Re Universal Distributing Co Ltd (In liq)

This case concerned the priority of claims in the compulsory liquidation of Universal Distributing Co Ltd. The company's assets were insufficient to cover the debt secured by its debentures, which charged its entire undertaking and uncalled capital. The dispute arose between the debenture-holder and the official liquidator regarding the payment of liquidation costs and the liquidator's remuneration.

The court was required to determine the priority of the debenture debt against the general costs, charges, and expenses of the liquidation, as well as the liquidator's remuneration. Specifically, the court had to consider whether expenses incurred by the liquidator in realizing the secured assets, and a portion of his remuneration attributable to such realization, should be paid out of the proceeds in priority to the debenture debt. The court also addressed the applicability of certain New South Wales company rules to the Federal Capital Territory and the allowability of the liquidator's expenses in obtaining security.

Dixon J. held that the debenture debt generally took priority over the costs of the liquidation. However, he applied the principle that expenses reasonably incurred in the care, preservation, and realization of assets subject to a security should be borne by the proceeds of those assets. Therefore, so much of the liquidator's remuneration and expenses as were directly attributable to the recovery and realization of the assets encumbered by the debenture were to be paid out of those proceeds in priority to the debenture debt. The court also determined that the expense of the liquidator obtaining security, while not expressly prohibited in the Federal Capital Territory, should be borne by the liquidator personally as a condition of his professional engagement.

The court fixed the liquidator's remuneration at two hundred and fifty guineas, plus travelling expenses, and declared that thirty guineas of this sum, along with specific disbursements for solicitor's and witnesses' expenses, were entitled to priority over the debenture-holder's claim. The premium paid for the liquidator's bond was disallowed. The matter was remitted to the District Registrar to pass the accounts consistently with the order, with further directions regarding the priority of certain claims and without prejudice to other potential claims.