Australian Securities and Investments Commission v Franklin; Re Walton Constructions Pty Ltd

Judgment - ex tempore

1. By Originating Process filed on 13 August 2015, Mr William Sutton and Mrs Marie Sutton initially sought orders for the removal of Mr Dean-Wilcocks as liquidator of Sutton-Ford Pty Ltd (in liq) ("Company") under s 503 of the Corporations Act 2001 (Cth). That section provides that the Court may, on cause shown, remove a liquidator and appoint another liquidator. The principles by which such an order can be made are well-known and, relevantly, a liquidator appointed in a voluntary winding-up may be removed under that section if cause is shown for his or her removal. One circumstance in which removal might take place is where a conflict of interest arises from relationships between a liquidator or persons interested in its affairs or issues of bias or an appearance of bias or conflict of interest arise: Australian Securities and Investments Commission v Franklin; Re Walton Constructions Pty Ltd [2014] FCAFC 85; (2014) 101 ACSR 87.
2. The application was supported by affidavits of Mr Sutton dated 11 August 2015 and 21 August 2015 and by an affidavit of Mrs Sutton, also dated 11 August 2015. In the event, as events have developed, it will not be necessary to determine the application for removal of Mr Dean-Wilcocks as liquidator of the Company, because Mr Dean-Wilcocks has taken the view, without any admission and, I should add, without any adverse finding having been reached against him, that he should resign as liquidator of the Company, and what is therefore sought is an order that a replacement liquidator be appointed under s 502 of the Corporations Act. I should say something further as to the factual background of that application, before determining it.
3. It appears that the Company operated the business of a car dealership in Singleton and Mr Sutton and Mrs Sutton were its directors and also its shareholders. The Company engaged a firm of accountants to provide assistance in respect of reporting as to the Company's financial position, which, on Mr Sutton's evidence, had a member of staff present at the Company's premises on at least a day each month. There is also a suggestion that the firm of accountants had other involvements with the Company's business. There is a suggestion that at least one of the matters leading to the Company's failure was an unauthorised transaction entered into by a senior employee of the Company, without the knowledge of the directors, in purchasing a number of cars to be onsold to a third party, funded by a motor vehicle financier. It is not necessary for the purposes of this application to form any view as to the details of that transaction which are, in any event, only dealt with in a broad way in the evidence.
4. It appears that Mr Dean-Wilcocks was appointed as voluntary administrator on the recommendation of a partner in the firm of accountants that had undertaken the relevant work for the Company. Mr Dean-Wilcocks, having been appointed as voluntary administrator, subsequently became liquidator of the Company when it passed into voluntary liquidation following the administration. Mr Sutton and Mrs Sutton have now made payments to the relevant motor vehicle financier, and claim that the Company is indebted to them in an amount exceeding certain liabilities which they have to the Company. Mr Sutton identifies a potential claim by the Company in negligence against the firm of accountants, arising from the services which they provided to the Company, alleging that the firm of accountants may have owed a duty of care to the Company such that fraud or other prejudice to it would not occur or would be detected immediately. Again, it is not necessary to form any view as to the factual basis or merits of that allegation for the purposes of this application.
5. Mr Sutton's evidence is that he is not aware of any steps taken by Mr Dean-Wilcocks to investigate the conduct of that firm of accountants during the period of the administration or the liquidation and that Mr Sutton is prepared to fund a public examination in respect of the potential claim against the accounting firm, but only if it is conducted by a liquidator other than Mr Dean-Wilcocks. Mrs Sutton in turn refers to her contact with the partner in the firm of accountants which had acted for the Company, and her evidence is, broadly, that he had reassured her as to the Company's position, or at least as to his firm's involvement in looking after the relevant business.
6. In the circumstances, Mr Sutton identifies a potential claim against the firm of accountants which, on his evidence, had recommended the appointment of Mr Dean-Wilcocks. Some thought has been given to the form of the potential claim against the firm of accountants which advised the Company, and a draft Points of Claim has been provided, albeit it is incomplete in some respects. Mr Sutton and Mrs Sutton note that the completion of that Points of Claim might depend, to some extent, upon any examinations which a liquidator conducts.
7. There is at least some suggestion in the evidence that that firm of accountants recommend Mr Dean-Wilcocks as an administrator on a regular basis, and have a good relationship with him. That, of course, is not a matter of criticism, but is potentially capable of giving rise to at least an appearance of bias, or conflict of interest, if it were necessary for Mr Dean-Wilcocks to investigate the prospect of proceedings against that firm of accountants or to have the conduct of such proceedings.
8. In at least some circumstances, the Court may remove a liquidator, where issues of apparent bias or conflict of interest arise, and Mr Wood, who appears for the applicants, refers to the review of the relevant issues in Haulotte Australia Pty Ltd v All Area Rentals Pty Ltd (in liq) [2012] FCA 615; (2012) 90 ACSR 177 in that regard. In the present case, Mr Dean-Wilcocks had originally taken the position that he neither opposed nor consented to his removal, although he had raised the possibility in correspondence with the applicants that an alternative course might be the appointment of a special purpose liquidator. The applicants were not attracted by that possibility, on the basis that the liquidation, other than for the conduct of the investigation of any such claims against the firm of accountants, is said to be substantially complete.
