Harris Health Care Pty Ltd (receivers and managers appointed) (in liq) v Hayes

Harris Health Care Pty Ltd (in liq) (the Company) was the subject of liquidation proceedings. The liquidator, having discharged all the Company's creditors, identified a surplus in the Company's assets. However, a significant unsatisfied judgment debt was owed to the Company's majority shareholder, Hayes, who was also in liquidation. The liquidator sought and obtained special leave to distribute the entire surplus to shareholders other than Hayes. Hayes appealed this decision to the Court of Appeal of the Supreme Court of New South Wales.

The central legal issue before the Court of Appeal was whether the rule in *Cherry v Boultbee* (1866) 2 Ch App 685, which allows a liquidator to retain a beneficiary's share of a surplus to satisfy a debt owed by that beneficiary to the estate, should continue to apply in the context of corporate insolvency under the *Corporations Act 2001* (Cth). Specifically, the Court had to consider if the continued operation of this equitable rule was incoherent with the purposes and policy of the *Corporations Act*, particularly in light of the statutory framework governing liquidations and the distribution of surplus assets.

The Court of Appeal, comprising Bell CJ, Leeming and McHugh JJA, dismissed the appeal. Their Honours reasoned that the rule in *Cherry v Boultbee* is a well-established equitable principle that operates independently of statutory provisions governing insolvency. They found that the rule's historical development and equitable nature did not render it incoherent with the *Corporations Act*. The Court concluded that the statutory scheme did not displace the equitable right of the Company to set off the debt owed by Hayes against his entitlement to a share of the surplus.

Consequently, the appeal was dismissed, and the appellant, Hayes, was ordered to pay the costs of the first respondent. The notice of motion filed on 12 December 2024 was remitted to be heard and determined by a single Judge of Appeal.