Domino Hire Pty Ltd v Pioneer Park Pty Ltd (In Liq)

[1999] NSWSC 1046

Reported Decision: [2000] 18 ACLC 13

New South Wales

Supreme Court

CITATION:	Domino Hire Pty Ltd v Pioneer Park Pty Ltd (In Liq) [1999] NSWSC 1046 revised - 15/12/99
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	4398/99
HEARING DATE(S):	15, 16 & 22 November 1999
JUDGMENT DATE:	14 December 1999
PARTIES :	Domino Hire Pty Limited (P1) Clifford John Carpenter (P2) Pioneer Park Pty Limited (In Liquidation) (D1) Gregory Winfield Hall and Timothy Cuming (D2)
JUDGMENT OF:	Hamilton J

COUNSEL :	P Fordyce, Solicitor, (P1 & 2) M Speakman (D1 & 2)
SOLICITORS:	P A Somerset & Co (P1 & 2) Blake Dawson Waldron (D1 &2)
CATCHWORDS:	CORPORATIONS [279] - Winding up - Liquidators - Resignation or removal - In voluntary winding up - Liquidator having conflict of interest - Actual or perceived conflict of interest - Prior involvement with company as investigating accountant for secured creditor.
ACTS CITED:	Corporations Law
CASES CITED:	Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 Bain & Company Nominees Pty Ltd v Grace Bros Holdings Ltd. Ltd (1983) 1 ACLC 816 In Re Dorman Long and Company Limited [1934] 1 Ch 635 In re Sir John Moore Gold Mining Company (1879) 12 ChD 325 Pradhan v Eastside Day Surgery Pty Ltd [1999] SASC 256 Re Allebart Pty Ltd (in Liq) [1971] 1 NSWLR 24 Re Biposo Pty Ltd; Condon v Rodgers (1995) 120 FLR 339 Re Capital Management Securities Ltd (1986) 4 ACLC 157 Re Chevron Furnishers Pty Ltd (rec and mgr apptd) (in liq); Queensland Amalgamated Industries Pty Ltd v Harris [1995] 1 QdR 125 Re Dunquil Pty Ltd (in liq) (1985) 9 ACLR 950 Re Intercontinental Properties Pty Ltd (in liq) (1977) 2 ACLR 488 Re National Safety Council of Australia Victorian Division [1990] VR 29 Re West Australian Gem Explorers Pty Ltd (1994) 13 ACSR 104 Stewden Nominees No 4 Pty Ltd (1975) 1 ACLR 185 Tiessen v Henderson [1899] 1 Ch 861
DECISION:	Liquidators should cease to hold office.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

TUESDAY, 14 DECEMBER 1999

4398/99 DOMINO HIRE PTY LTD & ANOR v PIONEER PARK PTY LTD PTY LTD (In Liq) & ORS

JUDGMENT

His Honour:
1 These are proceedings brought by Domino Hire Pty Ltd (“Domino”) and Clifford John Carpenter s 503 of the Corporations Law (“CL”) for the removal of Gregory Winfield Hall and Timothy Cuming, who are partners of Price Waterhouse Coopers (“PWC”), as the liquidators of Pioneer Park Pty Ltd (in liquidation) (“the company”). That section provides for the removal of liquidators by the Court “on cause shown”. The company was for many years a manufacturer of equipment for the coal mining industry. It operated on the Central Coast of New South Wales. Mr Carpenter is a director of the company and is the controller of Domino which is a creditor of the company. The company in 1996 executed in favour of the Australia and New Zealand Banking Group Limited (“the Bank”) to secure finance facilities a mortgage debenture by which it granted to the ANZ Bank a fixed charge over its real property, plant and equipment and a floating charge over the balance of its assets (“the floating charge assets”). The floating charge assets for present purposes consist principally of stock and book debts. In May 1999, when the company’s indebtedness to the Bank was approaching $2.5 million, the Bank gave notice terminating the finance facilities. Thereafter the Bank appointed Mr Hall as investigating accountant to report to the Bank on the company’s affairs. Mr Fordyce, solicitor, on behalf of the company immediately entered into correspondence with the Bank and its then solicitors. Mr Fordyce continued to act for the company until its liquidation. He has since acted for the plaintiffs in these proceedings and appeared as counsel for the plaintiffs on the hearing before me.

2    The Bank’s commission to Mr Hall as investigating accountant by its letter of 20 May 1999 was for a report to cover the viability of the company’s business; the viability of the Bank’s security; and whether the value of the Bank’s security was being improved or eroded. The main focus of the report furnished by Mr Hall to the Bank by letter dated 7 June 1999 was stated to be the security position of the Bank in the company. It is relevant to note that the letter of 7 June 1999 shows that Mr Hall was already aware that Domino was a creditor of the company. A note of a meeting between Brian Soper of the Bank, a representative of its solicitors, and Mr Hall and Matthew Turner of PWC shows a discussion which, not unnaturally, focused on the Bank’s interests, incuding at that early stage a concern that employees’ entitlements “could use up all ‘floating charge’ assets” to the detriment of the Bank. On 8 June 1999 the Bank demanded of the company payment of a sum in excess of $2.5 million and on 10 June 1999 appointed Mr Hall and Mr Cuming voluntary administrators of the company under the provision in s 436C which authorises that course.

3 The notices for the first meeting of creditors under the voluntary administration required by CL s 436E are dated 11 June 1999. Carol Paul of PWC’s Newcastle office stated at the time and has since deposed that notices were posted out to all creditors on the attached list. Carpenter Owens, Mr Carpenter’s accounting firm, is on the list. Domino, although known by Mr Hall to be a creditor, was not on the list. Mr Carpenter denied receipt of the notice. The notice included the following paragraph:

“The overriding qualifications of the person appointed as Administrator are that the person must be, and be seen to be, independent and must have the necessary expertise to deal effectively and efficiently with the matter. For this reason, the legislation provides that the person appointed as Administrator must be a registered liquidator and must not be a significant debtor or creditor, officer, auditor, or partner or employee of an officer or auditor, of the company. You should note that neither I, my partner or staff have had any prior professional dealings with the company”

That statement emphasises the administrators’ knowledge of the importance of independence. Overall, however, whilst the last sentence of the paragraph may be literally true, in my view it conveys a misleading impression that the administrators had had no previous dealings with the company, whereas Mr Hall had investigated its affairs as investigating accountant for the Bank, by far the largest creditor, and which also had the benefit of security. The meeting was held on 18 June 1999. The plaintiffs did not attend. Ten creditors, most of whom were creditors in right of their employment entitlements, attended. There is no doubt that Mr Hall drew to the attention of those present at the meeting his prior role as investigating accountant for the Bank. Between 18 and 29 June 1999 there were negotiations for a Deed of Company Arrangement (“DCA”). This resulted in a proposed DCA under which the Bank would take the company’s real estate in full satisfaction of its debt. By their report to creditors dated 29 June 1999 accompanying the notice of the second creditors’ meeting pursuant to CL s 439A to be held on 7 July 1999 the administrators recommended the creditors’ acceptance of the DCA.

4 The notices of the meeting were sent again by Carol Paul on 30 June 1999. Again, Carpenter Owens was on the list of creditors used by Ms Paul, but Domino still was not. There was evidence that Mr Carpenter was also handed a bundle of documents including a copy of the notice. Mr Carpenter also denied receipt of this notice, but in the witness box retracted that denial. It was pointed out to him that the notice was on the bottom, not on the top of the bundle of documents handed to him, which commenced with the report of 29 June 1999. He still maintained that, being on the bottom of the bundle, it had not come to his attention, although clearly acknowledging that he received it. I accept Mr Carpenter’s evidence that he did not receive the first notice. My acceptance of that is assisted by his ready acknowledgment that he did receive the notice of the second meeting when its position at the bottom of the bundle was pointed out to him. I accept his evidence that he did not see the second notice at that time, although ultimately acknowledging its receipt. The notice again did not draw attention to the fact of Mr Hall’s activity as investigating accountant of the company on behalf of the Bank prior to his appointment as administrator. The importance of the inclusion of relevant material in notices of company meetings has been emphasised by the courts on a number of occasions: eg, Tiessen v Henderson [1899] 1 Ch 861 at 866-7, 869-70; In Re Dorman Long and Company Limited [1934] 1 Ch 635 at 657; Bain & Company Nominees Pty Ltd v Grace Bros Holdings Ltd (1983) 1 ACLC 816 at 819.

5 On 7 July 1999 the second creditors’ meeting was held. At that meeting the creditors approved the DCA. To become effective it had to be executed within 21 days, ie, by 28 July 1999. Owing to the impossibility of fulfilment of certain of the conditions, execution did not take place. Thereupon, by the force of CL s 446A the company passed into liquidation as if a voluntary winding up resolution had been passed, with Messrs Hall and Cuming becoming automatically the liquidators of the company.

6    On 6 September 1999 the liquidators sent their report to creditors enclosing notice of the meeting of creditors under the liquidation, to be held on 22 September 1999. On this occasion, there is no doubt that the notice was sent to Mr Carpenter and to Domino. On the same day the Bank demanded more than $2.5 million from Mr Carpenter as guarantor of the obligations of the company.

7    At the creditors’ meeting on 22 September 1999 Mr Carpenter complained of Mr Hall as a liquidator of the company, by reference to his prior role as investigating accountant for the Bank. This is not noted in the minutes of the meeting, but there is no contest that it occurred. A resolution was passed for the appointment of a committee of inspection which included Mr Fordyce as representative of Domino, Jeanette Rossiter as representative of Grahame Donovan and David Staples as representative of Mr Carpenter’s accounting firm. The balance of the members, or certainly the majority of them, were employee creditors.

8    On 5 October 1999 Mr Fordyce wrote as the plaintiffs’ solicitor complaining of Mr Hall holding the office of liquidator in view of his prior role as investigating accountant. These proceedings were commenced by the plaintiffs on 20 October 1999 (a Wednesday). On that day injunctive relief was obtained by them up to and including the following Monday, 25 October 1999, when the matter was again to be before the Court. The liquidators then took what I regard as the somewhat extraordinary step of attempting to call a meeting of the committee of inspection for 3 pm on Friday, 22 October 1999 for the purpose of having that committee support their position as liquidators. The meeting was to be held in PWC’s offices in Newcastle, not on the Central Coast as the previous creditors’ meetings had been. This was despite the fact that a number of the members of the committee were in Sydney and others resident on the Central Coast. Notices of the meeting were on 20 October 1999 faxed to four creditors in Sydney including Mr Carpenter, Mr Stewart, Mr Fordyce and Carpenter Owens. The notices did not enclose proxy forms. However, upon protest being made by Mr Fordyce as to the validity of the meeting, a facility for attendance at the meeting by telephone conference was offered. Mr Hall was unable to say in evidence that all members of the committee of inspection had been contacted. He was unaware of the existence of any faxes beyond those to the four persons in Sydney already mentioned. Certainly some of the members of the committee were given notice by telephone call only from PWC’s Newcastle office, as is apparent from the evidence of Mr Taber, one of the employee creditors, who gave oral evidence before me. Mr Taber’s evidence was that the call was at around lunch time and he believed it was on the Wednesday. He clearly remembered that it was in relation to a meeting at PWC’s office at Newcastle at 3 pm on the Friday. He does not recall whether or not he was told the subject matter of the meeting, other than that he believed it was a “creditors meeting”. He asked whether he ought tell his son, Gary (another creditor and member of the committee of inspection), about the meeting and was told that he should tell Gary. Whilst Mr Taber believed it was on the Wednesday at lunch time that he was telephoned, Mr Hall gave evidence that he did not decide to call this meeting until late on Wednesday afternoon, after the result of the Court proceedings on Wednesday had been reported to him. In view of this evidence, which there is no reason to doubt, it seems likely that it was not until lunch time Thursday that Mr Taber was telephoned.

9    At the meeting on Friday afternoon, at least two members attended by proxy. As proxy forms were not sent out with a written notice of meeting, it seems likely that these proxies were arranged in telephone calls from PWC’s Newcastle office. A resolution was passed at the meeting supporting the liquidators’ continuance in office. There is no contest that there was not at the time that resolution was passed a quorum present at the meeting. Although the meeting by statute stood adjourned for one week upon the loss of its quorum, no proceedings took place and there was no continuation of the meeting on the following Friday, 29 October 1999. It should be said at once that Mr Speakman, of counsel for the liquidators, conceded at the hearing that there was no valid resolution of a meeting of a committee of inspection in favour of the liquidators and that what occurred on Friday, 22 October 1999, could at best be regarded as an indication by some creditors that they supported the liquidators’ continuation in office.

10    On 22 October 1999, after the meeting had been held, Blake Dawson Waldron (“BDW”) as the liquidators’ solicitors wrote to the plaintiffs’ solicitors as follows:

“We confirm that at 3pm today Mr Hall held a meeting of the committee of inspection of Pioneer Park Pty Limited (In Liquidation) (the ‘ Company ’).
We note that neither you nor your client sought to join that meeting either by the telephone conference facilities which were made available, or in person.
We are instructed that at the meeting referred to above, the members of the committee of inspection present unanimously passed the following resolutions:
1 ‘That this meeting confirms its support for the liquidators, GW Hall and TJ Cuming to remain as liquidators of the Company and that the liquidators should resist the application which has been filed for their removal’; and
2 ‘That this meeting reaffirms its support for the administrators’ fees approved at the meeting of creditors held on 7 July 1999’.”

The solicitors’ letter is misleading in that it does not mention the lack of quorum and suggests on its face a validly passed resolution of a properly constituted committee of inspection. I should add that there is no evidence that BDW had been informed at the time that they wrote that letter, obviously late on the day that the meeting was held, that there was not a quorum present at the time that the resolutions were passsed.

11    The progress of the liquidation appears to be as follows. The Bank has taken control of and realised the real property. The plant and equipment, which had a book value of almost a million dollars, fetched bids of only a total of about $100,000 at an auction held by the liquidators. As to about half the plant and equipment the liquidators thought it best to let that be sold at the $50,000 bid for it at the auction. As to the balance, they refused to sell at the prices bid, on the basis that the equipment being specialised equipment might be able to be sold at better prices by private treaty on further enquiry. Some complaint was made about the liquidators’ conduct in this regard, but that complaint appears to me to be quite unfounded.

12 After realisation of the assets the liquidators hold a fund of about $60,000. The claims by employees amount to some $400,000. So far as I can gather the Bank after receipt of the proceeds of sale of the property held on fixed charge is owed a further sum in the range $100,000 - $200,000. The unsecured creditors other than the employee creditors are owed about $140,000. By virtue of its floating charge the Bank is entitled to the proceeds of all property of the company necessary fully to satisfy its debt and discharge its security. That entitlement is subject to the statutory priority of the claims of the employee creditors to assets held under the floating charge by virtue of CL s 561C. It would only be upon satisfaction of the employees’ claims by payment or settlement, and upon satisfaction of the Bank’s security, that the unsecured creditors would receive anything. But if the Bank had received the proceeds of all the assets of the company without its debt being fully satisfied, as to the balance, it would then become an unsecured creditor, the potential source of funds being the recovery claims. These claims amount to some hundreds of thousands of dollars. It is because they are liquidator’s claims under CL Part 5.7B and not assets of the company, so that they are not subject to the Bank’s floating charge that its only entitlement to any part of them would be as an unsecured creditor, if its full indebtedness were not paid out by the proceeds of all the company’s assets.

13    It does not require an analysis of all the possible combinations and permutations of outcomes to show that live issues remain among three classes of creditors as to who will ultimately receive the benefit if the recovery claims are successful, depending upon the extent of the recovery. At the moment, if there were no recovery, the $60,000, so far as not required for further expenses of the liquidation, would be available to the employee creditors in partial satisfaction of their claims. Mr Hall has recognised that a fund of a maximum of $60,000 would not be sufficient realistically to conduct the recovery claims. He has said that he will conduct these only if litigation recovery insurance is available and he is investigating that possibility at the moment. One further matter that remains to be done is to finalise his statutory report to the Australian Securities and Investment Commission (“ASIC”). There is little left for him to do by way of investigation, although a few final checks remain outstanding. A draft report has been prepared. The report may be critical of the directors of the company when promulgated.

