Lofthouse and Australian Securities and Investments Commission

CATCHWORDS – CORPORATIONS –

official liquidator – whether entitled to be registered – whether review guided by policy formulated by ASIC – whether may have regard to wider issues inherent in Act – relevant qualifications and qualities – decision set aside.

Administrative Decisions (Judicial Review) Act 1977, s. 5(1)(e)
Australian Securities and Investments Commission Act 2001, Part 3
Corporations Act 2001, ss. 9, 57A, 180(1), (2) and (3), 181(1), 182, 183, 234, 418, 418A(1) and (3), 420(1) and (2), 422(1), (2) and (3), 436A(1), 436B, 436C, 437A, 437B, 437C, 438A, 438B, 438D, 439A(1), (2), (4), (5) and (6), 442B, 442C, 442D, 459A, 459P, 461, 462, 464, 471A(1) and (2), 472(1) and (2), 474(1) and (2), 475(1) and (2), 476, 477(1), (2), (2A), (2B), (3) and (6), 478(1) and (1A), 479(1), (2) and (3), 482, 483, 486, 486, 488(1) and (2), 490, 491, 495(1) and (2), 496(1), (4) and (5), 497, 499, 501, 506, 530A, 530B, 531, 533, 534, 539, 1276, 1279(1)(b), 1280, 1282(1), (2) and (3), 1282(2),(3), (4), (8) and (9), 1283(1), (2) and (3), 1284(1), 1286, 1287, 1288(3), 1290(2) and (3), 1291 and 1323(1) and Parts 2D.1, 5.2, 5.3A, 5.4, 5.4A, 5.5, 5.6 and 9.2
Corporations Regulations, r. 1.0.03, Schedules 1 and 2
Federal Court (Corporations) Rules 2000, Rule 7.10
Supreme Court (Corporations Law) Rules 1999 (Victoria), Order 7, Rule 7.10

Brash Holdings Ltd & Ors v Shafir (1994) 12 ACLC 619
Cape v Redarb Pty Ltd & Anor (No 2) (1992) 10 ACLC 1,272

Corporate Affairs Commission v Harvey (liquidator of Timberlands Ltd (in liq)) (1979) 4 ACLR 259
Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60

Ex parte McDonald Re Partridge and Others [1961] SR NSW 62

Expo International Pty Ltd (Receivers and Managers Appointed) (in liq) and another v Chant and others [1979] 2 NSWLR 820

Pace & Anor v Antlers Pty Ltd (in liq) (1988) 16 ACLC 261

Pipkin v Corporate Affairs Commission (SA) (1987) 11 ACLR 433, (1987) 43 SASR 201, (1987) 5 ACLC 17

Re Allebart Pty Ltd (in liq) and the Companies Act Re Home Holdings Pty Ltd (in liq) and the Companies Act [1971] 1 NSWLR 24

Re B. Johnson & Co. (Builders) Ltd [1955] Ch 634
Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634

Re GK Pty Ltd (in liq); ex parte Deputy Commissioner of Taxation (1983) 1 ACLC 848
Re McCann and Australian Securities and Investments Commission [1999] AATA 358
Re Mecirt Holdings Pty Ltd (1998) 16 ACLC 1,148

Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354

DECISION AND REASONS FOR DECISION [2004] AATA 327

ADMINISTRATIVE APPEALS TRIBUNAL     )
  )          V2003/13
GENERAL ADMINISTRATIVE DIVISION     )

Re DAVID LOFTHOUSE

Applicant

AndAUSTRALIAN SECURITIES & INVESTMENTS COMMISSION
Respondent

DECISION

Tribunal: Deputy President S A Forgie

Mr E. Fice, Member
Date: 30 March, 2004
Place: Melbourne

Decision:The Tribunal:

1.sets aside the decision of the respondent dated 17 December, 2002; and
2.substitutes a decision that the applicant be registered as an official liquidator pursuant to s. 1283 of the Corporations Act 2001.
S A FORGIE
Deputy President

REASONS FOR DECISION

On 7 January, 2003, the applicant, Mr David James Lofthouse, applied for review of a decision of a delegate of the respondent, the Australian Securities and Investment Commission (“ASIC”) dated 17 December, 2002. The delegate refused Mr Lofthouse’s application for registration as an official liquidator under s. 1283 of the Corporations Act 2001 (“the Act”).

At the hearing, Mr Lofthouse was represented by Mr Gardiner of counsel and ASIC by Mr Galvin of counsel. The documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 (“T documents”) were admitted in evidence together with a statement by Mr Lofthouse. Mr Lofthouse gave evidence in support of his case as did Mr Giuseppe Rambaldi, who is a partner in the firm of Pitcher and Partners.

THE ISSUE

The issue in this case is whether Mr Lofthouse has adequate experience to be registered as an official liquidator under s. 1283 of the Act.

BACKGROUND

There is no dispute between the parties regarding some of the facts forming the background to the issue that we must decide. In view of that and on the basis of Mr Lofthouse’s statement lodged on 25 July, 2003, we have made the findings of fact that we set out in the following paragraphs.

On the basis of his evidence, we find that Mr Lofthouse has been an insolvency practitioner from 1985 until the present. Between 1985 and 1987, he was employed first as a supervisor and then as a manager in the insolvency division of Horwath and Horwath. In his capacity as a manager, Mr Lofthouse was involved in managing most of the insolvencies to which Mr Bruce Fordham, the official liquidator of Horwath and Horwath, had been appointed as liquidator.

Mr Lofthouse has been employed as a manager or senior manager involved in numerous insolvency administrations including court liquidations as follows:

from 1987 to 1989, as a manager by Ferrier Hodgson and Co in liquidations to which Mr Anthony Hodgson, Mr Richard Judson, Mr Richard Morrow and Mr Peter Vince had variously been appointed as liquidators;
from 1989 to 1990, as a manager by KPMG Peat Marwick liquidations to which Mr David Crawford, Mr Lindsay Maxstead, Mr Dean McVeigh, Mr Michael Dwyer and Mr Tim Jonas had variously been appointed as liquidators; and
from October, 1990 to 1992, as a senior manager by Mann Judd to which Mr Graham Clark had been appointed as liquidator.

From January, 1992 until January, 2001, Mr Lofthouse was a partner in the firm of Mann Judd, which was later known as HLB Mann Judd, and was involved in the administration of numerous corporate insolvencies. On 22 May, 1992, Mr Lofthouse became a registered liquidator and, in April, 1993, a registered trustee in bankruptcy. From November, 1993, he was in charge of HLB Mann Judd’s insolvency division. In January, 2001, HLB Mann Judd was taken over by Stockford Limited. Mr Lofthouse continued in the position of principal of Stockford Limited’s insolvency division.

Since July, 2002, he has traded in partnership with another registered liquidator, Mr Richard John Cauchi, under the name of CJL Partners.

During the period from April, 1997 until July, 2002, Mr Lofthouse has been engaged either as the manager or as the appointee in 275 corporate insolvency administrations.

LEGISLATIVE BACKGROUND

Registration as a liquidator

Part 9.2 of the Act is concerned with the registration of auditors and liquidators. A person may apply to ASIC for registration as a liquidator or for registration as a liquidator of a specified body corporate that is to be wound up under the Act (s. 1279(1)(b) and (c)). A natural person may apply to ASIC under
s. 1279(1)(b) for registration as a liquidator. Subject to its provisions, s. 1282(2) sets out the circumstances in which ASIC must grant the application. It provides that:

“(a) the applicant:
(i)is a member of The Institute of Chartered Accountants in Australia, CPA Australia or any other prescribed body; or
(ii)holds a degree, diploma or certificate from a prescribed university or another prescribed institution in Australia and has passed examinations in such subjects, under whatever name, as the appropriate authority of the university or other institution certifies to ASIC to represent a course of study in accountancy of not less than 3 years duration and in commercial law (including company law) of not less than 2 years duration; or
(iii)has other qualifications and experience that, in the opinion of ASIC, are equivalent to the qualifications mentioned in subparagraph (i) or (ii); and

(b)ASIC is satisfied as to the experience of the applicant in connection with the winding up of bodies corporate; and
(c)ASIC is satisfied that the applicant is capable of performing the duties of a liquidator and is otherwise a fit and proper person to be registered as a liquidator;

but otherwise ASIC must refuse the application. ”

Where the application is for registration as a liquidator of a specified body corporate, ASIC must register the applicant as a liquidator of that body if it “… is satisfied that the applicant has sufficient experience and ability, and is a fit and proper person, to act as liquidator of the body, having regard to the nature of the property or business of the body and the interests of its creditors and contributories, but otherwise ASIC must refuse the application” (s. 1282(3)). A person who has been disqualified from managing corporations under Part 2D.6 may not be registered as a liquidator at all (s. 1282(4)).

On 14 December, 1992, the Australian Securities Commission (“ASC”), which is now known as ASIC, issued Policy Statement 40 (“PS 40”) setting out the “… experience criteria required of an applicant seeking registration as a liquidator” under s. 1282(2)(b) (PS40.1). ASC specified that:

“[PS 40.3] An applicant must:
(a)have had at least five years in public practice;
(b)have obtained a wide range of experience in external corporate administrations under the direction of an official liquidator for a continuous period of not less than three years, including windings up, receiverships, reconstructions and voluntary administrations; and
(c)have supervised external corporate administrations on a full-time basis for at least two consecutive years during the five years immediately before the date of the application.

This experience will be taken into account whether under the Corporations Law or the previous law and whether or not those periods were overlapping or concurrent.
[PS 40.4] The ASC will also accept experience which is equivalent to the experience specified in [PS 40.3]. In particular, where an applicant has previously been registered as a liquidator, the ASC will take into account the applicant’s previous experience in external administrations prior to the five-year period immediately preceding the application. However, this is not to say that equal weight will be given to experience gained in that prior period.
[PS 40.5] The ASC will not adopt a lesser standard for applicants wishing to restrict their practice to a particular geographical location, for instance, conducting a provincial rather than a capital city practice. As s1282 does not give the ASC power to impose conditions on approval such as restricting the applicant’s practice to particular areas, a registered liquidator is entitled to practice anywhere in Australia. Accordingly, the ASC will not apply less stringent experience criteria notwithstanding the applicant’s stated intention to conduct a provincial practice only.”

Where ASIC grants an application by a person for registration as a liquidator, he or she must lodge and maintain with it a security for the due performance of his or her duties as a liquidator. The security is in the form and in an amount together with sureties, if any, as determined by ASIC (s. 1284(1)). Once registered either as a liquidator or as a liquidator of a specified body, registration remains in force until cancelled by either ASIC or by the Companies Auditors and Liquidators Disciplinary Board or until the liquidator dies (ss. 1282(8) and (9)(a) and (b)). In the case of a person registered as liquidator of a specified body, it is also cancelled if the body corporate is dissolved or deregistered (ss. 1282(9)(c)).

ASIC maintains a Register of those registered as liquidators and as liquidators of a specified body (s. 1286). Persons registered as liquidators in either manner must notify ASIC of certain changes in the information kept on that Register (s. 1287(2)). Every three years, a registered liquidator must lodge a statement setting out such information as is prescribed (s. 1288(3)). The information that is prescribed is set out in Form 907 of the Corporations Regulations (“Regulations”) (r. 1.0.03, Schedules 1 and 2).

Registration as an official liquidator

Once a person is a “registered liquidator”, ASIC may register him or her as an official liquidator (s. 1283(1)). “Registered” means “… registered under Division 2” of Part 9.2 (s. 1276) and it is clear from the language used in Part 9.2 that the expression “registered liquidator” does not extend to a person registered as the liquidator of a specified body. Section 1283 of the Act provides:

“(1) ASIC may register as an official liquidator a natural person who is a registered liquidator.
(2)A person who is registered as an official liquidator is entitled, upon request, to be issued with a certificate of his or her registration.
(3)ASIC may register under subsection (1) as official liquidators as many registered liquidators as it thinks fit.”

