Aries Cars Pty Ltd v Motor2U Pty Ltd (in Liquidation) - [2023] WASC 123

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   ARIES CARS PTY LTD -v- MOTOR2U PTY LTD (IN LIQUIDATION) [2023] WASC 123
CORAM:   LUNDBERG J
HEARD:   27 FEBRUARY 2023 & FURTHER AFFIDAVITS FILED 1 MARCH 2023
DELIVERED          :   20 APRIL 2023
FILE NO/S:   COR 101 of 2022
BETWEEN:   ARIES CARS PTY LTD
Plaintiff
AND
MOTOR2U PTY LTD (IN LIQUIDATION)
First Defendant
KELLY DALE MEYN as liquidator of MOTOR2U PTY LTD (IN LIQUIDATION)
Second Defendant
DERMOTT JOSEPH MCVEIGH as liquidator of MOTOR2U PTY LTD (IN LIQUIDATION)
Third Defendant

Catchwords:

Corporations - External Administration - Application for appointment of special purpose liquidator - Where plaintiff creditor initially sought to remove and replace incumbent liquidators - Plaintiff now seeks the appointment of a special purpose liquidator to investigate claims against third parties including the company's directors and director entities - Plaintiff proposes to seek approval for funding agreement at later hearing - Terms of funding agreement relevant to whether appointment of a special purpose liquidator is just and beneficial - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)
Insolvency Practice Schedule (Corporations) (Cth), s 90-15

Result:

Application for appointment of special purpose liquidator deferred pending the filing of the application for approval of funding agreement

Category: B

Representation:

Counsel:

Plaintiff	:	A P Hershowitz
First Defendant	:	P R Edgar
Second Defendant	:	P R Edgar
Third Defendant	:	P R Edgar

Solicitors:

Plaintiff	:	Robertson Hayles Lawyers
First Defendant	:	Mills Oakley
Second Defendant	:	Mills Oakley
Third Defendant	:	Mills Oakley

Case(s) referred to in decision(s):

Citrix Systems Inc v Telesystems Learning Pty Ltd (in liq) (1998) 28 ACSR 529
Emerton Pty Ltd v Referral Marketing Services Pty Ltd [2009] NSWSC 738
Evcorp Grains Pty Ltd ACN 134 204 050 (No 2) [2014] NSWSC 155
Fitz Jersey Pty Ltd v Fraser [2018] NSWSC 1189; (2018) 129 ACSR 238
GDK Projects Pty Ltd, Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541
In the matter of Aboriginal Community Benefit Fund Pty Ltd (in liq) [2022] NSWSC 1784
Lewis v Battery Mineral Resources [2021] FCA 963; (2021) 156 ACSR 162
Perth Fashion Festival Pty Ltd (in liq) v Fashion Council WA Ltd (in liq) [2022] WASC 210
Re ACN 152 546 453 Pty Ltd (formerly Hemisphere Technologies Pty Ltd) (in liq) [2018] NSWSC 1002
Re ACN 152 546 453 Pty Ltd (formerly Hemisphere Technologies Pty Ltd) (in liq) [2020] NSWSC 270
Re Atlas Construction Group Pty Ltd (in liq) [2018] NSWSC 1189; (2018) 129 ACSR 238
Re Jabiru Satellite Limited (in liq) v NewSat Limited (in liq) [2022] NSWSC 459
Re Plutus Payroll Australia Pty Ltd [2017] NSWSC 1041
Reidy ATF PR Mining Superannuation Fund v Contained Gold [2020] FCA 268; (2020) 143 ACSR 260
Shangri-La Construction Pty Ltd v GVE Hampton Pty Ltd (in liq) [2021] VSC 161; (2021) 152 ACSR 19

LUNDBERG J:

A. Introduction and Summary

The first defendant company had something of a short-lived corporate life, having been incorporated on 4 February 2021 and being placed into voluntary administration only 13 months later, on 10 March 2022. The company was placed into creditors' voluntary liquidation soon thereafter, on 14 April 2022. Prior to its demise, the first defendant operated a car rental service, providing replacement vehicles on hire for a fee to 'not at fault' parties involved in motor vehicle accidents. It appears a breakdown in the relationship between the directors and shareholders precipitated the downfall of the company.
The second and third defendants (Mr Meyn and Mr McVeigh) presently hold appointments as the joint and several liquidators of the first defendant, having initially been the joint and several administrators. I will refer to the second and third defendants as the Primary Liquidators. On any view, a considerable amount of work was undertaken by the Primary Liquidators in their capacity as administrators and then subsequently as liquidators of Motor2U, attending to their statutory obligations, reviewing the books and records of the company, liaising with creditors, and investigating potential recovery claims.[1]
[1] First Affidavit of Mr Meyn sworn on 15 September 2022 [57] and [75] - [85]. In the sixth affidavit of Mr Meyn sworn on 1 March 2023, he deposes that the Primary Liquidators are of the view that they have complied with all of their statutory obligations, including the obligations to prepare and lodge appropriate reports and provide relevant information to ASIC (at [7] - [8]).
The period of external administration of the first defendant has now exceeded the duration of its corporate life, as the shadows of the company threaten to stretch deeper into 2023. That is not a reflection on the quality or efficiency of the conduct of the administration. Rather, the duration of the external administration has been extended as a result of a dispute between a significant creditor and the liquidators as to the course which should be adopted by the company and what steps are in the best interests of the creditors as a whole.
The creditor in question is the plaintiff (Aries Cars). It is by far the largest unsecured creditor of the first defendant. The cars provided to the 'not at fault' parties by Motor2U were in fact owned by Aries Cars. The sole director and company secretary of Aries Cars is Mr Khoo. The plaintiff commenced these proceedings in June 2022 seeking orders to remove the Primary Liquidators and replace them with an alternative liquidator, Mr Ross Stephen Thomson (Mr Thomson).[2] The Primary Liquidators opposed that relief.
[2] I refer to the Originating Process dated 15 June 2022.
Ahead of the hearing in February 2023, the parties informed the court that the primary relief sought by the plaintiff had altered. In essence, the plaintiff proposed an amendment to its Originating Process to seek orders for the appointment of Mr Thomson as a special purpose liquidator (SPL) to the first defendant, rather than as a replacement liquidator. The plaintiff indicated it would fund Mr Thomson to pursue various recovery actions against third parties, the directors, and director-related entities.[3] The original relief remained, but as an alternative set of orders.
[3] I refer to the minute of Amended Originating Process dated 22 February 2023.
At the hearing on 27 February 2023, the plaintiff was represented by Mr A P Hershowitz and the Primary Liquidators were represented by Mr P R Edgar. At the conclusion of the hearing, I reserved my decision in relation to the new primary relief sought by the plaintiff and made orders adjourning the balance of the application to a later date.
For the reasons which follow, I have concerns as to whether the appointment of a special purpose liquidator, as sought by the plaintiff, would be just and beneficial for all creditors. I am particularly concerned as to the court's lack of visibility of the proposed funding agreement, in respect of which the plaintiff proposes to seek approval in due course. The terms of that funding agreement may, in the circumstances of this case, have a significant impact on the court's decision whether or not to approve the appointment of the special purpose liquidator at all. Accordingly, I am not prepared at this stage to make orders for the appointment of a special purpose liquidator and I propose to defer the present application until the application for approval of a funding agreement has been filed and can be determined (and, for the avoidance of doubt, the plaintiff's right to maintain the application for the appointment of a special purpose liquidator is preserved). I will hear from the parties as to the directions which should now be made to progress the application to finality.

B. Procedural History

Background

On 15 June 2022, the plaintiff commenced these proceedings, seeking orders pursuant to Schedule 2 to the Corporations Act 2001 (Cth) (CA or the Act), being the Insolvency Practice Schedule (Corporations) (Cth) (IPS). The Originating Process, as filed, sought orders to achieve an outcome by which the Primary Liquidators would be replaced by Mr Thomson, as well as setting aside or varying the remuneration of the Primary Liquidators. The orders were sought pursuant to a combination of ss 75-41(3)(d), 75-43(4), 90-15(1) and 60‑11(4) IPS.
Between June 2022 and December 2022, the plaintiff filed and served numerous affidavits in support of the relief sought. In opposition, the Primary Liquidators filed several affidavits. These affidavits were filed pursuant to a timetable ordered by Hill J, through orders made on 11 August 2022, 6 September 2022, 19 October 2022, 9 November 2022, 23 November 2022 and 7 December 2022. The matter was originally listed for a special appointment on 24 November 2022, which was vacated at the request of the parties. The matter was then relisted for a two day hearing in February 2023, with orders that Mr Thomson and Mr Meyn attend for cross-examination. The hearing of the matter was relisted for 27 and 28 February 2023.

Alternative orders sought by the plaintiff

On 20 February 2023, the court was advised that the plaintiff would seek leave to amend the Originating Process to seek alternative orders. On 22 February 2023, the Amended Originating Process was filed, seeking a new primary order, with the relief I have outlined at [8] above being described as alternative relief. The new primary order sought is that Mr Thomson be appointed as an additional liquidator of the first defendant - in effect, a special purpose liquidator. The order is sought pursuant to the broad powers conferred on the court by s 90-15 IPS. The plaintiff has indicated that it is ready, willing and able to fund the investigations and work of the special purpose liquidator, provided Mr Thomson is appointed by the court to that role.
The Primary Liquidators informed the court that:
Having considered the Matters, the Liquidators do not object to the appointment of an SPL to further investigate the Matters on the basis that the Court determines that the appointment is in the best interests of the Company's creditors as a whole and there is no detriment to the company's creditors as a result of that appointment.[4]
[4] Fifth Affidavit of Mr Meyn sworn on 23 February 2023 [8]. The term 'Matters' refers to the various issues described in the Schedule to the Amended Originating Process.
I understood this statement to be conditional. It is conditional in the sense that the non-objection of the Primary Liquidators was, quite properly, expressly subject to the court being satisfied the appointment is in the best interests of the creditors and the court being satisfied there would be no detriment to those creditors as a result of the proposed appointment. The Primary Liquidators otherwise maintained their objection to the relief originally sought by the plaintiff.
The Schedule to the Amended Originating Process sets out the specific orders sought as part of the primary relief now agitated by the plaintiff. The Schedule identifies the purposes of the appointment of the special purpose liquidator as follows:
(a)considering whether to exercise the power conferred by reg 5.6.55 of the Corporations Regulations 2001 (Cth) in relation to all proof of debts lodged;
(b)conducting investigations in relation to any of the following matters:
(i) the solvency of the Company prior to the appointment of the second defendants as administrators;
(ii) whether transactions between the Company and Stone Turner (Aust) Pty Ltd and/or Aaron Woolley were voidable transactions within the meaning of s 588FE of the Act;[5]
[5] The company Stone Turner (Aust) Pty Ltd is associated with Mr Woolley, a former director of the first defendant company.
(iii) whether transactions between the Company and Declan Lambe and/or Glyde Contracts Pty Ltd t/a Roverlands were voidable transactions within the meaning of s 588FE of the Act;[6]
[6] The company Glyde Contracts Pty Ltd t/as Roverland is associated with Mr Lambe, the remaining director of the first defendant company.
(iv) whether Declan Lambe and/or Aaron Woolley were liable for insolvent trading of the Company within the meaning of s 588G of the Act;
(v) whether there are any claims available with respect to the disposal of plant and equipment of the Company;
(vi) whether there are any claims available with respect to debtor collections from insurance companies or 'at‑fault' parties involved in motor vehicle accidents, (each a 'Matter' and together 'the Matters') including, if thought by them to be appropriate, by:
(c)inspecting the books and records of the Company;
(d) conducting examinations pursuant to s 596A and s 596B of the Act and obtaining orders for production pursuant to s 579(9) of the Act; and
(e) requiring statements to be provided pursuant to s 475(2) of the Act;
(f) commencing and pursuing any claim, including by commencing legal proceedings, that may be available to the Company or the SPL in relation to any of the Matters, including obtaining and considering legal advice in respect of such claim;
(g) taking any steps as SPL in relation to any of the Matters, including by commencing legal proceedings to preserve or protect assets of the company, or the assets to which the company or the SPL claim to be entitled, and whether or not those assets are in the possession of the Company; and
(h) exercising any powers conferred on liquidators by s 477 and s 506(1)(b) of the Act, including the power to seek relief under ss 588FF, 588M and 1317K of the Act, for the purposes set out in (a) and (b) above, except for the powers contained in s 477(1)(a)-(c) and s 477(2)(ca), (f) and (g) of the Act.

Additional matters which arose at the hearing

During the course of the hearing, three matters arose through the course of exchanges with counsel which have now been the subject of clarification or further amendment.
Those matters were:
(a)whether the approval for the appointment of a special purpose liquidator should be confined, at least in the first instance, to authorise him to conduct investigations, inspections and examinations but not to authorise the commencement of substantive legal proceedings without first seeking further approval from the court;[7]
(b)the necessity for approval of any funding agreement in relation to the appointment and funding of the Special Purpose Liquidator; [8] and
(c)the scope of the plaintiff's commitment to provide funding, and whether that commitment was confined to certain types of claims only.[9]
[7] ts 17 - 18 and 24.
[8] ts 14 - 15, 19, and 24 - 25 (noting that the funding agreement is not in evidence before the court).
[9] ts 15 - 16.
With the leave of the court, additional material was filed by the parties following the hearing on 27 February 2023 to address the above matters. I refer in this regard to the plaintiff's Minute of Proposed Orders dated 1 March 2023, the affidavit of Mr Khoo affirmed 1 March 2023, the affidavit of Mr Thomson affirmed 1 March 2023, and the sixth affidavit of Mr Meyn sworn 1 March 2023.

C. Legislative Framework

Section 90-15(1) IPS provides that the court may make such orders as it thinks fit in relation to the external administration of a company. Section 90-15(3) IPS sets out examples of orders that may be made and includes the power to make an order that another registered liquidator be appointed as an external administrator of the company.
Section 90-15(4) identifies factors the court may take into account when making orders pursuant to the power in s 90-15(1) IPS, which are expressed to be without limitation to the matters the court may take into account.
Section 90-20 IPS specifies the persons who may apply for orders under s 90-15, and includes a person with a financial interest in the external administration of the company. A person has a financial interest in the external administration of a company where they are a creditor of the company: s 5-30(a)(ii) IPS. The plaintiff is such a person.

