National Australia Bank Ltd v Wily

[2002] NSWSC 573

CITATION:	National Australia Bank Ltd v Wily [2002] NSWSC 573
CURRENT JURISDICTION:	Equity Division Corporations List
FILE NUMBER(S):	SC 2717/02
HEARING DATE(S):	28 , 29 May 2002; 6 June 2002
JUDGMENT DATE:	27 June 2002
PARTIES :	National Australia Bank Limited (P) Andrew Hugh Jenner Wily (D1) The Crescent Medical Centre Pty Ltd (in liq), Fairfield Medical Arcade Pty Ltd (in liq), Coastline Medical Pty Ltd (in liq), Fairfield Alternative Medicine Pty Ltd (in liq) and Rapid Detox Centre Australasia PtyLtd (in liq) (D2)
JUDGMENT OF:	Burchett AJ

COUNSEL :	A W Street SC and E A Collins (P) R J Weber SC and S W Climpson (D)
SOLICITORS:	Dibbs Barker Gosling (P) MBP Legal (D)
CATCHWORDS:	CORPORATIONS- Liquidators- Independence- Alleged conflict of interest and lack of independence through retainer of solicitor also acting for two directors- Discussion of Re Allebart Pty Ltd (in Liq)- Necessity that independence and impartiality both exist and be seen to exist- Burden on plaintiff to show cause why liquidator should be removed- Due cause to be measured by "the real, substantial, honest interests of the liquidation".
LEGISLATION CITED:	Corporations Act, ss 503, 533
CASES CITED:	Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 Barton v Armstrong [1973] 2 NSWLR 598 Barton v Armstrong [1976] AC 104 Ephstathis v Greek Orthodox Community of St George (1988) 13 ACLR 691 In re Adam Eyton, Limited; Ex parte Charlesworth [1887] 36 Ch D 299 National Australia Bank Ltd v Market Holdings Pty Ltd (in liq) (2001) 37 ACSR 629 Re Allebart Pty Ltd (in Liq) and the Companies Act [1971] 1 NSWLR 24 Re Biposo Pty Ltd (1995) 17 ACSR 730 Re Club Superstores Australia Pty Ltd (in liq) (1993) 10 ACSR 730 Re Excel Finance Corporation Ltd (Receiver and Manager Appointed); Worthley v England (1994) 52 FCR 69 Re Global Medical Imaging Management Ltd (in liq) (2001) 38 ACSR 214 Re Keypak Homecare Ltd [1987] BCLC 409 Re Ross Wood & Sons Pty Ltd (in liq); Wood v Targett (1997) 23 ACSR 291
DECISION:	Proceeding dismissed with costs.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BURCHETT AJ

Thursday 27 June 2002

2717/02 – NATIONAL AUSTRALIA BANK LTD v ANDREW HUGH JENNER WILY, THE CRESCENT MEDICAL CENTRE PTY LTD (IN LIQ), FAIRFIELD MEDICAL ARCADE PTY LTD (IN LIQ), COASTLINE MEDICAL PTY LTD (IN LIQ), FAIRFIELD ALTERNATIVE MEDICINE PTY LTD (IN LIQ) and RAPID DETOX CENTRE AUSTRALASIA PTY LTD (IN LIQ)

JUDGMENT

1 BURCHETT AJ: By its amended originating process, National Australia Bank Limited applies under s 503 of the Corporations Act 2001 (which provides: "The Court may, on cause shown, remove a liquidator and appoint another liquidator") for an order removing the liquidator of each of the abovementioned companies in liquidation "for cause being lack of independence (actual and perceived), misconduct (actual and perceived), partiality in performance of duties and failure to act in the best interests of all creditors". Orders are also sought setting aside proceedings initiated by the liquidator for the examination of certain persons who acted for the Bank in relation to the companies, or in receiverships put in place by the Bank in respect of them.

2 Apart from a number of defaults, or alleged defaults, none of which in itself would lead me to make an order of the kind sought, the Bank's case rests on the real and perceived consequences of the liquidator's retainer of the firm of solicitors Morgan Lewis Alter, and in particular a member of that firm Mr P M Fordyce, to advise and act in relation to the proposed examinations and summonses for the production of documents. The engagement of Mr Fordyce is claimed to have tainted the liquidator and compromised his independence irremediably because Mr Fordyce had acted, and continued to act, for Mr Jack Roberts and Miss Karan Roberts, the directors of the companies prior to their liquidation, in proceedings brought by the Bank against them.

