McDonald v Dare

[2001] QSC 405

SUPREME COURT OF QUEENSLAND

CITATION:              McDonald v Dare [2001] QSC 405

PARTIES:                 WARWICK MCDONALD

(first applicant)

and

WILLIAM DOOLAN

(second applicant)

v

TRACEY JOY DARE

(first respondent)

and

PHILLIP ARTHUR HENNESSEY

(second respondent)

FILE NO:                  S7863 of 2001

DIVISION:               Trial Division

DELIVERED ON:    31 October 2001

DELIVERED AT:     Brisbane

HEARING DATE:     9 October 2001

JUDGE:  Mullins J

ORDER:  The application be dismissed.

CATCHWORDS:       CORPORATIONS  –  WINDING  UP  –  REMOVAL  OF LIQUIDATORS – application by creditor and contributory to remove  liquidators  –  whether  applicants  have  standing  to remove liquidator – standing of creditor where creditor as a result  of  assignment  of  debt  –  whether  underlying  debt assignable when proof of debt has been lodged – standing of contributory when there is possibility of surplus assets

CORPORATIONS – WINDING UP – liquidators concede appearance of bias as a result of relationship of accounting partnership  with  major  creditor  –  whether  appointment  of additional  liquidator  to  investigate  claim  against  and  deal with proof of debt of major creditor appropriate

Bankruptcy Act 1966 (Cth) Corporations Act 2001 (Cth) Property Law Act 1974

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Advance  Housing  Pty  Ltd  (in  liq)  v  Newcastle  Classic

Developments Pty Ltd (1994) 14 ACSR 230

Commissioner of Taxation v Macquarie Health Corporation

Ltd (1999) 88 FCR 451

Re Corbenstoke Ltd (No 2) [1990] BCLC 60

Deloitte & Touche AG v Johnson [1999] 1 WLR 1605

Re Kolback Group Ltd (1991) 4 ACSR 165

Mamone v Pantzer (2001) 36 ACSR 743

Re Obie Pty Ltd (in liq) (No 4) (1984) 2 ACLC 663

Re Rica Gold Washing Company (1879) 11 ChD 36

Sydlow Pty Ltd (in liquidation) v TG Kotselas Pty Ltd (1996)

65 FCR 234

COUNSEL:                CEK Hampson QC with IA Erskine for the applicants

PL O’Shea SC with DA Kelly for the respondents

SOLICITORS:          Thompson Hannan Lawyers for the applicants

Allens Arthur Robinson for the respondents

[1]     MULLINS  J:  This is an application for the removal of the first and second respondents, Tracy Joy Dare and Philip Arthur Hennessy, as liquidators of Doolan Properties Pty Ltd (in liquidation) (“Doolan Properties”) pursuant to s 503 of the Corporations Act 2001 (“the Act”). The first applicant, Mr Warwick McDonald, asserts that he is a creditor of Doolan Properties. The second applicant, Mr William Doolan, is a shareholder of Doolan Properties. The first and second respondents are partners of chartered accountants KPMG.

[2]     The applicants allege that the grounds for the removal of the respondents are the prospect, existence, or appearance of bias or of a conflict of interest in light of Supreme Court proceeding S9643 of 2001 (“the Supreme Court proceeding”).

Facts

[3]     Commercial  property  known  as  the  Watergarden  Convenience  Centre  (“the Watergarden”)  was  owned  by  Berrima  Properties  Pty  Ltd  (“Berrima”).  Doolan Properties held 50% of the shares in Berrima the other 50% of the shares was held by Landvest Construction Pty Ltd (“Landvest”).  McLaughlins Nominee Mortgages Pty Ltd (“McLaughlins”) advanced $3.48m to Berrima in October 1997 by way of deed of loan which was secured by first registered mortgage over the Watergarden. The loan was guaranteed by Paul Thomas Brooks, Landvest, the second applicant and Doolan Properties. McLaughlins also took third party security over land owned by Landvest.  At some stage further third party security was provided by Volo Developments Pty Ltd (“Volo”), another company associated with Mr Brooks.

[4]     Berrima was in default under the loan. As a consequence McLaughlins cancelled the loan and on 31 July 1998 demanded immediate repayment of the loan and called upon the guarantees. On 10 May 1999 judgment in the sum of $4,008,084.53 was entered against Berrima by McLaughlins.