D. Relevant Principles

The predecessor provision to s 90-15 IPS was s 511 CA. The principles that guided the power contained in s 511 CA continue to be relevant to the statutory power in cl 90-15, including the requirement (formerly included as an express requirement) that the appointment of a special purpose liquidator must be 'just and beneficial'. It has been said that, despite the breadth of the power conferred by s 90-15(1) IPS, 'it is difficult to envisage circumstances where the power would be exercised if the Court could not be satisfied that it would be just and unless the applicant had demonstrated sufficient utility to the external administration': GDK Projects Pty Ltd, Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541 [33] (Farrell J). Accordingly, this threshold requirement remains a relevant feature of the exercise of the power.
The analysis in GDK Projects has been endorsed in numerous authorities, including in Re ACN 152 546 453 Pty Ltd (formerly Hemisphere Technologies Pty Ltd) (in liq) [2018] NSWSC 1002 [20] (Gleeson JA); Re Atlas Construction Group Pty Ltd (in liq) [2018] NSWSC 1189; (2018) 129 ACSR 238 [91] (Ward CJ in Eq); Lewis v Battery Mineral Resources [2021] FCA 963; (2021) 156 ACSR 162 [81] - [82] (Griffiths J); and Perth Fashion Festival Pty Ltd (in liq) v Fashion Council WA Ltd (in liq) [2022] WASC 210 [47] (Solomon J).
In his recent decision declining to appoint a special purpose liquidator, Solomon J summarised the orthodox principles which guide the exercise of the power to appoint such a liquidator: Perth Fashion Festival [48]. That summary is set out below, with authorities and footnotes omitted:
(a)it is necessary to identify with specificity the special purposes (or powers) for which the appointment of the special purpose liquidator is sought;
(b)a special purpose liquidator will not be appointed unless it would be just and beneficial to creditors. The power should not be exercised if the court cannot be satisfied that it would be just and unless the applicant had demonstrated sufficient utility to the external administration. That necessarily requires an applicant to demonstrate that the appointment for the specified special purposes could potentially lead to a recovery for the benefit of creditors;
(c)a common instance warranting the appointment of a special purpose liquidator is where it has been demonstrated that there are matters that require investigation with a view to possible recovery for creditors in circumstances where it is of utility and just for such matters to be investigated by a different liquidator such as where the current liquidator has insufficient access to funds, and a creditor is prepared to fund only another liquidator. It remains necessary to demonstrate sufficient utility in such a course;
(d)it is neither necessary nor appropriate to make findings regarding the potential claims in determining an application for the appointment of a special purpose liquidator. However, an applicant for a special purpose liquidator must demonstrate a reasonable basis for the view that the matters identified warrant investigation and that there is sufficient evidence to support the possibility of an action being brought; and
(e)delay in bringing an application for the appointment of a special purpose liquidator weighs against the application and may be fatal.
Solomon J also addressed the principles applicable to approval of the funding arrangements for a special purpose liquidator. I will return to that issue momentarily (at [31] below).
Ahead of that, it is appropriate, given the context of the present application, to traverse some of the authorities which deal with instances in which a creditor requests the appointment of a preferred insolvency practitioner, whether by way of an application to remove and replace an incumbent liquidator or by way of an application for appointment of a special purpose liquidator. While these two types of applications are distinctly different in concept, they tend to involve similar issues. Indeed, an application for appointment of a special purpose liquidator may be characterised as a request for a 'partial replacement of an incumbent liquidator'.[10]
[10] M Wellard, The 'second opinion' special purpose liquidator: A second opinion, Insolvency Law Bulletin, July 2020, 158.

There have been statements in Australian authorities to the effect that the court should not accede to a party's preference for a particular liquidator where to do so would amount to an abdication of the court's responsibility to select an appropriate liquidator. Statements to this effect have been made by Brereton J in Emerton Pty Ltd v Referral Marketing Services Pty Ltd [2009] NSWSC 738 [27], in Evcorp Grains Pty Ltd ACN 134 204 050 (No 2) [2014] NSWSC 155 [21], and in Re Plutus Payroll Australia Pty Ltd [2017] NSWSC 1041 [22]. In additional, I refer to the earlier observations of Moore J in Citrix Systems Inc v Telesystems Learning Pty Ltd (in liq) (1998) 28 ACSR 529, 538.
In Emerton, Brereton said:
[25] … Even if the only remaining function of the liquidator were to make the relevant inquiries, the purpose of appointing a liquidator is that there be an independent and impartial person to make those inquiries, primarily in the interests of the creditors. ... However, a liquidator making such inquiries does not do so as an agent of an aggrieved creditor.
[26]I have referred already to the circumstance that Emerton has been seeking now for 18 months to have Jamieson Louttit appointed as liquidator. It obtained, in the Deed of Release, the agreement of the present liquidators to resign, not if a replacement liquidator were appointed, but if Emerton's nominee - no doubt Mr Louttit - were appointed. Emerton says that it is not prepared to fund the current liquidators, but is only prepared to fund Mr Louttit, to make the relevant investigations.
[27]The Court should not be forced to accede to a party's selection of a liquidator by a statement that a creditor is prepared to fund only a particular liquidator. In my view, having regard to the course of the proceedings to this point, if the Court were to accede to Emerton's application in this respect, there would be an appearance of acceding to Emerton's sustained attempts to have the liquidator of its choice appointed. This would do precisely what Moore J [in Citrix Systems] said should be discouraged, namely, to allow the proceedings to become a vehicle for the plaintiff to secure the appointment, not of an appropriate liquidator, but of the plaintiff's preferred liquidator.
These authorities were reviewed by Ward CJ in Eq (as her Honour then was) in Fitz Jersey Pty Ltd v Fraser [2018] NSWSC 1189; (2018) 129 ACSR 238 [86] - [89]. Her Honour accepted the force of the observations of Moore J and Brereton J. Indeed, it is difficult to positively argue against the proposition that proceedings such as this should not become a 'vehicle for the plaintiff to secure the appointment, not of an appropriate liquidator, but of the plaintiff's preferred liquidator', or that the court should not capitulate to a party's preference for a particular liquidator 'on account of its threat or promise to fund that liquidator but no other'. For my part, I too accept the thrust of the propositions stated in the earlier authorities to which I have referred.
The question I will return to later in these reasons is whether the evidence on this application indicates that the plaintiff, by way of its new primary relief, which seeks the appointment of an identified person as a special purpose liquidator to be funded by the plaintiff, is transgressing these propositions such that it would not be just and beneficial to accede to the application. The whole of the circumstances must be examined before reaching a conclusion in this regard.
Such a process was ultimately undertaken by Ward CJ in Eq in Fitz Jersey, at the conclusion of which her Honour reached the view that the incumbent liquidator should be replaced with the plaintiff's identified liquidator. This resolved the primary relief sought by the plaintiff in that case for a replacement liquidator to be appointed. It was thus not necessary for her Honour to determine the alternative form of relief for the appointment of a special purpose liquidator.
Ward CJ in Eq concluded as follows:
[127]That brings me to the concern raised by Brereton J in the decisions to which I have referred above - namely, as to whether the appointment of the liquidator put forward by Fitz Jersey would effectively abdicate the Court's responsibility to select an appropriate liquidator.
[128]In this regard, I note that there is some disconformity between the evidence from Ms Ann Pin Lim, one of the two directors of Fitz Jersey, and that of Ms Holland. Ms Lim has deposed in her affidavit … that she 'would not be comfortable with anybody [the directors] proposed to be the liquidator of [the Company]', there having been a falling out between Fitz Jersey and both Company and its directors. The resolutions passed at the meeting of directors of Fitz Jersey on 19 July 2018 (Exhibit A p 37) are consistent with this - in essence to oppose the appointment of any liquidator appointed by the directors (or associated persons or entities) and not to fund the present liquidators (who I interpose to note were put forward as administrators by the directors of the Company) or any liquidator appointed by the directors or associated persons or entities. She does not in terms say, nor did the directors in terms resolve, that Fitz Jersey will only fund Mr Gleeson and no other liquidator. Rather, the resolutions passed by the directors of Fitz Jersey proceed on the assumption that Mr Gleeson will be appointed and go on to resolve to enter into the draft funding agreement with him.
[129]Ms Holland on the other hand deposes … to instructions from Mr Kie Chie Wong (Ms Wong's husband) that Fitz Jersey is prepared to enter into a funding agreement 'largely in terms of' the draft funding agreement 'but only if' the funding agreement is with Mr Gleeson and he is appointed as liquidator.
[130]There is no explanation as to the disconformity between those two stated positions. All that can be said is that if those were in fact Mr Wong's instructions they pre‑date, and are not reflected in or consistent with the terms of, the resolutions passed by the directors on 19 July 2018.
[131]In oral submissions, Senior Counsel for Fitz Jersey informed me that Mr Gleeson had been recommended by a 'reliable source' and maintained that he was an appropriate liquidator by reference to the size of his firm (a 'second tier' firm) and the likely cost of his services (noting that, by comparison, the proposed liquidators put forward by the directors charge at a larger hourly rate) and his expertise in building or construction matters (see T 45-46). There is no evidence from Fitz Jersey or its lawyers that this was the basis on which Mr Gleeson was selected as the preferred liquidator. However, by reference to what is in evidence (his DIRRI, information as to his charges, and his abridged CV) it can certainly be concluded that he is an appropriate liquidator.
[132]I note this because the passages to which the directors refer in the decisions of Brereton J speak in terms which contrast the choice of a party's preferred liquidator, on the one hand, with the appointment of an impartial or an appropriate liquidator, on the other. I accept the force of the observation by Moore J in Citrix Systems to the effect that proceedings such as these should not become a 'vehicle for disgruntled creditors to endeavour to secure the appointment of a preferred liquidator' and Brereton J's concern that the Court should not accede to a party's preference for a particular liquidator 'on account of its threat or promise to fund that liquidator but no other'. However, I am not persuaded that the thrust of Ms Wong's evidence (coupled with the text of the resolutions passed by the directors of Fitz Jersey) amounts to a threat or promise of that kind. I accept that Ms Holland's affidavit does lend itself to such a construction but, balancing Ms Wong's later evidence (and the later directors' resolutions) against Ms Holland's account of her instructions with Mr Wong (bearing in mind that neither was cross-examined to elucidate the reason for the apparent disconformity) and having regard to the conclusion I have reached that Mr Gleeson would be an impartial, independent and appropriate liquidator, I have concluded that the appointment of Mr Gleeson would not 'encourage parties to be selective in their funding of liquidators for an irrelevant reason' (to adopt Brereton J's words in Evcorp); nor, having had regard to all the circumstances (and the view expressed by the incumbent liquidators) do I accept that to make such an appointment involves any abdication of the Court's responsibility to select an appropriate and impartial liquidator.[11]
[11] Fitz Jersey [127] - [133] (Ward CJ in Eq).
I will return now to the question of funding approval. In Perth Fashion Festival, his Honour observed that the manner in which a proposed special purpose liquidator would be funded is a matter properly to be taken into account on an application seeking the appointment of a special purpose liquidator (at [50]), referring to Shangri-La Construction Pty Ltd v GVE Hampton Pty Ltd (in liq) [2021] VSC 161; (2021) 152 ACSR 19 [87] (Connock J). The principles relevant to approval of a proposed funding agreement are thus also relevant to the application to appoint a special purpose liquidator: Re Jabiru Satellite Limited (in liq) v NewSat Limited (in liq) [2022] NSWSC 459 [41] (Black J).
As to the timing of approval of such funding arrangements, it is open to a special purpose liquidator to apply for such approval subsequent to his or her appointment: see Reidy ATF PR Mining Superannuation Fund v Contained Gold [2020] FCA 268; (2020) 143 ACSR 260 [51] (Jackson J). It is not necessary to have the terms of any funding in place as a precondition of an application for the appointment of a special purpose liquidator. The court may approve the appointment without an understanding of the proposed funding arrangements or the specific terms of any such proposed arrangement (although a funding agreement may be disclosed, and its approval sought simultaneously, with the application for appointment): Perth Fashion Festival [51].