3 Over the period from late 1997 to early 1999, three of the companies had given registered deeds of charge to secure indebtedness to the Bank. Two of the companies also encumbered land in favour of the Bank, and on a number of occasions lease finance transactions were entered into involving the Bank and companies in what might be called "the Roberts Group". On 1 June 2000, receivers and managers (Messrs Lombe and Campbell, members of the accountancy firm Deloitte Touche Tohmatsu) were appointed by the Bank in respect of the businesses of three of the companies in the Roberts Group and in respect of the land. On 6 February 2001, the Bank commenced proceedings in the Supreme Court in the Commercial List against (inter alios) Mr and Miss Roberts, in which some millions of dollars were claimed under guarantees relating to the companies and in which various claims were made against them and others alleging fraud and other causes of action in respect of leasing transactions related to the companies. An appearance for Mr and Miss Roberts was filed by Mr Fordyce. On 12 February 2001, the companies went into voluntary administration, Mr M Holzman being the administrator, and on 9 March 2001 they went into voluntary liquidation, Mr Holzman being the liquidator.

4 It is not suggested that any further crucial event occurred in the liquidations during the year 2001, except that an attempt was made, and later abandoned, by Mr and Miss Roberts to bring proceedings in the names of the companies against the Bank, they having previously filed a cross-claim in their own names which had been struck out. Mr Fordyce was acting for them in these proceedings, which were both of an interlocutory nature. Mr Holzman did not give evidence before me, but it is clear from the material that was in evidence that the carrying out of any vigorous investigations in respect of these companies was hampered by lack of funds and, at least for some period, by the continuance of the receiverships.

5 By January 2002, it appears, a majority of unsecured creditors of the companies desired to see funding arranged to enable examinations to be conducted, but litigation funding was not available to Mr Holzman. Meetings were called for 16 January 2002, at which Mr Holzman resigned. Shortly prior to these meetings, the first defendant, Mr Wily, who is an experienced liquidator, was approached by Morgan Lewis Alter to ascertain whether he would be willing to accept appointment as liquidator in the place of Mr Holzman. There was no conflict of interest or other impediment, and accordingly Mr Wily accepted. He was actually in attendance at the meetings, together with his assistant Mr Blythe, who is a chartered accountant. The minutes of the meetings, signed by Mr Holzman as chairman, record that he was asked by Mr Hatter representing the Bank why he intended to resign and replied, in respect of each company, that it "did not have any funds to facilitate further enquiries and possible litigation, and that the director of the company had procured litigation funding, and had advised that a condition of the provision of litigation funding was that Mr Holzman resign as liquidator and that Mr Andrew Wily be appointed in his place". Each of the minutes records the acceptance of Mr Holzman's resignation and the appointment of Mr Wily in his place, and that a resolution was carried that the liquidator may "enter into a funding facility to undertake examinations and actions arising directly or indirectly from the administration/liquidation, whether arising in contract, tort, statute, under the common law or howsoever". There was also carried a resolution which had not been notified before the meeting or included in the agenda. This was that the "creditors support the liquidator of this company undertaking examinations of officers of the National Australia Bank, Deloitte Touche Tohmatsu and other relevant parties to determine if there are causes of action available to the company against those parties". It is recorded that Mr Hatter "strongly objected to this motion", advising that the Bank had "substantial claims against the company and it's [sic] director, and that action had already commenced against guarantors, including the director, for payment of the bank's debt", and further that the Bank "would challenge any action undertaken by Andrew Wily to seek examinations of the bank". In passing, I draw attention to the fact that Mr Hatter's protest, as recorded by Mr Holzman, characterised the Bank's action as one "against guarantors … for payment of the Bank's debt". This is consistent with a reference to the same action, made in a facsimile sent on the day of the meeting by the Bank's solicitors to Mr Wily, noting that "the bank has Supreme Court proceedings on foot against Jack and Karan Roberts for possession of their Seaforth residence as well as judgment for monies claimed under various banking facilities, guarantees and indemnities given for the Roberts Companies and in respect of loss suffered by the bank under various leasing facilities it provided to the Roberts Companies". No alarm bells were rung at that stage to warn the incoming liquidator of criminal activities alleged against Mr and Miss Roberts. Each of the motions to which I have referred was moved by Mr Fordyce, and was carried on the voices. The minutes record that Mr Hatter abstained from the vote on the resolution concerning entry into a funding facility to undertake examinations. As the Bank seeks to make something of Mr Fordyce's role as mover of the motions, it should be pointed out it was not in dispute that the majority in number and value of the creditors are unrelated to the directors.