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[5]     On  2  June  1999  the  second  applicant  was  made  bankrupt  on  McLaughlins’ application and the first respondent was appointed as trustee of his bankrupt estate. On 10 May 1999 Doolan Properties was wound up on McLaughlins’ application and the first and second respondents were appointed as the liquidators.

[6]     McLaughlins sold the Watergarden in November 1999 for $4.1m.

[7]     McLaughlins  also  sold  some  of  the  lots  which  had  been  mortgaged  to  it  by

Landvest.

[8]     The  first  respondent  as  the  second  applicant’s  trustee  in  bankruptcy  sold  his property situated at 8 Sankey Street, Hill End by contract dated 5 January 2000 for the sum of $262,250 which settled on 5 May 2000.

[9]     The first and second respondents sold the half interest of Doolan Properties in the property situated at 315 Boundary Street, West End to the co-owner Mr Ramon Pollach by contract which was negotiated between June and September 2000 and settled on 6 October 2000.

[10]     McLaughlins lodged a proof of debt on 8 June 2000 in the winding up of Doolan Properties.  It was a accompanied by a copy of a settlement and compromise agreement made on 2 June 2000 between McLaughlins and McLaughlins Solicitors

(which is the legal practice with which McLaughlins is associated) on the one part and Mr Brooks, Volo and Landvest on the other part which are described in the agreement as “the Released Parties”.  The agreement relates to the guarantees given or the assumption of the obligations of Berrima undertaken by the Released Parties in respect of the moneys borrowed by Berrima from McLaughlins.  The agreement recites that McLaughlins asserts that Berrima and the Released Parties as well as others  are  indebted  to  it  for  an  amount  of  at  least  $350,000.    The  agreement provides  for  the  payment  by  the  Released  Parties  of  the  sum  of  $175,000  to McLaughlins and that McLaughlins releases and discharges the Released Parties from  any  further  claims  in  respect  of  the  matter.    Clause  5  of  the  agreement provides:

“Each of the parties hereto acknowledge and agree that they have no further claims as against the other party and each of the parties hereto acknowledge and agree that all matters of dispute between them are hereby resolved and no further matters will be disputed between them.”

[11]     The agreement also provides that McLaughlins will take no further action against Berrima until it receives all funds that it is entitled to receive from the bankrupt estate  of  the  second  applicant  and  the  liquidation  of  Doolan  Properties  and McLaughlins warrants that if it receives a minimum $100,000 from the distribution, it will release Berrima.  Clauses 8 and 9 of the agreement provide that McLaughlins and the Released Parties are to cooperate to maximise the return to them of any distributions from the second applicant’s bankrupt estate and the liquidation of Doolan Properties and that if McLaughlins receives more than $125,000, it agrees to pay to the Released Parties half of any amount received in excess of $125,000.

[12]     Mr Michael Richard Congram is an insolvency manager in the employ of KPMG

who has the day to day conduct of the liquidation of Doolan Properties under the

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supervision of the respondents. In his affidavit filed on 25 September 2001 Mr Congram deposed to proofs of debt totalling $801,940.27 having been received in the liquidation and that the sum of $154,949.54 was held by the respondents and available for distribution to creditors, subject to the priority payments referred to in s 556 of the Act. In Mr Congram’s affidavit filed on 5 October 2001, copies of all proofs of debts received in the liquidation are exhibited. McLaughlins’ proof of debt is for the sum of $751,435.46. Mr Congram also states that the respondents have not admitted or rejected any proofs at this stage of the administration.

Supreme Court proceeding

[13]     The claim and statement of claim were filed in the proceeding on 6 November

2000.  They have not been served.  Berrima is named as first plaintiff.  The second and third plaintiffs are respectively Mr Brooks and Landvest.  McLaughlins is named as the first defendant, KPMG as the second defendant and the first and second respondents are respectively the third and fourth defendants.

[14] The plaintiffs in the Supreme Court proceeding (“the plaintiffs”) claim against McLaughlins for damages in the sum of $3,131,500 for breach of s 85 of the Property Law Act  1974 or for negligence or for breach of fiduciary duty. The allegation is made that the Watergarden was sold below market value and that commission of $82,500 was paid in connection with the sale which should not have been paid.

