City & Suburban Pty Ltd v Smith

COLVIN J: 1 Clifford Stewart Rocke is the sole liquidator of three companies, ACN 063 291 430 Pty Ltd (in liq), Marnta Media Pty Ltd (in liq) and Prowthom Pty Ltd (in liq) (Companies). Mr Rocke was a partner of KordaMentha until 31 December 2016. He asks the Court to make orders removing him as liquidator of the Companies and appointing John Allan Bumbak, another partner of KordaMentha with considerable experience as a liquidator, to be the liquidator of the Companies. Mr Bumbak has provided a consent to act. He joins in the application by Mr Rocke. 2 Mr Bumbak provided an affidavit in support of the application, which he says he was duly authorised to swear on behalf of Mr Rocke. 3 In the affidavit, he explains that, at the time Mr Rocke left KordaMentha, it was anticipated that each of the liquidations of the Companies would be completed within a year and so Mr Rocke would remain as liquidator. Further, at the time, it was decided by Mr Rocke and the partners of KordaMentha that this was a reasonable course of action due to Mr Rocke's close professional relationship with Mr Bumbak and other partners of KordaMentha and the fact that Mr Rocke was remaining in Perth and would be in close physical proximity to KordaMentha. Mr Bumbak then deposed: These factors would make, and have made, consultation and regular catch ups in relation to the status of each liquidation or appointment feasible. 4 Mr Bumbak says that since Mr Rocke has left the KordaMentha partnership he has remained actively involved in the strategy and monitoring of the liquidations for the Companies and this has been achieved through regular communication and contact with Mr Bumbak or Simon Harris, a director at KordaMentha who has had intimate knowledge of the liquidations from the outset. Mr Bumbak then says: More recently, it has become apparent that the liquidations will take longer to complete than the 1 year timeframe and so after consultation between Mr Rocke and I we have decided that he will seek the Court's leave to retire, and I will seek to be appointed by the Court as the sole liquidator of each of the Companies. 5 In support of the application it is said: (1) it will no longer be feasible for Mr Rocke to be involved in the day to day management of the liquidations of the Companies which, from the bar table, was explained to be a reference to the fact that Mr Rocke is now a partner of a different firm and there would be costs involved in him supervising KordaMentha staff or in the conduct of the liquidation being undertaken by other staff at the firm of which Mr Rocke is now a member; (2) staff other than Mr Rocke with knowledge of the day to day operations and the status of the liquidations of the Companies continue to be employed by KordaMentha; (3) Mr Harris will continue to be employed by KordaMentha and would continue to work on the liquidations if the orders sought were made; (4) KordaMentha has control and storage of the books and records of the Companies; (5) the appointment of Mr Bumbak, a partner of KordaMentha, will mean that there will be no need to relocate the books and records or incur additional costs in that regard. 6 After the application was commenced, Mr Bumbak provided a further affidavit disclosing that on or about 29 May 2018, he had received a letter from the Australian Securities and Investment Commission in relation to the use of a power of attorney granted by Mr Rocke in relation to the conduct of the liquidations of a number of companies, including the Companies the subject of this application. The letter pre-dated the affidavit in support of the application, but was not referred to in the affidavit. 7 The letter from ASIC referred to a meeting on 16 May 2018 concerning a power of attorney dated 1 November 2013 granted by Mr Rocke to a number of KordaMentha partners and the use of the power of attorney to perform tasks that would ordinarily be undertaken by Mr Rocke as the duly appointed liquidator. The letter set out ASIC's view that it was not appropriate for another liquidator to rely on the power of attorney to carry out liquidations without adequate supervision by the appointed liquidator and there was insufficient evidence that Mr Rocke had adequately supervised the use of the power of attorney, even assuming that it was within the scope of what might be authorised under s 477(2)(k) of the Corporations Act 2001 (Cth). 8 Having regard to the nature of the application before the Court, it should not have been brought without disclosure of the existence of the communications with ASIC and, in particular, the terms of the letter dated 29 May 2018. The failure to do so was a serious matter. The explanation provided by counsel for the plaintiff was that it was always intended for the application to be notified to ASIC for its comment before proceeding. This is in fact what was done. ASIC then requested that its letter be drawn to the attention of the Court. As a result, the second affidavit was then filed disclosing the involvement of ASIC and the letter. 9 The matter should not have been approached in this way. The solicitors for the plaintiffs and those instructing them should have provided full and frank disclosure of all matters relevant to the application to the Court. The notification of these matters should have occurred irrespective of the position of ASIC. 10 Before me an order was sought for non-disclosure of the matters the subject of the second affidavit on the basis of reputational effects that might follow and that there was no public interest in disclosure. In the circumstances that I have described, that application was ill advised. There is no basis to support it and I decline to make the order sought. 11 The position of Mr Rocke and Mr Bumbak is that they hold a different view to that which is expressed in the letter from ASIC concerning the power of attorney. Even so, that is not a reason for not drawing the matter to the attention of the Court. 