Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq)

[2003] NSWSC 496

Reported Decision: (2003) 21 ACLC 1330

Supreme Court

CITATION:	Domino Hire v Pioneer Park [2003] NSWSC 496
HEARING DATE(S):	4 & 5 June 2003
JUDGMENT DATE:	10 June 2003
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	Application dismissed with costs
CATCHWORDS:	CORPORATIONS - winding up - application for removal of liquidator - whether cause shown - independence and impartiality, in fact and in perception - whether liquidator should be replaced with a liquidator prepared to appoint himself as administrator so that the deed of company arrangement may be propounded - whether Court should consider application for leave to permit liquidator to appoint himself administrator before the liquidator is appointed
LEGISLATION CITED:	Corporations Act 2001 (Cth) ss 82A, 436B, 444G, 503
CASES CITED:	Advance Housing Pty Ltd v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 Barton v Armstrong [1973] 2 NSWLR 598 Barton v Armstrong [1976] AC 104 Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87 FCR 134 Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 National Australia Bank Ltd v Wily [2002] NSWSC 573 Network Exchange Pty Ltd v MIG Communications Pty Ltd (1994) 13 ACSR 544 Re Adam Eyton Ltd; ex parte Charlesworth (1887) 36 Ch D 299 Re Allebart Pty Ltd [1971] 1 NSWLR 24 Re Biposo Pty Ltd (1995) 17 ACSR 730 Re Norfolk Island & Byron Bay Whaling Co (1969) 10 WN(NSW) 351 Williams v Spautz (1992) 174 CLR 509
PARTIES :	Domino Hire Pty Ltd (P1) Clifford John Carpenter (P2, A) Pioneer Park Pty Ltd (in liquidation) (D1, R1) Gregory Winfield Hall & Timothy Cuming (D2) Gavin Frederick Crichton Thomas (R2)
FILE NUMBER(S):	SC 4398/99
COUNSEL:	Mr P Fordyce (Solicitor) (A) Mr C R Newlinds (R)
SOLICITORS:	Morgan Lewis Alter (A) The Argyle Partnership (R)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

TUESDAY 10 JUNE 2003

4398/99 DOMINO HIRE PTY LTD & ANOR V PIONEER PARK PTY LTD & ORS

JUDGMENT

1 HIS HONOUR: By notice of motion filed on 5 December 2002, one of the two plaintiffs in this proceeding, Mr Carpenter, has made an application for the following orders:

"1. An order that Christopher John Palmer be appointed as liquidator of Pioneer Park Pty Ltd ('the Company').
2. An order that Christopher John Palmer, as liquidator of the Company be empowered to appoint himself as administrator of the Company pursuant to s 436B(2) of the Corporations Act."
The respondents to the application are the present liquidator, Mr Gavin Thomas, and the Company in liquidation.

2 Mr Carpenter is a director of the Company (formerly known as Domino Mining Equipment Pty Ltd). According to his evidence, he controls several other companies, namely Domino Hire Pty Ltd (the first plaintiff), Retreat Pty Ltd and Merlo Wholesale Pty Ltd. Retreat holds all except one of the issued shares of the Company, the other share being held by Mr Carpenter.

3 The Australia and New Zealand Banking Corporation Ltd ("the Bank") provided financial accommodation to the Company, secured by a registered charge and a guarantee by Mr Carpenter of the Company's performance of its obligations. The Bank claims that the Company defaulted under the terms of the charge. On 10 June 1999 the Bank appointed Gregory Hall and Timothy Cuming as the voluntary administrators of the Company under s 436C of the Corporations Act. After a period of voluntary administration, Messrs Hall and Cuming became the liquidators of the Company under s 446A. The Bank also entered into possession of the Company's real property at Tuggerah, under its security. Eventually assets of the Company were sold and the proceeds were applied to reduce the secured debt owed to the Bank.

4 Mr Carpenter contends that the Bank was not entitled to take these steps to enforce its security, that its conduct in doing so was in breach of contract, and that it improperly exercised its power of sale of assets of the Company. Mr Carpenter claims that the Company has a good arguable cause of action against the Bank for damages, including damages for reinstatement of its business, in an amount of many millions of dollars.

5 The Bank has taken action against Mr Carpenter in the District Court (proceeding No 1486 of 2000), seeking to recover over $400,000 from Mr Carpenter, the balance owing under its facility after the proceeds of realisation of assets in an amount of approximately $2.5 million have been taken into account.

6 On 20 October 1999 Mr Carpenter and Domino Hire, suing as creditors, commenced the present proceeding seeking orders for the removal of Mr Hall and Mr Cuming as liquidators of the Company. The proceeding came before Hamilton J, who decided on 14 December 1999 ([1999] NSWSC 1046) that Mr Hall and Mr Cuming should be removed from office and Mr Thomas should be appointed liquidator in their place. Mr Thomas was appointed liquidator on 16 December 1999. He was selected from the Court's list of official liquidators.

7 Mr Thomas disposed of some assets of the Company that had not been sold by his predecessors, negotiating the sales with Mr Carpenter, apparently to interests associated with Mr Carpenter. On 12 April 2001 he reported to creditors that he was considering Mr Carpenter's claim that the Company was entitled to recover substantial damages from the Bank, and said he was seeking legal advice. He also reported that it would be necessary to conduct examinations to obtain further information with respect to some disputed matters that had originally been raised by Mr Hall. He noted that it would be necessary to establish funding arrangements if litigation were to be commenced.

8 At a meeting of creditors held on 27 April 2001, Mr Thomas said he believed he needed to obtain independent advice on the prospects of the Company's claim against the Bank, as the advice that had been provided to him by Mr Carpenter's solicitor, Mr Fordyce, was not an advice he would proceed on. Mr Thomas said that Mr Fordyce had written to him, saying that an examination of Mr Carpenter would be a waste of money because the claim against the Bank would be more than enough to satisfy all creditors.

9 In April 2001 Mr Thomas obtained an order from this Court to conduct examinations under ss 596A and 596B. He issued a production order to the Bank's solicitor for production of the Bank's file. The file was subsequently produced. The examinations commenced on 5 July 2001. The persons examined were Mr Carpenter and Julie Stewart, who was the Company's financial controller. The examinations were then adjourned to a date to be fixed, but they were not continued. Mr Thomas gave evidence that he had to abandon the examination process because the solicitors then retained by him were not prepared to continue unless their fees were paid, and he held insufficient funds of the company to permit the fees to be paid. From that point until recently, the liquidation was without funds.

10 On 1 August 2001, Mr Fordyce wrote to Mr Thomas proposing that he should use his power as liquidator to appoint an administrator under s 436B, so that a deed of company arrangement could be propounded. The letter outlined a deed proposal. A revised deed proposal was outlined in Mr Fordyce's letter to Mr Thomas dated 23 October 2001.

11 Mr Fordyce called a meeting of the Committee of Inspection of the Company, which was held on 11 April 2002. Mr Thomas gave evidence that he elected not to attend the meeting, saying that the Corporations Act allows the Committee to meet without the liquidator being present. He explained that he decided that the creditors were fully aware of the state of the administration of the winding up, and he thought it best not to attend if his own conduct would be under discussion.

12 At the meeting of the Committee, Mr Fordyce and Mr Carpenter proposed a deed of company arrangement under which employee creditors would receive 50 cents in the dollar for long service leave and holiday pay entitlements, and unsecured creditors generally would receive 10 cents in the dollar, and a proceeding would be taken by the Company against the Bank, a proportion of the proceeds of which would be distributed to creditors. The Committee voted unanimously in favour of the deed proposal, recommending that Mr Thomas should appoint an administrator so as to commence that process.

13 The deed proposal and the meeting of the Committee of Inspection were referred to by Mr Thomas in his report to creditors dated 8 May 2002. Mr Thomas noted that Mr Fordyce had endeavoured to persuade him not to continue investigations with respect to Mr Carpenter and his companies, saying that any action against Mr Carpenter would be futile because Mr Carpenter had no assets. Mr Thomas noted that Mr Fordyce had endeavoured to persuade him that the Company should commence proceedings against the Bank, although Mr Thomas noted that he had not been provided with "sufficient evidence that the litigation will be successful". He noted that Mr Fordyce and Mr Carpenter were pressing for the appointment of an administrator.

14 In his report Mr Thomas said it was difficult to comment on the deed proposal because so little detail was available. He noted, however, that the party responsible for providing funds for the deed had not been identified, and he noted that since any proceeding against the Bank could be instigated by the liquidator, there appeared to be no benefit to creditors from the introduction of a deed. He said that Mr Carpenter and Mr Fordyce had been repeatedly invited to provide written advice from counsel that an action against the Bank (and possibly also PricewaterhouseCoopers) had good prospects of success, but no such advice had been provided. He pointed out that the proposed deed did not deal with the matters that had been the subject of his investigations, relating to Mr Carpenter and companies under his control.

15 A meeting of creditors was held on 22 May 2002 to consider Mr Thomas' report. The meeting was chaired by Mr Thomas, and was attended by his new lawyer, Mr Golledge, and by Mr Fordyce. Mr Thomas reiterated the points he made in his report concerning the deed proposal. He said that the limitation period for proceedings against Mr Carpenter would shortly expire unless he obtained an extension of time, and that an application to the Court for such an extension should be made before a voluntary administrator was appointed. He asked the meeting whether he should "blunder on with no money and no solicitor when Mr Carpenter says he doesn't have any assets?" Mr Thomas said he would not appoint a voluntary administrator unless his outstanding fees were covered.

16 Mr Fordyce addressed the meeting. He said Mr Carpenter's main ambition was to sue the Bank. In answer to a question as to where the funds would come from, he said:

"My client has structured his position. As to where the money is coming from, I have no instructions in relation to that at the moment."

17 In response to a question from Mr Thomas, Mr Fordyce said that no assets of the Company would be transferred under the deed, and none of the claims available to Mr Thomas as liquidator against Mr Carpenter would be included in the deed. When Mr Thomas said that he could pursue the claims against Mr Carpenter after appointing a voluntary administrator, Mr Fordyce said that the liquidation would need to be stopped. Mr Fordyce also said that Mr Carpenter wanted to choose the person to be voluntary administrator, as he would be putting forward the proposed deed. Mr Thomas said he wanted to appoint someone who would be independent. An employee Creditor complained that Mr Carpenter had not put money into the company to pay employees. No resolutions were proposed or passed.

18 On 7 June 2002 Mr Thomas made an application to this Court (No 3070 of 2002) under s 588FF(3) of the Corporations Act, to extend the period for commencement of any claims brought by him as liquidator of the Company for orders under s 588FF(1). The amount of $8000 was provided by the Bank for the funding of the application. However, there is evidence to suggest that Mr Thomas and the Bank remained on arms' length terms. The Bank's solicitor wrote to Mr Golledge on 20 June 2002, referring to Mr Thomas's affidavit filed in support of the application for extension of time, and seeking copies of all advices obtained by Mr Thomas in connection with the claim against the Bank. Mr Golledge responded on 25 June 2002, saying it would be inappropriate for Mr Thomas to agree to this request. On 22 July 2002 the Court made an order extending the period to 1 May 2003.

19 On 13 June 2002 Mr Golledge wrote to Mr Fordyce, on instructions from Mr Thomas, seeking specified information about the deed proposal and a copy of the draft deed. Mr Fordyce replied on 29 July 2002, saying amongst other things that a copy of the draft deed had been provided to Mr Thomas, and that Retreat Pty Ltd would provide funds under the deed.

20 Mr Thomas and Mr Golledge met with the solicitor for the Bank on 6 August 2002 to discuss the proposed deed is well as a request by Mr Thomas to the Bank for funding in respect of the legal actions that had been the subject of the application under s 588FF(3). Mr Thomas met with Mr Fordyce to discuss the deed proposal on 13 August 2002.

21 Mr Fordyce convened a meeting of the Committee of Inspection, of which he was a member on behalf of Mr Carpenter, which was held on 6 November 2002. The solicitor for the Bank attempted to attend the meeting but he was excluded on the ground that he was not a member of the Committee. Mr Thomas did not attend the meeting, again because he took the view that the creditors were fully informed and that he should not be present at a discussion reviewing his conduct. The agenda for the Committee meeting contained a motion that the Committee supported the deed proposal and the appointment of Mr Palmer to replace Mr Thomas as official liquidator, and a motion that the Committee supported Mr Palmer as liquidator being authorised to appoint himself as administrator. There was also a motion that the Committee had no objection to Mr Thomas retiring as liquidator, on the basis that the party propounding a proposed deed would not do so it Mr Thomas became the voluntary administrator.

22 One of the creditors attending the Committee meeting was Mr Grahame Donovan, a former employee who claims entitlements of approximately $63,000. The meeting was chaired by a solicitor from Mr Fordyce's firm, and Mr Fordyce participated on the telephone. Mr Carpenter was present. Mr Donovan wanted to see something in writing about what the employees would be paid, and he said so. In answer to a question from Mr Donovan, Mr Carpenter said that Mr Thomas did a lot of work for the Bank, and that the "legal people" of Mr Thomas did not want to bring an action against the Bank. According to Mr Donovan's evidence, denied by Mr Carpenter, Mr Fordyce said:

"The new liquidator will work on behalf of Mr Carpenter. The new liquidator's specialty is to look after directors of companies in liquidation. You will have your money by February if you vote for the resolutions."

23 Mr Donovan continued to ask questions about when employees would be paid. According to Mr Donovan's evidence, denied by Mr Carpenter, Mr Carpenter said "the money is coming from me". Mr Donovan claims that when he said that would be impossible since Mr Carpenter had said he had no money, Mr Carpenter replied:

"The bottom line is that the money is coming from me. I have other things happening. The money will come from me."

According to Mr Donovan, he told Mr Carpenter that "the ATO and Thomas would like to hear that", and at that point he could hear Mr Fordyce calling out to Mr Carpenter over the phone, saying "Cliff, Cliff".

24 Mr Donovan was cross-examined and I saw no reason for doubting his truthfulness or his recollection of what was said that the meeting. For reasons I shall explain, I prefer his evidence to the evidence of Mr Carpenter.