6 Although Mr Wily gave evidence of being contacted by Mr Fordyce prior to the meeting, when mention was made of possible actions to be investigated and the availability of funding for them, he did not recall actually meeting Mr Fordyce in person prior to the meeting. He suggested their conversation might have been on the telephone. Mr Blythe, on the other hand, recalled a meeting on 14 or 15 January 2002 when background information was provided by Mr Fordyce, his recollection being that Mr Wily was present. Documents available at or before that meeting indicated to Mr Blythe "that there may be grounds for pursuing examination of various persons". While the difference of recollection may appear odd, I do not think it matters very much. There is nothing to suggest that the conversation was other than preliminary, and Mr Blythe did not say the documents were actually handed over at the meeting he recalls: rather, he thought they were e-mailed to him immediately prior to it. As Mr Blythe was the man with day to day carriage of the matter, certainly once Mr Wily was appointed liquidator, and Mr Wily's memory does appear somewhat hazy on the point, it is at least possible that it was only Mr Blythe who actually examined the documents at that stage. This is perhaps a convenient point at which to note that I found Mr Blythe to be a scrupulously careful and patently honest witness, although that is not to say he may not have been mistaken in his recollection on occasion. Mr Wily was also, in my opinion, formed after he had been subjected to a searching and lengthy cross-examination, an honest witness who, however, did appear at times to have some difficulty over details, quite possibly because it was Mr Blythe, and not he, who had the hands-on conduct of the matter, as distinct from supervision of that conduct and the making of ultimate decisions.

7 Having regard to the proposal of litigation funding which had preceded his appointment; the resolution of creditors specifically authorizing him to "enter into a funding facility to undertake examinations …"; and the resolution (though not included in the notice of meeting) affirming creditors' support for examination of officers of the Bank and the receivers, one of the first tasks of the new liquidator was plainly to consider the question whether he should examine bank officers and persons involved in the receivership. Counsel for the Bank appeared to suggest that the lack of notice of the resolution supporting examinations relating to the bank should have negated its influence upon Mr Wily (cf Ephstathis v Greek Orthodox Community of St George (1988) 13 ACLR 691); but the decision was his, whether or not strictly authorized by the resolution, and it is noteworthy that Millett J (as Lord Millett then was) considered a resolution passed in just such circumstances to be useful in Re Keypak Homecare Ltd [1987] BCLC 409 at 417. In any case, the evidence of Mr Wily and Mr Blythe makes it very clear the liquidator determined for himself whether the examinations should be undertaken. It is true that Mr Blythe relied on the solicitor for the description of the documents production of which was to be required by the summonses to produce documents, but that is a drafting task of some nicety, best performed by a lawyer. I am satisfied the substance of what was required was decided by the liquidator, and only by him.

8 At an early stage, Mr Wily retained Mr Fordyce's firm as his solicitors in relation to the winding up, although the only specific matters on which they appear to have been instructed to act were concerned with the obtaining of examination orders and the issue of summonses for the production of documents. The evidence of both Mr Wily and Mr Blythe, which I accept, is that they understood Mr Fordyce to have acted as solicitor for the original liquidator, Mr Holzman. Indeed, Mr Wily saw a draft affidavit which appeared to have been prepared by Mr Fordyce for Mr Holzman in support of and with a view to the seeking of an examination order. That Mr Holzman had in fact retained Mr Fordyce was not shown to be wrong. True it is Mr Fordyce had acted and was still acting, as Messrs Wily and Blythe knew, for Mr and Miss Roberts. What they did not know, for some time, was that the proceeding in which Mr Fordyce was acting was not just a routine proceeding upon guarantees and other securities relating to the companies' borrowings from the Bank, but also involved claims of fraud made by the Bank against Mr and Miss Roberts and those who had allegedly colluded with them.

9 There is, of course, no objection, in itself, to the engagement by a liquidator of a solicitor who is also acting for one of the parties interested in the liquidation. It depends on the circumstances. Sometimes such a solicitor may have special knowledge which is very advantageous in the winding up. The authority for these propositions is one of the frequently cited authorities in this area of the law: Re Allebart Pty Ltd (in Liq) and the Companies Act [1971] 1 NSWLR 24. That case can only be understood in the light of an understanding of the extreme hostility between Mr Barton, who controlled Allebart Pty Ltd prior to the winding up order, and Mr Armstrong, who controlled the petitioning creditor. The nature of this hostility can be gauged from the fact that in the proceeding between them personally, which is referred to in Re Allebart Pty Ltd at 26, 29, Mr Barton proved, as the basis of a claim of duress, that Mr Armstrong had actually threatened to murder him: see Barton v Armstrong [1973] 2 NSWLR 598; and on appeal, Barton v Armstrong [1976] AC 104. It was in this situation that Street J said in Re Allebart Pty Ltd at 29:

"The liquidator instructed as his solicitors the solicitors who had acted for the petitioning creditor. This of itself is innocuous and, indeed, commonplace. It did, however, set a stage which, again, necessitated particular care being taken by the liquidator to ensure that it was on his instructions that each step was taken in the windings up. The solicitors acted concurrently for the petitioning creditor and for the official liquidator in the course of the windings up until the point of time when the present summonses were taken out and the matter first came before the Court in September of last year. They had been solicitors for Mr Armstrong throughout the course of the Barton v Armstrong litigations. And when in September of last year objection was taken by counsel on behalf of the applicants to the liquidator retaining them as his solicitors in the windings up, they quite understandably preferred to avoid any possibility of an accusation of irregularity being pressed against the liquidator by reason of their acting for him as well as for the petitioning creditor. Being unwilling to be involved even indirectly in accusations of this nature, they ceased to act for the liquidator , and he instructed an independent firm of solicitors to act for him. The liquidator's newly-instructed solicitors have thereafter appeared in connection with the present applications."

10 Street J went on to underline (at 30) that "[i]t is essential that the independence and impartiality of a liquidator should at all times exist in substance, and be manifestly seen to exist." In the extraordinary circumstances, he concluded (at 30-31) that the liquidator appeared "to have been to some extent and in some respects insensitive of the extreme personal animosity lying behind the matters and the consequential need to take particular care to avoid allowing the windings up to become or to appear to have become an instrument of pursuing these personal conflicts"; and he held there were aspects of the case which tended to "suggest that the liquidator [had] yielded up some degree of initiative to the petitioning creditor and which present some appearance of mere automatic acquiescence by the liquidator in the wishes of the petitioning creditor". (As appears at 29-30, the liquidator had at one stage written, in a letter to the solicitors acting for him and for the petitioning creditor, "if I am to carry out any investigation work on behalf of the petitioning creditor [emphasis added] I will need to be put in funds to do so.") Street J (at 31) invited the liquidator to consider resigning "in this somewhat invidious position", but he also made it clear he expected that the examinations the liquidator had sought would proceed. In the event, the liquidator resigned, and a new liquidator was appointed.

11 The primary point to emerge from Re Allebart Pty Ltd is that Street J held the liquidator's appointment of solicitors concurrently also acting for a party interested in the liquidation to be both "innocuous" and "commonplace". So long as the liquidator ensured "it was on his instructions that each step was taken in the windings up", it was only the extraordinary circumstances which created a problem. If that is right, a fortiori a newly appointed liquidator, who replaces a former liquidator after the winding up has been in progress for a number of months, cannot be criticized for continuing to retain such a solicitor, being a solicitor previously engaged by his predecessor. In the present case, there was nothing wrong, at the time the liquidator appointed Mr Fordyce, in his choosing to do so.