E. Factual Background

I propose to now briefly outline the factual background to the relief sought by the plaintiff. I will confine the recitation to those matters which are relevant to the new primary relief which was pressed by the plaintiff at the hearing on 27 February 2023.
In addition, given the nature of this application, it is not necessary, and nor would it be appropriate, to make findings of fact regarding the potential claims which have been identified by the plaintiff. In this regard, I am also conscious that the prospective defendants to those claims are not parties to the present proceedings and have not been heard on this application, although they have been given notice of the proceedings.
As indicated below, the parties relied on several affidavits for the purposes of the hearing on 27 February 2023, including affidavits filed with leave following the hearing. None of the deponents were required to attend for cross-examination and the affidavit material was adduced without challenge.

Uncontentious facts

I draw the following uncontentious background facts from the affidavit of Mr Khoo affirmed on 13 June 2022, the affidavit of Michael James McCoey affirmed on 21 October 2022, and the affidavit of Mr Meyn sworn 15 June 2022.
As already noted, Motor2U was incorporated in February 2021. The directors of Motor2U were Mr Declan Lambe and Mr Aaron Woolley, with Mr Wooley resigning on 26 July 2021. Motor2U operated a car rental service, providing replacement vehicles on hire to 'not at fault' parties involved in motor vehicle accidents, at a rental fee calculated on a daily basis. Motor2U would then seek to recover the vehicle rental fee from the insurers of the 'at fault' drivers involved in the accidents, accepting a settlement of the invoiced amount at a discounted rate.
Mr Khoo is the sole director and company secretary of Aries Cars, which trades as Aries Car Rental. He is also the sole director and company secretary of Equanimity Group Holdings Pty Ltd (Equanimity). Equanimity holds a 27% interest in the share capital of Motor2U. Equanimity is an unsecured creditor of Motor2U, being owed a sum of $12,000 and having lodged a proof of debt in this regard on 12 April 2022. The other shareholders of Motor2U, in addition to Equanimity, are Mr Lambe (a 27% interest), Mr Woolley (27%) and Mr Batoul Abouelenein (19%).
Aries Cars was directly impacted by the demise of Motor2U, being a judgment creditor in the sum of $238,324.92. Aries Cars is the largest unsecured creditor of Motor2U. It lodged a proof of debt on 12 April 2022. The judgment in question was obtained by default in the District Court of Western Australia in August 2021, following a successful application for freezing orders.
There appears to have been various disagreements between the shareholders of Motor2U (including Mr Khoo and Aries Cars) and the directors of the business, particularly Mr Lambe. The breakdown in the relationship led to the demise of the company, according to the Primary Liquidators.[12] This breakdown created a degree of ill feeling between the parties. Indeed, a degree of animus towards Mr Lambe is apparent on the part of Mr Khoo, given the content of his email to the Primary Liquidators on 7 April 2022.[13]
[12] I refer to the statutory report to creditors dated 14 July 2022, page 4, which is Attachment RT-1 to the Affidavit of Mr Thomson affirmed on 15 December 2022 (at page 32).
[13] Affidavit of Mr Khoo affirmed on 13 June 2022, Attachment STK-19.
As early as 29 July 2021, Mr Khoo discussed with Mr Woolley and Mr Lambe the possibility of winding up Motor2U. On that date, the shareholders resolved to wind up Motor2U.
On 10 March 2022, Motor2U was placed into administration and the administrators held the first creditors' meeting on 22 March 2022. As at March 2022, there were 10 unsecured creditors of Motor2U with a combined debt of $448,114.95.
On 6 April 2022, the administrators lodged their report on the affairs of Motor2U and expressed the view that the company was insolvent and ought to be placed into creditors' voluntary liquidation. On 14 April 2022, the administrators held the second creditors' meeting of the company and Motor2U was placed into creditors' voluntary liquidation. The creditors in attendance at the meeting, each of whom had lodged a formal proof which had been admitted for voting purposes, were as follows:
(a)Aries Cars, with a formal proof lodged and admitted for voting purposes of $238,324.92;
(b)Stone Turner, $98,799.67;
(c)Mr Lambe, $40,000;
(d)Simone Haskins, $18,317.36;
(e)Equanimity Group, $12,000;
(f)Steenhof Brothers, $6,691.50;
(g)Glyde Contracts, $4,500;
(h)Australian Taxation Office, $4,218.[14]
[14] Affidavit of Mr Khoo affirmed on 13 June 2022, Attachment STK-20, page 169 (Minutes of the Second Meeting of Creditors held on 14 April 2022).
At the second creditors' meeting, a poll was called for the creditors to vote on a resolution to appoint Mr Thomson as the liquidator of the company, and to vote on a resolution to fix the remuneration of the administrators in the sum of $110,517. The first of these resolutions was defeated and the second passed. As the first resolution was not passed, by virtue of s 449(2A) CA, the incumbent administrators thereby became the liquidators of the first defendant.
The circumstances surrounding the votes at the second creditors' meeting (and the ability of Aries Cars to access information ahead of the vote) is not without controversy. Mr Khoo details these matters and his concerns in his affidavit affirmed on 13 June 2022, and criticises the decision of Mr Meyn to refrain from exercising his casting vote and to abstain from voting on the resolutions.
As matters stand, although the Primary Liquidators have recovered funds which were owed to Motor2U, the company had insufficient funds to meet the outstanding remuneration claims made by the Primary Liquidators. Mr Meyn does not expect to be in a position to make any distribution to creditors, including the priority creditors of the company.[15]

The proposed special purpose liquidator

[15] Third Affidavit of Mr Meyn sworn on 24 November 2022 [30].