On 15 June, 1992, the ASC issued Policy Statement 24 (“PS 24”) indicating how it would exercise its discretionary power under s. 1283 of the Law. It was updated on 13 December, 1993, 28 February, 1994 and 12 December, 1994. The ASC made a number of preliminary points including:

“[PS24.2] Official liquidators are those persons appointed by the court to wind up insolvent companies. The ASC’s view is that official liquidators are appointed to undertake administrations of Australian companies in a manner which may be expected of an officer of the court.
…
[PS24.4] A candidate must be experienced in the practice of insolvency and in a position to command the resources necessary to undertake an appointment made by the court. In this regard, the court is entitled to expect official liquidators, as its officers, to be specialists in the area of corporate insolvency, possessing a high degree of skill and expertise. The ASC notes the views of Marks J in CAC v Harvey (Liquidator or Timberlands (in liq) and Equitable Forestry Services Pty Ltd (in liq) [1980] VR 669; (1979) 4 ACLR; (1979) ACLC 40-564 at 32, 323, in which he said:
‘He is clearly not an employee of the Court but the nature of the appointment makes a representative of it. As Street J said in Duffy v Super Centre Development Corporation Ltd (1967) 1 NSWR 382 at 383 the decisions the liquidator makes from time to time are in effect made under the authority of the Court itself. The winding up is by the Court which for the purposes the liquidator is. As such he is entrusted with the reputation of the Court for impartial and proper despatch of duties. No lesser standard in that regard is to be expected of the liquidator than of a court of a judge.’”

ASIC stated in paragraph 24.6 that it had developed criteria for the registration of official liquidators. It made that statement immediately after it had set out a passage from the judgement of O’Loughlin J in Pipkin v Corporate Affairs Commission (SA) (1987) 11 ACLR 433, (1987) 43 SASR 201, (1987) 5 ACLC 179 in which he had said:

“… the deliberate and separate treatment of official liquidators in the legislation – particularly the arbitrary power to cancel or suspend the registration of an official liquidator … reinforces my view that the legislation has seen fit to repose in the Commission the absolute control over the registration of official liquidators and the cancellation or suspension of their registration.” (page 183)

In paragraph PS24.7, ASIC set out the experience and resources required of a candidate for registration as an official liquidator. It reads, in part:

“ The ASC must be satisfied that a candidate has the necessary experience and resources to undertake court appointments.
Subject to paragraph 8 below, a candidate for registration as an official liquidator must:
(a)be a registered liquidator;
(b)have had, since registration as a liquidator, at least two years continuous experience in insolvency administrations including windings up, receiverships and reconstructions, some of which are court appointed, working at the most senior level under the direct supervision of an official liquidator;
(c)show involvement in the liquidation of insolvent companies, including his or her contributions to decisions taken in the course of administering complex windings up ordered by the court;
(d)have staff and other resource back-up facilities so as to be able to conduct an official liquidator’s practice;
(e)have appropriate training and operational manuals; and
(f)advise that the applicant will consent to accept any appointment made by a specified court.”

The qualification in paragraph PS24.8 relates to paragraphs PS24.7(d) and (f) and relates to those candidates for registration as official liquidators who may want to restrict their practice to a geographical area of Australia.

Other criteria considered relevant by the ASIC include:

“(a) the amount of work generally available to official liquidators;
(b)the need for official liquidators to be appointed to tasks with such frequency as will result in the maintenance of satisfactory skills; and
(c)membership of, and participation in, programs of continuing education offered by appropriate professional organisations.” (PS24.9)

Cancellation or suspension of registration as a liquidator or as an official liquidator

Putting to one side cancellation of a liquidator’s registration at his or her request under s. 1290 and the cancellation of those registered as the liquidators of specified bodies corporate under s. 1292(3), the Companies Auditors and Liquidators Disciplinary Board (“the Board”) may cancel or suspend a liquidator’s registration in the circumstances specified in s. 1292(2). Those circumstances include the person’s ceasing to be a resident of Australia, having failed to submit triennial statements in accordance with s. 1288 of the Act, having failed to carry out or perform adequately and properly the duties of a liquidator or any duties or functions required by Australian law to be carried out or performed by a registered liquidator or not being a fit and proper person to remain registered as a liquidator.

Section 1291 governs the cancellation or suspension of a person’s registration as an official liquidator. ASIC is given the power to suspend or cancel that registration at any time and its power is not predicated upon the occurrence of specified circumstances as is its power in relation to registered liquidators.

The appointments that may be held by a registered liquidator and those that may be held by an official liquidator

Generally, administrative responsibility for a corporation lies with its officers. Responsibility may only be assumed by an outsider to the corporation in a limited number of circumstances. Those circumstances occur when a corporation is placed in receivership under Part 5.2, an administrator is appointed under Part 5.3A, the corporation is wound up by a Court either in insolvency under Part 5.4 or on grounds other than insolvency under Part 5.4A or it is voluntarily wound up under Part 5.5.

With one exception, the person who is appointed a receiver, receiver and manager, an administrator or the liquidator in a voluntary winding up must be a registered liquidator. The one exception is found in s. 418 of the Act. That is to the effect that a receiver (or a receiver and manager) must be a registered liquidator unless the receiver is a body corporate authorised by or under the law of the Commonwealth, State or Territory to act as a receiver of the property of the corporation concerned (s. 418(1)(d) and (3)). By way of contrast, the person who is appointed by a Court as the liquidator in a winding up in insolvency or on grounds other than insolvency under Part 5.4A must be an official liquidator.

We will briefly consider the role played by each of these “outsiders” to the corporation together with an outline of their responsibilities and duties as reflected in the Act and Regulations and in the authorities.

Role of a receiver

Beginning with the receiver, it is not a term that is defined in the Act although its meaning is affected by the Act to include a receiver and manager (ss. 9 and 90). Precise definition is not possible for a receiver’s role varies according to the purposes for which he or she was appointed. In general terms, however, a receiver is appointed to collect and receive the assets of a corporation and to pay ascertained outgoings. As Evershed MR said in Re B. Johnson & Co. (Builders) Ltd [1955] Ch 634 at 646 (Evershed MR and Jenkins and Parker LJJ), where a person has been appointed as a receiver and manager by an instrument, he or she is appointed:

“… not with any duties to carry on the business of the company, in the best interests of the company, but in order to realize, for the debenture holders or mortgagees, the security which they have got; and only for that limited purpose is he given powers of management.”

A receiver is appointed either under an instrument or by a court order. In so far as appointment under an instrument is concerned, an instrument includes a document such as a debenture trust deed or a deed of mortgage entered between the corporation and a creditor to secure payment of a debt. The terms of the instrument dictate the time at which and the circumstances in which a receiver may be appointed. Examples of occurrences that may be determined by the debenture deed or mortgage trust deed to trigger the right to appoint a receive include:

“ The debenture-holders are usually given the power to appoint a receiver when the company defaults in paying any due instalment. Default in payment is not the only occurrence that triggers the right to appoint a receiver. Most debentures allow a receiver to be appointed in a wide variety of situations other than the company’s default. For example, it is quite common for a trust deed to permit a receiver to be appointed if:
the company ceases to carry on its business or is operating at a loss;
any person files an application to wind up the company;
the company reduces its capital; or
the security is put at risk by a failure to maintain or insure it.” (Phillip Lipton & Abe Herzberg, Understanding Company Law, 10^th edition, Lawbook Co., Sydney, 2001 at page 580)

Either a person whose interests may require protection (“an aggrieved person”) or ASIC may apply to the Court for an order appointing a receiver or a receiver and manager of the property, or part of the property, of a body corporate (and so of a corporation – ss. 9 and 57A) where:

“…
(a)an investigation is being carried out under the ASIC Act or this Act in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of this Act; or
(b)a prosecution has been begun against a person for a contravention of this Act; or
(c)a civil proceeding has been begun against a person under this Act;

…” (s. 1323(1))

If the Court thinks it desirable to do so for the purpose of protecting the interests of an aggrieved person to whom the body corporate is liable, or may become liable, to pay money or to account for financial products or other property, it may order, among others, that a receiver or a receiver and manager be appointed of the property, or part of the property, of that corporate body (s. 1323(1)(h)(ii)).

The instrument or the Court’s order may also set out the receiver’s powers but, subject to any limitation in them, the receiver has, in addition to those powers and for the purpose of attaining the objectives for which the receiver was appointed powers that include the power:

“(a) to enter into possession and take control of property of the corporation in accordance with the terms of that order or instrument; and

(b) to lease, let on hire or dispose of property of the corporation; and
(c)to grant options over property of the corporation on such conditions as the receiver thinks fit; and

(d)     to borrow money on the security of property of the corporation; and
(e)     to insure property of the corporation; and
(f)     to repair, renew or enlarge property of the corporation; and
(g)     to convert property of the corporation into money; and
(h)     to carry on any business of the corporation; and
(j)to take on lease or on hire, or to acquire, any property necessary or convenient in connection with the carrying on of a business of the corporation; and
(k)to execute any document, bring or defend any proceedings or do any other act or thing in the name of and on behalf of the corporation; and
(m)to draw, accept, make and indorse a bill of exchange or promissory note; and

(n) to use a seal of the corporation; and
(o) to engage or discharge employees on behalf of the corporation; and
(p)to appoint a solicitor, accountant or other professionally qualified person to assist the receiver; and
(q)to appoint an agent to do any business that the receiver is unable to do, or that it is unreasonable to expect the receiver to do, in person; and
(r)where a debt or liability is owed to the corporation—to prove the debt or liability in a bankruptcy, insolvency or winding up and, in connection therewith, to receive dividends and to assent to a proposal for a composition or a scheme of arrangement; and
(s)if the receiver was appointed under an instrument that created a charge on uncalled share capital of the corporation:
(i)to make a call in the name of the corporation for the payment of money unpaid on the corporation's shares; or
(ii)on giving a proper indemnity to a liquidator of the corporation—to make a call in the liquidator's name for the payment of money unpaid on the corporation's shares; and

(t)to enforce payment of any call that is due and unpaid, whether the calls were made by the receiver or otherwise; and
(u)to make or defend an application for the winding up of the corporation; and

(w) to refer to arbitration any question affecting the corporation. ” (s. 420(2))

The receiver must lodge a report and give ASIC access to any documents it requires if it appears to him or her that:

“(a) a past or present officer, or a member, of the corporation may have been guilty of an offence in relation to the corporation; or
(b)a person who has taken part in the formation, promotion, administration, management or winding up of the corporation:
(i)may have misapplied or retained, or may have become liable or accountable for, any money or property (whether the property is in Australia or elsewhere) of the corporation; or
(ii)may have been guilty of any negligence, default, breach of duty or breach of trust in relation to the corporation”. (s. 422(1))

The receiver may also lodge further reports specifying any other matters that he or she thinks is desirable to bring to ASIC’s notice (s. 422(2)). The Court may also direct the receiver to lodge a report about the matters referred to in s. 422(1)(a) and (b) (s. 422(3)).

In Cape v Redarb Pty Ltd & Anor (No 2) (1992) 10 ACLC 1,272, Higgins J, as he then was, drew a distinction between a Court appointed receiver and a receiver appointed by the creditors (and so under an instrument) and said:

“ The duty imposed on Yeomans [the receiver] by his acceptance of and appointment to the office of receiver by this Court is a special one.
In Re Johnson (B) & Co (Builders) Ltd [1955] Ch 634 the distinction between a court appointed receiver and manager and one appointed by creditors was considered. The former carries out his or her functions for the company’s benefit, the latter owes a prior duty to the appointing creditors.

I accept the submission of both parties that a Court appointed receiver, as Yeomans was, owes a fiduciary duty to those interested in the property, in this case, effectively Cape and Maidment.
The receiver is neither an agent of or trustee for those persons (see Bacup Corporation v Smith (1890) 44 Ch D 395, 398 per Chitty J; Visbord v FC of T (1943) 7 ATD 213, 232; (1943) 68 CLR 354, 384 per Williams J; Expo International Pty Ltd (Recs/Mgrs Apptd)(in liq) & Anor v Chant & Ors (1980) CLC ¶40-608, 34,048; [1979] 2 NSWLR 820, 830 per Needham J).
The receiver was charged with the power and, in my view, the duty to sell the assets of Redarb. It is a power he was required to exercise at his discretion. (See Re Timberland Ltd (in liq) and Equitable Forestry Services Pty Ltd (in liq); Commissioner for Corporate Affairs v Peter William Harvey [1980] VR 669; (1979) 4 ACLR 259; Re Mineral Securities Australia Ltd (In Liq) and the Companies Act (1971-1973) CLC ¶40-076, 27,574; [1973] 2 NSWLR 207, 213E.)
The same principles apply to a solvent administration.
It is clear that in carrying out his duties the receiver was obliged to act in the interests of and be fair to all parties (see Gibbs v David (1875) LR 20 Eq 373). It follows that a receiver should not display partiality to one rather than another beneficiary (see Farrington v Rowe McBride and Partners [1985] 1 NZLR 83). In that respect the receiver is subject to the same duty as a liquidator (see Re Timberland Ltd (in liq) and Equitable Forestry Services Pty Ltd (in liq); Commissioner for Corporate Affairs v Peter William Harvey (supra); Re Mineral Securities Australia Ltd (supra)).
The question at issue between the parties, however, is whether the receiver has acted contrary to his duty to act impartially and reasonably.
The receiver is required to exercise his powers in good faith and on proper advice. Subject to that, matters of timing and management are properly for the receiver in exercise of his or her discretion (see [Re Burnells Pty Ltd (In liquidation)] Burnells Pty Ltd (in liq) v Walsh [1979] Qd R 440; (1979) 4 ACLR 213.
That means that, provided a receiver acts according to the dictates of good faith and makes decision within his or her powers in the interests of the beneficiaries then the Court will not act as some sort of review tribunal as to the merits of such decisions. So long as the impugned decision is one which might lawfully be made the Court ought not to interfere with it (Re Mineral Securities Australia Ltd (In Liq) supra CLC 27,588-27,589; NSWLR 230-1 (per Street J)).” (pages 1,279-1,280)

What is meant by a “fiduciary duty” in this context was considered by Williams J in Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 (Latham CJ, Rich, Starke and Williams JJ). His Honour’s judgement was summarised by Needham J in Expo International Pty Ltd (Receivers and Managers Appointed) (in liq) and another v Chant and others [1979] 2 NSWLR 820:

“ Indeed, in Visbord v Federal Commissioner of Taxation (1943) 68 C.L.R. 354, at p. 383 Williams J, in discussing the benefits to be gained by appointing a receiver of the income of the mortgaged assets, said: “As the receiver is the agent of the mortgagor, the mortgagor would have a right to sue the receiver if he acted otherwise than in accordance with the authority conferred upon him by the statute …”
His Honour was there referring to s. 109 of the Victorian Property Law Act, 1928. There is no reason in principle why his statement should not apply to an appointment pursuant to a deed. In the same judgment, his Honour said (1943) 68 C.L.R. 354, at p. 384: ‘It has been held that a receiver appointed by the court occupies a fiduciary position … and there would appear to be no distinction in principle in this respect between the position of a receiver appointed by the court and a receiver appointed by the mortgage deed. In each case he holds a particular fund in which, whether it consists of principal or of interest or partly of one and partly of the other, both the mortgagor and the mortgagee are interested, the mortgagee having the prior claim and the balance belonging to the mortgagor after these claims have been satisfied.’
In this passage, in my opinion, Williams J. is looking at the relationship between the receiver and the other parties, once the receiver has money in his hands. He is not suggesting, I think, that, from the date of his appointment, the receiver stands in a fiduciary position vis-a-vis the mortgagor. Such a conclusion would be contrary to many statements of that relationship and would involve exceeding the extent of the duty of the mortgagee himself to the mortgagor. Of course, once the mortgagee has sold, he holds surplus moneys in trust for subsequent encumbrances and, ultimately, for the mortgagor. It appears to me that Williams J. is equating with that situation the case of a receiver who has acquired money either by sale of mortgaged assets or receipt of income therefrom.” (pages 829-830)

Role of an administrator

An administrator is appointed pursuant to Part 5.3A of the Act and may be appointed in writing in one of three ways:
a company’s board of directors may do so after resolving that the company is insolvent, or likely to become insolvent at some future time and that an administrator should be appointed (s. 436A(1));
a liquidator or a provisional liquidator of a company may appoint an administrator of a company if he or she thinks that it is insolvent or likely to become insolvent at some future time (s. 436B(1)); and
a person who is entitled to enforce a charge on the whole, or on substantially the whole of a company’s property may appoint an administrator if the charge has become, and remains, enforceable (s. 436C(1)).

The object of Part 5.3A:

“… is to provide for the business, property and affairs of an insolvent company to be administered in a way that:
(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b)if it is not possible for the company or its business to continue in existence – results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.” (s. 435A)

The role of an administrator under Part 5.3A was considered by Beach J in Brash Holdings Ltd & Ors v Shafir (1994) 12 ACLC 619 in considering whether or not the administrators have the power to enter into a sale agreement without convening a general meeting of the members of the company. His Honour said:

“ When an earlier application in relation to Brashs came before the Full Court in the matter of Brash Holdings Ltd & Ors v. Katile Pty Ltd & Anor (1994) 12 ACLC 472 the Full Court said on 16 June at p. 476 of its judgment:
‘Under s. 437A, the administrator is given considerable powers, while the company is under administration. Thus, he is given control of the company's business, property and affairs; he may carry that business on and manage the property and those affairs; he may terminate or dispose of all or part of that business and may dispose of any of the property; and he may perform any function and exercise any power that the company or any of its officers could perform or exercise if the company were not under administration – and in so acting, he is taken to be acting as agent of the company.’

In my opinion what the Full Court is spelling out there, is that administrators in the position of Mr Beatty and Mr Humphris have the power to dispose of all of the business and property of the company they are administering if that is the appropriate course to adopt.
The question of the effect of administration on members of a company was considered by Fisher & Harmey in their work on ‘Australian Corporation Law’. At p. 53,122 of the second volume of that work the authors say:
‘Because the company is in financial difficulty the interests of members come last for consideration. Indeed, it may be said that the members are effectively isolated because the future of the company must, necessarily, rest with the creditors and the administrator. The members had no power to intervene in the course of the administration nor to control or direct it once an administration has been validly and effectively initiated. It is, of course, open to the members to assert such rights or powers as they may have (for example, alleging oppressive conduct under s. 260) through the court, but it is difficult to imagine that, except in unusual circumstances, the would be able to command a superior “interest” to that of the creditors in determining the fate of the company.’

And later:
‘To all intents and purposes therefore, the interests of members are subverted to the interests of creditors except in a case when it may be shown that the procedure or mechanics leading to the appointment of the administrator was fatally flawed or that the administrator and/or the creditors are acting in a manner that is totally improper or clearly prejudicial to the interests of members.’

I agree with the author’s views in the matter.” (pages 621-622)

While a company is under administration, an administrator:

“(a) has control of the company’s business, property and affairs; and
(b)may carry on that business and manage that property and those affairs; and
(c)may terminate or dispose of all or part of that business, and may dispose of any of that property; and
(d)may perform any function, and exercise any power, that the company or any of its officers could perform or exercise if the company were not under administration.” (s. 437A(1))

In order to achieve this, an administrator power to remove from office a director of the company and appoint a new director, execute a document, bring or defend proceedings or do anything else in the company’s name and on its behalf that is necessary for the purposes of Part 5.3A. His or her powers are limited where the company’s property is encumbered or subject to a charge (Part 5.3A, Division 7 and ss. 442B, 442C and 442D).

The administrator is taken to be acting as the company’s agent when he or she is performing a function or exercising a power as the administrator of a company under administration (s. 437B). In the meantime, the powers of the officers of the company, including those of any receiver, receiver and manager appointed by a court and liquidator or provisional liquidator appointed by the Court before the administration began, are suspended unless authorised by the administrator (s. 437C).

As soon as practicable after his or her appointment and the administration begins, the administrator must:

“(a) investigate the company’s business, property, affairs and financial circumstances; and
(b)form an opinion about each of the following matters:
(i)whether it would be in the interests of the company’s creditors for the company to execute a deed of company arrangement;
(ii)whether it would be in the creditors’ interests for the administration to end;
(iii)whether it would be in the creditors’ interests for the company to be wound up.” (s. 438A)

The directors must help the administrator by delivering the company’s books and giving a statement about the company’s business, property, affairs and financial circumstances as well as attending on him or her and giving information on those matters as he or she reasonably requires (s. 438B).

If it appears to the administrator that an officer or member of a company may have been guilty of an offence in relation to the company or a person who has taken part in the formation, promotion, administration, management or winding up of the company may have misapplied or in some way have become accountable for money of the company or been guilty of negligence, default, breach of duty or breach of trust in relation to the company, the administrator must lodge a report with ASIC (s. 438D).

In general terms and subject to particular provisions relating to Christmas and Easter, the administrator must convene a meeting of the company’s creditors within a period of five business days after the expiration of 21 days from the administration’s commencement (ss. 439A(1), (2), (5) and (6)). The notice of the meeting given to each creditor must be accompanied by a copy of:

“(a) a report by the administrator about the company's business, property, affairs and financial circumstances; and
(b)a statement setting out the administrator's opinion about each of the following matters:
(i)whether it would be in the creditors' interests for the company to execute a deed of company arrangement;
(ii)whether it would be in the creditors' interests for the administration to end;
(iii)whether it would be in the creditors' interests for the company to be wound up;

and his or her reasons for those opinions; and
(c)if a deed of company arrangement is proposed—a statement setting out details of the proposed deed.” (s. 439A(4))

Role of liquidator – liquidator appointed in winding up ordered by the Court

If a company is insolvent, a number of people including the company, a creditor or ASIC (s. 459P) may apply for it to be wound up in insolvency and the Court may order that it be wound up in insolvency (s. 459A) under Part 5.4. If an application has been made under s. 234 (in relation to the oppressive conduct of a company’s affairs), s. 462 (on the grounds specified in s. 461) or s. 464 (where ASIC is, or has, investigated the affairs, or matters connected with the affairs, of the company under Division 1 of Part 3 of the Australian Securities and Investments Commission Act 2001) and the Court is satisfied that the company is insolvent, it may order that the company be wound up in insolvency (s. 459B).

An application may also be made to the Court by those who are named in s. 462(2) for a winding up of a company on the grounds set out in s. 461 of Part 5.4A. Those grounds relate to matters other than the company’s insolvency. Where ASIC is investigating, or has investigated, the affairs, or matters connected with the affairs, of the company under Division 1 of Part 3 of the Australian Securities and Investments Commission Act 2001, ASIC may apply to the Court for the winding up of the company. The Court may order the winding up of a company.

Division 2 of Part 5.4B of the Act sets out the general provisions relating to liquidators. Once a Court has made an order for the winding up of a company, it may appoint an official liquidator to be the liquidator of the company (s. 472(1)). Before it makes a winding up order, or, if there is an appeal against a winding up order, the Court may appoint an official liquidator provisionally until either a winding up order is made or the appeal is resolved as the case may be (s. 472(2)).

