(3) The Court may at any time require a liquidator to answer any inquiry in relation to the winding up and may examine the liquidator or any other person on oath concerning the winding up and may direct an investigation to be made of the books of the liquidator."
25 The appendix to these reasons traces the history of s 536 and refers to its origins in an English provision of 1890 under which the Board of Trade supervised liquidators. When that provision was transplanted to New South Wales, the supervisory role was given to the court. The same shift occurred in relation to supervision of trustees in bankruptcy when the Bankruptcy Act 1924 (Cth) adopted a provision taken from English legislation vesting the supervisory function in the Board of Trade.
26 Under the current Corporations Act, s 536 is one of several provisions by means of which the court supervises liquidators in a court-ordered winding up. Others are:
s 1321 which allows the court, on the application of a person aggrieved, to confirm, reverse or modify any act or decision of a liquidator;
s 477(6) which makes exercise by a liquidator of the powers conferred by s 477 as a whole "subject to the control of the court" and allows any creditor or contributory to apply to the court in respect of any exercise or proposed exercise of any of those powers;
provisions of which ss 477(2A) and 477(2B) are examples forbidding certain action of a liquidator without the approval of the court;
s 479(3) which allows a liquidator to apply to the court for directions;
s 480 under which release of a liquidator requires an order of the court; and
s 473(1) empowering the court to remove a liquidator on cause shown.
27 There was reference in Re J W Murphy and P C Allen; BPTC Ltd (1996) 19 ACSR 569 at 570 to a general law supervisory jurisdiction of the court over court-appointed liquidators or, more, precisely, an "inherent power of the court to supervise and guide the activities of its own officer". In Albarran v Members of the Companies Auditors and Liquidators Disciplinary Board [2007] HCA 23; (2007) 81 ALJR 1155 at [31], however, members of the High Court noted that "historical considerations concerning the role of liquidators did not disclose the exercise by the courts of any general role in the exercise of functions of a disciplinary nature" such as those of the Companies Auditors and Liquidators Disciplinary Board; and that "significant powers to supervise the conduct of liquidators" was given to the Board of Trade by the United Kingdom legislation of 1890.
28 The transfer of the supervisory function under what is now s 536 from an administrative body to the court when the section became part of Australian law was referred to by Marks J in Commissioner for Corporate Affairs v Harvey [1980] VR 669, a case concerning s 278 of the Companies Act 1961 (Vic) which was identical, in substance, with the New South Wales s 278 set out in the appendix to these reasons. After referring to certain questions of construction and interpretation noted by Young CJ (Gillard J and McGarvie J concurring) in O'Toole v Mitcham (1977) 2 ACLR 471, Marks J stated (at 688-9) several important conclusions, including these:
1. Once an inquiry is undertaken by the court, the inquiry is not confined to the matters which caused the court to initiate the inquiry.
2. Under what is now s 561(1), the court has full jurisdiction over the conduct of the liquidator and may "proceed, paying due regard to the dictates of fairness, as it considers fit in the particular circumstances".
3. Once the court is informed of any matter bearing on the conduct of the liquidator, "it has jurisdiction to inquire into that conduct and the ambit of inquiry is for the court to determine. The ambit may well include, if the court considers it prudent to do so, inquiry into other liquidations, current or complete, with which the liquidator is or has been concerned".
29 The case before Marks J arose under the equivalent of s 536(2) by reason of the making of a report to the court by the Commissioner for Corporate Affairs. Much of the discussion therefore centred on the concept of "misfeasance" and the causal connection indicated by the words "has sustained thereby". These are matters not directly relevant to a s 536(1)(b) inquiry.
30 Given the juxtaposition of s 536(1) and s 536(2) and the reference in the latter alone to an order that the liquidator make good loss that the estate of the company has sustained by the liquidator's misfeasance, neglect or omission, there is a question whether such an order may form part of "such action as [the court] thinks fit" when it is s 536(1), rather than
s 536(2), that is the governing provision. In Re Fermoyle Pty Ltd; Commwealth v Brown (1982) 62 FLR 413, Crockett J said (at 426):
"The juxtaposition of the two generally expressed powers in successive subsections might be thought to require that in sub-s (1) the power 'to take such action' must be construed as meaning a power other than one to order the making good any loss; otherwise, why did the legislature choose to grant the specific additional power in sub-s (2)? I have found it unnecessary to reach a conclusion about these competing interpretations as I consider that, even if I possessed the power, the case is not one for ordering the respondent to make compensation."