The Law

14 The law has been emphatic that liquidators of companies must be independent and must have the appearance of independence. The CL by ss 448C(1) and 532(2) disqualifies company officers and persons associated with them and company auditors and persons associated with them from office as administrators or liquidators of the relevant companies. It was suggested by Mr Speakman that the inclusion of those categories in the statute constituted a legislative indication that no objection could arise from a person having been an investigating accountant to that person’s subsequent appointment as an administrator of the same company. I do not think that is so. In my view, the purpose of the disqualifications in those sections is to give additional protection to the appearance of independence by excluding persons in those categories, whether or not they may be thought to have any conflict of interests. In relation to all persons other than those named in the sections, the Court must exercise its own judgment as to whether there is independence and an appearance of independence when the issue is raised.

15 Among the statements of this principle that are often quoted is that of Sir Laurence Street, when a Judge of this Division, in Re Allebart Pty Ltd (in Liq) [1971] 1 NSWLR 24 at 30:

“It is essential that the independence and impartiality of a liquidator should at all times exist in point of substance, and be manifestly seen to exist.”

Earlier (at 28), his Honour, had warned, in relation to the situation of a creditor encouraging and funding courses of action by a liquidator:


“This involves, however, the ever-present risk that the liquidator may either yield or appear to yield to partisan considerations in submitting to the urgings of a creditor in conjunction with accepting financial assistance from a creditor.”

These dicta were approved by Needham J in Re Intercontinental Properties Pty Ltd (in liq) (1977) 2 ACLR 488.

16 Sir Nigel Bowen, when Chief Judge in Equity of this Court, said in Stewden Nominees No 4 Pty Ltd (1975) 1 ACLR 185 at 187:

“It is true that an auditor is appointed by the shareholders and is a watchdog for the shareholders. However, even conceding this, it may be that the interests of creditors will be in conflict with those of shareholders or contributories (see Re McLeod & Co (India) Ltd (1925) 25 SR (NSW) 319 at p 322) …. It is important that a liquidator should be independent, and should be seen to be independent ( Re Allebart Pty Ltd [1971] 1 NSWLR 24, at p 30).”

17 And McClelland J (as his Honour then was) said in Re Capital Management Securities Ltd (1986) 4 ACLC 157 at 158:

“Mere grounds of convenience and the improbability of any wrongdoing having occurred which may be discovered by a liquidator seem to me to be elements which are likely to be present in many cases, and are not the kind of matters which should induce the Court to depart from the legislative policy that normally a liquidator should be, and be seen to be, entirely independent of the pre-liquidation activities of the company.

I think that the views I have expressed as to the implementation of such a policy are consistent with what was said by Kaye J in a similar kind of application in the Supreme Court of Victoria in Re Photo Holdings Pty Ltd. (1977-1978) CLC ¶40-301.”

18 In Re West Australian Gem Explorers Pty Ltd (1994) 13 ACSR 104 at 106 Burchett J in the Federal Court stated the position as follows:

“So far as the question of bias is concerned, it goes without saying, that an officer of the court, appointed to act as provisional liquidator of a company, should be above suspicion. There must not be any bias, and there must not be any appearance of bias. Where there are circumstances which might predispose a person to favour particular interests, those circumstances must be taken into account, and the possibility of unconscious partiality should not be overlooked. As Sheppard J said in Re Stadbuck Pty Ltd (18 May 1993, unreported):
‘Unquestionably there is a risk that an accountant may, however subconsciously, tend to favour those who have originally consulted him and may, the more readily, fall in with arrangements already made prior to the filing of an application for winding up.... [T]he appearances need to be considered.”’

19 The principle has been endorsed in Courts of Appeal in Victoria, Queensland and South Australia: Re National Safety Council of Australia, Victorian Division [1990] VR 29 at 34; Re Chevron Furnishers Pty Ltd (in liq) (No 2) [1995] 1 QdR 125 at 130; Pradhan v Eastside Day Surgery Pty Ltd [1999] SASC 256.