Mr Thomson consents to act as a special purpose liquidator of Motor2U if appointed by the court to do so.[16]
[16] Affidavit of Mr Khoo affirmed on 23 February 2023, Attachment STK-30 (page 37).
Mr Thomson is a registered liquidator, and has held that registration since 2009. He has practiced in the insolvency area since 1988, with experience in the office of the Registrar in Bankruptcy of the Attorney-General's Department, experience in the Official Receivers Office, and experience since 1999 in the private sector undertaking bankruptcy, voluntary administration and liquidation work at various firms.[17]
[17] Affidavit of Mr Thomson affirmed on 15 December 2022 [4].
In April 2022, Mr Thomson signed a Declaration of Independence, Relevant Relationship and Indemnities (DIRRI) pursuant to s 506A CA.[18] Within that instrument, Mr Thomson stated that he was not aware of any reasons that would prevent him from accepting the appointment as a liquidator of Motor2U. An updated DIRRI was signed by Mr Thomson in February 2023 for the purposes of the revised application seeking the appointment of a special purpose liquidator.[19] Again, Mr Thomson declared that he was not aware of any reasons that would prevent him accepting the appointment.
[18] Affidavit of Mr Khoo affirmed on 13 June 2022, Attachment STK-23.
[19] Affidavit of Mr Khoo affirmed on 23 February 2023, Attachment STK-30 (page 38).
Mr Thomson also provided the plaintiff with a statement of the proposed basis for his remuneration for the engagement.[20] Within that statement, Mr Thomson indicated he was unable to determine an estimate of the remuneration for the engagement given the number of variables which would affect that estimate. Nonetheless, Mr Thomson noted that his experience suggested to him that the 'minimum viable fee for this liquidation is likely to be $50,000, but could be significantly higher'.
[20] Affidavit of Mr Khoo affirmed on 23 February 2023, Attachment STK-30 (page 43).
By letter dated 26 February 2023, Mr Thomson stated that although he has provided an estimate of his fees in the amount of $50,000 (presumably plus GST), he will instead cap his remuneration in the sum of $33,000 plus GST for the engagement.[21]

Potential claims

[21] Affidavit of WeeChong Tay sworn on 27 February 2023, Attachment WCT-1.

The affidavit evidence discloses a desire on the part of the plaintiff to cause Motor2U to further investigate various claims or issues. The affidavit affirmed by Mr Khoo on 23 February 2023 and the affidavits sworn by Mr Meyn on 15 June 2022 and 23 February 2023 provide some insight into these matters, and I will set out the facts in broad terms below without making final findings of fact. In general terms, the matters which the plaintiff wishes the special purpose liquidator to investigate or pursue are as follows:
(a)First, to consider whether to exercise the power in reg 5.6.55 of the Corporations Regulations 2001 (Cth) in relation to all proofs of debt. This power may be exercised where a liquidator considers that a proof of debt or claim has been wrongly admitted, and allows a liquidator to revoke the decision to admit the proof and reject all of it, or amend the decision to admit the proof by increasing or reducing the amount of the admitted debt or claim.
(b)Second, to investigate the solvency of Motor2U prior to the appointment of the administrators. The timing of the company's insolvency has a direct impact on the possibility of insolvent trading claims being brought against the directors of the company.
(c)Third, to investigate and pursue several claims against third parties, against the directors of Motor2U, and against director‑related entities, with the intention of recovering funds for the benefit of the creditors of Motor2U. The specific claims which have been identified are summarised below:
(i)whether transactions between Motor2U and Stone Turner and/or Mr Woolley were voidable transactions within the meaning of s 588FE CA;
(ii) whether transactions between Motor2U and Mr Lambe and/or Glyde Contracts were voidable transactions within the meaning of s 588FE CA;
(iii) whether Mr Lambe and/or Mr Woolley were liable for insolvent trading within the meaning of s 588G CA;
(iv) whether there are any claims available with respect to the disposal of plant and equipment of Motor2U; and
(v) whether there are any claims available with respect to debtor collections from insurance companies or 'at-fault' parties involved in motor vehicle accidents.

To be clear, it is not the case that the foregoing matters have been overlooked or ignored by the Primary Liquidators. Indeed, the affidavit evidence discloses that these matters have been the subject of investigation and views have been expressed by the Primary Liquidators as to the merits of these potential claims and the commerciality of pursuing them. The Primary Liquidators reached a position that, in the absence of any third-party funding, they were unable to pursue the claims and, in respect of some of the potential claims, also formed the view that it would be uncommercial in any event to pursue legal proceedings.

Proofs of debt

The first matter or purpose identified by the plaintiff as being appropriate for the special purpose liquidator to consider is whether to exercise powers in relation to all proofs of debt. For present purposes, I note that the Primary Liquidators have already investigated and considered the validity of the proofs of debt which have been lodged as part of their engagement.

Solvency and insolvent trading

As to the question of the first defendant's solvency, and the timing thereof, that issue has been investigated by the Primary Liquidators. The Primary Liquidators (in their capacity as the administrators) initially formed the preliminary view that the first defendant was insolvent from at least 31 July 2021, and later concluded that the company was likely insolvent from 28 July 2021.[22]
[22] Fifth Affidavit of Mr Meyn sworn on 23 February 2023 [7(a)].
The initial view of insolvency is set out in the Administrators' Report dated 6 April 2022.[23] In that report, the Primary Liquidators set out their analysis of the solvency of the company, applying the balance sheet test and the cash flow test, and analysed other insolvency indicators including the state of the books and records of the company, its lack of finance facilities other than reliance on shareholder fundings, and evidence of dishonoured payments.
[23] Affidavit of Mr Khoo sworn on 13 June 2022, Attachment STK-18.
The investigations undertaken by the Primary Liquidators at that stage indicated that the company had incurred debts after 31 July 2021, which remained outstanding at the date of the company's administration, in the sum of approximately $17,000. The Primary Liquidators ultimately concluded that an insolvent trading claim appeared to be available against Mr Lambe, the remaining director of the company, for this modest amount. Unsurprisingly, the Primary Liquidators noted that insolvent trading claims are complex and require significant funding, and concluded in their report that:
An insolvent trading claim of this size would not be commercial to pursue, as the legal costs would exceed the claim amount.[24]
[24] Affidavit of Mr Khoo sworn on 13 June 2022, Attachment STK-18 at page 128.
In their statutory report to creditors dated 14 July 2022, the Primary Liquidators refined their view as to the timing of insolvency of the first defendant and the debts incurred while insolvent.[25] The Primary Liquidators noted:[26]
Our investigations indicate that the Company was likely insolvent from at least 28 July 2021 onwards. The damages caused to the Company by trading whilst insolvent have been quantified to be approximately $40k. Accordingly, there is a possible insolvent trading claim against the director for this amount.
Insolvent trading claims can be complex and costly to pursue. Given the quantum of the potential claim, it appears that it would likely be uncommercial to pursue.
[25] Affidavit of Mr Thomson affirmed on 15 December 2022, Attachment RT-1 at page 32.
[26] Affidavit of Mr Thomson affirmed on 15 December 2022, Attachment RT-1 at page 32.
In his fifth affidavit, Mr Meyn provided a summary of the status of his views in relation to the possibility of insolvent trading claims being brought against the director of Motor2U. A critical point made by Mr Meyn in this regard is that Mr Woolley ceased to be a director of Motor2U on 26 July 2021, which is prior to the earliest date on which the Primary Liquidators identified the company as being insolvent. For this reason, as Mr Meyn explains in his affidavit, the Primary Liquidators have not pursued an insolvent trading claim against Mr Woolley.
As to the possibility of a claim against Mr Lambe, who remained as a director of Motor2U, Mr Meyn has deposed in his fifth affidavit that:[27]
Due to the low commerciality of this claim, the costs of commencing legal action to pursue the claim, and the fact that the Liquidators were and remain without fund, this claim has not been pursued further.