12 Does it make any difference that the liquidator was being assured on behalf of Mr Fordyce's other clients, Mr and Miss Roberts, that funds would be procured to enable the examinations in question to proceed? Again, the answer is suggested by Re Allebart Pty Ltd. At 27-28, Street J said:

"Not only did the petitioning creditor seek to urge on the liquidator in the process of the windings up, but it agreed to indemnify him against the expenses of carrying out examinations of Mr and Mrs Barton. It has already provided him with a cash sum of over $1,800 to cover the costs of, and related to, the bringing of these examinations. Here again there is no basis for levelling any criticism whatever against the petitioning creditor. Where a company is being wound up and it has no assets, or insufficient assets, to enable the due processes of the liquidation to be carried through, a creditor is to be encouraged, rather than criticized, in making funds available to the liquidator. Nor need a liquidator be diffident in accepting funds or indemnities from creditors so as to enable a winding up to proceed. Moreover, I see no reason to criticize on the grounds of propriety the arrangement under which a creditor provides money or indemnity to cover the expenses of a specific step in the winding up, such as the bringing of named proceedings or the carrying out of named examinations. Arrangements such as these are commonplace, and, if anything, they are to be encouraged, as very frequently some such arrangement enables the liquidator to carry out his duties more thoroughly or comprehensively than would otherwise be the case (cf Companies Act, 1961, s 292 (10)) ."

See also the joint judgment of Gummow, Hill and Cooper JJ in Re Excel Finance Corporation Ltd (Receiver and Manager Appointed); Worthley v England (1994) 52 FCR 69 at 92, where their Honours said it was "necessary to distinguish, on the one hand, between the purpose of the creditor in funding the examination, its motives being to advance its own interests, and the purpose of the liquidator in conducting the examination, on the other." Bearing in mind the special circumstances relating to Messrs Barton and Armstrong and the solicitors who obtained the issue of the summonses for examination on behalf of the liquidator in Re Allebart Pty Ltd , Street J's view of the propriety of the employment of the solicitors in that regard, which only the special features of the case called into question, seems to me to provide strong support for the liquidator's position here.

13 When Mr Wily, shortly after he became liquidator, retained Mr Fordyce's firm to act for him, he was influenced by his belief that Mr Fordyce had been acting for Mr Holzman in the liquidation and had significant knowledge of the companies' affairs. Since Mr Wily knew Mr Fordyce was also acting for Mr and Miss Roberts, as an experienced liquidator, he appreciated that, when instructing Mr Fordyce, he would need to bear in mind "the possible need to quarantine" information that might involve the solicitor in a conflict of interest. But that need appeared only "possible", especially as Mr Wily was unaware of the very serious allegations made by the Bank against Mr and Miss Roberts. In fact, I find no reason to think any inappropriate information was communicated to Mr Fordyce. Particularly, he was not given access to a report of Deloitte Touche Tohmatsu to which reference will be made. Nor was it suggested that he, for his part, had in fact made any inappropriate contribution to the deliberations of the liquidator.

14 Mr Wily's independent view that he should proceed to have examinations conducted and summonses to produce documents issued was reached in late March, after a process of consideration of the materials available to him and a series of discussions with Mr Blythe, who was of the same view. Mr Fordyce was instructed to proceed with the necessary applications. But on 27 March, Mr Blythe had a conversation with Mr Fordyce in which he told him the matter was on hold pending further investigations to be carried out by Messrs Wily and Blythe. What had happened was that, after a discussion with Mr Lombe at Deloitte Touche Tohmatsu on 15 March which had left Messrs Wily and Blythe with the conclusion that examinations were necessary to determine whether the receivers had sold the assets of the companies at prices seriously below the true values, the liquidator had received on 26 March a detailed report dated 17 August 2000 prepared by Deloitte Touche Tohmatsu for the Bank. This report alleged that many items of equipment (involving lease finance provided to the companies by the Bank in excess of $1.5 million) did not exist, and that fraud had been practised on a substantial scale by Mr and Miss Roberts, in collusion with others, in order to obtain working capital for the companies. These allegations lay behind issues in the proceedings between the Bank and Mr and Miss Roberts of which the liquidator had been ignorant until 15 March, and then had only received a partial foreshadowing. His reading of the report led the liquidator to reconsider the holding of the proposed examinations, and also to seek independent legal advice from senior counsel on questions including the question of his legal representation. There were lengthy discussions with Mr Roberts in respect of the allegations in the report.