25 After the discussion ended, the motions were put to the meeting and each of them was defeated, with eight votes against and for votes in favour.

26 As I have said, Mr Carpenter's application, currently before the Court, was filed on 5 December 2002. By March 2003 Mr Thomas had received an offer in principle from the Bank to fund the conduct of proceedings against Mr Carpenter and related entities, as contemplated in the s 588FF(3) application. As a creditor of the Company, the Bank would be entitled to make an application under s 564 in respect of any property recovered in proceedings funded under indemnity arrangements between the Bank and the liquidator. Mr Thomas decided that the other creditors should be given the opportunity to participate in the funding arrangements so as to place themselves in the position of being able to join in an application under s 564. He therefore issued a circular to all known creditors inviting them to join in any funding proposal on a pro-rata basis. To date four other creditors have signed and returned the "Indication Statement" attached to Mr Thomas's circular.

27 Mr Thomas gave evidence, which I accept, that the initial draft funding agreement prepared on behalf of the Bank was rejected by him, and there was a period of negotiation as to the terms of the proposed funding. He has provided evidence of his negotiations which appear to me to raise reasonable issues, on most of which Mr Thomas was successful.

28 By 30 May 2003 Mr Thomas had finalised the details of the funding agreement between himself as liquidator, and the Bank and other participating creditors. He had signed the agreement and therefore had access to funds to pursue proceedings against Mr Carpenter and his related entities. Mr Thomas commenced two proceedings in the District Court by statements of liquidated claim, Nos 1842 and 1843 of 2003. Mr Thomas candidly admitted to the Court that he conducted no investigations of the claims (apart from the examinations some time ago) before commencing the proceedings, pointing out that until very recently he had no funds and the claims had been under consideration since the time when the former liquidators were in office.

29 In the first proceeding the Company and Mr Thomas as co-plaintiffs claim $580,989 against Domino Hire and Mr Carpenter as defendants, alleging that in May 1999 the Company transferred various items of mining equipment to Domino Hire without consideration at a time when the Company was insolvent. The statement of claim alleges that the transaction constituted an uncommercial transaction or an unfair preference voidable under Part 5.7B. The claim against Mr Carpenter is that as a director of the Company at the time of the transaction, he breached his fiduciary duties by preferring his own interest and failing to act in the interests of the Company in respect of the transaction.

30 In the second proceeding the Company and Mr Thomas as co-plaintiffs claim $115,657.26 against Merlo Wholesale Pty Ltd and Mr Carpenter as defendants, alleging that in May 1999 the Company agreed to buy equipment from Merlo Wholesale at an over-value for on-sale to the Australian Army, and subsequently made payment under that agreement. It appears that this is an uncommercial transaction claim under s 588FB, although the pleading is quite abbreviated. The claim against Mr Carpenter is that, while a director of the Company, he acted in breach of his fiduciary duties to avoid conflict of interest and not to prefer his own interests to the interests of the Company.

31 The funding agreement with the Bank makes provision for advances to be made under drawdown arrangements up to a facility limit defined in the agreement, to fund four legal proceedings against Mr Carpenter and his related entities, including the two that have already been commenced. Interest will accrue on each advance on a daily basis from the relevant drawdown date at the Bank's reference rate plus 2 percent per annum. The proceeds of recovery are to be dispersed in an order of priority set out in clause 6.2 of the agreement. The liquidator has first priority in respect of outstanding costs and expenses, then the Bank and any other funder of the proceedings have priority to repayment of funds advanced, pari passu. The Bank's claim to payment of interest is deferred to the claims of priority creditors under Part 5.6 of the Corporations Act. Clause 6.6 of the agreement provides that nothing in it prevents the Bank from making an application under s 564. There are provisions which give the Bank the opportunity to review the progress of legal proceedings, and for the Bank to approve any change of the solicitors acting in the proceedings. One of the events of default under the agreement is for the liquidator to cease to act as liquidator and be replaced by someone not acceptable to the Bank (clause 14.1 (b)). The agreement also provides for the Bank to pay the outstanding legal costs of Mr Thomas, and $8000 to him on account of his accrued remuneration.

32 The funding agreement is quite different from the litigation funding agreements often encountered in proceedings in the Corporations List of this Court. Typically those agreements make provision for the litigation funder to take a substantial percentage share of any recoveries in the litigation. But this is quite a different commercial situation. This is a case of a creditor, having an interest in recovering the balance of its existing debt, and having various entitlements including an entitlement under s 564. This is not funding agreement with a third party. In his submissions Mr Fordyce described the agreement as extraordinary, while counsel for Mr Thomas said that it was normal in circumstances such as these. The truth is that there is no evidence before me of any practice from which I could conclude that this agreement is or is not usual. On its face and on the evidence, it appears to be a commercial agreement negotiated on an arms' length basis between parties separately represented. It is not necessary or even relevant for me to say whether it is or is not usual.

33 In his evidence Mr Thomas pointed out that at his insistence, the terms of the funding agreement allow him to continue to investigate, and to instigate, any claim that the Company may have against the Bank, although of course another source of funding would have to be found.

34 Mr Thomas gave evidence that after his appointment, his then solicitors had a number of meetings and telephone conversations with Mr Carpenter and Mr Fordyce concerning the claim against the Bank. Mr Fordyce said that he had received "oral advice" from unidentified counsel to the effect that the company had a good claim against the Bank. Since that time Mr Thomas has repeatedly requested in correspondence that the oral advice be committed to writing and a copy supplied to his office. That has never happened. Mr Carpenter gave evidence that he could not afford to do so. However, Mr Thomas has received a copy of a brief to counsel and advice by Mr N. Perram of counsel, supplied to Mr Fordyce. Mr Perram's written advice dated 13 March 2002 is in evidence. It is advice on the measure of damages recoverable by the Company in proceedings against the Bank and in particular, whether a claim for reinstatement of the Company's business is available.

35 In paragraph 6 of the advice, Mr Perram says:

"I have been asked to assume that there were no events of default by Pioneer under any of the loan and security documentation and that, in particular, the Bank acted wrongly in appointing the administrators in the first place."

36 Of course, that assumption makes Mr Perram's advice, learned and valuable though it is, of no use whatever to a liquidator wishing to assess the prospects of success of the Company's claim against the Bank.

37 Mr Thomas's evidence is that, after taking advice from his solicitors, he is not satisfied that reasonable grounds exist for making any claim against the Bank. However, he is willing to institute action against the Bank if he is satisfied that a reasonable claim can be made, and if he is provided with adequate sources of funding for any such action. As he points out, the source of funds could be from one or more creditors, or from a litigation funder. It was submitted to me, plausibly, that if positive and encouraging written advice were provided by experienced counsel who had been properly briefed, litigation funding would not be difficult to procure.

38 Although the deed proposal has evolved and taken shape over time, the current draft is in evidence. The parties are the Company, Mr Palmer and Mr Thomas. Under the terms of the draft deed:

· Mr Palmer would be the administrator until termination of the deed, or resignation;

· Mr Thomas as liquidator would give his written approval to the administrator to exercise the powers, duties and functions allocated to the administrator under the deed;

· Mr Thomas would agree that he would not take any further step in the winding up of the Company while the deed remained operative, and would support any application by the administrator to terminate the winding up of the Company;

· the administrator would undertake examinations under s 596B to enable him to advance his consideration of whether there are causes of action available to the Company against the Bank or PricewaterhouseCoopers;

· the control of the Company would revert to its directors upon execution of the deed, subject to the administrator's function in conducting examinations;

· a fund would be constituted, comprising an amount not specified in the draft (but according to other evidence, $85,000) plus 5 percent of any net recovery from the litigation against the Bank and/or PricewaterhouseCoopers, subject to the limit that no Participating Creditor or Employee would receive more than 100 cents in the dollar in respect of their admitted claims;

· provisions of the deed would have the effect that Mr Fordyce, or such other legal representative as would be agreed by Mr Carpenter, would be the solicitor in any proceedings against the Bank or PricewaterhouseCoopers;

· the fund would be distributed to pay "Employee Entitlements" (restricted by the definition to annual leave and long service leave entitlements) as the first priority, and then the claims of "Participating Creditors" (defined to exclude Employee Entitlements, the Bank and the Non-Participating Creditors, namely Mr Carpenter, Retreat and Domino Hire);

· claims against the Company would be extinguished upon termination of the deed by performance;

· the Bank would receive a dividend of $4000;

· the costs of Mr Thomas as liquidator, capped at $16,800, would be paid within 14 days of execution of the deed.

39 Mr Fordyce informed me from the bar table that his firm holds $85,000 in trust for Retreat. He said that Retreat had provided that money to constitute the fund under the deed, if the deed is propounded and supported by creditors. As far as I can see, the draft deed does not in terms limit the Employee Entitlements, as regards the initial fund of $85,000, to 50 cents in the dollar; nor does it limit the entitlement of unsecured creditors as regards that fund to 10 cents in the dollar. However, Mr Carpenter has given evidence, as the person wanting to put forward the proposal, that this would be the case.

40 Mr Thomas has not indicated that he is willing to execute the draft deed or carry out the functions it purports to allocate to him. Mr Fordyce has taken the view that there is a legal problem in binding Mr Thomas to the terms of the proposed deed, having regard to ss 82A and 444G of the Corporations Act. Under the latter provision, a deed of company arrangement binds the officers of the company. However, the definition of "officer" in s 82A excludes a liquidator appointed by a court. As I have said, this is a voluntary winding up after a period of administration, in which the Court has made an order removing the initial liquidators and appointing Mr Thomas under s 503. If, in those circumstances, Mr Thomas is a "liquidator appointed by a court" for the purposes of s 82A, although not a liquidator appointed in a winding up by a court, there may be some difficulty (according to Mr Fordyce) in binding him to the proposed deed, even if he executed it. In the view that I take of the case, it is not necessary for me to express an opinion upon Mr Fordyce's analysis, and I would prefer not to do so because this part of the case has not been contested in submissions.

41 It is because of Mr Fordyce's analysis of these sections that the application seeks orders replacing Mr Thomas with Mr Palmer, and then empowering Mr Palmer to appoint himself as administrator. It appears to be contemplated that Mr Palmer, in his capacity as liquidator, would commit himself to the matters contemplated as obligations of a liquidator under the deed, and in particular, he would not continue to prosecute the claims against Mr Carpenter and his related entities in the District Court while the deed was in operation.

42 Mr Thomas gave evidence of his present attitude to the deed proposal. He said that until late last year, he was not in a position to initiate proceedings against Mr Carpenter and his related entities, although it was his view that reasonable claims existed. Prior to obtaining funding support from the Bank, his opinion was that it was probably in the interests of the creditors to allow the proposed deed of company arrangement to be submitted to them, because in the absence of funding for the legal actions, the offer of payment to creditors pursuant to the deed proposal (50 cents in the dollar to employees in respect of their holiday and long service leave claims, and 10 cents in the dollar for other unsecured creditors, excluding the Bank and related parties) would be likely to produce a better return than if the company were to remain in liquidation without funds. However, now that he has secured funding with the Bank and other creditors, his opinion is that the interests of creditors are better served by the institution and prosecution of the legal proceedings against Mr Carpenter and his related entities, rather than by the deed proposal. He has reached this conclusion on the basis that if the deed proposal were implemented, none of the actions against Mr Carpenter and his related companies would be taken.

43 In reaching his opinion, Mr Thomas has considered an assertion by Mr Fordyce that the commencement of proceedings against Mr Carpenter and his related entities cannot be in the interests of creditors because Mr Carpenter does not have assets against which any judgment could be enforced, and the companies' assets are subject to secured claims. He said this in response:

"In my experience as an Official Liquidator and Bankruptcy Trustee, persons against whom claims are foreshadowed do not always voluntarily disclose their true financial position."

44 Mr Thomas was cross-examined. He made a favourable impression on me in the witness box. His evidence seemed to me to be considered, frank and pertinent. I regard him as a witness of truth. His own counsel described him as "flinty", with a great deal of practical experience. That accords with my assessment of him.

45 Mr Carpenter provided three affidavits and was cross-examined. He said that he has had one brief meeting with Mr Palmer, whom he had never previously met, but having met him, the proposed deed would be conditional on Mr Palmer being the liquidator and administrator of the Company. He explained that on the basis of his experience with Mr Thomas, he lacked confidence in the impartiality of Mr Thomas where the Bank was concerned, and therefore no deed of company arrangement would be put forward by him if Mr Thomas remained as liquidator. He added that, according to his perception, Mr Thomas's former solicitors were not keen to bring any action against the Bank, because they had the National Australia Bank as one of their principal clients, and would be reluctant to be seen to be taking legal proceedings against another Bank in matters such as this. He said that the effect of not appointing Mr Palmer as liquidator, with power to appoint himself as administrator, would be to deny the creditors the opportunity to consider the deed and thwart any prospect of the proposed examination of officers of the Bank and any subsequent litigation against the Bank. Mr Carpenter said he believed that the Bank, in offering to fund Mr Thomas to bring proceedings against him and his related entities, was aiming to stifle the proposed deed of company arrangement and the contemplated proceedings against the Bank. I accept this evidence as an account of Mr Carpenter's state of mind, but for reasons I shall give, I find that there is no basis for Mr Carpenter to question the impartiality of Mr Thomas. The evidence does not enable me to make any finding about the motivation of the Bank, but it is unnecessary for me to do so since, in the circumstances, there is no reason why the Bank should not pursue what it perceives to be its commercial interests.

46 Mr Carpenter gave evidence of his financial circumstances. He said he had no assets of any significant other than life insurance policies. In 1996 he had disclosed to the Bank that he had an interest in a vacant block of land, but that land was disposed of in about March 1999. He had also disclosed to the Bank at that time that he had a superannuation fund, but in his evidence to the Court he said that the superannuation fund had been cashed in and he was living off the proceeds. Nevertheless he said that the funds for the proposed deed were being provided through Retreat and he added:

"I will provide whatever further monies are required for the purposes of the deed …".
Mr Carpenter said that Mr Thomas had not asked him for any evidence about his financial circumstances, or the financial circumstances of Domino Hire.