Once a winding up order has been made, the company continues to exist as a legal entity. Its property continues to vest in it but the liquidator takes its property into his or her control (s. 474(1)). The liquidator may apply to the Court for an order vesting the property in him or her. Upon giving any indemnity required by the Court, the liquidator may bring, or defend, any action or other legal proceeding that relates to the property or that is necessary to bring or defend for the purpose of effectually winding up the company and recovering its property (s. 474(2)).

The effect of ss. 471A(1) and (2) is that, while a company is being wound up, the functions and powers of its officers can be performed only by the liquidator appointed for the purposes of the winding up or the administrator appointed after the winding up order was made or with the approval of the liquidator or the Court.

The directors and secretary of the company must make a statement to the liquidator as to the affairs of the company (s. 475(1)). The liquidator may require persons such as the current or previous officers or employees of the company, those who were involved in its formation or a provisional liquidator to make a statement regarding the company’s affairs (s. 475(2)). Within two months of receiving such a report, or within such longer period as permitted by ASIC, the liquidator must lodge a preliminary report setting out:

“(a) in the case of a company having share capital – as to the amount of capital issued, subscribed and paid up; and
(b)as to the estimated amounts of assets and liabilities of the company; and
(c)if the company has failed—as to the causes of the failure; and
(d)as to whether, in his or her opinion, further inquiry is desirable with respect to a matter relating to the promotion, formation or insolvency of the company or the conduct of the business of the company.” (s. 476)

The powers of the liquidator are set out in s. 477:

“(1) Subject to this section, a liquidator of a company may:
(a)carry on the business of the company so far as is necessary for the beneficial disposal or winding up of that business; and
(b)subject to the provisions of section 556, pay any class of creditors in full; and
(c)make any compromise or arrangement with creditors or persons claiming to be creditors or having or alleging that they have any claim (present or future, certain or contingent, ascertained or sounding only in damages) against the company or whereby the company may be rendered liable; and
(d)compromise any calls, liabilities to calls, debts, liabilities capable of resulting in debts and any claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting or supposed to subsist between the company and a contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the property or the winding up of the company, on such terms as are agreed, and take any security for the discharge of, and give a complete discharge in respect of, any such call, debt, liability or claim.

(2) Subject to this section, a liquidator of a company may:
(a)bring or defend any legal proceeding in the name and on behalf of the company; and
(b)appoint a solicitor to assist him or her in his or her duties; and
(c)sell or otherwise dispose of, in any manner, all or any part of the property of the company; and
(ca)exercise the Court's powers under subsection 483(3) (except paragraph 483(3)(b)) in relation to calls on contributories; and
(d)do all acts and execute in the name and on behalf of the company all deeds, receipts and other documents and for that purpose use when necessary a seal of the company; and
(e)subject to the Bankruptcy Act 1966, prove in the bankruptcy of any contributory or debtor of the company or under any deed executed under that Act; and
(f)draw, accept, make and indorse any bill of exchange or promissory note in the name and on behalf of the company; and
(g)obtain credit, whether on the security of the property of the company or otherwise; and
(h)take out letters of administration of the estate of a deceased contributory or debtor, and do any other act necessary for obtaining payment of any money due from a contributory or debtor, or his or her estate, that cannot be conveniently done in the name of the company; and
(k)appoint an agent to do any business that the liquidator is unable to do, or that it is unreasonable to expect the liquidator to do, in person; and
(m)do all such other things as are necessary for winding up the affairs of the company and distributing its property.” (ss. 477(1) and (2))

The liquidator’s power to compromise a debt to the company is limited to $20,000 or to any higher amount that is prescribed unless he or she has the approval of the Court, of the committee of inspection or of a resolution of the creditors (s. 477(2A)). There are also limitations on the power to enter an agreement (s. 477(2B)). The liquidator has power to inspect the company’s books (s. 477(3)).

The liquidator’s powers are subject to the control of the Court and any creditor or contributory or ASIC may apply to the Court with respect to the exercise, or proposed exercise, of any of those powers (s. 477(6)). As soon as practicable, the liquidator must cause the company’s property to be collected and applied in discharging the company’s liabilities (s. 478(1)). The liquidator of a company being wound up in insolvency must settle a list of contributories if it appears likely that there are persons liable as members or past members to contribute to the company’s property or that there will be a surplus available for distribution (s. 478(1A)). In administering and distributing the company’s property, the liquidator must have regard to any directions given by resolution of the creditors or contributories at any general meeting or by the committee of inspection (s. 479(1)).The liquidator may call such meetings or, when required by those representing at least one tenth of the value of the creditors or contributories, must call such a meeting to ascertain their wishes (s. 479(2)). He or she may apply to the Court for directions in relation to a particular matter arising under the winding up (s. 479(3)).

Division 3 of Part 5.4B sets out the general powers of the Court in relation to a winding up. The Court may stay or terminate a winding up in the circumstances set out in s. 482. The Court may require a person who is a contributory, trustee, receiver, banker, agent or officer of the company to pay, deliver, convey, surrender or transfer to the liquidator money, property or books he or she has in his or her hands (s. 483). Among its other powers, the Court may fix a day on or before which creditors are to prove their debts, must adjust the rights of contributories amongst themselves and, if the property is insufficient to meet the company’s liabilities, may make an order as to the payment of costs, charges and expenses from that property in such order of priority as the Court thinks fit (s. 485). The Court may order that the creditors and contributories may inspect the company’s books (s. 486).

Under s. 488, provision may be made in the rules or regulations:

“… for enabling or requiring all or any of the powers and duties conferred and imposed on the Court by this Part in respect of:
(a)the holding and conducting of meetings to ascertain the wishes of creditors and contributories; and
(b)the paying, delivery, conveyance, surrender or transfer of money, property or books to the liquidator; and
(c)the adjusting of the rights of contributories among themselves and the distribution of any surplus among the persons entitled to it; and
(d)the fixing of a time within which debts and claims must be proved;

to be exercised or performed by the liquidator as an officer of the Court and subject to the control of the Court.” (s. 488(1))

Specific provision is made for these matters in Part 5.4 of the Regulations. Despite anything in the rules or Regulations, a liquidator may distribute a surplus only with the special leave of the Court (s. 488(2)). Subject to the Act, Regulations and the Corporations Rules (“Rules”):

“… the powers and duties conferred or imposed on the Court by Part 5.4B of the Law in respect of the matters mention in sub-section 488(1) of the Law may be exercised or performed by a liquidator appointed by the Court as an officer of the Court and subject to the control of the Court.” (e.g. Order 7, Rule 7.10, Supreme Court (Corporations Law) Rules 1999 (Victoria) and Division 7, Rule 7.10 of the Federal Court (Corporations) Rules 2000)

Role of liquidator – voluntary winding up

Subject to its being solvent and a Court’s not having ordered that it be wound up in insolvency, a company may resolve by special resolution that it be wound up (ss. 490 and 491). If such a resolution is made, a liquidator must be appointed by the company in a general meeting (s. 495(1)) and all the powers of the directors cease (s. 495(2)). If it should transpire that the company is insolvent, the liquidator may choose to apply to the Court under s. 459P for the company to be wound up in insolvency, appoint an administrator of the company under s. 436B or convene a meeting of the company’s creditors (s. 496(1)). If the liquidator chooses to convene a meeting of the company’s creditors, he or she must lay before the meeting a statement of the company’s assets and liabilities and must draw the creditors’ attention to their right to appoint a new liquidator under s. 496(5) (s. 496(4)). If the liquidator or another person is appointed as liquidator at the creditors’ meeting, the winding up continues as if it were a creditors’ voluntary winding up.

The company must call a meeting of creditors at which it proposes to put the resolution for voluntary winding up and must do so in accordance with s. 497. The company must, and the creditors may, nominate a person to be the liquidator (s. 499).

Subject to the provisions of the Act as to preferential payments, the property of the company must be applied in satisfaction of its liabilities equally and, subject to the company’s constitution, be distributed amongst its members according to their rights and interests in the company (s. 501).

The powers and duties of the liquidator under a voluntary winding up are set out in s. 506, which provides, in part, that:

“(1) The liquidator may:
(b)exercise any of the powers that this Act confers on a liquidator in a winding up in insolvency or by the Court; or
(c)exercise the power under section 478 of a liquidator appointed by the Court to settle a list of contributors; or
(d)exercise the Court's powers under subsection 483(3) (except paragraph 483(3)(b)) in relation to calls on contributories; or
(e)exercise the power of the Court of fixing a time within which debts and claims must be proved; or
(f)convene a general meeting of the company for the purpose of obtaining the sanction of the company by special resolution in respect of any matter or for any other purpose he or she thinks fit.

(1A) Subsections 477(2A) and (2B) apply in relation to the liquidator as if:
(a)he or she were a liquidator in a winding up in insolvency or by the Court; and
(b)in the case of a members' voluntary winding up—a reference in those subsections to an approval were a reference to the approval of a special resolution of the company.

(1B) …
(2)…
(3)The liquidator must pay the debts of the company and adjust the rights of the contributories among themselves.
(4)…”

Role of liquidator – powers and duties whether or not Court appointed

Division 3 of Part 5.6 sets out a number of provisions covering such matters as the duties of officers to assist the liquidator (s. 530A), the liquidator’s rights to the company’s books (s. 530B), the books to be maintained by the liquidator (s. 531), accounts to be maintained (s. 539), reports to be produced (s. 533) and the prosecutions that the liquidator may institute (s. 534).

In addition to duties in the nature of fiduciary duties identified under Part 2D.1 of the Act (see paragraphs 62 and 63 below) and under the particular statutory provisions to which we have referred, a liquidator has other duties. They have been considered in cases such as Re GK Pty Ltd (in liq); ex parte Deputy Commissioner of Taxation (1983) 1 ACLC 848 in which Olney J found that a liquidator has a duty to exercise reasonable care and skill. Lindgren J has also considered some of the duties of a liquidator in Pace & Anor v Antlers Pty Ltd (in liq) (1988) 16 ACLC 261 where he said that the:

“… following propositions, however, appear to have gained acceptance in Australia:
The court should not be quick to condemn a person in the difficult position of a liquidator, and, in particular, should not judge his or her conduct with wisdom born of hindsight: In re Windsor Steam Coal Co Ltd [1929] 1 Ch 151 (‘Windsor Steam Coal’); Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith; Van Reesema v Heywood Smith (1989) 7 ACLC 1,232; (1989) 54 SASR 285 (Olsson J) (‘Maelor Jones’) at ACLC 1,245-1,246; SASR 287; it is not every error of judgment that will be accounted negligence: Re George Bond & Co (1932) 32 SR(NSW) 301 at 306.
At the same time, a high standard of care and diligence is to be expected of a liquidator as a professional person who is being paid for his or her services: Windsor Steam Coal at 165, per Lawrence LJ; Maelor Jones at ACLC 1,246-1,247; SASR 288-9; McPherson’s The Law of Company Liquidation, p 218.
A liquidator is under a duty to complete the administration of the assets within a reasonable time and not to protract the liquidation unduly: Re House Property & Investment Co [1954] Ch 576 at 612; McPherson’s The Law of Company Liquidation, p 218; he or she must act with ‘due despatch’: CCA v Harvey (liquidator of Timberlands Ltd (in liq) and Equitable Forestry Services Pty Ltd (in liq)) (1979) ¶CLC 40-564; [1980] VR 669 (‘CCA v Harvey’) at CLC 32, 319; VR 691; Maelor Jones at ACLC 1,246; SASR 288.
If there is a difficulty at any stage of the administration, it is the liquidator's clear duty to inform the court and seek directions: CCA v Harvey at CLC 32,319; VR 691; Windsor Steam Coal at 159, 161; Maelor Jones at ACLC 1,246; SASR 288.” (page 273)

He concluded:

“ In my view, a liquidator must exhibit care (including diligence) and skill to an extent that is reasonable in all the circumstances. ‘All the circumstances’ will include the facts that a liquidator is a person practising a profession, that a liquidator holds himself or herself out as having special qualifications, training and experience pertinent to the liquidator’s role and function, and that a liquidator is paid for liquidation work. ‘All the circumstances’ will also include the fact that some decisions and courses of action which a liquidator is called upon to consider will be of a business or commercial character, as to which competent liquidators acting with due care, but always without the benefit of hindsight, may have differences of opinion.” (page 274)

These passages from the judgement of Lindgren J tend to focus on the court appointed liquidator’s duties in respect of the assets, their protection and realisation and the ultimate distribution of any proceeds amongst the creditors and contributories. These are pivotal duties for any liquidator as explained by the Full Court of the Supreme Court of New South Wales in Ex parte McDonald Re Partridge and Others [1961] SR NSW 622 (Evatt CJ, Herron and Sugerman JJ):

“ The liquidator’s principal duties, speaking generally, are to take possession of and protect the assets, to make lists of contributories and creditors, to have disputed cases adjudicated upon, to realize the assets and to apply the proceeds in due course of administration amongst the creditors and contributories.” (page 629)

These duties were explored further by Marks J in Corporate Affairs Commission v Harvey (liquidator of Timberlands Ltd (in liq)) (1979) 4 ACLR 259:

“ The duties of the liquidator need to be clearly understood. Fundamentally, he must administer the estate strictly in accordance with the duties and obligations specifically imposed on him by the Companies Act and its Rules. It is obvious that everthing (sic) to be done in a competent administration is not and cannot be specifically prescribed. Preserving the assets, giving proper attention to the administration, acting with due despatch and ensuring adequate knowledge and understanding of the affairs of the companies are matters of common sense. If there is a difficulty at any stage of the administration then it is the clear duty of the liquidator to inform the court and take directions.” (page 281)

The liquidator’s position was also considered by Marks J in Corporate Affairs Commission v Harvey (liquidator of Timberlands Ltd (in liq)):

“… In Thomas Franklin & Sons v Cameron (1935) 36 SR (NSW) 286 Davidson J discussed the authorities on this question and concluded (at 296): ‘It appears to me then on the whole from all these authorities that the liquidator is principally and really an agent for the company but occupies a position which is fiduciary in some respects and is bound by the statutory duties imposed upon him by the Act.’
I consider that conclusion of Davidson J in accordance with what I understand to be the true position of a liquidator (see also Lord Diplock in Ayerst v C & K (Construction) Ltd [1976] AC 167 at 179). It is correct that he is in a position of trust but that does not make him a trustee in the strict sense. It may be on account of that position of trust that the liquidator is often referred to as being in the position of a trustee or a trustee. As Dr McPherson (The Law of Company Liquidation) observes (at 193), it does not seem to matter much whether the liquidator is treated as a trustee in a strict sense or simply as an agent, ‘for in either capacity he occupies a fiduciary position in relation to the company, its creditors and contributories’.” (pages 285-286)

These are duties common to all liquidators but Street J, as the then was, considered the special position of a court appointed liquidator, and so of an official liquidator, in a winding up in insolvency in Re Allebart Pty Ltd (in liq) and the Companies Act Re Home Holdings Pty Ltd (in liq) and the Companies Act [1971] 1 NSWLR 24:

“… When it is ordered that a company be wound up on the ground that of inability to pay debts, the Court appoints an official liquidator to take administrative control of the company’s affairs and to investigate the past history of the company itself and those associated with it. A court winding up involves more than a mere realization of the assets and distribution of proceeds. The official liquidator is an officer of the Court, and as such he has public responsibilities to investigate past activities connected with the company, and, in appropriate cases, to initiate such further proceedings, civil or criminal, connected therewith as the circumstances may dictate. It is his duty to discover not only breaches of the Companies Act, but also conduct falling short of the requisite standards of commercial morality. In every instance the winding up of an insolvent company pursuant to an order of the Court is attended with these obligations resting upon the official liquidator. The due course of such a winding up involves his taking such steps in relation thereto as are necessary to discharge the duties and obligations resting upon him.
The foregoing observations are general in character. I make them for the purpose of disposing of the suggestion that the mere making of arrangements in respect of the claims of creditors is sufficient to foreshorten the winding up by the Court of an insolvent company. The official liquidator must be permitted to complete his investigations and consideration of these wider aspects before a stay would be granted.” (pages 26-27)

Marks J also considered the role of an official liquidator in Corporate Affairs Commission v Harvey (liquidator of Timberlands Ltd (in liq)):

“ An official liquidator is an officer of the court (r 74(1) Companies Act Rules).
In a compulsory winding up his office stems from appointment by the court. He is clearly not an employee of the court but the nature of the appointment makes him a representative of it. As Street J said in Duffy v Super Centre Development Corporation Ltd [1967] I NSWR 382 at 383 the decisions the liquidator makes from time to time are in effect made under the authority of the court itself. The winding up is by the court which for the purposes the liquidator is. As such he is entrusted with the reputation of the court for impartial and proper despatch of duties. No lesser standard in that regard is to be expected of the liquidator than of a court or a judge.” (page 286)

More recently, the differences between the role of a liquidator in a creditor’s voluntary winding up and those of a liquidator in a winding up ordered by the Court were considered by Master Sanderson in Re Mecirt Holdings Pty Ltd (1998) 16 ACLC 1,148. After noting the implications of the different commencement days of voluntary and compulsory windings up, Master Sanderson said:

“ Otherwise there is very little difference between a creditor’s voluntary liquidation and a compulsory liquidation as ordered by the court. In both cases a registered liquidator is appointed to the company. Under a compulsory winding up the court appoints the liquidator but it is generally the nominee of the creditor seeking the winding up order. In a voluntary winding up the liquidator is nominated by the company although it is open to the creditors to produce their own nominee: see s 499(1). …
As to the powers and duties of a liquidator, it would seem that they are very similar in both a voluntary liquidation and a compulsory liquidation. Section 506 sets out the powers and duties of a liquidator in a voluntary liquidation. Section 477 sets out the powers on a compulsory liquidation. Although there may be some slight difference in the powers of a liquidator depending on the mode of appointment, they do not seem to me to be significant and, in the particular context of this case, relevant. It is also worth noting that a liquidator, both in a voluntary liquidation and a compulsory liquidation, has the right to approach the court for directions: see ss 477(6), 479(3), 507(6) and 511.
One area where there is a slight difference between the duty of a liquidator appointed by the court as against those of a liquidator in a voluntary liquidation, concerns the preparation of a preliminary report under s 476. Under s 497(5)(a) in a voluntary winding up the directors are required to prepare a report as to affairs and table that at a meeting of creditors. This report appears to be akin to the report as to affairs required under s 475(1) in a compulsory winding up. In my view, it would be incumbent upon a liquidator in a voluntary winding up to report to the court or the ASC any matter which the liquidator felt required further investigation or could possibly be a breach of the law. Insofar as there is not a statutory provision to this effect in the sections dealing with a voluntary liquidation, it would seem to me to arise as a consequence of a liquidator’s position as an officer of the court.” (pages 1,151-1,152)

Provisions relating to an administrator, receiver, receiver and manager and liquidator

An administrator, receiver, receiver and manager and liquidator is each regarded as an officer of a company for the purposes of Part 2D.1 of Chapter 2D. In general terms, an officer must exercise his or her powers and discharge any duties in good faith in the best interests of the corporation and for a proper purpose (s. 181(1)). An officer must exercise those powers with the degree of care and diligence that a reasonable person would exercise if he or she were an officer of a corporation in the corporation’s circumstances and occupied the same office and had the same responsibilities with the corporation as the officer (s. 180(1)). An officer is taken to have met this standard if he or she comes within the “business judgement rule” set out in s. 180(2):

“A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:
(a)make the judgment in good faith for a proper purpose; and
(b)do not have a material personal interest in the subject matter of the judgment; and
(c)inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and
(d)rationally believe that the judgment is in the best interests of the corporation.

The director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.”

The expression “business judgment” means “… any decision to take or not take action in respect of a matter relevant to the business operations of the corporation” (s. 180(3)).

An officer must not improperly use his or her position or information gained to gain an advantage for him or her self or someone else or to the detriment to the corporation (ss. 182 and 183). These are in the nature of fiduciary duties identified by Olney J in Re GK Pty Ltd (in liq); Ex parte DFC of T (1983) 1 ACLC 848 at 853.

POLICY AND THE TRIBUNAL

In accordance with the principles expressed in Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634 (Brennan J, President), ASIC:

“… is equally free, in point of law, to adopt such a policy in order to guide him in the exercise of the statutory discretion, provided the policy is consistent with the statute.” (page 640)

The reason for a body such as ASIC’s adopting a policy in relation to its decision-making in relation to applications to be appointed an official liquidator were explained by Brennan J:

“… It can serve to focus attention on the purpose which the exercise of the discretion is calculated to achieve, and thereby to assist the Minister and others to see more clearly, in each case, the desirability of exercising the power in one way or another. Decision-making is facilitated by the guidance given by an adopted policy, and the integrity of decision-making in particular cases is the better assured if decisions can be tested against such a policy. By diminishing the importance of individual predilection, an adopted policy can diminish the inconsistencies which might otherwise appear in a series of decisions, and enhance the sense of satisfaction with the fairness and continuity of the administrative process.” (page 640)

While acknowledging the importance of policy, Smithers J in Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 (Bowen CJ, Smithers and Deane JJ) said:

“ In the performance of the Tribunal’s function it is essential that a policy adopted by an administrator should be under review to the same extent as his evaluation of relevant matters and his general process of reasoning, not for the purpose of deciding whether it was reasonable for the administrator to make the decision he did, but for the purpose of deciding whether, by the objective standard of good government it was the right decision to make.” (page 80)

The views of Smithers J were consistent with those of Bowen CJ and Deane J (at page 70) and developed by Brennan J in Re Drake (No. 2):

“ Of course, a policy must be consistent with the statute. It must allow the Minister to take into account the relevant circumstances, it must not require him to take into account irrelevant circumstances, and it must not serve a purpose foreign to the purpose for which the discretionary power was created. A policy which contravenes these criteria would be inconsistent with the statute (see Murphyores Incorporated Ltd v The Commonwealth (1976) 136 CLR 1; Drake’s case, supra, at 589, and the cases there cited). …
That is not to deny the lawfulness of adopting an appropriate policy which guides but does not control the making of decisions, a policy which is informative of the standards and values which the Minister usually applies. There is a distinction between an unlawful policy which creates a fetter purporting to limit the range of discretion conferred by a statute, and a lawful policy which leaves the range of discretion intact while guiding the exercise of the power. (see British Oxygen Co v Board of Trade [1971] AC 610 at 625 and 631). Lord Denning referred to the distinction in Sagnata Investments Ltd v Norwich Corporation [1971] 2 QB 614 at 626, where he said:
‘I take it to be perfectly clear now that an administrative body, including a licensing body, which may have to consider numerous applications of a similar kind, is entitled to lay down a general policy which it proposes to follow in coming to its individual decisions, provided always that it is a reasonable policy which it is fair and just to apply. Once laid down, the administrative body is entitled to apply the policy in the individual cases which come before it. The only qualification is that the administrative body must not apply the policy so rigidly as to reject an applicant without hearing what he has to say. It must not “shut its ears to an application”: see [1971] AC 610, 625 per Lord Reid. The applicant is entitled to put forward reasons urging that the policy should be changed, or saying that in any case it should not be applied to him. But, so long as the administrative body is ready to hear him and consider what he has to say, it is entitled to apply its general policy to him as to others.’” (pages 640-641)

CONSIDERATION

Policy Statement 24 – does it guide the Tribunal’s discretion?

ASIC, which has formulated Policy Statement 24, is the body that, among others, is charged with various functions and powers under the Act in relation to matters relating to corporations and the provision of financial services as well as advisory and other functions and powers under the Australian Securities and Investments CommissionAct 2001. While ASIC has formulated Policy Statement 24 to guide it in exercising its powers, it cannot be said to be policy formulated at the Ministerial level of government and there is no suggestion that it has been scrutinised by Parliament. Despite that, it is policy that has been formulated at a very senior level. It follows that there would need to be very sound reasons if it is not to be applied in this case. Those very sound reasons would have to approach something close to the cogent reasons that would have to be shown were ministerial policy or policy exposed to parliamentary scrutiny not to be followed in a particular case (Re Drake (No. 2) at page 645). Among the cogent reasons that could be advanced would be a reason that the policy is not consistent with the Act.

It might be thought that the comments of O’Loughlin J in Pipkin v Corporate Affairs Commission (SA) to the effect that the now repealed Companies (South Australia) Code (“the Code”) had seen fit to repose in the former South Australian Corporate Affairs Commission (“Commission”) “ …the absolute control over the registration of official liquidators and the cancellation or suspension of their registration” would translate to the Act and mean that any policy developed by ASIC would be consistent with the Act. We do not consider that this would be correct. An examination of the judgment reveals that Mr Pipkin had applied for registration as an official liquidator but the Code did not give a person an express right to do that or a right to be heard by the Corporate Affairs Commission (“Commission”). He appealed to the Supreme Court of South Australia against the decision to refuse his application and it was in the context of that application for review that O’Loughlin J considered the Code’s provisions relating to official liquidators. His Honour’s statement that the Code “… has seen fit to repose in the Commission the absolute control over the registration of official liquidators and the cancellation or suspension of their registration …” was made in that context. That is, it was given by O’Loughlin as one of four features of the appointment and cancellation and suspension of official liquidators that persuaded him that there was no right of appeal to the Supreme Court. The other three were that no express right had been given to a person to apply for registration as an official liquidator, he or she had no right to be heard by the Commission and the number of official liquidators appointed was a matter for the Commission.

The context in which we must consider this matter and Policy Statement 24 is very different. There is still no expressly stated right to apply but there is now a right to have ASIC’s decision whether or not to register a person reviewed in this Tribunal. ASIC’s decision is also reviewable under the Administrative Decisions (Judicial Review) Act 1977 (“ADJR Act”) and so the notions of fairness inherent in that legislation must necessarily attend the decision-making process. Among those notions is that the making of the decision must not be an improper exercise of the power conferred by the enactment (ADJR Act, s. 5(1)(e)). That means that we must have regard to the context of the Act to ascertain the limits of the power given by Parliament to make the decision we are required to review.

Before we look to the terms of the Act and whether there are any boundaries that it imposes upon the criteria that may be adopted in deciding whether or not to register a person as an official liquidator, we will examine Policy Statement 24. It was developed in June, 1992 and so some six months before it formulated Policy Statement 40 regarding the registration of liquidators. It was amended at the end of 1993 and twice in 1994. By that time, Part 5.3A had been introduced but no reference is made to it in Policy Statement 24. Indeed, it does not refer to any particular provisions of the Act. Instead, it refers to what ASIC regards as the essential qualifications and qualities required of an official liquidator. They are in addition to the basic requirements of being a registered liquidator and having the appropriate resources and training and operational manuals. Bearing in mind the statement in paragraph PS24.2 that “… official liquidators are appointed to undertake administrations of Australian companies in a manner which may be expected of an officer of the court”, it is reasonable to expect that the additional qualifications and qualities will be consistent with that expectation.

When ASIC’s criteria for registration are examined, it is seen that the focus is entirely upon the applicant’s experience in insolvency administrations (PS 24.7). The criteria do not stray to include other work that may be performed only by an official liquidator and in that regard we have in mind windings up under Part 5.4A of the Act. At the same time, not all of the insolvency work that is specified in paragraph PS24.7 need be performed by an official liquidator. Receiverships are an example of that type of work.

Why Policy Statement 24 stipulates experience in some areas and not in others is a question that is difficult to answer. It cannot be thought that the work that is stipulated in paragraph 24.7 is the only work that offers an insight into a person’s fitness to perform work “in a manner that may be expected of an officer of the court” in paragraph PS 24.2 for that is the case for any court appointed liquidator. It cannot be thought that the work that must be carried out in the manner expected of an officer of the court is the only work that will reflect on the qualities required of an official liquidator. That is so because the work that a liquidator must perform as an officer of the court is that specified in Part 5.4B in respect of matters mentioned in s. 488 of the Act. As Marks J said in Corporate Affairs Commission v Harvey (liquidator of Timberlands Ltd (in liq)) in relation to the then rule 74(1) of the Companies Act Rules, the winding up is by the court and, for the purposes of the winding up, the liquidator is that court. He or she, therefore, must carry out that function as a judge would i.e. impartially and properly. The manner in which the present Rules are couched do not refer to a liquidator’s being an officer of the Court in relation to a winding up but only in relation to the powers and duties imposed on the Court by Part 5.4B in respect of matters mentioned in s. 488(1). It does not refer to all of the work that must be undertaken by a liquidator in a winding up.

On our understanding of the Act and the role of an official liquidator, we are unable to identify the reason for ASIC’s focusing on insolvency windings up in Policy Statement 24. To adopt such a narrow focus seems to us to be inconsistent with the role and responsibilities imposed upon an official liquidator by the Act. Having regard to those, it seems to us that the qualifications and qualities required by the Act must reflect those that are required by an official liquidator to undertake his or her duties as such under the Act. Having regard to the fact that an official liquidator is chosen from the ranks of a registered liquidator and to the fact that an official liquidator is not confined to the work that must be done by such a person but may perform work that may be performed by any registered liquidator, it seems to us that he or she must also have the qualities that set him or her apart from his or her colleagues. They must be the qualities that identify him or her as a person of knowledge, experience, judgement and integrity setting him or her in a rank above those of the general ranks of registered liquidators.

With these matters in mind, we consider that we should review ASIC’s decision bearing in mind Policy Statement 24 but have regard to the wider issues inherent in the Act. In doing so, we have identified the following qualifications and qualities as relevant in a consideration of whether or not a registered liquidator should be appointed as an official liquidator:

registration as a liquidator;
experience as a registered liquidator;
experience as a registered liquidator that demonstrates integrity, independence and impartiality that fit him or her to carry out the:
(i)duties of an official liquidator as an officer of the Court; and

(ii) fiduciary duties of an official liquidator;
experience as a registered liquidator that demonstrates his or her:
(i)knowledge of the duties and responsibilities of a registered liquidator and of an official liquidator;
(ii)capacity to undertake the range of work required of a registered liquidator and of an official liquidator under the Act including windings up ordered by a Court;

staff and other resources to be enable him or her to conduct the practice of an official liquidator; and
appropriate training and operational manuals.

Qualities such as integrity and capacity need a slightly fuller explanation. Integrity incorporates notions of honesty and “straight dealing” so that a person’s words and actions may be regarded with trust. Capacity refers not simply to a person’s technical abilities but also to the more ephemeral quality of judgement. A liquidator’s judgement must be exercised in a range of matters including those associated with the conduct of a business, the reference of a matter to ASIC or to the Court or whether to seek legal advice.

There remains to be considered the question of how many registered liquidators should be appointed as official liquidators. Section 1283(3) clearly contemplates that this is a matter within ASIC’s discretion but gives no indication of the criteria that should guide the exercise of that discretion. One obvious criterion is that there are sufficient to enable each who is appointed by a Court to carry out his or her duties. Too few, or too many appointed in one location and too few in another, would place an unfair burden upon official liquidators who are appointed. Whether there should be a criterion setting an upper limit is another matter altogether for to do so could suggest that registration as an official liquidator is a “closed shop” and possibly bring into play issues relating to restrictive trade practices. As ASIC did not place any emphasis upon the number of official liquidators, we have decided to raise this matter only but not to explore it further.

A consideration of whether or not a person has the qualities to be registered as an official liquidator can be gleaned from the full range of his or her work. There is no reason in the Act why it should be limited to insolvency work as a liquidator as prescribed by Policy Statement 24. Experience and knowledge gained from other work as a liquidator in a voluntary liquidation, an administrator or a receiver or receiver and manager may be relevant. For example, an examination of the roles of an administrator and liquidator (whether voluntary or Court appointed) as revealed both in the Act, Regulations and Rules and the authorities shows that there is much similarity in their roles, duties and powers. A Court appointed liquidator, for example, performs the functions and exercises the powers of the officers of the company and the company’s property is subject to his or her control. An administrator has the control of the company’s business, property and affairs and may perform the functions and exercise the powers of its office. There is little difference between the two but the end result of their efforts may or may not mirror each other. They must both prepare reports: an administrator’s report for the meeting of the company’s creditors must be prepared within five business days after 21 days after the administration’s commencement and a liquidator must lodge a report with ASIC within two months of his or her receiving a report of the company’s affairs from its officers and employees. The matters addressed in those reports are not identically expressed in ss. 439A(4) and 476 of the Act but they cover the same substantive matters. An administrator and a Court appointed liquidator both have the same duties under Part 2D.1. They both must, for example, make any decision about the action taken in respect of a matter relevant to the business operations of the corporation in good faith for a proper purpose. Both must investigate past activities and report breaches of the Act or breaches of commercial propriety. In the case of an administrator, this is a statutory responsibility (s. 438D) and in the case of a Court appointed liquidator, it follows from his or her role as an officer of the Court (see Re Allebart Pty Ltd (in liq) and the Companies Act above) but the practical result is very similar. The Court appointed liquidator’s role as an officer of the Court means that he or she must improperly and impartially discharge his or her duties as would a court or judge (Re Timberland (in liq) and Equitable Forestry Services Pty Ltd (in liq)) but that must also be expected of an administrator acting under his or her statutory responsibilities.

The role of a liquidator and of an official liquidator vary little and this was confirmed by Master Sanderson in Re Mecirt Holdings Pty Ltd (see paragraph 61 above). It is clear from his judgement that a liquidator in a voluntary winding up is an officer of the court and that would lead to his or her having an obligation to report breaches of the law or matters requiring further investigation to the Court or to ASIC.

The role of the receiver and receiver and manager are directed to particular tasks and so do not have the scope of responsibility of a liquidator in a liquidation or of an administrator. That is not to say that a person’s work as a receiver is irrelevant. In carrying it out, he or she must exercise his or her powers in good faith and for a proper purpose under Part 2D.1 of the Act as must a Court appointed liquidator. Like a liquidator, be he or she a Court appointed liquidator or not, an administrator, a receiver or a receiver and manager may apply to the Court for directions.