[15]     The plaintiffs also allege that the first respondent failed to ensure that the property at 8 Sankey Street was sold at market and claims damages in the sum of $28,000 in relation to that sale.  It is pleaded that the property at 8 Sankey Street was sold at

$245,000, when it was in fact sold at $262,250 which makes the damages claim significantly less.  The plaintiffs have not quantified the claim for damages in relation to the allegation that the first and second respondents delayed in selling the interest of Doolan Properties in the property at 315 Boundary Street which resulted in a greater pay out to the mortgagee of that property and additional rates and charges being incurred.

[16]     There is also an allegation in the Supreme Court proceeding that the several lots belonging to Landvest were sold at an undervalue.  The total sale price from the lots owned by Landvest was $359,500.  It is alleged that those lots should have been sold at $508,500.

[17]     It is immediately apparent that there are a number of difficulties with the Supreme

Court proceeding.

[18]     The point is taken by the respondents that the Supreme Court proceeding is outside the parameters of, and irrelevant to, the liquidation of Doolan Properties.  It is argued that the Supreme Court proceeding is an attempt to pursue the respondents for  conduct  in  respect  of  the  liquidation  of  Doolan  Properties  and  the  first respondent  in  respect  of  her  conduct  as  trustee  in  bankruptcy  of  the  second applicant, when neither the second applicant or Doolan Properties are parties to the Supreme Court proceeding.

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[19]     The  respondents  submit  that  the  allegations  made  in  the  statement  of  claim therefore depend on alleged relationships between the respondents and the plaintiffs and allegations of duties owed by the respondents to the plaintiffs which are not borne out by the known facts or are novel.

[20]     Paragraph 22 of the statement of claim in the Supreme Court proceeding pleads that since  July  1998  McLaughlins  and  the  respondents  have  disposed  of  the  real property and assets of the plaintiffs, the second applicant and Doolan Properties for the purpose of satisfying the debt owed by Berrima to McLaughlins.  Although the respondents were appointed liquidators of Doolan Properties on the application of McLaughlins, the winding up of Doolan Properties is not being conducted for the purpose of satisfying the debt owed by Doolan Properties to McLaughlins pursuant to the guarantee given in support of Berrima’s obligations to McLaughlins.  The winding  up  of  Doolan  Properties  is  being  conducted  by  the  respondents  as liquidators in accordance with the relevant legislation to wind up the affairs of Doolan Properties and distribute its assets amongst its creditors, according to law. Similarly, the conduct of the bankrupt estate of the second applicant by the third respondent  pursuant  to  the  Bankruptcy  Act  1966 (Cth) is for the purpose of collecting the assets of the second applicant and distributing them amongst the relevant creditors, according to law. If the allegation in para 22 of the statement of claim cannot be maintained, there is no factual basis for alleging in paras 27 and 28 of the statement of claim the duty of good faith, the duty to refrain from acts of gross negligence and the duty pursuant to s 85 of the Property Law Act  1974 as being owed by the respondents to the plaintiffs.

[21]     There is an alternative pleading in para 29 of the statement of claim that the respondents, in discharging their duties as liquidators, and the first respondent, in discharging her duty as the trustee of the bankrupt estate of the second applicant, knew or ought to have known that McLaughlins owed to the plaintiffs the duties referred to in paras 27 and 28 of the statement of claim and that the respondents have failed, refused or neglected to take legal proceedings against McLaughlins for breaches  of  the  duties.    Theoretically,  Mr  Brooks  and  Landvest  may  have  an interest in ensuring that the assets of Doolan Properties and the second applicant are maximised in the respective administrations to ensure that a maximum distribution from those administrations is made to McLaughlins, to the extent that it may affect the contributions to the relevant debt required from Mr Brooks and Landvest.  It is unnecessary, however, for there to be an  allegation in para 29 of the statement of claim   that   the   respondents   failed   to   pursue   McLaughlins   for   selling   the Watergarden at an undervalue and the other breaches alleged against McLaughlins in relation to the sale of properties, when the plaintiffs can pursue McLaughlins directly for these alleged breaches of duties.