47 Mr Carpenter has given evidence which is designed to explain the transactions in respect of which Mr Thomas has taken District Court proceedings or contemplated commencement of proceedings. Mr Carpenter's assertions are for the most part uncorroborated, and Mr Thomas has not replied to them. I am not in a position to take even a prima facie position as to whether the explanations offered by Mr Carpenter will provide defences or cross claims in the liquidator's proceedings. That being so, it is unnecessary for me to set out his evidence on these matters.

48 Mr Carpenter was cross-examined. Counsel for Mr Thomas invited me to find that Mr Carpenter was a witness not to be believed, except the extent that his evidence was externally corroborated. It is unnecessary for me to make a finding adverse to Mr Carpenter's credibility on a general basis. However, I have decided not to believe certain parts of this evidence, which I shall specify.

49 Mr Carpenter said in one of his affidavits that he had no assets other than insurance policies and was living off the proceeds of superannuation. His income tax return for the year to 30 June 2002 showed an income of $5000. To the extent that this evidence was given in order to create the impression that Mr Carpenter would have no access to any funds to meet any judgment against him, it was misleading evidence, in my opinion.

50 It emerged in cross-examination that Mr Carpenter controlled companies in which there were assets to which he had access (by, for example, deciding whether these companies would pay dividends or directors' fees). He said that the proceeds of the superannuation fund, an amount of $162,000, which he received in December 2002 were paid to the Carpenter Family Trust, to which he was indebted. He said that he lived from day to day by drawing upon his MasterCard account which was paid by the trust company, which debited the payment to his loan account. This information was not disclosed in his affidavits and yet it is, in my view, relevant to the practical prospects of recovery under any judgment against him.

51 Mr Carpenter provided a "position statement" to the Bank dated 1 December 1995, apparently in connection with his giving a guarantee to support the liability of the Company to the Bank. In that document he said he had no assets apart from superannuation and life policies. He also made the following statement:

"However, I do have effective control over Retreat Pty Ltd and I do have management control over the Domino group. Further, as a Chartered Accountant and former State Chairman and also as a person who at earlier times in my career acted as a director of numerous public companies, was a Registered Trustee in Bankruptcy and Court Liquidator, I submit that I would go a long way to protect and preserve my financial integrity and that of the group of companies owned, controlled and managed by myself and my family."

52 After prolonged questioning in cross-examination, Mr Carpenter said this passage meant that he would use his "influence" to protect his good name if and when the occasion should arise, and that he controlled entities that would enable him to pay his debts if he could.

53 This leads to the conclusion that, although Mr Carpenter's evidence was not internally consistent, Mr Thomas's pragmatic assessment that there was some prospect of recovery of any judgment obtained against Mr Carpenter is in fact supported by Mr Carpenter's own evidence. In my opinion that conclusion is supported by other evidence, including the fact that Mr Carpenter has procured Retreat to pay $85,000 into Mr Fordyce's trust account, and the statements Mr Carpenter made at the meeting of 6 November 2002, deposed to by Mr Donovan. I have decided to prefer the evidence of Mr Donovan to the evidence of Mr Carpenter as to what was said at the meeting, because Mr Donovan's evidence is more disinterested and accords with other evidence, (including the contents of the "position statement", and Mr Carpenter's evidence that he controlled Retreat and the companies in the Domino group).

54 In cross-examination Mr Carpenter was pressed as to why he did not arrange for counsel's oral advice on the company's prospects of success against the Bank to be committed to writing. He said at first that counsel was a busy man, who was going to give some notes after the meeting, but they were not forthcoming and were never pursued. Later he said that counsel was not asked to put his views in writing because Mr Carpenter could not afford to do so, and he added "I have to watch how I spend my money". That evidence may be literally true, but it is nevertheless misleading because it implies that there were no funds available to engage counsel to produce written advice.

55 I find it implausible that Mr Carpenter, though able to procure $85,000 for the purposes of the proposed deed, in circumstances where the deed contemplated that he would procure additional very substantial funding for major proceedings against the Bank, was not able to find the money to engage counsel to convert an advice in conference to a written advice. If counsel had been properly briefed to advise in conference, the additional cost of procuring a written advice should not have been extensive. If there were to be a major cost involved in procuring written advice, the obvious implication would be that counsel had not been properly briefed for the advice in conference, which would therefore have been rendered of little or no utility.

56 I turn now to consider whether, in light of these findings of fact, the applicant Mr Carpenter is entitled to the relief that he seeks.

57 Proposed order 1 relates to the appointment of Mr Palmer as liquidator. It does not in terms seek an order for the removal of Mr Thomas. That is probably because, at the time when the application was filed, it was assumed that Mr Thomas would resign as liquidator to permit Mr Palmer to take up office and appoint himself administrator. Mr Fordyce, appearing on behalf of Mr Carpenter, agreed with me that I should now read proposed order 1 as an order for the removal of Mr Thomas as well as for the appointment of Mr Palmer. The Court's power to remove a liquidator and appoint another liquidator in his place, in a voluntary winding up, is found in the s 503, which allows the Court to do so "on cause shown".

58 The words "cause shown" indicate that a liquidator is not to be removed unless there is some ground for removal, and the ground must be established by evidence. However, "cause shown" is not a narrow concept. It is open to the applicant for removal to point to any conduct or inactivity on the liquidator's part that provides a basis for the conclusion that he or she should be removed, ranging from moral turpitude, to bias or partiality, lack of independence, incompetence or other unfitness for office. But the concept of "cause shown" is not limited to matters relating to the unfitness of the liquidator to hold office. In Re Adam Eyton Ltd; ex parte Charlesworth (1887) 36 Ch D 299, speaking of a statutory formulation where the words used were "due cause shown" rather than "cause shown", Bowen LJ said (at 306):

"In many cases … unfitness of the liquidator will be the general form which the cause will take upon which the Court in this class of case acts, but that is not the definition of due cause shown. In order to define 'due cause shown' you must look wider afield, and see what is the purpose for which the liquidator is appointed. … 'due cause' is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed. Of course, fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation."

59 In Network Exchange Pty Ltd v MIG Communications Pty Ltd (1994) 13 ACSR 544, Hayne J applied this test to an application for removal of an administrator, even though the statutory provision authorising the Court to remove an administrator (s 449B) does not contain the words "on cause shown". His Honour concluded that the absence of those words did not produce any marked difference, and he described the position as follows (at 550):

"In my view, however, it must be accepted that an order for removal should be made only if it is demonstrated that such an order would be for the better conduct of the administration. It is not to be contemplated that the power under s 449B is to be exercised save in circumstances that justify or require its exercise and those, speaking generally, would appear to be circumstances in which the order would conduce to the better conduct of the administration concerned."

60 In cases where the applicant relies on misconduct by the liquidator, the words "cause shown" do not require the Court to work through each of the particulars of misconduct relied upon, and determine one by one whether they are made out. Young J (as the Chief Judge in Equity then was) rejected such an approach in Re Biposo Pty Ltd (1995) 17 ACSR 730. His Honour said (at 734):

"The question is not whether in adversarial litigation there has been proof of a case according to the heads particularised, … but rather whether in the interests of the public the removal of the liquidator would be for the general advantage of persons interested in the winding up".