15 In the upshot, the liquidator remained unconvinced by the receivers' explanations of the low prices apparently obtained for the assets of the companies. On the evidence and the probabilities, I conclude he was as well not satisfied he had a full and accurate picture of the lease finance transactions and of what had occurred in relation to them. It is obvious that if the leases were actually void, or if, as it ultimately turned out the Bank had at one stage pleaded, they had been avoided ab initio, there might be a question whether the Bank or the receivers on its behalf had received rental payments to which there was no entitlement. These issues seemed to merit inquiry. The liquidator accordingly, in consultation with Mr Blythe, reached the view, of which his affidavit in support of the issue of examination summonses and of orders for production of documents of 24 April was the outcome, that a number of matters should be investigated, including:

(a) the manner in which the receivers sold the companies' assets and the prices obtained;
(b) the reason for the termination of the business of one of the companies which operated the "Rapid Detox Centre"; and
(c) the manner of the provision of lease finance facilities by the Bank to the companies, and their operation.

The issue of examination summonses and orders for production followed on 8 May.

16 Further events came quickly. On 16 May, the present proceeding was commenced by the Bank, and on 17 May Mr Fordyce withdrew from his retainer as solicitor for the liquidator, who instructed his present solicitors in this matter, and to conduct the examinations, on the same day.

17 The circumstances of this case bear no resemblance to the unique situation which called into question the conduct of the liquidator in Re Allebart Pty Ltd. Rather, they illustrate what Street J there saw as the "commonplace" situation of a liquidator using the services of a solicitor with knowledge of the position of the companies. Until after the initial decision was taken late in March, the liquidator had no reason to foresee that any actual conflict of interest would embarrass his solicitor. If such a conflict should arise, it would of course directly affect the solicitor, not the liquidator. The liquidator could be affected only indirectly, through the solicitor. In normal circumstances, and leaving aside a situation of the nature of that which arose in Re Allebart Pty Ltd, the liquidator, himself completely independent, would be entitled to expect the solicitor, as the person with the conflict, to tell him if there were a problem. Until he was shown to be aware, how could his retainer of the solicitor give the appearance of lack of independence? In this case, his becoming aware was long delayed and, when it came, it was a gradual process of receiving unfolding information. When he learned, at a late stage, not that there was, but that there might be, a problem, he took advice. On any view, he was at that point entitled to take some time to assess the situation and reach a decision.

18 There is nothing in the nature of the examination decision itself which could be taken to support a case that he was or appeared to be acting in other than an appropriate manner. After all, the Bank's own receivers, when they first became aware of the leasing problem, noted that inquiries of the same kind, so far as that problem was concerned, would need to be made. In their Interim Report of 9 June 2000, they wrote that matters requiring further investigation included "[i]nvestigation and confirmation of veracity of all leasing documents and other financing arrangements" and "[i]nterview of all National Australia Bank staff who negotiated leases or dealt with parties involved in the negotiation of leases to establish identity of suspects". The liquidator wished to investigate for himself these very arrangements and to examine these very persons.

19 Counsel for the Bank criticized the liquidator for being slow to make a report under section 533 of the Act concerning the directors Mr and Miss Roberts, and for accepting Mr Roberts' co-operation in answering his questions in respect of the receivers' report of 17 August 2000 as a reason for refraining, for the time being, from examining Mr and Miss Roberts. It was put that the Bank had admittedly co-operated, yet its officers were to be examined. But this is to clutch at straws. There were, in the liquidator's view, possible claims against the Bank and the receivers, for the investigation of which funding was available – funding of the specific kind Street J applauded in Re Allebart Pty Ltd. To give those examinations priority over examining directors whom his predecessor had not formally examined in almost a year was certainly within a reasonable exercise of the liquidator's powers. The selective choice of "quick and fruitful avenues of recovery" is part of the liquidator's expertise: Re Global Medical Imaging Management Ltd (in liq) (2001) 38 ACSR 214 at 215, per Santow J. Nor was the delay, at a time when he may well have been preoccupied by the questions that were beginning to emerge about the role of his solicitor, in the making of the s 533 report particularly remarkable. And the statute itself indicates (in s 533(3)) that the remedy for an omission in this regard is not the removal of the liquidator, but an order directing him to lodge a report. In this case, he has in fact lodged it, if not with conspicuous celerity.