In view of the similarities in the work that is done as liquidator in a voluntary liquidation or Court appointed liquidation and as an administrator or a receiver or receiver and manager, it is our view that we may have regard to Mr Lofthouse’s experience in each area. We should not confine ourselves to one sort of work. What is important is whether, in the work that he has undertaken either alone or under supervision, he has shown the qualities that we have identified as required of a person who may be registered as an official liquidator. This is consistent with the Tribunal’s decision in Re McCann and Australian Securities and Investments Commission [1999] AATA 358 (Deputy President Forrest, Senior Member Pascoe and Mr Elsum, Member) in which it was said:

“… Whilst s. 1283 requires registration as a liquidator as a condition precedent for registration as an official liquidator, it does not follow that most attention should be placed upon involvement in official liquidations after the date of registration while other experience is underrated.” (paragraph 15)

Later, the Tribunal added:

“In our view it is the experience and involvement over a reasonable period, not only since registration as a liquidator, which needs to be considered. …” (paragraph 17)

In undertaking this task, reference to other cases decided in this Tribunal may be useful but care must be taken with them. We were referred to the Tribunal’s decision in Re McCann and Australian Securities and Investments Commission in which we note that the Tribunal concluded that Mr McCann’s “… involvement and experience in court appointed liquidations and other relevant matters since registration is sufficient to enable him to conduct complex liquidations.” (paragraph 17)

Mr Lofthouse’s experience

In his statement and in his oral evidence, Mr Lofthouse provided a number of examples of administrations, liquidations or receiverships in which he had been involved either as a manager or as the appointee. We will set out a summary of the main points that he made in relation to each together with a summary of the main points made in judgements given on his applications to a Court:

Australian Agricultural Development Foundation Inc
(no supporting documentary material)
Mr Lofthouse’s involvement occurred at some time between 1985 and 1987 when Mr Fordham had been appointed as the provisional liquidator of Australian Agricultural Development Foundation Inc (“AADF”) and Australian Ballistics Research Foundation Inc (“ABRF”).
AADF had been established to invest in farms growing tropical fruit in New South Wales. It attracted over 2,000 investors.
Both companies were placed in provisional liquidation on the application of one of AADF’s investors.
During the first week of Mr Fordham’s appointment and under his supervision, Mr Lofthouse made a series of applications to the Supreme Court of New South Wales for a variety of orders including an Anton Pillar order for the seizure of a large cache of rifles and hand guns held by ABRF. He was involved in the preparation of the applications, supporting affidavits and the execution of the Anton Pillar order. Other assets seized include a Mercedes motor vehicle and various items of professional video equipment.
Mr Lofthouse was principally involved in running the farms established by AADF.
In support of applications for later orders, he gave evidence to the Court that the actions of the promoters of the investment schemes were unconscionable conduct.
Spitfire Nominees Pty Ltd
(no supporting material supplied)
Mr Lofthouse’s involvement occurred at some time between 1987 and 1989 when Mr Hodgson had been appointed by the Supreme Court of Victoria as the receiver to Spitfire Nominees Pty Ltd (“Spitfire”).
The receivership resulted from a dispute between Spitfire’s directors. Spitfire operated a large restaurant, which continued to trade for some months in receivership. Trading was particularly difficult due to the ongoing nature of the dispute between the directors. Mr Lofthouse was involved in running the restaurant and dealing with the directors.
Applications were made to the Court for directions to aid the receivership and ultimately to determine the method by which the restaurant was to be sold. They were supported by affidavits prepared and made by Mr Lofthouse.
Skinner
(no supporting material supplied, no indication of the time of Mr Lofthouse’s involvement or role)
Mr Skinner was a former solicitor, inventor and director of a number of companies. He died and his estate was administered as a bankrupt estate under Part XI of the Bankruptcy Act 1966.
Applications were made to the Court to have the companies of which Mr Skinner had been a director placed in receivership so that they could come under the control of his Trustee in Bankruptcy. The applications to the Court were made upon affidavits and evidence that Mr Lofthouse were supplied to the Court.
Emerald Glen Constructions Pty Ltd (subject to a Deed of Company Arrangement)
Mr Lofthouse was appointed administrator of Emerald Glen Constructions Pty Ltd (“EGC”) on 10 June, 1999. At that time, EGC was still trading and carrying out work as part of the construction of Federation Square.
Mr Lofthouse negotiated with the Construction, Forestry, Mining and Energy Union (“CFMEU”) regarding employees’ entitlements. In addition, he negotiated an arrangement with Multiplex Constructions, which was responsible for the construction of Federation Square. That arrangement enabled EGC to complete its contract and so the rights of the employees were preserved.
On 3 September, 1999, its creditors resolved that it be placed in liquidation.
Mr Lofthouse’s investigation revealed approximately 240 creditors owed in excess of $2 million. EGC was owed $980,681.85 by an associated company, Green Skies Pty Ltd (“Green Skies”), which was also insolvent. He was appointed first as administrator and then as liquidator of Green Skies.
Green Skies had a contract with National Rail Corporation (“National Rail”) regarding the transport of 18,000 tonne of reclaimed rail from Western Australia to Queensland. Mr Lofthouse investigated whether Green Skies had a viable action against National Rail and, if so, whether he could obtain litigation funding to pursue it in order to pay Green Skies’ creditors, including EGC, and so make some payment to EGC’s creditors. The action between Green Skies and National Rail was settled.
To enable him to pursue actions that he had identified as available to him under s. 588FE of the Corporations Act, Mr Lofthouse successfully applied to the Court to extend the three year limitation period specified in that section.
After being approached by a director of ECG to consider a second administrator, Mr Lofthouse applied under s. 436B(2) for Court’s leave to appoint himself and his partner, Mr Cauchi, as administrators. He and Mr Cauchi were granted that leave.
They then called a meeting of creditors to approve a Deed of Company Arrangement (“DOCA”). After the DOCA’s approval, Mr Lofthouse applied to the Court for a stay of the liquidation to enable the DOCA to operate over and eighteen month period.
MML Management Limited (in liquidation)
MML was an unlisted public company, which acted as a fund manager and as a company that raised finance for venture capital projects.
Mr Lofthouse was appointed as administrator of MML on 5 October, 2000 and its liquidator on 23 February, 2001.
He determined that MML had approximately 170 investors, 25 to 30 creditors and investments valued at cost at $10 million. Some investments were in its own name and some in the name of investors. It was unclear whether or the not the investors were the creditors of MML. In view of this, Mr Lofthouse sought an extension of the convening period and his application was granted by Senior Master Mahony on 16 February, 2001.
Mr Lofthouse considered that determining the rights of investors, including the interests they held in the investments in Australia and overseas, was extremely complex due to MML’s:
failure to maintain adequate records;
failure in some instances to carry out investors’ instructions;
failure to deal adequately with trust moneys;
lodgement of shares as security for advances to off shore equities;
failure to separate adequately its own interests and dealings from those of the investors; and
failure to record and document investments adequately.

In view of the uncertainties affecting the investors’ interests, Mr Lofthouse sought the directions of the Court with regard to the distribution of MML’s assets. Justice Hansen of the Supreme Court of Victoria gave directions in a judgement dated 15 August, 2002. Mr Lofthouse has applied these directions. In his judgement, Hansen J referred to “… the complexity of the task involved in ascertaining the particular entity, in or to which the funds of particular investors had been placed or lent and, further, the extent of the holding or amount of the loan, and how that might be represented in assets now held by MML or in the name of an investor.” (Exhibit C, judgement, page 4) His Honour gave directions as to the entitlement of certain investors to certain parcels of shares and the manner in which assets not held beneficially by MML were to be distributed. As part of that consideration, he considered the value that should be ascribed to certain shares.
WSA Online Limited (Subject to a DOCA)
WSA Online Limited (“WSA”) provided computer related services. At one time, it had been registered as a public company to facilitate an initial private offer, which proved unsuccessful.
Simon Arms notified WSA of a potential claim that it had for damages in relation to alleged breaches of the Trade Practices Act 1974, breach of warranty, negligent statement and breach of agreement. WSA notified its insurer, CGU Insurance Ltd (“CGU”) of the potential claim. Proceedings were instituted by Simon Arms in the Federal Court on 4 May, 2001.
Mr Lofthouse was appointed as the Administrator under a DOCA of WSA on 24 September, 2001. The DOCA provided for another company and director to pay a sum of money to the creditors in full and final satisfaction of WSA’s creditors.
Simon Arms applied to the Federal Court for leave to continue the proceedings against WSA and was granted that leave despite opposition from Mr Lofthouse as the Administrator.
CGU offered to take over the conduct of the litigation on behalf of WSA but on terms that were regarded as inappropriate by Mr Lofthouse. Mr Lofthouse then issued a notice under s. 41(2) of the Insurance Contracts Act 1984 but again received an offer from CGU that he regarded as unacceptable.
It is apparent from the judgement of Justice Hansen dated 3 July, 2003 that Mr Lofthouse unsuccessfully attempted to reach an agreement with Simon Arms as to the figure at which to admit his claim. The attempts included a mediation attended also by a representative of CGU. In view of the restrictions in the insurance policy, Mr Lofthouse could not make any admissions of liability during the mediation or otherwise without CGU’s written consent.
Mr Lofthouse applied to the Court seeking directions as to whether the letters he had received from CGU’s solicitors were in accordance with s. 41 of the Insurance Contracts Act and whether any funds received by WSA from CGU with respect to the insurance claim were subject to s. 562 of the Corporations Act or were available to the company generally.
Justice Hansen found that s. 562 did not apply as it concerned windings up and not administrations and that it was incorporated by neither Part 5.3A nor the DOCA. His Honour found that CGU’s letter did not meet the requirements of s. 41(2)(b) of the Insurance Contracts Act. He declined to answer a question whether or not Mr Lofthouse was obliged to continue to defend Simon Arms’ claim as he had insufficient information as to Simon Arms’ intentions. As to whether Mr Lofthouse enjoyed any statutory or other charge on any funds which might be provided by CGU in settlement of Simon Arms’ claim, Hansen J said that the question need not be asked in view of the provision made in the DOCA for remuneration of the administrators for work performed pursuant to the deed. As then advised, he considered that the chose in action constituted by the right to indemnity under the CGU policy constituted one of WSA’s assets and so one of which Mr Lofthouse was obliged to take control of and realise. As to any payment made to WSA by CGU, Hansen J said that it would augment the fund available to the creditors subject only to the administrators’ entitlement to paid their remuneration, costs and expenses.
Rugs Galore Pty Ltd (In Liquidation)
Mr Lofthouse was appointed as Administrator of Rugs Galore Pty Ltd (“Rugs Galore”) on 9 April, 1997 and later, on 26 May, 1997, as the Administrator of its DOCA. On 23 June, 1999, the company’s creditors resolved pursuant to s. 445E of the Corporations Law that the DOCA be terminated and the company wound up.
As the original relation back date for the recovery of voidable transactions was the date of Mr Lofthouse’s appointment as Administrator on 9 April, 1997, he applied to the Supreme Court of Victoria for an order pursuant to s. 588FF(3)(B) of the Corporations Law for an extension of the time within which Rugs Galore could commence an application pursuant to 588FF. He also sought summonses from the Court to enable him to examine the directors pursuant to ss. 596A and 596B.
Mr Lofthouse then issued proceedings against 12 entities on the basis that they were voidable transactions within the meaning of to s. 588FF and made a further 16 claims in the Magistrates’ Court. He also issued proceedings against the two directors of Rugs Galore on the basis that they had incurred debts when they knew or ought to have known that the company was insolvent or might become insolvent as a result of their incurring those debts. Mr Lofthouse also took proceedings against Packam Holdings Pty Ltd, which held 80% of the issued shares in Rugs Galore. They were brought pursuant to s. 588V of the Corporations Law whereby an ultimate holding company may be liable for trading.