31 The question thus left unanswered by Crockett J was addressed by Dodds-Streeton J in Australian Securities and Investments Commission v Edge [2007] VSC 170; (2007) 211 FLR 137. Her Honour expressed the view (at [88]) that s 536(1) will support an order requiring the payment of compensation:
"In my opinion, the power to "take such action as it thinks fit" should be construed to encompass making orders for compensation for loss. Subsection (1) would otherwise have a serious limitation on its effective operation. In some cases, it would not be possible effectively to remedy the consequences of a contravention or breach of duty found in an inquiry under subs (1) unless a report pursuant to subs (2) had also been made. While the predominant view is that the subsections create independent powers, there is considerable functional overlap. The Court's power under subs (1) to 'take such action as it thinks fit' (derived from the provision's historical antecedents, which assumed a role by the Board of Trade) is extremely broad. It clearly includes, but is not limited to, a power to make orders (the principal form of 'action' taken by a court). The literal breadth of the power conferred by subs (1) should not be read down to exclude compensatory orders, which appear necessary to the effective operation of the subsection."
32 It is by no means clear that, in a case arising in England at the end of the nineteenth century, the Board of Trade could have ordered a delinquent liquidator to render compensation to the company's estate. The relevant provision of 1890 (which is set out in the appendix to these reasons) envisaged that the Board of Trade, upon complaint made to it about a liquidator's conduct, should "inquire into the matter" and might "take such action thereon as may be deemed expedient". There was no express power of the Board of Trade to require the payment of compensation for misfeasance. Nor was there any need for the Board of Trade to be able to impose such a requirement since, as will be seen (see paragraphs [55] and following below), the court had long possessed such a power under a different statutory provision.
33 Particularly in light of the opinion expressed by Dodds-Streeton J as to the scope of the present s 536(1) (and noting the similar position in bankruptcy: Re Alfaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262), however, I proceed on the basis that an inquiry under that section may result in an order that the liquidator make good loss sustained by the estate of the company.
34 Such an order would not be an order for the payment of damages for negligence or breach of contract or equitable compensation for breach of an equitable obligation. It would be an order founded on the statutory provision - but, of necessity, paying attention to the content of the liquidator's duties, the extent and nature of his or her failure to perform them and an assessment of the extent of the financial detriment occasioned to the estate. General law notions would necessarily contribute to the findings about duty and breach and play a role in determining causation and remoteness. In a s 536(1) case, resort will not necessarily be had to reasoning of the kind employed in, say, Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 in construing the words "has suffered … loss or damage by conduct …"; although, in a s 536(2) case, that approach might be entirely appropriate, given the statutory language ("loss that the estate of the company has sustained thereby …").
35 It is, however, important to note that, by analogy with the approach taken in bankruptcy, a s 536 inquiry should not be the occasion for trying what is really an action for negligence or other breach of duty by a liquidator. I regard as relevant to s 536 observations of French J in Re Macchia; Macchia v Nilant [2001] FCA 7; (2001) 110 FCR 101 relation to similar provisions of the Bankruptcy Act 1966. His Honour said (at [44]):
"In my opinion, however, s178 and s179 do not extend to provide statutory mechanisms for pursuing claims for damages for torts said to have been committed against a bankrupt in the administration of the estate or otherwise under the general law. That is not to say that conduct which attracts remedial intervention under these control provisions may not also give rise to causes of action in tort or otherwise. Nor does it preclude the possibility that orders may be made under these sections based upon common law or equitable rights. But the sections are not mechanisms by which bankrupts or others can pursue claims for damages for malfeasance in public office or for negligence or for the tortious breach of statutory duties. Broad as it is, the essentially supervisory function of s178 and s179 does not extend to such wide ranging application. In Re Gault; Gault v Law (1982) 57 FLR 165, Ellicott J found a breach of trust to have been committed by the trustee of a deed of arrangement under PtX of the Act, to which s179 was applicable, but declined to order an inquiry under that section. His Honour observed that the applicant debtor was "free to pursue such rights (if any) as he may have against the respondent for breach of trust whether under the Bankruptcy Act or the general law" (at 196). I do not doubt that there is some overlap between the orders that may be made under these sections and general law remedies and that the orders may involve the grant of what amounts to relief for a general law cause of action. But whatever the extent of that overlap, it does not, in my opinion, extend to claims for damages for losses unrelated to the bankrupt estate itself."