20 As Millett J made clear in Re Keypak Homecare Ltd at 415 et seq, "[t]here is a burden on [the plaintiff] to show cause why the liquidator should be removed", although neither misconduct nor personal unfitness need be shown. In Re Biposo Pty Ltd (1995) 17 ACSR 730 at 734, Young J said the question was "whether in the interests of the public the removal of the liquidator would be for the general advantage of persons interested in the winding up", and his Honour has reiterated this view in National Australia Bank Ltd v Market Holdings Pty Ltd (in liq) (2001) 37 ACSR 629 at 660, after pointing out (at 659) that the liquidator's duty is owed "to the creditors as a whole". If the Court is to decide such a matter in this way, a breach of a liquidator's strict duty, and certainly one of a merely technical or theoretical nature, or a breach not shown to have had actual deleterious consequences, may, in some circumstances, not lead to removal of the liquidator. The Court will consider the consequences for all concerned, including particularly the general body of creditors. "[T]he due cause [for removal] is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed": In re Adam Eyton, Limited. Ex parte Charlesworth [1887] 36 Ch D 299 at 306, per Bowen LJ.

21 In Re Biposo Pty Ltd at 734, Young J warned that challenges to liquidators might, if too readily acceded to, be used as instruments "to stop them doing their duty". Lehane J endorsed this warning in Re Ross Wood & Sons Pty Ltd (in liq); Wood v Targett (1997) 23 ACSR 291 at 299. In the present case, only the creditor whose actions are to be examined seeks the removal of the liquidator.

22 Where, as here, the substance of the cause sought to be shown is a conflict of interest affecting or apparently affecting the liquidator (though here, only indirectly), the guiding principle is that "he must be independent and must be seen to be independent", but there needs to be "a real and not merely theoretical possibility of conflict" before the observance of that principle will appear to have been disregarded. Authorities for these propositions were set out by Santow J in Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 at 232 et seq. His Honour cited the judgment of Thomas J in Re Club Superstores Australia Pty Ltd (in liq) (1993) 10 ACSR 730 at 735, where that learned judge said he accepted a submission for the liquidator "that some realistic prospect of embarrassment or a serious possibility of conflict in his continuing to act needs to be seen before a dismissal is required."

23 In the present case, the source of suggested conflict was not in the liquidator himself, but in the solicitor he had engaged when ignorant of any realistic likelihood of a problem. The issues involving the solicitor's other clients were not disclosed by the liquidator to the solicitor, who has since ceased to act for the liquidator. As counsel for the liquidator has pointed out, the cases where a possibility of a conflict of interest has been found are generally concerned with the conduct of the liquidator himself or herself. Re Allebart Pty Ltd may perhaps be seen as an exception, although even there it will be recalled that the liquidator's fault was not that he instructed the petitioning creditor's solicitor, which Street J considered of itself "innocuous", but that some of his actions presented an appearance "of mere automatic acquiescence by the liquidator in the wishes of the petitioning creditor". In the circumstances, this was held to be enough. But there is nothing of that kind here. The cases of conflict of interest impugning a liquidator's independence relied on by counsel for the Bank were all, unlike the present, cases where the actions or situation of the liquidator personally were in question, not cases involving no more than the instruction of a solicitor to act for the liquidator who was afterwards suggested to have a conflicting interest the risk of collision with which should have prevented his acting. Of course, the plaintiff has here alleged quite other defaults against the liquidator as well, but I am not satisfied that any of them, either alone or in conjunction with other matters proved, would justify the fairly radical relief sought.

24 So the question is ultimately whether, on all the evidence, and particularly having regard to the circumstances of the retainer of Mr Fordyce, the liquidator should be removed for the general advantage of persons interested in the winding up, bearing in mind those circumstances as I have found them and that a lack of independence would be shown if there were "a serious possibility of conflict in his continuing to act". I have come to the conclusion that his removal is not required.

25 I should add that the Bank sought, in addition to the removal of the liquidator, an order bringing to an end the proposed examinations and the order for the production of documents. On the evidence, even if I had removed the liquidator, I would have refused that application, as Street J refused a similar application in Re Allebart Pty Ltd. Nothing suggested the liquidator was in any way biased or improperly influenced in his determination of the question whether examinations should be held and documents produced, nor was there any reason to think that determination was in any way wrong or inappropriate. I accept that he understood the decision was his alone, and that he performed his duty in making it. Bearing in mind Mr Hatter's threat to challenge examinations, uttered on the occasion of the liquidator's appointment, this part of the Bank's case evokes a reference to the dicta of Young J and Lehane J, to which I have referred, warning against the use of a challenge to a liquidator personally as a means of avoiding an examination.

26 The plaintiff's proceeding should be dismissed with costs.

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Last Modified: 06/28/2002