20 The principle is neither novel nor in origin Australian. It had its roots in England in the 19th century, as the law relating to the liquidator of the modern company was developed, as illustrated in In re Sir John Moore Gold Mining Company (1879) 12 ChD 325, where Jessel MR said at 330-1:

“Now, what is the meaning of the words ‘on due cause shewn’ in the Companies Act, 1862, s 141? … The words must have some meaning, but it is difficult to define the extent to which they distinguish a case from one in which the ordinary words ‘if the Court shall think fit’ are used. I should say that, as a general rule, they point to some unfitness of the person - it may be from personal character, or from his connection with other parties, or from circumstances in which he is mixed up - some unfitness in the wide sense of the term.”

And Thesiger LJ said at 332-3:

“Here I think that sufficient cause has been shewn, because the case is one in which Mr Dicker’s interests may conflict with his duty. Even if no claim had been made against him personally, his intimate connection with and his favourable disposition towards Barclay , against whom the principal claim is made, make it improper that he should be continued as liquidator. I am, therefore, of opinion that, apart from any impropriety in his conduct, sufficient cause has been shewn for removing him.”

21 The principle to be applied where the issue arises in a the context of a removal application is the same as in relation to an appointment: Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 at 234. The way in which it is to be applied on an application for removal was discussed by Santow J in that case at 233-4 as follows:

“In Re Chevron Furnishers Pty Ltd (rec and mgr apptd) (in liq); Queensland Amalgamated Industries Pty Ltd v Harris (1993) 12 ACSR 565 [[1995] 1 QdR 125] the following passage appears at 570 [130]:
‘… The principle established by those cases is undoubted. The liquidator must have had no prior or other involvement either with the company in liquidation, its directors and major shareholders, or one of its creditors such that he could not fairly and impartially carry out his duties as liquidator requiring him, in broad terms, to act in the best interests of the general body of creditors ….’
If the foregoing statement were taken as precluding any association, it being in the circumstances obiter, then even the most limited prior involvement with the company in liquidation could disqualify the relevant firm of accountants from providing one of its partners as liquidator. In my judgment, the correct balance is struck by permitting a liquidator to act as such even if there be a prior involvement with the company in liquidation, provided that involvement is not likely to impede or inhibit the liquidator from acting impartially in the interests of all creditors or be such as would give rise to a reasonable apprehension on the part of a creditor that the liquidator might be so impeded or inhibited. 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.”

In expressing the conclusion that the liquidators should not remain in office, Santow J said at 238:

“This is with the result that, though nothing before me indicates that Ernst & Young have not acted with perfect probity, nonetheless there is not that necessary appearance of absence of conflict. That in turn may lead to a reasonable apprehension that the liquidator may be impeded or inhibited from taking actions that might otherwise be taken in the interests of all creditors or would not take them with the necessary degree of impartiality. That said, I do not wish to suggest that the reality would accord with that apprehension.”

22 The Court in exercising the general discretion conferred on it will take into account what has been done and what remains to be done in respect of the liquidation and the impact in relation to that of any lack of appearance of disinterest in the liquidator: see Re Dunquil Pty Ltd (in liq) (1985) 9 ACLR 950; Re Biposo Pty Ltd; Condon v Rodgers (1995) 120 FLR 339; 17 ACSR 730. Furthermore, the Court in exercising the jurisdiction must take care that it does not allow itself to become an instrument of those who seek merely for their own purposes to disrupt the due course of the liquidation which is being carried out by order of or under the supervision of the Court. This was emphasised by Young J in Biposo.