[22]     Apart from the fact that the statement of claim obviously requires review, there is also a problem that in this application no person associated with the plaintiffs in the Supreme Court proceeding has indicated a willingness to pursue the Supreme Court proceeding.

[23]     The second applicant in his affidavit filed on 25 September 2001 states that he has provided  instructions  to  his  solicitors  on  behalf  of  Berrima  to  prosecute  the Supreme  Court  proceeding.    The  second  applicant  ceased  to  be  a  director  of Berrima upon the commencement of his bankruptcy and his continued bankruptcy

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operates to disqualify him from managing corporations:  ss 203B, 206A(2) and

206B(3) of the Act.

[24]     Mr Brooks is the sole director of Berrima, according to the search of the records held by the Australian Securities and Investments Commission.  Mr Brooks is therefore the obvious person on behalf of Berrima, Landvest and himself to indicate what instructions he proposes to give in relation to the Supreme Court proceeding. The  second  applicant  in  his  affidavit  filed  on  25  September  2001  deposes  as follows:

“I am informed by my solicitors, who also act on behalf of Brooks and Landvest, and are plaintiffs in the above claim, that they have been   unable   to   contact   Brooks   and   Landvest   to   obtain   any instructions, in regard to this application.”

The settlement and compromise agreement entered into between McLaughlins and Mr  Brooks,  Volo  and  Landvest  may  be  an  impediment  to  the  pursuit  of  the Supreme Court proceeding by Mr Brooks and Landvest.

[25]     Another  problem  with  the  Supreme  Court  proceeding  is  that  as  it  seeks  relief against  the  respondents  for  alleged  breaches  of  duty  arising  in  the  course  of performing their duties as liquidators, the leave of the court is required before such a proceeding is commenced:  Sydlow Pty Ltd (in liquidation) v TG Kotselas Pty Ltd

(1996) 65 FCR 234, 241 and Mamone v Pantzer (2001) 36 ACSR 743, 746. Before the plaintiffs seek to serve the claim and statement of claim in the Supreme Court proceeding, leave should be sought nunc pro tunc in respect of commencing the Supreme Court proceeding.

[26]     Even if the plaintiffs were willing to prosecute the Supreme Court proceeding, the shortcomings of the statement of claim and the need for leave to be obtained to prosecute the proceeding, mean that the Supreme Court proceeding should not be treated as a matter that is ready or about to proceed.  That conclusion is reinforced by the lack of support from the plaintiffs about the Supreme Court proceeding on the hearing of this application.

[27]     This application for removal of the respondents at this stage should therefore not be considered in the context of the Supreme Court proceeding and any perceived need for  the  respondents  to  make  decisions  relative  to  whether  Doolan  Properties becomes  a  party  to  that  proceeding.    I  therefore  reject  the  submission  of  the applicants that in order to complete the winding up of Doolan Properties, that company needs to be joined to the Supreme Court proceeding.

[28]     In correspondence from the solicitors acting on behalf of the second applicant to the respondents’solicitors, it was foreshadowed that the second applicant would seek to be joined as a plaintiff in the Supreme Court proceeding.  Although a significant part of the affidavits relied on in this application related to the sale of 8 Sankey Street by the trustee in bankruptcy, the difference between the sale price obtained by the first respondent and that which the second applicant contends was achievable is $9,750.  The allegation made against the respondents in respect of the delay in selling Doolan Properties’ interest in the Boundary Street property also does not appear to involve any significant sum, because of the limited nature of the claim. Both allegations are quite insignificant in value in comparison with the complaint of the second applicant that McLaughlins sold the Watergarden at an undervalue.

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Standing

[29]     The respondents challenge the standing of the applicants to bring the application.

[30] Section 503 of the Act provides:

“The Court may, on cause shown, remove a liquidator and appoint another liquidator.”

[31] The respondents submit that although s 503 of the Act does not indicate who may apply to remove a liquidator, the application ought to be made by the liquidator, a contributory or a creditor, no other person having any legitimate interest in the liquidation.