36 In summary, s 536 appears capable of supporting a compensatory order where the court finds, upon inquiry, that an order of that kind is necessary to the effectuation of the section's purpose; and, while the court's power in that respect is not otherwise subject to limitation and a s 536 inquiry is not the occasion for trying an action for negligence or breach of duty, general law concepts will necessarily inform the decision whether such an order should be made and the basis on which it should be made.
Section 536 - purpose
37 While it may thus be open to the court, in a s 536(1) case, to order that loss to the estate be made good by the liquidator, the order the court makes in a particular instance will be determined by the whole of the circumstances. What the court "thinks fit", in s 536(1) terms, will be judged according to what is best calculated to achieve the purpose for which s 536 exists.
38 In seeking to identify that purpose, counsel for Mr Watson's estate drew attention to the following passage in the judgment of Burchett AJ in Re Glowbind Pty Ltd [2003] NSWSC 1190; (2003) 181 FLR 108 at [21]:
"The section appears in Division 3 of Part 5.6 of the Act. Division 3 is headed 'Liquidators', and the section is headed 'Supervision of Liquidators'. In this context, it seems quite clear that the section was intended to state with some precision the manner in which the court, in particular circumstances, will exercise its power of supervision over liquidators, who are its officers. The same historical approach which McLelland J [in Re J W Murphy and P C Allen; Re BPTC Ltd (1996) 19 ACSR 569] found to be appropriate to the consideration of s 479(3) is equally applicable to a consideration of the scope and purpose of s 536. The section is to be distinguished from s 1321, which confers the jurisdiction that is generally appropriate to be exercised when the reversal or modification of a decision of the liquidator is in question. S 536 is rather 'concerned with aspects of the conduct of liquidators that are likely to attract sanctions for disciplinary reasons': McPherson The Law of Company Liquidation (4 ed, 1999) at 389. If, as McPherson points out ( ibid ), a decision of a liquidator, apparently arrived at in good faith, is to be challenged, the appropriate course is not to be found in s 536, but in s 1321. The position is explained in Belvista Pty Ltd v Murphy (1993) 11 ACSR 628 at 630. Where an inquiry under s 536 is appropriate, this will be because the court considers that inquiry to be 'in the public interest', and 'it is satisfied that there is a prima facie case' to justify subjecting the liquidator to it: McPherson op cit at 388; Burns Philp Investments Pty Ltd v Dickens (1993) 11 ACLC 272 at 273."
39 Reference was also made to observations of Robson J in Vink v Tuckwell [2008] VSC 100; (2008) 66 ACSR 30:
"[81] As quoted above in Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd , McLelland J of the Supreme Court of New South Wales said in respect of s 420 the predecessor to s 536 that it was 'concerned with aspects of the conduct of liquidators which are liable to attract sanctions or control for what might broadly be described as disciplinary reasons'. He repeated this observation in Belvista Pty Ltd v Murphy which I have quoted above. His observation was quoted with approval by the Full Federal Court in Leslie v Hennessy .
…
[86] A complaint under para 536(1)(b) with respect to the conduct of the liquidator in connection with the performance of his or her duties should be confined to the liquidator's failure to observe the matters referred to in para 536(1)(a) and normally should be concerned with aspects of the conduct of liquidators which are liable to attract sanctions or control for what might be broadly described as disciplinary reasons. Normally, the court should be satisfied that there is a public interest being served in holding the inquiry."
40 Of particular importance is what was said by the Court of Appeal (Spigelman CJ, Hodgson JA and Austin J) in Hall v Poolman [2009] NSWCA 64; (2009) 75 NSWLR 99:
"[53] The court must bear in mind the place of s 536 in the regulatory system established under Australia's corporations legislation when construing the section. It must be recognised that this section, together with the virtually identical provision applicable to controllers of the property of a corporation in s 423, is a broadly expressed supervisory jurisdiction over the conduct of persons in control of the affairs of a corporation, in circumstances where normal market forces and the exercise by shareholders of their rights to control are attenuated or non-existent. These powers are one part of a range of
regulatory powers conferred on the court and/or ASIC to ensure the lawful, orderly and efficient conduct of the affairs of corporations during such a period. The detailed regulatory scheme found in the Corporations Act (Cth)
manifests in this, as in so many other respects, the central significance of corporate conduct for the economic and social life of the nation.