Mr Lofthouse obtained litigation funding to conduct these actions and obtained Court approval to enter the litigation funding arrangement.
National Forge Limited and National Forge (Operations) Pty Ltd (both subject to the appointment of Receivers and Managers and both in Administration)
National Forge Limited (“NFL”) was a publicly owned company which conducted forging operations in its own right and via its subsidiary, National Forge (Operations) Pty Ltd (“NFO”). Motor vehicle parts made as a result of those forging operations were important components in the Australian motor vehicle industry.
Mr Nicholas Brooke and Mr David McEvoy were appointed as receivers and managers of both companies on 16 October, 2002 and Mr Lofthouse and his partner, Mr Richard Cauchi, were appointed joint and several Administrators of NFL on 21 October, 2002 and of NFO on 22 October, 2002.
As the affairs of the companies were under the control of receivers and managers, Mr Lofthouse and Mr Cauchi sought an extension of the time permitted within which to call a meeting of creditors. The additional time allowed the receivers and managers to complete their tasks and to permit Mr Lofthouse and Mr Cauchi to prepare a report to creditors. Three extensions were sought and granted by the Court.
Henry & Edward Pty Ltd (In Liquidation)
Henry & Edward Pty Ltd (“H&E”) intended to produce the musical Jekyll & Hyde, which was to open at Her Majesty’s Theatre in approximately October, 1997. Arts Capital Limited agreed to fund the production. The offer of funding in the order of $3.4 million was signed by one of its directors, Mr Gregory Flood. Mr Flood was a solicitor with H&E’s solicitors, JK Smith & Emerton. Arts Capital Limited then withdrew that funding. This led to the financial collapse of H&E.
Mr Lofthouse was appointed as liquidator of H&E on 6 October, 1997.
He made an application for an order for examination of Mr Flood pursuant to s. 596B of the Corporations Law in relation to his role as solicitor to H&E in respect of the funding agreements, the role of the other solicitors in the firm, the extent of his involvement in the representations made on behalf of Arts Capital Limited and an associated company, Arts Nominees Pty Ltd, his involvement as a director of both of those companies and any liability he might have for misleading and deceptive conduct in respect of the funding commitments made by Arts Capital Limited and Arts Nominee to H&E. The application was granted.
Mr Lofthouse estimated the loss that he considers flowed from the withdrawal of funding amounted to approximately $9.7 million.
Dana Australia Pty Ltd v Mullenger
Dana Australia Pty Ltd (“Dana”) was a creditor of Tag-A-Long Trailer Pty Ltd (“Tag”), which had been placed in liquidation in 1995. Mr Mullenger was a director of Tag.
Dana asked Mr Lofthouse to act as an expert witness in an action that it wished to bring against Mr Mullenger, whom it alleged had allowed Tag to trade whilst insolvent. Mr Lofthouse examined the books and records of Tag and prepared an analysis as to whether Tag had been trading while insolvent. He gave evidence and was cross-examined at the hearing.
Mr Mullenger was found liable for trading whilst insolvent. His appeal to the Court of Appeal was dismissed.
Reflective Insulations (Aust) Pty Ltd
Mr Lofthouse was appointed as the liquidator of Reflective Insulations (Aust) Pty Ltd (“Reflective”). He determined that it had a potential action against WR Grace Australia Limited claiming damages based on allegations of misleading and deceptive conduct. After deciding to proceed with the action, Mr Lofthouse settled it and $620,000 was paid to Reflective.
Riverside Nursing Care Pty Ltd (Administrator Appointed)
Riverside Nursing Care Pty Ltd (“Riverside”) was an approved provider of aged care services at the Riverside Nursing Home. On 22 February, 2000, the Secretary of the Department of Health and Aged Care revoked Riverside’s approval as a provider of aged care services and its allocation of places. The operation of the revocations were suspended but were reimposed on 5 March, 2000.
Mr Lofthouse was appointed as Administrator of Riverside on 3 March, 2000.
Mr Lofthouse met with officers of the Department of Health and Aged Care (“Department”). He was given a report concerning the aged care services provided at the Riverside Nursing Home and required to give a written and detailed response to the issues it raised by the following day. A detailed report could not be prepared in that time. Mr Lofthouse gave instructions that the number of staff at the Riverside Nursing Home be significantly increased and gave the Department undertakings that maintenance work would commence immediately to enable it to retain its approval and allocation.
In deciding to give that undertaking and to increase the staffing levels, Mr Lofthouse had to balance the rights of the residents of the Riverside Nursing Home, the employees, creditors and the Department. He met with officers of the Department, residents and residents’ relatives. It was his view that residents and their relatives wanted the Riverside Nursing Home to remain open.
On 16 March, 2000, Mr Lofthouse issued a Notice of Motion in the Federal Court against the Minister for Health Aged Care and the Secretary of the Department of Health and Aged Care under the Administrative Decisions (Judicial Review) Act 1977 and sought an order suspending the operation of the revocations.
Sundberg J decided on 7 April, 2000 that Riverside had not established any point of substance to argue or any serious question to be tried and dismissed the motion.
On 11 May, 2000, Riverside applied to the Tribunal for review of the decisions dated 5 March, 2000. Those decisions were affirmed by the Tribunal on 17 March, 2003.
Thos Walker & Sons Pty Ltd
Former employees of Thos Walker & Sons Pty Ltd (“Thos Walker”) brought actions against it with respect to asbestos related diseases.
Mr Lofthouse was appointed as the liquidator of the company and arranged for proceedings to be taken against its insurer with respect to those claims.
326 SS Pty Ltd
326 SS Pty Ltd was formerly known as Speed Shoes Pty Ltd. It was a shoe retailer and had once operated over 100 stores throughout Australia.
Mr Lofthouse was appointed as the liquidator of 326 SS Pty Ltd which owed unsecured creditors approximately $24 million. He regarded the administration as complex because the issues it raised were whether:
the major unsecured creditor had acted as a shadow director;
insolvent trading could be said to have occurred given various factors but including a number of debt subordination agreements;
the sale of the company’s business was void as against a liquidator;
the order of the company might have been negligently carried out; and
the directors had exercised due care and diligence in carrying out their duties under the Act.

In view of these issues, Mr Lofthouse sought an extension of the convening period for the creditors’ meeting so that he could investigate the company’s affairs and prepare a report for the creditors. Master Mahony granted the extension.
The creditors accepted a DOCA.
Australian Cable Recyclers Pty Ltd (In Liquidation)
Mr Lofthouse was appointed as liquidator of Australian Cable Recyclers (“ACR”).
As at the date of his appointment, ACR had already commenced proceedings against the State Rail Authority of New South Wales claiming breach of contract in relation to the reclamation of copper wire. Allegations of fraud were also made in the proceedings.
Mr Lofthouse continued the litigation and negotiated a settlement in the sum of $2.4 million.
MNR Pestrucci
MNR Pestrucci operated a hotel and gaming venue.
Mr Lofthouse, who gave oral evidence only in relation to this matter, was appointed as its Administrator in a voluntary administration.
MNR Pestrucci continued to trade until the business was sold. This meant that Mr Lofthouse had to deal both with the Liquor Licensing Commission and the Gaming Commission in respect of the sale of the business. In addition, there were difficulties with the lease.
Job Power
Mr Lofthouse gave only oral evidence in relation to Job Power, which was a collective of community organisations involved in CES out-sourcing. There were 26 branches in the collective and some were operated by private companies. Each branch had three or four employees with some 20 employees at head office. Each leased the premises from which it operated.
Mr Lofthouse was appointed Administrator.
He disclaimed the leases. After terminating the employment of the employees, he dealt with their entitlements.

Should Mr Lofthouse be registered as an official liquidator?

Mr Lofthouse’s evidence was very much directed to those aspects of his work that have required him to interact with the Court. It was not directed as much to the complexities of that work. Mr Rambaldi’s evidence was directed to the more general issues of the expertise required of administrators and Court appointed liquidators. He said that, by and large and although it was not always the case, a voluntary administrator, who subsequently becomes a voluntary liquidator, requires more commercial expertise than a court appointed liquidator. The major reason for this being so is that voluntary administrations require a voluntary administrator to make decisions about whether to trade. He or she must make those decisions in a context in which he or she can be personally liable for any debts that are incurred during that trading period and that are not met out of the voluntary administration. As a voluntary administrator is indemnified from the company’s assets, he or she must ensure that there are enough assets to cover any personal liability. The time limits that must be met under the Act in a voluntary administration are quite onerous and decisions, including those whether to trade or whether to trade in a reduced form, must be made in that time.

Mr Rambaldi, who gave evidence in support of Mr Lofthouse’s case, became a registered liquidator in 1995 when he became a partner in his firm. He has been a registered trustee in bankruptcy since the same time. He accepts appointments as an administrator under Part 5.3A as well as appointments as a Court appointed liquidator. Mr Rambaldi has been appointed a provisional liquidator. As a provisional liquidator, he must report to the court, which will determine whether the company will go into liquidation or be returned to its directors. In a voluntary administration, the role of the voluntary administrator is to try to maximise the returns to the creditors. There may be similarities between a voluntary administrator and a provisional liquidator if the company continues trading. A Court appointed liquidation is not necessarily more complex than a voluntary administration. A voluntary administrator is more likely than a Court appointed liquidator or a provisional liquidator to have to exercise commercial decision-making and so be at the “sharp end” of decision-making.

Having regard to Mr Rambaldi’s evidence against the background of the provisions of the Act that we have set out, we are satisfied that the complexity of a matter handled by a registered liquidator is not determined by whether it is a liquidation ordered by a Court or a voluntary liquidation or an administration or receivership. Complexity depends on the matter itself.

ASIC accepts, as do we, that MML was a complex matter and we do so not only on the basis of Hansen J’s comments giving directions but also having regard to the evidence given at the hearing. We have no other judicial comments regarding the complexity of the matters dealt with by Mr Lofthouse. On the basis of the evidence that we have been given about those matters, we are satisfied that he has had to deal with complex issues in a number of the matters in relation to which he gave evidence. We refer to his work as administrator of EGC. It required careful negotiation with a number of interested parties so that EGC’s contract could be completed and the rights of the employees preserved. The Riverside administration also required Mr Lofthouse to review the interests of a number of interested parties and to make very quick decisions as to the best course to adopt regarding the administration. Whether or not another liquidator would have taken another course of action is a matter upon which there could be speculation. His work in that liquidation, however, demonstrated his ability to examine the issues, take a course of action and exercise the judgement required of a liquidator in a situation that was complex because of the very interests to be taken into consideration but made more complex because of the intense media interest in the events at the nursing home at the time. A number of other matters required him to consider the merits of pursuing causes of action against third parties.

We are also satisfied that Mr Lofthouse has demonstrated an understanding of the fiduciary duties required of an official liquidator. In his work in MML, Rugs Galore, H&E, Dana and Tag for example, we find that he had to consider whether or not directors and others involved in the companies had breached their duties or their responsibilities under the Act. These are some of the issues that must be considered by an official liquidator and Mr Lofthouse’s experience in doing so as a registered liquidator shows that he has the capacity to do so as an official liquidator. On the basis of Mr Lofthouse’s evidence, and we do not have any contradicting it, we find that he is able to bring a dispassionate and balanced approach to the performance of his duties as is befitting an officer of the Court.

The evidence that we have satisfies us that Mr Lofthouse has a wide understanding of the nature of the duties and responsibilities of the work of a registered liquidator. His experience has extended over a considerable number of years since 1986 in over 275 corporate insolvency matters. He has not worked under the supervision of an official liquidator since approximately 1989 but he did so at least in relation to the provisional liquidation of AADF and ABRF and Spitfire. They were the three examples of which he gave evidence. In view of our conclusion that the work in a Court appointed liquidation matches much of that carried out by registered liquidators, we are satisfied on the basis of the experience he has shown in a range of matters that he has a knowledge of the duties and responsibilities of both a registered liquidator and those of an official liquidator. The range of the work that he has undertaken over a long period of time satisfy us that he has the capacity to undertake the range of work that is required of an official liquidator.

There has been no issue raised whether Mr Lofthouse is a registered liquidator, has the staff and other resources to enable him to conduct the practice of an official liquidator and appropriate training and operational manuals.

Taking all of these matters into account, we are satisfied that Mr Lofthouse has the experience and qualifications to be registered as an official liquidator. Therefore, we:

1.set aside the decision of the respondent dated 17 December, 2002; and
2.substitute a decision that the applicant be registered as an official liquidator pursuant to s. 1283 of the Corporations Act 2001.

I certify that the eighty-nine preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie

Signed: ...............................................................
R. Crook Associate

Date/s of Hearing  15 September, 2003
Date of Decision  30 March, 2004
Counsel for the Applicant             Mr SP Gardiner
Solicitor for the Applicant            Mr M Harrick
  Ponte Earle Harrick
Counsel for the Respondent         Mr M Galvin
Solicitor for the Respondent         Ms J Birch
Australian Securities and Investment                   Commission

[2004] AATA 327

30 March 2004