[32]     It is suggested in Andrew Keay McPherson The Law of Company Liquidation  (4th ed) at 309-310 that a creditor and a liquidator have the necessary standing to apply for removal and the general view is that a contributory may also apply (for which there are authorities), except that reference is also made to the decision of Harman J in  Re Corbenstoke Ltd (No 2) [1990] BCLC 60. In that case the applicant for removal of the liquidator claimed to be the registered shareholder for 49 out of 100 issued shares. As the subject company was insolvent, it was concluded that the applicant had no locus standi as a contributory to make the application.  Relying on authority that a contributory could not present a petition for winding up unless the contributory alleged that there would be a surplus for contributories after payment of all creditors, Harman J stated at 62:

“If the company be insolvent, the only persons with an interest must be creditors for the dividends which may be paid upon their debts in the liquidation and cannot be a contributory who by definition will receive nothing.”

[33]     The effect of the authority relied on by Harman J in relation to the standing of the holder of fully paid up shares to apply for winding up which was  Re Rica Gold Washing Company (1879) 11 ChD 36 has been abrogated in Australia by s 467(5) of the Act (and its predecessors). The rationale for giving a contributory standing to apply for the winding up of a company is to allow the contributory to protect its investment in the company’s share capital: Re Kolback Group Ltd (1991) 4 ACSR

165, 172.

[34]     The question of who was entitled to apply for the removal of a liquidator was considered by the Privy Council in Deloitte & Touche AG v Johnson [1999] 1 WLR

1605. The opinion of the Privy Council was delivered by Lord Millett and concerned a provision in companies legislation similar to s 503 of the Act which did not specify the qualification of the person entitled to make the application for removal of the liquidator. The decision in Re  Corbenstoke  Ltd  (No  2) was approved. Lord Millett observed at 1610 from the numerous authorities which had been cited on the circumstances in which the English Court will exercise its powers to remove a liquidator for cause that:

“They do, however, show that the court has consistently regarded the creditors   (in   the   case   of   an   insolvent   liquidation)   and   the contributories (in the case of a solvent liquidation) as the proper persons to make the application, being the only persons interested in the liquidation.”

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[35]     Although this opinion approved the decision in  Re Corbenstoke Ltd (No 2), the reasoning  was  not  limited  to  the  analogy  with  the  circumstances  when  a contributory had standing to apply for winding up.  The applicant for removal in the Privy Council case was a debtor of the subject company.  Lord Millett stated at

1611:

“Where the court is asked to exercise a statutory power, therefore, the applicant must show that he is a person qualified to make the application.  But this does not conclude the question.  He must also show that he is a proper person to make the application.  This does not mean, as the plaintiff submits, that he 'has an interest in making the application or may be affected by its outcome.'  It means that he has a legitimate interest in the relief sought.

...

The  standing  of  an  applicant  cannot  therefore  be  considered separately and without regard to the nature of the relief for which the application is made.  Section 106(1) does not limit the category of persons who may make the application.  The plaintiff, therefore, does not lack a statutory qualification to invoke the section.  But the question remains whether it has a legitimate interest in the relief which it seeks.

...

The company is insolvent.  The liquidation is continuing under the supervision of the court.  The only persons who could have any legitimate interest of their own in having the liquidators removed from office as liquidators are the persons entitled to participate in the ultimate  distribution  of  the  company’s  assets,  that  is  to  say  the creditors.  The liquidators are willing and able to continue to act, and the creditors have taken no step to remove them.  The plaintiff is not merely a stranger to the liquidation; its interests are adverse to the liquidation and the interests of the creditors.  In their Lordships’ opinion it has no legitimate interest in the identity of the liquidators, and is not a proper person to invoke the statutory jurisdiction of the court to remove the incumbent office-holders.”

[36]     Notwithstanding the differences between the Australian jurisdiction and the English jurisdiction relating to the standing of the contributory to apply to wind up an insolvent company, the approach of the Privy Council in Deloitte & Touche AG v Johnson  to the standing of an applicant for removal of a liquidator is logical in circumstances where the company is insolvent and the contributory therefore has no investment in share capital to protect.

[37]     The primary concern of the second applicant is directed towards the respondents’ attitude to the proof of debt of McLaughlins and the question of whether Doolan Properties pursues McLaughlins for the alleged breaches of duty in respect of the sale of the Watergarden.  If McLaughlins’ proof of debt were rejected in whole, there  would  be  a  surplus  of  assets  in  the  liquidation.    That  gives  the  second applicant as a shareholder of Doolan Properties a real interest in the outcome of the decisions  yet  to  be  made  by  the  respondents  in  connection  with  taking  action against McLaughlins and dealing with the proof of debt of McLaughlins.  The possibility of this interest of the second applicant is sufficient interest to give the second applicant standing to bring the application.