…
[61] The powers conferred by s 536 have a common element, namely that they are powers of a regulatory nature concerned with the supervision of liquidators of all kinds. The court has a long-established role in the supervision of court-appointed liquidators, and s 536 confers a statutory supervisory jurisdiction in respect of liquidators of all kinds.
…
[66] It is pertinent to recognise that the powers conferred by s 536(1) are vested in both the court and the regulator, and therefore that the court is performing a regulatory role, in the sense that its function under s 536, like the function of
ASIC under the section, is supervisory. Although the power conferred by s 536(3) is conferred on the court alone, it is of the same supervisory nature. As predecessors to s 536(1) said expressly, the court is to 'take cognizance of
the conduct of liquidators': Companies Act 1896 (Vic), s 146; Companies Act 1936, s 235; Companies Act 1961, s 278; see O'Toole v Mitcham (1977) 2 ACLR 471 at 473, per Young CJ (Gillard J and McGarvie J agreeing); nothing in the explanatory memorandum to the Companies Bill 1981 suggests that the change of wording introduced in the Companies Code was intended to alter the court's role.
…
[69] One of the considerations relevant to the exercise of the discretion under each of the powers in s 536 is whether or not there is another appropriate remedy: see Leslie v Hennessy (at [6]). Accordingly, where an issue is raised
as to whether a decision made by a liquidator should be reversed or modified, the appropriate procedure is under s 1321: see Belvista Pty Ltd v Murphy (at 630), per McLelland CJ in Eq; Re Glowbind (at 465 [21]), per Burchett AJ. Section 536 should not be used to assist a person engaged in litigation with a liquidator akin to discovery, at any rate where the litigation does not involve
the kind of supervisory issues characterised by McLelland CJ as 'disciplinary reasons': see Re Bauhaus Pyrmont Pty Ltd (In Liq) [2006] NSWSC 742 per Barrett J.
…
[100] Section 536 constitutes part of the armoury of the supervisory jurisdiction of the court with respect to liquidators. The approach identified by McLelland J
in Northbourne Developments , to the effect that such supervision is in a general sense, 'disciplinary' is applicable. In my opinion, a complaint under s 536(1)(b) requires some form of communication requesting the court to take steps to rectify or review something that had been done by a liquidator. A plea to exercise a statutory power to excuse default on the part of a former officer
of the company, by reason of the conduct of the liquidator in pursuing litigation against him or her, is not such a request."
41 As the several judicial statements about s 536 make clear, the emphasis is on regulation, supervision, discipline and correction of liquidators in the interests of honest and efficient administration of the estates of companies subject to winding up. The interest to be served is a public interest. The section is not concerned in any direct way with vindication of private rights. Rather and as Steytler J said in GIS Electrical Pty Ltd v Melsom [2002] WASCA 302; (2002) 172 FLR 218 at [49] echoing an observation of McLelland CJ in Eq in Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434 at 438, it "is concerned with aspects of the conduct of liquidators which are liable to attract sanctions or control for what might be broadly described as disciplinary reasons". The pre-occupation is, as I put it in Re Bauhaus Pyrmont Pty Ltd [2006] NSWSC 742 at [4], with "the broader question of due administration of the winding up in the public interest".
Section 536 - process
42 Proceedings under s 536 involve three stages. At the first stage, the court, upon application made, decides whether an inquiry into the liquidator's conduct is warranted. In Hall v Poolman (above), the Court of Appeal pointed out that that there need not be a prima facie evidentiary case of lack of faithful performance or observance of requirements. But the applicant must point to something about the liquidator's conduct that is a sufficient basis for making an order for inquiry; and it is desirable that this be articulated in pleaded form: Re Fox Home Loans Pty Ltd [2005] NSWSC 1050. Once such a basis has been shown, the court has a discretion whether or not to order an inquiry.