The Contentions

23    The primary case put on behalf of the plaintiffs is that, by reason of his engagement in the company’s affairs in the interests of the Bank, as the largest creditor and a secured creditor, and his advice to the Bank as to the manner in which it might in that situation best maximise its recovery, combined with irregularities that have taken place as to the giving of notices of meetings, and with the unfortunate appearance created by the recent attempt at a committee of inspection meeting after the commencement of these proceedings, there is an appearance to or apprehension in the plaintiffs of interest or partiality. Mr Carpenter deposes to the holding of that apprehension. The plaintiffs also rely upon the misleading terms of Mr Hall’s letter of 11 June 1999 and the solicitors’ letter written after the creditors meeting: see [3] and [10] above. There are also allegations of actual bias, including in the attribution of the administrators' and liquidators’ costs as between the assets subject to the fixed charge and the floating charge assets. The case for the liquidators is that they have displayed no actual bias; in the transactions they have in fact carried out they have not favoured the Bank; as administrators they recommended a proposed DCA in which the Bank made a considerable compromise as to its rights and they have recently attempted to negotiate a simultaneous settlement of the employees’ claims and the recovery claims that would have brought those claims to an end in a way that provided no further funds for the Bank over and above the proceeds of the assets the subject of the Bank’s fixed charge; and the plaintiffs have been guilty of delay in bringing these proceedings. It is said on the liquidators’ behalf that I should find that Mr Carpenter was not telling the truth when he denied receipt of the notices of creditors meetings under the administration; that I should not believe that he has any apprehension at all of any lack of impartiality on the liquidators’ part, but that this is invented solely for the purpose of deflecting the recovery claims proceeding against the Carpenter interests since the $60,000 in hand will be used up by the redoing of work thrown away if these liquidators are dismissed and the making of those claims will be precluded. As to the suggestion that they have delayed in making the complaint, Mr Fordyce, the plaintiffs’ solicitor, points to the fact that during the administration the plaintiffs were prepared to negotiate with Messrs Hall and Cuming as administrators; a successful effectuation of the consequential DCA would have removed the necessity of a liquidation. The liquidators having been appointed on 28 July 1999, the plaintiffs are unable to point to any activity of theirs during August, but say that the complaint was made, as was appropriate, at the first creditors meeting after liquidation, which was held on 22 September, and that they moved thereafter to formalise their complaint through solicitors and to bring proceedings on 20 October.

Witnesses

24    Apart from Mr Taber, whom I have already mentioned, oral evidence was given by Mr Carpenter, Matthew Turner of PWC’s Newcastle office, who has assisted the liquidators in the course of the liquidation, and Mr Hall himself. Mr Turner and Mr Hall were both careful witnesses who were quite prepared to make concessions when this was appropriate. Mr Carpenter’s evidence was not compromised by cross examination. His sworn evidence about non-receipt of the notice of the second creditors’ meeting was proved to be wrong, but he readily admitted that it was incorrect when it was pointed out to him that the notice was on the bottom of the bundle of documents which he had received (not through the post but by it subsequently being handed to him). I am not prepared to find that his evidence that he did not receive the notice of the first meeting was untrue and I accept that he in fact holds the apprehensions that he says that he holds.

Issues

25 In the light of the foregoing, the matters to be decided are whether there is a reasonable basis to say that there is an appearance of lack of partiality, or for the holding of Mr Carpenter’s apprehensions, and, if so, whether in the light of all the circumstances the Court’s discretion under CL s 503 should be exercised to remove the liquidators.

Conclusions

26    The question is not an entirely easy one. So far as their actual actions are concerned, in my view it cannot justly be complained that there has been any partiality in the way in which the liquidators have acted. Even in relation to the attribution of costs as between fixed and floating charge creditors, whilst different decisions may have been made, I agree with Mr Hall’s view in evidence that this is a grey area, and I do not see anything substantially wrong with what was done. A large part in value of the company’s assets has already been disposed of by the real property having been taken by the Bank under its security, and some further realisation of assets has occurred. However, there remains a deal to be done. Not only must the report to ASIC be completed and forwarded but final decisions must be taken as to whether the recovery claims are to be pursued and, if they are pursued, as to how they are to be pursued and whether or not they are to be settled (and on what terms), rather than litigated to completion. The Bank as secured creditor under the floating charge, and also as a potential unsecured creditor, as well as the employee creditors and the other unsecured creditors, all retain a potential interest in the funds recovered, and the distribution among them may differ, depending on the form and extent of any settlement of or recovery under these claims. The outstanding report to ASIC may detrimentally affect the directors of the company, including Mr Carpenter. It should be said here that it was conceded on behalf of the defendants by Mr Speakman of counsel that the person who held the apprehension of partiality need not be the plaintiff, and also that, certainly in the circumstances of this case, Mr Carpenter had a sufficient interest to maintain these proceedings as one of the plaintiffs. It seems to me that in reality the decision of whether or not to proceed with the recovery claims will depend on the availability of insurance litigation funding, whether the decision is ultimately made by these liquidators or other liquidators; $60,000 (less the remaining necessary expenses) is not a fund with which these claims could be pursued to conclusion, and neither the Bank nor any of the other creditors have shown any interest in providing funding for such litigation. However, the liquidators, whoever they may be, will obviously play a crucial role in the commencement, continuation and settlement of the recovery claims and the distribution of any proceeds that result from them.