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[38]     On or about 17 July 2000 Marilane Pty Ltd (“Marilane”), the company which trades as Taylor Byrne, Valuers, lodged a proof of debt in the liquidation of Doolan Properties in respect of unpaid fees in the amount of $1,200.

[39]     The first applicant entered into a deed with Marilane dated 30 July 2001 in which the debt owed by Doolan Properties to Marilane was assigned to the first applicant.

[40]     Clause 1 of that deed provides:

“That in consideration of the Purchaser paying to the Vendor the sum of $1,200.00 the Vendor hereby assigns to the Purchaser all of it’s right, title and interest (including all rights of action or litigation which may be or become vested in the Vendor) in relation to Doolan Properties Pty Ltd and the debt owed by Doolan Properties Pty Ltd to the Vendor.”

[41]     The respondents submit that the deed of assignment was ineffective to constitute the first applicant as a creditor of Doolan Properties.  Relying on  Commissioner of Taxation v Macquarie Health Corporation Ltd  (1999) 88 FCR 451, 471-472, the respondents submit that any cause of action in debt against Doolan Properties by a creditor had been extinguished as at the date of the winding up on 10 June 1999 and from that date the cause of action in debt was replaced by a statutory right to prove in the liquidation. It is therefore argued that as at the date of the deed of assignment, as Marilane had already exercised its statutory right to prove in the liquidation, there was no debt owed by Doolan Properties to Marilane.

[42]     Emmett  J  stated  at  472  in   Commissioner  of  Taxation  v  Macquarie  Health

Corporation Ltd:

“There is no doubt that the effect of winding up and of sequestration is that there is a restriction imposed on the capacity of a creditor to enforce payment of a debt without the leave of the Court.  A creditor will not be entitled to payment from the debtor and if the creditor receives payment, he will be required to repay the amount to the liquidator or trustee in bankruptcy.  In that sense, the creditor’s remedies are converted into a right to prove in the winding up or in the bankruptcy.  However, it does not follow, in my view, that the debt ceases to exist.  The right to enforce payment is restricted. Nevertheless, the right to prove in the winding up or bankruptcy is a right to prove in respect of the debt which continues to exist.”

[43]     On the basis that on the winding up of a company a debt owed by the company still continues to exist, but the right to enforce payment is restricted, it is still possible for the creditor to assign the right to receive payment of that debt.

[44]     When a company is wound up, the right to prove the debt is one of the rights that the creditor who is owed the debt can still enforce.  Mere lodgment of a proof of debt could not result in the extinguishment of the underlying debt.  The terms on which the debt were assigned by Marilane to the first applicant were quite general. If it were necessary to assign the underlying debt to enable the first applicant to stand in place of Marilane in order to prove the debt, that has been done by clause 1 of the deed of assignment.  If it were necessary to assign the right to prove the debt in the winding up of Doolan Properties, that has also been done.  There is no issue

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about the notice of the assignment effected by the deed of assignment having been given to Doolan Properties.

[45]     The quantum of the debt is relatively small, when compared with the total amount of the debts for which proofs have been lodged.  Unless it were shown there were good reasons why the first applicant should not be allowed to exercise the rights that accrue to a creditor in a liquidation, irrespective of the size of the creditor’s debt, the first applicant as a creditor of Doolan properties has the standing to bring the application for removal of the respondents.  It has not been shown that there is any ulterior purpose or bad faith on the part of the first applicant in procuring an assignment of the rights, title and interests of Marilane in relation to the debt owed to it by Doolan Properties.

Proposal for appointment of a third liquidator

[46]     Solicitors for the second applicant first advised the respondents of the issue of the Supreme  Court  proceeding  by  letter  dated  9  May  2001.    That  was  when  the respondents were also first requested to resign as liquidators of Doolan Properties.

[47]     Apart from the allegations made in the Supreme Court proceeding, the second applicant’s solicitors raised on 17 May 2001 with the respondents’ solicitors that they had been advised by the Queensland Law Society that KPMG was the auditor of McLaughlins and McLaughlins Solicitors and submitted that was a matter of conflict.