61 He added some remarks that are pertinent to this case:

"Here, however, one must also be careful. There is a popular sport these days of challenging judges and arbitrators and endeavouring to put off the evil day by directing the attack at the judge rather than the wrongdoer. Great care must be taken that the same tactic is not used against liquidators to stop them doing their duty. Again, the situation will often occur that there will be little money in the winding up and the liquidator will have to cut corners that he might not otherwise cut, and the court must be very careful not to impose too strict a duty which would stop that happening. However, when all these matters are taken into account the end question still remains, would it be to the general advantage of persons interested in the winding up to remove the liquidators?"

62 As this passage shows, courts have taken a realistic attitude to the problem of funding, the problem liquidators must constantly face. In Re Allebart Pty Ltd [1971] 1 NSWLR 24, Street J (as he then was) said (at 27-28):

"Not only did the petitioning creditor seek to urge on the liquidator in the process of the windings up, but it agreed to indemnify him against the expenses of carrying out examinations of Mr and Mrs Barton. It had already provided him with a cash sum of over $1,800 to cover the costs of, and related to, the bringing of these examinations. Here again there is no basis for levelling any criticism whatever against the petitioning creditor. Where a company is being wound up and it has no assets, or insufficient assets, to enable the due processes of the liquidation to be carried through, a creditor is to be encouraged, rather than criticised, in making funds available to the liquidator. Nor need a liquidator be diffident in accepting funds or indemnities from creditors so as to enable a winding up to proceed. Moreover, I see no reason to criticise on the grounds of propriety the arrangement under which a creditor provides money or indemnities to cover the expenses of a specific step in the winding up, such as the bringing of named proceedings or the carrying out of named examinations. Arrangements such as these are commonplace, and, if anything, they are to be encouraged, as very frequently some such arrangement enables the liquidator to carry out his duties more thoroughly or comprehensively than would otherwise be the case …."

63 These observations were recently quoted and applied by Burchett AJ in National Australia Bank Ltd v Wily [2002] NSWSC 573. His Honour explained (at paragraph [9]) that the decision in Re Allebart, where the liquidator was removed, could only be understood if one appreciated the extreme hostility between Mr Barton, who controlled Allebart prior to the winding up order, and Mr Armstrong, who controlled the petitioning creditor. He referred to the personal litigation between Mr Barton and Mr Armstrong, in which Mr Barton proved, as the basis of a claim of duress, that Mr Armstrong had threatened to murder him: see Barton v Armstrong [1973] 2 NSWLR 598; and on appeal, Barton v Armstrong [1976] AC 104.

64 In cases where the allegation against the liquidator is partiality or lack of independence, courts have frequently emphasised that cause may be shown for the removal of the liquidator even in cases where independence and impartiality have in fact been maintained, if a perception of partiality or bias has been created. Thus, in Advance Housing Pty Ltd v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230, Santow J said (at 234):

"In short the question should be whether there would be a reasonable apprehension by any creditor of lack of impartiality on the liquidator's part in the circumstances, by reason of prior association with the company or those associated with it, including creditors, or indeed any other circumstance."

65 Similarly, in Re Biposo, Young J observed (at 735) that "the prime problem in this case is whether it would be perceived by a reasonable observer that the liquidators have manifested a tendency to favour certain interests at the expense of others."

66 If the complaint relates to a particular decision of the liquidator, it seems to me that the appropriate course is to appeal to the Court under s 1321, even if the substance of the complaint is that the decision demonstrates incompetence or bias or other unfitness for office. Before removing a liquidator from office, the Court will normally need to be satisfied of “cause shown” going beyond a particular instance. Counsel for Mr Thomas submitted that the complaint in the present case would have been better brought as an appeal under s 1321 against Mr Thomas's decision to refuse to appoint an administrator or his refusal to support the proposed deed. On balance, however, I think Mr Carpenter's complaint is about a course of conduct by Mr Thomas which is said to provide cause for his removal, rather than any particular decision or decisions, and therefore the matter has been properly raised on an application for the removal of Mr Thomas.

67 In the present case the "cause" relied upon by Mr Carpenter relates to lack of independence or bias, and lack of competence and diligence. Mr Fordyce put forward the following matters in submissions.

68 First, he said that Mr Thomas had acted in a paternal manner and had not put any questions to creditors for consideration. I have not detected in the evidence any indication that Mr Thomas has behaved "paternally", and if he had, I doubt that such behaviour would itself constitute cause for his removal. He has no obligation to put to creditors the decision whether to appoint an administrator, for under s 436B(1) the decision to do so is vested in the liquidator alone. It would be open to the liquidator, in considering whether to make such a decision, to convene a meeting of creditors and ascertain their wishes. A court-appointed liquidator must do so, under s 479(2), if requested to convene a meeting by at least 1/10 in value of creditors or contributories. But absent any compulsion to convene a meeting of creditors, there was no obligation or even any good reason to do so in the circumstances of the present case. In particular, Mr Thomas had canvassed the opinions of creditors at the meeting on 22 May 2002, after the Committee of Inspection had unanimously supported the proposed deed, and he was aware that on 6 November 2002 the Committee of Inspection had in substance reversed its opinion by rejecting Mr Carpenter's proposed resolutions regarding the deed.

69 Next, Mr Fordyce complained that Mr Thomas had not properly investigated the claims against Mr Carpenter and his related entities before commencing the District Court proceedings. This seems to be principally a complaint about competence or diligence, but is also put forward as an indication of bias. There is no substance to it. The claims against Mr Carpenter and his related entities had been under consideration since before Mr Thomas's appointment as liquidator. Mr Thomas conducted some examinations but then funding prevented him from moving ahead. He was able to secure limited funding to obtain an extension of time but nothing more, and it was not until May 2003 that his negotiations for funding with the Bank bore fruit. It appears from the funding agreement that Mr Thomas will now have funds available to investigate the District Court claims further, but in my view the absence of further investigations in the period from after the examinations until late May 2003 is explicable by lack of funding (see, and this regard, the remarks of Young J in Re Biposo at 734, quoted above).

70 Mr Fordyce next contended that Mr Thomas did not properly investigate the financial means of Mr Carpenter, Domino Hire and Merlo Wholesale before commencing the District Court proceedings against them. I have dealt with the evidence concerning Mr Carpenter's financial capacity, and Mr Thomas's attitude to that question. For the reasons I have given, it seems to me that Mr Thomas's approach was justifiable. I should add that the Court will be careful not to put itself in a position of second-guessing the commercial judgment of the liquidator, especially where what is required is a practical assessment based upon experience.

71 Mr Fordyce pointed out that under the proposed deed $85,000 in cash will be immediately available to the creditors, including employees, regardless of whether there is a viable claim against the Bank. If, however, the proposed deed is not pursued and instead, the company remains in liquidation and Mr Thomas proceeds with the District Court actions, the outcome of the proceedings is uncertain and the prospects of recovery under any judgments are even more uncertain. But Mr Thomas has, according to the evidence, weighed up those considerations together with other considerations, which on the face of them are relevant considerations, and he has made a commercial judgment, ostensibly acting in the interests of creditors. As I have said, the Court will be reluctant to interfere with a commercial judgment of liquidator. Here there is nothing to suggest that the liquidator's decision is one that a reasonable liquidator could not take, and the fact that this judgment has been made by him is not, in my view, evidence of bias in the circumstances.