Voidable transaction claims against Stone Turner and/or Mr Woolley

[27] Fifth affidavit of Mr Meyn sworn on 23 February 2023 [7(d)]. As to the quantum of the claim, although Mr Meyn deposes in his affidavit sworn on 15 December 2022 that the revised amount of the claim may be $40,000, his earlier affidavit sworn 15 September 2022 deposes that the potential claim was in the sum of $19,000. The explanation for the difference between these amounts is not clear.

Mr Woolley is the sole director and company secretary of Stone Turner, and holds 50% of the share capital of the company.[28]
[28] Affidavit of Mr Khoo affirmed on 13 June 2022 [58]; and affidavit of Mr Khoo affirmed on 23 February 2023 [10(d)].
Mr Khoo has deposed that Motor2U paid referral fees to Stone Turner in the sum of $99,933.45 for the period from April 2021 to September 2021.[29] Mr Khoo has also deposed that Stone Turner issued an invoice to Motor2U for software development in the sum of $30,000,[30] and deposes there is no software development, business analysis, consultation, design, development and project management within Motor2U or for Motor2U's operations.[31]
[29] Affidavit of Mr Khoo affirmed on 23 February 2023 [11(b)].
[30] Affidavit of Mr Khoo affirmed on 23 February 2023 [11(d)].
[31] Affidavit of Mr Khoo affirmed on 23 February 2023 [11(f)].
It is unclear on the evidence whether the $30,000 invoice was in fact paid by Motor2U. Mr Khoo deposes that he is still trying to investigate whether Mr Woolley caused or procured Motor2U to pay amounts towards the $30,000 invoice issued by Stone Turner.
In his fifth affidavit, Mr Meyn deposed that the Primary Liquidators have not identified any voidable transaction claims between Motor2U and Stone Turner and/or Mr Woolley, and nor have the Primary Liquidators been provided with any details regarding such claims.[32]
[32] Fifth affidavit of Mr Meyn sworn on 23 February 2023 [7(b)].
The state of the evidence concerning the basis for voidable transaction claims to be mounted against Stone Turner is extremely weak. The basis for a claim to be brought personally against Mr Woolley arising from these matters is practically non-existent. In effect, the plaintiff requires a number of inferences to be drawn from the limited affidavit material. This includes an inference to the effect that the referral fees charged to Motor2U were somehow improper, an inference that the software development invoice issued by Stone Turner was for services that were not in fact provided, and an inference that the invoice was in fact paid by Motor2U.[33]

Voidable transaction claims against Glyde Contracts and/or Mr Lambe

[33] ts 6 - 7.

Mr Lambe is the sole director and company secretary of Glyde Contracts (which trades as Roverland), and holds 50% of the share capital of the company.[34]
[34] Affidavit of Mr Khoo affirmed on 13 June 2022 [56]; and affidavit of Mr Khoo affirmed on 23 February 2023 [10(c)].
In his fifth affidavit, Mr Meyn deposed that the Primary Liquidators decided to pursue an unfair preference claim against Glyde Contracts in the amount of $25,905. The first step in this regard was the issuing of a demand letter on 13 May 2022, and the claim was settled in June 2022 with the payment to Motor2U of $19,000.[35]
[35] Fifth affidavit of Mr Meyn sworn on 23 February 2023 [7(c)]; and affidavit of Mr Meyn sworn on 15 September 2022 [93(e)(i)].
Following this settlement, Mr Meyn became aware of instances where insurance settlement monies had been directed to Glyde Contracts' bank account rather than to the bank account of Motor2U. These diverted payments were not documented in any company records and were only identified after the Primary Liquidators communicated with insurers. Mr Meyn has assessed the total of the diverted amount in the sum of $17,990.17 (relating to 8 insurance claims). Mr Meyn has not pursued this amount through legal proceedings given the absence of funding to do so.[36]

Disposal of plant and equipment of the company

[36] Fifth affidavit of Mr Meyn sworn on 23 February 2023 [7(c)].

The Primary Liquidators have investigated whether there are claims available to Motor2U with respect to the disposal of plant and equipment of the company. It is alleged that two Apple iPhones and an iPad, which were assets of the company, have been retained by Mr Lambe. The Primary Liquidators have requested the return of this property and been met with silence from Mr Lambe. Given the absence of funding, the Primary Liquidators have not pursued the issue.[37]
[37] Fifth affidavit of Mr Meyn sworn on 23 February 2023 [7(e)].
Mr Meyn has further deposed that the Primary Liquidators are otherwise not aware of any other claim with respect to the disposal of the company's plant and equipment prior to their appointment as administrators, and nor have they been provided with details regarding any claims of this nature.[38]
[38] Fifth affidavit of Mr Meyn sworn on 23 February 2023 [7(e)].
Mr Khoo has deposed that plant, equipment and electronic items of Motor2U to the value of $11,986 have been wrongfully retained by Mr Lambe.[39] This includes items such as the two Apple iPhones and the iPad referred to by Mr Meyn, as well as a Jabra headphone, a new laptop and various car accessory equipment.[40]

Claims against insurance companies or 'at fault' parties

[39] Affidavit of Mr Khoo affirmed on 23 February 2023 [11(j)].

[40] Affidavit of Mr Khoo affirmed on 13 June 2022 [26].

Mr Meyn has summarised in his fifth affidavit the status of the potential claims against insurance companies and 'at fault' parties which may be available to the company.[41] Mr Meyn has categorised these claims into six groups, which comprise a total of 24 individual claims and a total potential recovery amount of $162,587. None of the claims were pursued by the Primary Liquidators because they were unfunded and also because they determined it was uncommercial to pursue these claims further.
[41] Fifth affidavit of Mr Meyn sworn on 23 February 2023 [7(f)].
I draw the following information from Mr Meyn's fifth affidavit:
(a)The first category is described as 'Declined liability, dispute who is at fault'. This category relates to eight claims and totals $32,896. In general terms, the 'at fault' insurer refused to pay due to disputes as to which party was at fault. The Primary Liquidators reviewed the claim information and concluded that it was not apparent how the insurer's position could be refuted. As the Primary Liquidators were without funds to further investigate or press these claims, they did not progress them further.
(b)The second category is described as 'Claim not lodged, unable to contact at fault party'. This category relates to three claims and totals $25,740. In these claims, the 'at fault' party could not be contacted and the insurer could not initiate a claim without information from the 'at fault' party.
(c)The third category is described as 'Hire period issues'. This category relates to four claims and totals $29,614. In these instances, irregularities were identified regarding dates when hire vehicles were returned which affected the validity of the corresponding hire invoices. The review of the claims information by the Primary Liquidators did not resolve the hiring uncertainties.
(d)The fourth category is described as 'Claim directly from at fault'. This category relates to five claims and totals $34,166. In these cases, the 'at fault' party did not have insurance and had not lodged a claim.
(e)The fifth category is described as 'Time delays, incomplete information'. This category includes three claims and totals $21,691. The Primary Liquidators followed these matters up with the insurers, which revealed issues regarding time delays and incomplete information. The Primary Liquidators sought to resolve these issues but could not progress them further given the absence of funds.
(f)The sixth category is described as 'Awaiting claims lodgement'. This category contains one claim of $18,480. The Primary Liquidators assisted the 'at fault' insurer with obtaining information from the insurer of the 'not at fault' party and contacted the 'not at fault' party directly to obtain the information. There were apparently difficulties and time delays experienced in getting the 'at fault' insurer to accept this claim. Absent funding, the Primary Liquidators were not in a position to pursue the claim further.