27    It has been contended on behalf of the liquidators that I should draw the inference that the whole or substantially the whole of the available fund would be consumed by repeat work to be done by the replacement liquidators. I do not accept that that is established. The inference can easily be drawn that there would be some repeat work, but the work that has been already done in the identification and collection of assets need not be repeated. It is not clear how much additional work it would be necessary for new liquidators to do in checking and completion of the report to ASIC. As I have said, that there would be some repeat work on the appointment of new liquidators is inevitable, but, on the evidence available, its quantification is completely at large, and it is not possible to infer that that work would be considerable or would consume the whole or substantially the whole of the available fund.

28    It is also submitted, as noted above, that there was such delay and in such circumstances by the plaintiffs in commencing these proceedings that relief ought not be granted. I am not prepared to be critical of the plaintiffs for the course they followed during the administration. During that constricted period, they did not object to the identity of the administrators, but rather, while there appeared to be a hope of saving the company and its enterprise, negotiated and attempted to implement a DCA. Similarly, I do not regard from 6 September, when Mr Carpenter publicly complained of Mr Hall holding the office, to 20 October, when the summons was issued, as an undue delay in the circumstances of this case, bearing in mind that correspondence was taking place the while. The delay during August is harder to justify, but in all the circumstances I do not think it should preclude relief in this case.

29    It has been suggested that the plaintiffs’ sole motive is to disrupt the recovery claims, so that to accede to their application would be to succumb to the sort of manipulation referred to in Biposo. I have already said in [24] that I accept Mr Carpenter’s evidence of apprehension. I also accept his word that the motive is not disruption. That acceptance is assisted by the fact that I do not think the likelihoods of pursuit of the recovery claims will be much changed by the identity of the liquidators.

30    I am thus faced with the situation that there will be some detriment to creditors from substitution of liquidators at this stage, but it is impossible to say how much, and I do not conclude that it will be great. On the other hand, it is my view that the appearance of lack of independence flowing from the liquidators’ actions as the Bank’s investigating accountants, particularly when coupled with the events since that time, is quite real. Those events include the omission from notices of meeting of Mr Hall’s previous involvment with the company, the sending of the misleading communications referred to in [3] and [10] and the fact of and circumstances surrounding the calling of the meeting of the committee of inspection on 22 October 1999. The occurrence of any detriment to the creditors is unfortunate, but, on the other hand, the courts have emphasised the importance of the reality and appearance of the independence of liquidators and, if reality is to be given to those principles, must be prepared to act when they are breached. In all the circumstances, I have formed the view that the appropriate resolution in this case is that the liquidators should cease to hold that office. I shall, if necessary, order that they be removed. Mr Cuming did not act as investigating accountant, but he is Mr Hall’s partner in PWC and has acted in concert with him as administrator and liquidator, and should not remain in office.

31    Sometimes it is possible to cure problems such as the present when they arise by appointing an additional liquidator to deal with the particular subject matter in relation to which lack of the appearance of independence is relevant. It has been objected on behalf of the plaintiffs in this case that that solution is not available because here the liquidators have the status of liquidators in a creditors’ voluntary winding up rather than liquidators appointed by the Court. I do not have to decide upon the correctness of that interesting proposition, because in this case the lack of appearance of independence has some relevance to virtually all the matters that remain to be dealt with by the liquidators, so that such a solution would not solve the problem.

32    When I say that I shall order the removal of the liquidators if necessary, I have in mind that in Advance Housing Santow J afforded the liquidators an opportunity to retire, rather than be dismissed. That was in accordance with a request made to his Honour before the delivery of judgment. No such request has been made of me in this case, but I should be prepared to consider such a request, if now made, in the light of any submissions made by the plaintiffs.

…oOo…

Last Modified: 12/15/1999