72 In this regard, Mr Newlinds submitted that it was open to Mr Carpenter, if his motive was to confer an immediate cash benefit on creditors, simply to pay them without insisting upon a deed. Mr Fordyce responded by drawing attention to the obvious advantages of a deed of company arrangement, which provides a legally binding framework within which the payment is made, just as creditors' schemes of arrangement do (citing Re Norfolk Island & Byron Bay Whaling Co (1969) 10 WN(NSW) 351, 354). I agree with Mr Fordyce on this point.

73 Mr Fordyce submitted that the liquidator was acting in a "bloody-minded" fashion, for his own benefit, and that the benefits to creditors from his proposed course of action are non-existent. In part this submission reiterates the contention that Mr Thomas will obtain no recovery out of the District Court proceedings. He has exercised his commercial judgment and reached the contrary conclusion, and I have found that there is no ground for interfering with his decision. As to his personal benefit, the deed proposal would have involved payment of his outstanding fees, and under the funding agreement with the Bank he receives some payment of fees. There was a suggestion in the submission that Mr Thomas was shown to be acting in a self-interested way by requiring, as he did, that a provision be included in the funding agreement for payment of his accrued remuneration, but I cannot see how it is objectionable for a liquidator to negotiate for payment of outstanding fees incidentally to other matters. It is true that he will continue to be paid if he remains liquidator and pursues the District Court proceedings, whereas the deed proposal involves termination of his appointment as liquidator. But on the other hand, he will not be paid as liquidator unless he performs work for which fees are payable. All things considered, I cannot see that continuation of liquidation promotes Mr Thomas's self-interest in a way that the implementation of the proposed deed does not. The evidence provides no basis for a contention that Mr Thomas has acted with a motive of self-interest.

74 Next, Mr Fordyce submitted that the litigation funding agreement is a sham, and the District Court proceedings are incompetent and are an abuse of process. In my opinion, there is no basis for these submissions. There is nothing in the evidence to suggest that the funding agreement is other than a real and genuine agreement negotiated between commercial parties on an arms' length basis. No doubt the Bank has acted in its own commercial interests, which might have included discouraging Mr Carpenter from causing the Company to sue it, but the evidence does not indicate that Mr Thomas acted to pursue any such objective, or that he acted to promote the Bank's interests.

75 Mr Fordyce referred me to many well-known cases as to abuse of process, including Williams v Spautz (1992) 174 CLR 509 and Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87 FCR 134. It is unnecessary to examine these cases in order to deal with the submission presently before me. It is not, of itself, an abuse of process for a plaintiff to commence proceedings against a defendant who has insufficient funds to meet the plaintiff's claim, or even no funds at all. But in this case Mr Thomas made a commercial judgment on reasonable grounds that funds may well be forthcoming if judgment is obtained. Although Mr Thomas did not recently pursue investigations into the claims against Mr Carpenter and his related entities, the claims had been mooted for a substantial time, Mr Thomas was required to act because the extension of time for commencing proceedings had almost come to an end, and he was not in a position to conduct any substantial investigations until he had access to funding, something which happened only very recently. This is not a case where a plaintiff has recklessly instituted proceedings without any reasonable basis for doing so.

76 I accept that a liquidator engaged in litigation on behalf of a company which is being wound up is not in the same position as an ordinary litigant, and is required to act in the interests of creditors: Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301. Even so, I see no substantial ground for attacking Mr Thomas's decision to bring the District Court proceedings.

77 Mr Fordyce complained that Mr Thomas retained the Bank's counsel. The facts are that, at all relevant times, the Bank and Mr Thomas have been represented by different firms of solicitors. Mr Newlinds of counsel has previously appeared for the Bank, when the present application has been mentioned for directions. At the hearing of the application, he appeared for Mr Thomas and the Company. The Bank is not a party to Mr Carpenter's application, but it filed its own application to be joined as a party in March 2003. Until the commencement of the hearing, Mr Fordyce expected that the Bank would pursue its application for joinder at the hearing, but when the case opened Mr Newlinds, appearing for the Bank for this limited purpose, informed the Court that the Bank had no application to make. There was evidence that the Bank took that decision on the morning of the first day of the hearing, at a conference in the chambers of Mr Newlinds.

78 If a liquidator uses the same legal practitioner as a creditor, that fact may constitute some evidence of lack of independence or bias, or at least it may contribute to a perception of bias in the eyes of a reasonable observer. But the issue will depend on the precise facts and circumstances, and retainer of common counsel does not necessarily establish bias. In Re Allebart, Street J described the position as follows ([1971] 1 NSWLR at 29):

"The liquidator instructed as his solicitors the solicitors who had acted for the petitioning creditor. This is of itself innocuous and, indeed, commonplace. It did however set the stage which, again, necessitated particular care being taken by the liquidator to ensure that it was on his instructions that each step was taken in the winding up."

79 In National Australia Bank Ltd v Wily Burchett AJ referred to Re Allebart and described the position in more general terms (at paragraph [9]):

"There is, of course, no objection, in itself, to the engagement by a liquidator of a solicitor who is also acting for one of the parties interested in the liquidation. It depends on the circumstances. Sometimes such a solicitor may have special knowledge which is very advantageous in the winding up."

80 In Re Biposo a creditor had retained counsel in proceedings against the company in liquidation concerning title to goods in the company's possession. Although the liquidator had separate solicitors, Young J found that it was probable that the liquidator would use the creditor's counsel for the purpose of examinations under ss 596A and 596B. As Young J pointed out, the courts endeavour to make sure that no illegitimate use is made of information compulsorily acquired by a liquidator in the examination process, and in particular, any real commercial possibility that the liquidator's compulsory examination may be used for the benefit of a particular creditor will be an abuse of process (17 ACSR at 736). It was in that context that his Honour observed (at 736) that the fact that the creditor's counsel would be briefed for the examinations "alone shows that the liquidators did not appreciate their duty not to prefer one interest over the other and to act as the delegate of the Court in an independent manner to assist the winding up."

81 The circumstances of the present case are quite different. While the Bank and Mr Thomas do not have the same interests, the Bank opposes the proposed deed and the present application for commercial reasons, and Mr Thomas opposes the proposed deed and the present application for the reasons he has given to the Court. Mr Thomas has secured funding by agreement with the Bank. In those circumstances, I see no reason why Mr Thomas should be required, in order to avoid any perception of bias, to go to the expense of briefing separate counsel to appear on his behalf as respondent to Mr Carpenter's application. In my opinion his doing so does not indicate actual bias in favour of the Bank or create a perception of such bias. This does not mean, of course, that it would necessarily be appropriate for Mr Thomas to use the same solicitors as the Bank, or the same counsel, on other matters.

82 Then Mr Fordyce made the strange submission that the litigation against the Bank was a "furphy", because there may or may not be a claim against the Bank. He acknowledged that Mr Thomas had inspected the Bank's file and was not persuaded that there is a reasonably arguable case. Apparently the point of the submission was to reinforce the proposition that under the proposed deed, cash would be immediately available to be distributed to the employees and other creditors, quite separately from the proposed examination of bank officers. For the reasons that I have given, it seems to me that Mr Thomas has understood that aspect of the deed proposal, has considered it, and has reached a commercial judgment not to support the proposed deed, a judgment with which I am not prepared to interfere.