[48]     The  relevant  facts  are  that  KPMG  is  not  and  has  never  been  the  auditor  of McLaughlins, but KPMG acts as auditor and tax agent for McLaughlins Financial Services Limited, another company associated with McLaughlins Solicitors, and as accountant and tax agent for McLaughlins Solicitors.  This is the foundation of the applicant’s claim of bias or the perception of bias against the respondents.

[49]     By letter dated 9 July 2001 the solicitors for the respondents indicated to the second applicant’s solicitors that in order to avoid any possible appearance of bias, the respondents were prepared to consent to the appointment of another insolvency practitioner to hold office jointly with them and to deal with the possible claim of Doolan   Properties   against   McLaughlins   in   relation   to   the   allegation   of McLaughlins’ failure to advance funds to Berrima, failure to properly market and sell the Watergarden and improper payment of commission.

[50]     The solicitors for the respondents in their letter of 30 August 2001 to the second applicant’s  solicitors  conveyed  that  the  respondents  considered  that  the  claims raised  against  McLaughlins  in  relation  to  sale  at  an  undervalue  warranted investigation  and  that  they  proposed  the  appointment  of  another  insolvency practitioner to deal with that and the adjudication of McLaughlins’proof of debt.  It appears that the respondents have deferred proceeding with the application for appointment of another insolvency practitioner with them to deal with the claims against   McLaughlins   and   the   McLaughlins’   proof   of   debt,   pending   the determination of the applicants’application for removal.

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Removal of liquidators

[51]     There was no issue between the parties as to the appropriate law to be applied in considering  whether  the  respondents  should  be  removed  as  liquidators.    The applicants bear the onus of establishing that there is cause for removal and that the removal is for the general advantage of the persons interested in the winding up: Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994)

14 ACSR 230, 233.

[52]     The  only  substantial  issue  which  is  presently  relevant  to  whether  or  not  the respondents are removed is the perception of bias that might arise in relation to any consideration by the respondents of the proof of debt lodged by McLaughlins or an investigation of any claim against McLaughlins for sale of the Watergarden at an undervalue,   because   of   the   professional   relationship   between   KPMG   and McLaughlins Solicitors and McLaughlins Financial Services Limited.

[53]     The applicants rely on the affidavits of Mr John Rees, an official liquidator, to submit that the respondents’proposal to seek to have a third liquidator appointed to deal with the McLaughlins’ proof of debt and the claim against McLaughlins is unworkable.  Mr Rees has expressed his opinion, however, in the context that a third liquidator would be dealing with the Supreme Court proceeding.

[54]     The liquidation has been in progress for over 2 years and the administration is at an advanced stage.  There is a difference in opinion between Mr Congram and Mr Rees as to what additional costs would be incurred if the respondents were to be removed and replaced with a new liquidator.  It is not necessary to resolve that difference,  because  what  can  be  concluded  is  that  the  step  of  removing  the liquidators will be more costly than the alternative proposal of a third liquidator being appointed to deal with the claim against McLaughlins and McLaughlins’ proof.

[55]     There is authority to support the appointment of an additional liquidator to deal with a discrete aspect of the administration in order to avoid the expense and loss of efficiency  involved  in  replacement  of  liquidators  in  a  substantially  completed administration:  Re Obie Pty Ltd (in liq) (No 4) (1984) 2 ACLC 663 at 668.

[56]     In view of the recognition by the respondents of the perception of bias that could apply to their dealing with the investigation of the claim against McLaughlins and McLaughlins’proof and their proposal that it be dealt with by the appointment of a third liquidator for dealing with those matters, the stage at which the liquidation of Doolan properties has reached and that there would be some saving in costs in the administration  by  implementing  the  proposal  for  the  appointment  of  a  third liquidator rather than replacement of the respondents, I am not satisfied that the applicants have shown that there is cause for removal of the respondents.  The fact that the applicants also complain about the delay of the respondents in selling the interest of Doolan Properties in the Boundary Street property is not of sufficient consequence to affect this conclusion.

[57]     I therefore order that the application be dismissed.  I will hear submissions on the question of costs.

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[58]     The application for the appointment of the additional liquidator will need to be made in the file relating to the application to wind up Doolan Properties.