F. Disposition

Overview

The plaintiff moves for orders by which Mr Thomson, being a registered liquidator with considerable experience, would be appointed as the special purpose liquidator, with the task of, amongst other matters, investigating several identified claims with a view to recovering funds for the creditors of the first defendant. I am satisfied on the evidence that Mr Thomson is an impartial, independent and appropriate liquidator to hold the appointment as special purpose liquidator of Motor2U, and to undertake the purposes which have been identified in the plaintiff's Amended Originating Process.
It remains necessary for me to consider whether the appointment of Mr Thomson as a special purpose liquidator is just and beneficial for the creditors of the first defendant company as a whole. Put another way, would the appointment be of sufficient utility to the external administration of this company? This exercise is not a straightforward matter on the present application, for a number of reasons.
One of those reasons is that the court is now dealing with a request for relief from the plaintiff which amounts to a pivot from its original relief, which the plaintiff pursued for many months. Late amendments to relief are far from unusual. Importantly, though, the pivot in the plaintiff's relief has seen the active resistance from the Primary Liquidators melt away to a significant degree. In response to the plaintiff's application for Mr Thomson to be appointed as a replacement liquidator, Mr Meyn had originally deposed to his belief that it was not, and is not, in the best interests of creditors of the company for Mr Thomson (or, I apprehend, any other person) to be appointed as a replacement liquidator.[42] In response to the newly revised relief sought by the plaintiff, the Primary Liquidators now indicate that they do not oppose the appointment of a special purpose liquidator.
[42] First affidavit of Mr Meyn sworn on 15 September 2022 [112].
As I have earlier noted, the non-opposition of the Primary Liquidators is conditional (see [12] above). The Primary Liquidators say it is a matter for the court to be properly satisfied that the appointment is in the best interests of the creditors. The bottom line is that the court is without an active contradictor in the context of the plaintiff's new application for relief.
Another reason this is no straightforward application is the plaintiff has made it abundantly clear it will only fund Mr Thomson to undertake the investigations and pursue the recovery claims, as a special purpose liquidator. The plaintiff will not fund the Primary Liquidators. Merely because the plaintiff will only fund the special purpose liquidator is not a disentitling feature of the application, as the analysis and conclusions of the court in Fitz Jersey demonstrate. The plaintiff's stated position must be viewed in the context of the matter as a whole, in order to assess whether the types of concerns which were identified by Brereton J and Moore J (as earlier outlined) might be seen as applicable to the present case. That is, in all the circumstances, would a decision to accede to the application have the appearance of yielding to the plaintiff's long pursued desire to have the liquidator of its choice appointed?
In viewing the matter as a whole, the features of the case which give rise to particular concern from my perspective, are:
(a)The evidence discloses that the investigations already undertaken by the Primary Liquidators have left those liquidators with the preliminary view that several of the claims which the plaintiff is quite keen to investigate and pursue are of doubtful merit.
(b)Even those claims which warrant investigation appear at this stage to be relatively low value, such that recovery proceedings may well be uncommercial to pursue.
(c)This is not a case in which there is a large body of unsecured creditors. Further, many of the creditors are related to the company. The largest creditor of Motor2U is Aries Cars. A related company to Aries Cars, Equanimity Group, is also a creditor. Together, Mr Khoo has an interest in creditors which are pursuing approximately $250,000 from Motor2U, where the body of unsecured creditors totals around $438,000. Several of the remaining creditors of Motor2U are related entities, being Mr Lambe, Glyde Contracts and Stone Turner.
(d)This is also not a case in which the party moving for the appointment of a special purpose liquidator has identified some actual or perceived lack of independence, conflict of interest or bias on the part of the incumbent liquidators.[43] The only obstacle facing the Primary Liquidators thus far has been the absence of funding. There is no reason the Primary Liquidators could not be funded to pursue the purposes and exercise the powers which the plaintiff now wishes to vest in Mr Thomson.

A reasonable basis to warrant investigation?

[43] Compare Lewis v Battery Mineral Resources Ltd (in liq) [3] (Griffiths J) and In the matter of Aboriginal Community Benefit Fund Pty Ltd (in liq) [2022] NSWSC 1784 [22] (Black J), in which independence and conflict issues were identified.

I have outlined the nature of the potential claims earlier in these reasons. One of the claims the plaintiff seeks leave for the special purpose liquidator to investigate and to pursue is an insolvent trading claim against Mr Woolley, one of the directors of Motor2U. Yet it is apparent that Mr Woolley resigned as a director on a date prior to the earliest date on which the Primary Liquidators consider the company was likely to have been insolvent, namely 28 July 2021. If this assessment proves correct, the potential insolvent trading claim against Mr Woolley would be a fruitless exercise. Admittedly, the special purpose liquidator might review the question of solvency and determine the company was likely to be insolvent at an earlier date. As matters stand, though, I have seen no basis (let alone a reasonable one) to undermine the assessment as to solvency which emerged from the relatively in depth review undertaken by the Primary Liquidators. For this reason alone, I would decline to authorise any special purpose liquidator to further investigate this matter against Mr Woolley.
Then there is the insolvent trading claim against Mr Lambe. There is a reasonable basis for this matter to be investigated further. But the amount which might be clawed back through any insolvent trading claim against him is modest and would struggle to justify, in my view, the commencement of costly litigation on behalf of the company.
The plaintiff also asks the court to invest the special purpose liquidator with the power to investigate the transactions between Motor2U and both Stone Turner and Glyde Contracts, being entities related to the directors. The available evidence to support claims against Stone Turner is little more than speculative and I do not consider the plaintiff has demonstrated a reasonable basis for this matter to be investigated further. For this reason alone, I would decline to authorise any special purpose liquidator to further investigate this matter against Stone Turner. As against Glyde Contracts, there is a reasonable basis for this matter to be investigated further, although the special purpose liquidator will inevitably confront the obstacle that the pursuit of the claims is uncommercial.

Mr Khoo, through the plaintiff, then asks the court to authorise Mr Thomson to investigate and pursue claims for recovery of plant and equipment. There is a reasonable basis for these matters to be investigated further although, again, recovery action looms as highly uncommercial.
Finally, there remain a series of potential claims against 'at fault' parties or insurers. There are a total of 24 individual claims with a potential recovery amount of $162,587. Attempts have already been undertaken by the Primary Liquidators to claw back some of these amounts, without success. I remain greatly concerned that the special purpose liquidator will achieve much more than this, and have fears as to the commerciality of the endeavours which would be needed to produce any positive outcome. The pursuit of 24 individual claims seeking around $162,000 will, on any view, be cumbersome and costly. Nonetheless, there is a reasonable basis for these matters to be investigated further.

The lack of visibility of any funding agreement

The commerciality of pursuing these claims draws attention to the manner in which the plaintiff will fund the process and the terms of any funding agreement.
To facilitate the special purpose liquidator process, the plaintiff has indicated it is prepared to fund all reasonable legal costs and expenses associated with Mr Thomson investigating and pursuing such claims. The plaintiff has clarified, through the affidavit of Mr Khoo affirmed on 1 March 2023, that the commitment to fund the special purpose liquidator is not confined to only claims against the former directors, but includes claims against other third parties. This issue, which I identified at [15(c)] above, arose from the language of Mr Khoo's letter which was attached to the affidavit of Mr Tay affirmed on 27 February 2023. That letter was addressed to the plaintiff's solicitors and is dated 26 February 2023. By its terms, the letter stated:
In Aries Cars Pty Ltd (plaintiff's) application to appoint Ross Thomson as special purpose liquidator (SPL) of Motor2u Pty Ltd (in liquidation) (first defendant), I affirmed an affidavit confirming that the plaintiff is ready, willing, and able to fund the investigations of the SPL but only if Ross Thomson is appointed as SPL of the first defendant.
I wish to clarify that if, after investigations have been carried out by the SPL and if he advises that claims should be pursued against former directors in respect of any insolvent trading claims and/or claims in respect to voidable transactions, the plaintiff will also pay all reasonable legal costs and expenses associated with pursuing the directors of the first defendant in respect to those claims. (emphasis added)
I regard the affidavit of Mr Khoo affirmed on 1 March 2023 as now clarifying the breadth of the plaintiff's commitment to provide funding.[44]
[44] Affidavit of Mr Khoo affirmed on 1 March 2023 [7] and [8].
As I noted at [15(a)] above, the proposed funding agreement is not in evidence before me as part of this application. It is of course necessary for the special purpose liquidator's funding agreement to be approved by the court: s 477(2B) CA.[45] With the court's leave, a revised minute of proposed orders was filed by the plaintiff following the hearing which sought the following order:
Within 30 days of the appointment of Ross Thompson as SPL, Ross Thompson is to file and serve in these proceedings an affidavit and supporting documentation seeking that he be given leave, nunc pro tunc, pursuant to s 477(2B) of the Corporations Act 2001 (Cth) to enter into a funding agreement on behalf of the first defendant with the plaintiff.[46]
[45] Given the length of any such agreement will exceed the period stated in s 477(2B) CA.
[46] Plaintiff's Minute of Proposed Orders dated 1 March 2023 (the Minute spells Mr Thomson's name as 'Thompson').
It is open to a special purpose liquidator to apply for this approval following his appointment. So, the court may approve the appointment of a special purpose liquidator without an understanding of the proposed funding arrangements or the specific terms of any such proposed arrangement. A degree of caution should be exercised in this scenario though, as it may be that the ultimate terms of the funding agreement have a considerable impact on the commercial utility of the appointment for the creditors.[47] Put another way, the absence of the funding agreement may make the assessment of the utility of the appointment from the perspective of creditors all the more difficult to determine.[48]
[47] Perth Fashion Festival [71] (Solomon J).
[48] Perth Fashion Festival [69] (Solomon J).
The plaintiff has sought to accommodate any concerns the court may have as to the viability of the proposed claims by offering to confine the purposes for which Mr Thomson is to be appointed, at least initially and subject to any further order of the court, to carrying out investigations, inspections and examinations. That is, the special purpose liquidator in the first instance would be empowered to embark upon investigations, inspections and examinations, but would not be authorised to commence substantive legal proceedings against any persons without further order of the court. I can see sense in this approach, although it would still allow Mr Thomson to initiate court proceedings by filing applications for public examinations. As to the power of the court to adopt this approach, by email on 1 March 2023, the plaintiff's counsel drew my attention to an authority which it was submitted supported a two stage approach in an appropriate case, whereby the powers of the special purpose liquidator may be initially confined to investigations and then, subject to further court order, later extended to permit recovery proceedings to be instituted: Re ACN 152 546 453 Pty Ltd (formerly Hemisphere Technologies Pty Ltd) (in liq) [2020] NSWSC 270 (Emmett AJA). A review of that authority, and the earlier decision of Gleeson JA (Re ACN 152 546 453 Pty Ltd (formerly Hemisphere Technologies Pty Ltd) (in liq) [2020] NSWSC 1002) by which the special purpose liquidator was appointed, indicates that the court initially empowered the special purpose liquidator in that case to pursue recovery proceedings through court action. The special purpose liquidator was however required to return to court to seek an extension of his powers, not to authorise him to commence substantive legal proceedings per-se, but because the 'matters' described in the original orders did not include claims against third parties which had emerged through the investigations. Nonetheless, the authority demonstrates the flexibility which may be applied in drafting the orders for the appointment of a special purpose liquidator and identifying the powers to be vested in the appointee.

Conclusion

As to the matters which support the appointment of a special purpose liquidator in the present circumstances, it is important to note that without funding from the plaintiff, the potential claims which have been identified will not be investigated, and there will be no prospect of any additional return to creditors. In several respects, the Primary Liquidators have not pursued claims primarily because there has been a lack of funding.
Further, I recognise there is a public interest in having external administrators pursue claims against entities and persons, such as directors and director-related entities, where there may have been a breach of the law.
Further still, while I am conscious that this application is not the occasion to make final findings of fact as to the merits of the prospective claims, there is at least a reasonable basis to warrant investigation as to whether funds have been improperly diverted from Motor2U, whether viable claims exist against insurance companies or 'at fault' parties, and whether the property of the company may have been misappropriated.
Finally, I recognise that Mr Thomson is a suitable candidate to hold the appointment.
However, as will already be apparent from my reasons, the present application gives rise to some matters which demand caution on the court's part. This is not a case in which the insolvent company has left behind a large body of creditors who are unrelated to the company. This is also not a case in which the amounts at issue are substantial, either in terms of the amounts owed to creditors or the amounts which might be pursued through recovery action.
I have identified two potential claims which have insufficient merit to warrant investigation on the available material, namely the insolvent trading claim against Mr Woolley (see [80] above) and the voidable transactions claim against Stone Turner (see [82] above). Putting to one side these claims, the court is being asked to authorise the special purpose liquidator to investigate (and, potentially in due course, to pursue) an insolvent trading action against a director seeking around $40,000, a commercial claim against a director-related entity seeking around $18,000, claims for return of property valued at around $11,000, and finally, and perhaps most cumbersome and costly, 24 individual insurance claims worth around $162,000. So described, the Primary Liquidators' concerns as to the commerciality of pursuing these claims are difficult to resist. Common experience is sufficient to inform me that any attempts to recover these modest amounts through court proceedings will quickly lead to a scenario in which the legal fees involved exceed the quantum sought.
Drawing all of the above matters together, on the state of the material as it stands, I harbour concerns as to whether the appointment of a special purpose liquidator, as sought by the plaintiff, would be just and beneficial for all creditors. I am particularly concerned as to the court's lack of visibility of the proposed funding agreement, in respect of which the plaintiff proposes to seek approval in due course. The terms of that funding agreement may, in the circumstances of this case, have a significant impact on the court's decision whether or not to approve the appointment of the special purpose liquidator at all.
Indeed, I would venture to say that, in a case in which the amounts sought to be recovered or clawed back are somewhat modest, and where the incumbent liquidators have had concerns as to the commerciality of recovery proceedings being initiated, the interests of justice and the interests of the creditors would best be served by ensuring the funding agreement is reviewed by the court simultaneously with the application for approval of the appointment of the special purpose liquidator.
The aspects of the proposed funding agreement which may be of particular significance in the present matter include the premium or benefit (if any) which the plaintiff requires in return for the proposed funding, the degree of control (if any) the plaintiff has over the special purpose liquidator, the extent to which the plaintiff will contribute to adverse costs orders or any orders for security for costs, and the mechanism for resolution of disputes between the funder and the special purpose liquidator. The funding agreement as a whole must be examined.
In these circumstances, I consider it is necessary to defer final consideration of the application for the appointment of the special purpose liquidator until the funding agreement is put before the court for approval. Once the proposed funding agreement is before the court, a final determination can promptly be made by the court as to whether the plaintiff has discharged the onus of demonstrating that the appointment of a special purpose liquidator in the present circumstances has sufficient utility and is just and beneficial in the interests of all creditors.
To be clear, my provisional view at this stage is that if, ultimately, an appointment of the special purpose liquidator is ordered, the terms of the appointment should be confined in the manner described at [15(a)] above, such that the liquidator would not be authorised to commence substantive legal proceedings (subject to any further order of the court).
I will therefore grant leave to the plaintiff to file the Amended Originating Process seeking orders as to the appointment of a special purpose liquidator, and will order that the application be held over for the reasons set out above. I will hear from the parties as to the directions which should now be made to progress the application to finality, which may be along the following lines:
1.Leave be granted to the plaintiff to amend the Originating Process in terms of the Minute of Amended Originating Process dated 22 February 2023 (the Amended Originating Process).
2.The plaintiff's application for orders in terms of paragraph 1 of the Amended Originating Process be deferred (the SPL Application) and dealt with in accordance with orders 3 and 4 below (with the plaintiff's right to maintain the SPL Application being preserved).
3.Any application for leave pursuant to s 477(2B) of the Corporations Act 2001 (Cth) to enter into a funding agreement on behalf of the first defendant with the plaintiff be filed and served within 30 days (the Funding Approval Application).
4.The SPL Application and the Funding Approval Application be listed together for hearing and final determination on a date to be fixed.
5.The costs of the plaintiff's application be reserved.
6.The plaintiff and the defendants have liberty to apply to the Court in this proceeding on 3 days' notice.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
IHN
Associate to the Honourable Justice Lundberg
20 APRIL 2023