83 Next, Mr Fordyce complained that Mr Thomas had retained, as his previous solicitors, a firm of solicitors whose principal client was the National Australia Bank. He said it was well-known that solicitors who acted for a bank were reluctant to sue another bank. He submitted that the firm of solicitors concerned was not in a position to give independent advice. This submission, no doubt put on the instructions of Mr Carpenter who gave evidence to similar effect, is nonsense, in my opinion. In any case, the firm of solicitors in question ceased to act for Mr Thomas in about October 2001.

84 Mr Fordyce said that Mr Thomas had examined only examinees representing the Carpenter interests, and no bank officers had been examined. That is true, but satisfactorily explained by the twin facts that he had run out of money after examining Mr Carpenter and Ms Stewart, and (in his opinion) he has at no stage been shown any legal opinion or other material to justify the view that there are reasonable grounds for proceeding against the Bank.

85 Mr Fordyce said that the Bank intervened to provide funding only after the threat of proceedings against it under the proposed deed had emerged. As a matter of chronology, that is true. There is insufficient evidence for me to make findings about the Bank's motives, as I had said, but in any case, the Bank is entitled to act in its commercial interests.

86 Mr Fordyce complained that Mr Thomas's conduct in not attending either of the two meetings of the Committee of Inspection that he had convened was also evidence of bias. But Mr Thomas has explained why he decided not to attend those meetings, and in my opinion his explanation is cogent.

87 Mr Fordyce said that Mr Thomas's refusal to abandon the claims against Mr Carpenter and his related entities in the context of implementation of the deed proposal was further evidence of bias. But the evidence shows that Mr Thomas was properly concerned not to forego prospects of recovery for creditors unless it was necessary to do so. Mr Fordyce submitted that it would be "clearly inequitable" to expose persons who would be putting up funds at the very beginning of the administration under the deed to an attack in proceedings for the benefit of the creditors who would take benefits under the deed. Quite apart from the fact that, according to Mr Carpenter's evidence, the funds are to be provided by Retreat and not by the present defendants in the District Court proceedings, it seems to me plainly wrong to say that there is anything inequitable about such arrangements, if they are voluntarily made.

88 In a case such as this, it is important to consider the overall effect of the conduct complained of, and the perception that would be created by the conduct as a whole in the mind of a reasonable observer. In his written submissions Mr Fordyce sought to draw some general conclusions from the particular matters to which his submissions were addressed. He said that Mr Thomas's attitude towards the deed proposal has at all times been to engage in conduct giving the appearance that he has made his mind up against the proposal. None of the particular matters to which I have referred provides any support for this contention. It is rebutted by the fact that, according to Mr Thomas's evidence (which I accept), he was inclined to support the deed proposal as a means of obtaining a distribution for creditors, until he received the offer of funding from the Bank.

89 The written submissions also contend that by his actions, Mr Thomas is suppressing a possible claim against the Bank. That is also contrary to the evidence, and in particular, the evidence by Mr Thomas that he would be prepared to take proceedings against the Bank if it could be shown that there was a reasonable prospect of success, and funding was available. Through his counsel, Mr Thomas informed the Court that if someone gave him access to sufficient funds, he would brief independent counsel with the Bank's file and any information provided by Mr Carpenter and Mr Fordyce; and if counsel were to advise that there is a reasonable prospect of success against the Bank, Mr Thomas would seek litigation funding (although he is not confident that Mr Carpenter would be able to provide him with an adequate indemnity for funding purposes). Counsel added that while Mr Thomas did not support the proposed deed, he was prepared to consider any further proposal that Mr Carpenter might put forward. I see no reason for doubting the bona fides of those offers.

90 My conclusion, having regard to all these matters, is that no cause has been shown for the removal of Mr Thomas as liquidator under s 503, and for him to be replaced by Mr Palmer or anyone else. Therefore I shall not make proposed order 1. That being so, proposed order 2 does not strictly arise for consideration. But I have heard argument about it and I shall make some observations.

91 Section 436B(1) empowers a liquidator to appoint an administrator in certain circumstances. Subsection 436B(2) permits the liquidator to appoint himself or herself as administrator, with the leave of the Court. Mr Fordyce submitted that an application for leave under s 436B(2) may be made by someone other than the liquidator, such as Mr Carpenter in the present case. I am not sure that this is correct. There appears to be no authority on the point. If Parliament's intention had been to permit someone other than the liquidator to apply for leave, one would have expected to see some provision to that effect, and some provision dealing with the standing of the applicant. Moreover, it seems to me curious to contemplate that the Court might grant leave to a liquidator to do something, in a case where the liquidator does not wish to do it. Then, if leave is only to be granted in cases where the liquidator wishes to do something that requires leave, it is sensible to say that the application for leave should be made by the liquidator.

92 Assuming, however, that it is competent for someone in the position of Mr Carpenter to make an application that leave be granted to a liquidator under s 436B(2), it seems to me highly unlikely that the Court would ever, in its discretion, make an order granting leave to a liquidator who has not yet taken up office, necessarily without having the benefit of that liquidator's assessment of the desirability of appointing himself administrator. Mr Fordyce submitted that to adjourn the application so as to give Mr Palmer, after his appointment, the opportunity to make an assessment would be to incur unnecessary costs and to waste time. He also foreshadowed that on the next occasion, the Bank would seek to appear and thus add to the cost of the hearing. He said, in effect, that what was before the Court was a package of proposals under which the Company would move into administration and a deed would be propounded by Mr Carpenter, and the orders now sought would reflect the Court's judgment on the package. That submission seems to discount or disregard the possibility that Mr Palmer, if he were appointed liquidator, might have something to say that would assist the Court as to further implementation of the deed proposal.

93 Therefore, even if I were prepared to make proposed order 1, I would not make proposed order 2 immediately (although I might make it after giving the new liquidator the opportunity to make appropriate investigations and report to the Court, provided that he joined in the application).

Conclusions

94 During the course of the hearing, I raised for consideration the question whether I should replace Mr Thomas with a liquidator selected at random, rather than Mr Palmer, so that a fresh mind could assess the facts and advise the Court on the deed proposal. I asked whether Mr Carpenter would make the deed proposal available to a liquidator selected in such circumstances, and whether Mr Thomas's outstanding costs would be paid. Although Mr Carpenter did not reject the idea, I have decided that there is no proper basis for the Court to proceed in that fashion. To do so in the present case would imply either a finding adverse to Mr Thomas, or at least a finding that in the circumstances a reasonable observer would perceive him to be biased or lacking in independence. Having reviewed and analysed the facts, I have decided that no such finding is warranted.

95 No cause has been shown for the removal and replacement of Mr Thomas as liquidator, and an order granting leave under s 436B(2) would be premature in the present circumstances even if orders for the removal and replacement of Mr Thomas were to be made. I have therefore decided that Mr Carpenter's application should be dismissed with costs.

**********

Last Modified: 06/12/2003