9. In the course of submissions, I raised the question with Mr Dean-Wilcocks' legal representatives whether, if Mr Dean-Wilcocks accepted that there might at least be an appearance of conflict of interest or bias so far as a claim against the accountants was concerned, then the appropriate course may be for him to resign, rather than to leave the Court to remove him. That reflects the fact that a liquidator has, of course, a duty actively to direct his or her mind to his or her ability to perform his or her duties. In the circumstances, and as I noted above, without admission and without any adverse finding against him, Mr Dean-Wilcocks has formed the view that it is preferable that he resign, at least on the basis that there would be an appearance of conflict of interest or bias in the relevant circumstances, presumably because of the existence of a relationship with the firm of accountants that had recommended his appointment. It seems to me that that view is one that could reasonably be formed by Mr Dean-Wilcocks, having regard to the evidence that has been led as to the relationship with that firm and the wish of the directors and contributories to have claims against that firm investigated, and the evidence that they are only prepared to fund such an investigation if a liquidator which does not have a connection with that firm undertakes that investigation.
10. With that background, the application presents as one for replacement of a liquidator, in circumstances that no liquidator would be acting upon Mr Dean-Wilcocks' resignation. Section 502 of the Corporations Act provides that, if from any cause no liquidator is acting, the Court may appoint a liquidator in a voluntary winding-up. That section broadly corresponds to section 473(7) of the Corporations Act which provides for the Court to fill a vacancy in the office of a liquidator appointed by the Court. Rule 7.2 of the Supreme Court (Corporations) Rules 1999 (NSW) in turn provides that if, for any reason, there is no liquidator acting in a winding-up, the Court may, in the case of a voluntary winding-up, appoint another registered liquidator whose written consent in accordance with Form 8 has been filed. That rule recognises that the Court may make that appointment on application by a contributory, and it is plain that the applicants have standing on that basis. The case law establishes that the Court has power to replace a liquidator, who is about to resign, prior to his or her resignation taking effect: Re Wily [2003] NSWSC 1260; (2003) 49 ACSR 94; Re McGrath [2005] NSWSC 506; (2005) 54 ACSR 55; Re Free [2010] NSWSC 1079; Re Thomas [2013] NSWSC 2016 at [6]. The Court can make an order, in the form made in Re Wily and Re McGrath, namely that any vacancy in the office of liquidator arising on Mr Dean-Wilcocks' resignation be filled by another liquidator on the same date.
11. The Plaintiffs have proposed the appointment of Mr Mansfield, of the firm of Deloitte Touche Tohmatsu, as liquidator of the Company. Mr Mansfield's declaration of independence, relevant relationships and indemnities indicates that he has had one meeting with Mr Sutton and his son to discuss the potential appointment, that he takes the view that that meeting did not affect his independence so far as it was a pre-appointment discussion and was limited to the Company's financial position, and he has provided no other information or advice to the Company, the directors or its advisors prior to appointment. He indicates that neither he nor his firm has had, within the preceding 24 months, any relationships with the Company, an associate of it, a former insolvency practitioner appointed to it or any person or entity that has a charge on the whole or substantially the whole of the Company's property. He indicates that he has been provided with a limited indemnity, to a specified amount, by Mr Sutton and Mrs Sutton in relation to remuneration for the conduct of the liquidation. He notes that that indemnity was not based on any agreement to provide a specific outcome for the administration and he does not believe that it creates a conflict. It seems to me that that belief is well-founded, so far as an indemnity of that kind could not, for example, exclude any obligation of a liquidator appointed to the Company to consider potential claims available to it, not only against the firm of accountants, but potentially also against Mr Sutton or Mrs Sutton whether in their capacity as directors or otherwise.
12. In circumstances where Mr Dean-Wilcocks has formed the view that it is appropriate for him to resign, again, without admissions and without any adverse findings against him, and in circumstances that I have formed the view that the indemnity given to Mr Mansfield does not impede his independence, it seems to me that Mr Mansfield should be appointed as liquidator on Mr Dean-Wilcocks' resignation and it is an appropriate step to order that that occur. In particular, it seems to me that such an order will advance the liquidation, and the interests of creditors, so far as it allows the investigation of any potential claims by the Company to go forward with the funding foreshadowed by Mr Sutton in his evidence.
13. For these reasons, I am satisfied that the Court should note Mr Dean-Wilcocks' intention to resign as liquidator of the Company by 5 pm 24 August 2015. That timing is intended to allow for the giving of notification to the Australian Securities and Investments Commission, as is required in respect of such a resignation. I will, pursuant to section 502 of the Corporations Act, order the appointment of Mr Mansfield as liquidator of the Company upon that resignation.
14. The parties have agreed that the Plaintiffs' and Mr Dean-Wilcocks' costs of the proceedings should be costs in the liquidation of the Company. I am satisfied that that is a proper order. The application is one that was properly brought by Mr and Mrs Sutton as contributories of the Company. Mr Dean-Wilcocks has taken a responsible position in the application, so far as he has recognised that the circumstances are such that it is in the interests of the liquidation that he should resign, and an independent liquidator should be appointed. For those reasons, I will also make that order as to costs.
15. Accordingly, I make orders in accordance with the short minutes of order initialled by me and placed in the file. I make a further order that these orders be entered forthwith. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 October 2015