create any difficulty and, if necessary, a special liquidator could be appointed to consider the matter; and
  • a claim under section 420A could, subject to authorization, be brought by the plaintiff as a derivative action on behalf of the Company (rather than the Company itself and by the liquidator against itself ).

Ultimately, Justice Black concluded that he was “not convinced that a problem has arisen which takes this case out of the usual situation, where there will be a transition from insolvency practitioner status, here from receiver appointed by the court to liquidator “.

The court ordered the liquidation of the Company and the appointment of the receiver as liquidator. In doing so, the Court granted the leave required under section 532 of the Act.

Comment

This decision is a useful reminder that applications for authorization under section 532 of the Act, insofar as they relate to a change in the capacity of an insolvency practitioner with respect to a business in particular, are common and that the Court will take a holistic view in determining whether an independent judgment will nevertheless be available.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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