12 Despite these concerns, for the following reasons, I have formed the view that orders of the kind sought should be made in the interests of the creditors and the better conduct of the liquidations. 13 Prior to the recent amendments to the Corporations Act introducing Schedule 2 (Insolvency Practice Schedule), s 502 provided that if there was no liquidator acting, the Court may appoint a liquidator. Further, s 503 provided that the Court may, on cause shown, remove a liquidator and appoint another liquidator. 14 In Rocke (as liquidator of ACN 080 794 636 Pty Ltd), In the matter of ss 502 and 506(4) of the Corporations Act [2007] FCA 1687, French J considered an application for appointment of new liquidators in similar circumstances to those which are the subject of the present application. In that instance, there had been a merger of two accountancy firms involved in providing services as liquidators and insolvency administrators. As a consequence of the merger, some partners who were also liquidators chose not to remain with the merged entity and it was proposed that the partners who were leaving would resign from their offices as liquidators of various companies and continuing partners of the merged entity would be appointed as liquidators in their place. Declarations were sought confirming the resignations and orders were sought appointing the new liquidators. 15 It was submitted to French J that, pursuant to s 502, the Court may fill a vacancy in the office of a liquidator where a vacancy exists and, further, the Court can make a prospective order appointing a liquidator contingent upon a vacancy being created by the liquidator's resignation: at [35]. Reliance was placed upon Re an application of Vouris & Godfrey [2004] NSWSC 384. 16 Having recorded that submission, French J made orders giving effect to the proposed replacement of the liquidator, finding that those orders can and should be made: at [58]. His Honour declined to make orders sought declaring vacancy in the office of liquidator as a result of resignations. Rather, he made appointments on the basis that the liquidators had resigned rather than that they had been removed by order of the Court: at [59]. 17 As to costs, his Honour found that it would be quite inappropriate that the costs flowing from the voluntary restructuring of the firm whose members had assumed the office as liquidator should effectively be visited upon creditors. Costs orders were made on that basis: at [60]. 18 The Insolvency Practice Schedule now provides that the Court may make such orders that it thinks fit in relation to the external administration of a company: Schedule 2 s 90-15(1). Those orders may include an order that another registered liquidator be appointed as the external administrator of the company: s 90-15 (3). 19 There remains in the Corporations Act a provision whereby a liquidator may resign from the office of liquidator: s 473. An application for an order under s 90-15 may be made by, amongst other persons, an officer of the company, which includes a liquidator. Section 90-15(4) provides as follows: (4) Without limiting the matters which the Court may take into account when making orders, the Court may take into account: (a) whether the liquidator has faithfully performed, or is faithfully performing, the liquidator's duties; and (b) whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and (c) whether an action or failure to act by the liquidator is in compliance with an order of the Court; and (d) whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and (e) the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group. 20 Apart from the issue in relation to the use of the power of attorney in respect of the administration of the liquidations of the Companies, there is no material before me to suggest any concerns in relation to the administrations. Further, the ultimate question in considering whether orders should be made for the appointment of a new liquidator, whether for cause or otherwise, is the better conduct of the liquidation for the general advantage of those interested in the assets of the Companies. 21 Under provisions such as former s 503, it had long been accepted that a liquidator could be removed in situations that were not confined to where it is established that there is personal unfitness, impropriety or breach of duty on the part of the liquidator: City & Suburban Pty Ltd v Smith [1998] FCA 822. 22 On the evidence before me, the orders sought will facilitate the administration of the liquidation of the Companies by individuals who are well acquainted with the affairs of the Companies in circumstances where the liquidations are well-advanced. 23 Accordingly, notwithstanding the issues that have been raised before me concerning the matters in the letter from ASIC and the serious failure to inform the Court of those matters when the application was made, I am satisfied that the orders sought should be made with proper provision for interested creditors to apply to vary the orders. 24 Counsel for the plaintiffs informed the Court that the plaintiffs did not intend to seek payment of any costs or fees in relation to these applications out of the liquidations. I will make orders to ensure that the costs of these applications are not recoverable out of the assets of the Companies. 25 In the above circumstances, I will not make orders removing Mr Rocke as liquidator. The nature of the application is that it seeks the appointment of Mr Bumbak upon Mr Rocke resigning as liquidator. Indeed, that is the way in which it is expressed in Mr Bumbak's first affidavit. In those circumstances, I make no determination as to whether Mr Rocke should be removed. Rather, I will make orders appointing Mr Bumbak as liquidator upon the resignation of Mr Rocke as liquidator of the Companies within a nominated time period. I will make those orders on the basis that they are sought by Mr Rocke as the present liquidator. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin.