CORPORATIONS - 19 year liquidation - two court-appointed liquidators - one liquidator retiring - whether under old s.473 (pre-Insolvency Law Reform Act 2016) all liquidators must be removed in order to replace just one: at [12]-[20] - Condon v Watson doubted - appropriate to appoint a new liquidator - [2020] NSWSC 803 - NSWSC 2020 case summary — Zoe

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CORPORATIONS - 19 year liquidation - two court-appointed liquidators - one liquidator retiring - whether under old s.473 (pre-Insolvency Law Reform Act 2016) all liquidators must be removed in order to replace just one: at [12]-[20] - Condon v Watson doubted - appropriate to appoint a new liquidator

[2020] NSWSC 803

Supreme Court of NSW|2020-06-24|Before: Rees J, Besanko J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2020-06-24

Before

Rees J, Besanko J

Catchwords

pt 10.25
Sch 2 Insolvency Practice Schedule (Corporations) ss 70-5
(2018) 358 ALR 624
[2018] FCA 884 Condon v Watson [2009] FCA 11

Source

Original judgment source is linked above.

Catchwords

pt 10.25Sch 2 Insolvency Practice Schedule (Corporations) ss 70-5(2018) 358 ALR 624[2018] FCA 884 Condon v Watson [2009] FCA 11(2009) 174 FCR 314[2005] NSWSC 1180 Re Jick Holdings Pty Ltd (in liq) [2009] NSWSC 574(2009) 234 FLR 22 Re McGrath & Anor (in their capacity as liquidators of HIH Insurance Ltd & Ors) (2010) 266 ALR 642(2010) 78 ACSR 405[2010] NSWSC 404 Re McGrath (as liquidators of HIH Insurance Limited (in liquidation)) (2005) 54 ACSR 55[2004] NSWSC 384 Re Wily v Wily (2003) 49 ACSR 94

Judgment (15 paragraphs)

[1]

In the matter of Equiticorp Australia Limited (in liquidation) and other companies [2017] NSWSC 1456 In the matter of Equiticorp Australia Limited (in liq) [2011] NSWSC 1368 In the matter of HIH Insurance Limited (in liquidation) & Ors [2018] NSWSC 1886 In the matter of HIH Insurance Ltd (in liq) & Ors [2015] NSWSC 2137 In the matter of PrimeSpace Property Investment Limited (In liquidation) [2018] NSWSC 919 In Winterbottom, in the matter of Ballistic Hydraulic Hose and Fittings Pty Ltd (in liq) [2017] FCA 1101 Nixon, In the matter of Nixon [2015] FCA 976 Re Bridgewater Investments Pty Ltd [2013] NSWSC 426 Re Free & others [2010] NSWSC 1079 Re Gavin Frederick Critchon Thomas and others and the Corporations Act 2001 [2013] NSWSC 2016 Re HIH Casualty and General Insurance Limited (2006) 56 ACSR 295; [2005] NSWSC 1180 Re Jick Holdings Pty Ltd (in liq) [2009] NSWSC 574; (2009) 234 FLR 22 Re McGrath & Anor (in their capacity as liquidators of HIH Insurance Ltd & Ors) (2010) 266 ALR 642; (2010) 78 ACSR 405; [2010] NSWSC 404 Re McGrath (as liquidators of HIH Insurance Limited (in liquidation)) (2005) 54 ACSR 55; [2005] NSWSC 506 Re Obie Pty Ltd (in liq) (No 4) (1984) 8 ACLR 967 Re Octaviar Ltd (in liq) [2016] NSWSC 16 Re One.Tel Limited [2009] NSWSC 1172; (2009) 262 ALR 150 Re Porter and Mansfield [2012] NSWSC 220 Re Spedley Securities Ltd (in liq) (1991) 4 ACSR 555 Re Vouris (2004) 49 ACSR 543; [2004] NSWSC 384 Re Wily v Wily (2003) 49 ACSR 94; [2003] NSWSC 1260 Texts Cited: Perry Herzfeld and Thomas Prince, Interpretation (2nd ed, 2020, Thomson Reuters) Category: Principal judgment Parties: In proceedings 2001/58663: Anthony Gregory McGrath and Jason Preston in their capacity as liquidators of HIH Insurance Limited (in liq) (First Applicants) HIH Insurance Limited (in liq) (Second Applicant) In proceedings 2001/58768: Anthony Gregory McGrath and Jason Preston in their capacity as liquidators of HIH Underwriting and Agency Services Limited (in liq) (First Applicants) HIH Underwriting and Agency Services Limited (in liq) (Second Applicant) In proceedings 2004/182176: Anthony Gregory McGrath and Jason Preston in their capacity as liquidators of HIH Holdings Pty Limited (in liq) (First Applicants) HIH Holdings Pty Limited (in liq) (Second Applicant) In proceedings 2002/63107: Anthony Gregory McGrath and Jason Preston in their capacity as liquidators of HIH Investment Holdings Limited (in liq) (First Applicants) HIH Investment Holdings Limited (in liq) (Second Applicant) In proceedings 2001/58784: Anthony Gregory McGrath and Jason Preston in their capacity as liquidators of FAI Insurances Limited (in liq) (First Applicants) FAI Insurances Limited (in liq) (Second Applicant) In proceedings 2001/58780: Anthony Gregory McGrath and Jason Preston in their capacity as liquidators of HIH Underwriting and Insurance (Australia) Pty Limited (in liq) (First Applicants) HIH Underwriting and Insurance (Australia) Pty Limited (in liq) (Second Applicant) In proceedings 2001/58772: Anthony Gregory McGrath and Jason Preston in their capacity as liquidators of CIC Insurance Limited (in liq and subject to a scheme or arrangement) (First Applicants) CIC Insurance Limited (in liq and subject to a scheme of arrangement) (Second Applicant) In proceedings 2001/58774: Anthony Gregory McGrath and Jason Preston in their capacity as liquidators of FAI General Insurance Company Ltd (in liq and subject to a scheme of arrangement) (First Applicants) FAI General Insurance Company Ltd (in liq and subject to a scheme of arrangement) (Second Applicant) In proceedings 2001/58776: Anthony Gregory McGrath and Jason Preston in their capacity as liquidators of HIH Casualty and General Insurance Limited (in liq and subject to a scheme of arrangement) (First Applicants) HIH Casualty and General Insurance Limited (in liq and subject to a scheme of arrangement) (Second Applicant) Representation: Counsel: Mr C McMeniman (Applicants)

[5]

First replacement of liquidator

In May 2005, Mr Macintosh wished to retire. In Re McGrath (as liquidators of HIH Insurance Limited (in liquidation)) (2005) 54 ACSR 55; [2005] NSWSC 506, Barrett J appointed Mr Honey as Mr Macintosh's successor for 43 companies in the HIH group. At the time, the position was governed by section 473 of the Corporations Act 2001 (Cth) which provided: 473 General provisions about liquidators (1) A liquidator appointed by the Court may resign or, on cause shown, be removed by the Court. … (7) A vacancy in the office of a liquidator appointed by the Court must be filled by the Court. (8) If more than one liquidator is appointed by the Court, the Court must declare whether anything that is required or authorised by this Act to be done by the liquidator is to be done by all or any one or more of the persons appointed.
As to the appropriate procedure to be adopted, Barrett J was taken to Re Vouris (2004) 49 ACSR 543; [2004] NSWSC 384, where the same situation had arisen but in a voluntary winding up. Section 503 of the Corporations Act provided in respect of a voluntary liquidation: 503 Removal of liquidator The Court may, on a cause shown, remove a liquidator and appoint another liquidator.
In Re Vouris, Barrett J considered that section 503 conferred a composite power both to remove and to appoint. Thus, there could be no appointment without a removal and, in that context, made an order removing both liquidators and appointing the pre-existing liquidator who wished to continue and the incoming replacement liquidator. In Re McGrath, Barrett J considered that the power in respect of Court appointed liquidators in section 473 was broader. At [8]-[9]: [8] The appropriate procedural approach is, in my view, for the court simply to make an order under s.473(7) that any vacancy in the office of a liquidator of HIH Insurance Ltd arising by reason of resignation of [Mr] Macintosh taking effect on 1 July 2005 be filled on 1 July 2005 by the appointment on that date of [Mr] Honey … an official liquidator, he to hold office together with [Mr] McGrath, an existing liquidator of the company. [9] I am of the opinion that such an order may be made in the case of a joint appointment such as the present. Section 473(8) clearly contemplates the possibility that the court will appoint "more than one liquidator" and the remainder of s.473 must be read against that background, with the result that, when s.473(7) refers to a "vacancy in the office of a liquidator appointed by the Court" - with "a liquidator" being in the singular - it must comprehend the case where, as envisaged by s.473(8), more than one liquidator was appointed at the outset and a vacancy has arisen in the office of one only by reason of death, disqualification or, as here, resignation.
Barrett J readily accepted the need for two liquidators to be in office in relation to the HIH group of companies as the windings up were of great complexity. The Court having, in the first instance, appointed two liquidators should, in conformity with section 473(7), ensure that the impending vacancy resulting from the resignation of one of the liquidators was appropriately filled: at [11]. His Honour also made a declaration under section 473(8) that anything required or authorised to be done by Mr McGrath and Mr Honey might be done by either or both of them, "Such a direction is commonplace and does not detract from the reality that there are two liquidators in office with responsibility resting upon both of them": at [13].

[6]

Scheme administrators too

In November 2005, Barrett J approved schemes of arrangement for eight insurance companies in the HIH group; Re HIH Casualty and General Insurance Limited (2006) 56 ACSR 295; [2005] NSWSC 1180. The administrators were to be the liquidators, Mr McGrath and Mr Honey. This raised an issue under section 411(7)(f) of the Corporations Act, which concerns the qualifications of a scheme administrator and provides: (emphasis added) 411 Administration of compromises etc. (7) Except with the leave of the Court, a person must not be appointed to administer, and must not administer, a compromise or arrangement approved under this Act between a body and its creditors or any class of them or between a body and its members or any class of them, whether by the terms of that compromise or arrangement or pursuant to a power given by the terms of a compromise or arrangement, if the person: … (f) unless ASIC directs in writing that this paragraph does not apply in relation to the person in relation to the body - has at any time within the last 12 months been an officer or promoter of the body or of a related body corporate.
The definition of "officer" in section 9 of the Corporations Act includes a liquidator as an officer of a corporation. Mr McGrath and Mr Honey had been liquidators of the scheme companies for some time before it was proposed that they be appointed as scheme administrators. Barrett J noted that section 411(7) as a whole is subject to a power of the Court to grant leave for a person otherwise excluded to act: at [20]. His Honour considered that the purpose of the section was to bring to the surface any situations of conflict of interest so that they may be examined: at [22]. No such conflicts were suggested to have arisen and Barrett J granted leave to allow Mr McGrath and Mr Honey to act as scheme administrators.
Notwithstanding that Ms Sozou has not been an officer of the HIH scheme companies before now, the same leave is now sought in respect of Ms Sozou and also Mr Preston nunc pro tunc, for reasons to which I will come.

[7]

An old controversy

In 2007, section 530 was added to the Corporations Act by the Corporations Amendment (Insolvency) Act 2007 (Cth). Section 530 provides: 530 Appointment of 2 or more liquidators of a company If 2 or more persons have been appointed as liquidators of a company: (a) a function or power of a liquidator of the company may be performed or exercised by any one of them, or by any 2 or more of them together, except so far as the order or resolution appointing them otherwise provides; and (b) a reference in this Act to a liquidator, or to the liquidator, of a company is, in the case of the first‑mentioned company, a reference to whichever one or more of those liquidators the case requires.
At first blush, section 530 says nothing about the mechanism by which one of several liquidators may withdraw from their appointment and be replaced by another but is directed to how one of several liquidators may exercise their powers so that there can be no doubt that actions performed by one liquidator alone are valid. Thus, it might be thought that section 530 did not curb the Court's power under section 473.
In Condon v Watson [2009] FCA 11; (2009) 174 FCR 314; (2009) 69 ACSR 350, Lindgren J expressed doubt about the approach taken by Barrett J in Re McGrath. At [60]-[63]: [60] … Barrett J appears to have thought that even where … there is a continuing co-liquidator in office, there is a "vacancy in the office of a liquidator appointed by the Court" where a co-liquidator ceases to hold office, and therefore s 473(1) requires the Court to fill the vacancy (at [5]). His Honour appointed a second liquidator to replace one who had resigned. [61] The questions raised above must now be considered in the light of s 530 … [62] Clearly, s 530 produced the effect that following [one liquidator's] resignation, [the continuing liquidator] was entitled alone to perform the functions and exercise the powers that were vested in "the liquidators". In the result, whatever be the correct meaning of the word "must" in s 473(7), there is only a vacancy in the office of a liquidator for the purposes of that subsection where a sole liquidator or all co-liquidators have ceased to hold office.
That is, section 473(7), when read with section 530, had the result that there was only a vacancy in the office of liquidator if the resignation meant that there remained no liquidator, that is, where all liquidators had ceased to hold office. It was only in this event that the Court had power under section 473(7) to fill the vacancy. In Nixon, In the matter of Nixon [2015] FCA 976, Edelman J followed Condon v Watson where the applicants did not submit that the reasoning of Lindgren J was plainly wrong and, in the absence such a submission, his Honour proceeded on the basis that there was no power for the Court under section 473(7) to appoint a new co-liquidator to a retiring liquidator: at [33]. Condon v Watson was also referred to in Re Gavin Frederick Critchon Thomas and others and the Corporations Act 2001 [2013] NSWSC 2016 (Re Thomas), where it was not necessary for Black J to consider the differing views as the continuing liquidator was able to complete the remaining tasks alone: at [8].

[8]

Second replacement of liquidator

In November 2015, Mr Honey wished to retire as liquidator and Jason Preston was his replacement. This presented an occasion for Brereton J to consider the controversy between Re McGrath and Condon v Watson. In In the matter of HIH Insurance Ltd (in liq) & Ors [2015] NSWSC 2137 (Re Preston), Brereton J came down firmly in favour of Barrett J. At [9]-[13]: [9] Where there are competing first instance decisions of this Court and of the Federal Court, a judge of this Court would ordinarily follow a decision of this Court as a matter of precedent, rather than a decision of the Federal Court as a matter of comity. Moreover, in my view, Barrett J's decision is to be preferred. Some support for his Honour's decision is provided by the use in s 473(7) of the term "office of a liquidator", rather than "office of liquidator of a company". This suggests that the section refers to any one of multiple liquidators of a company. [10] Next, s 530, upon which Lindgren J relied, provides in subsection (b) that a reference in the Act to the liquidator of a company is, in the case of the first mentioned company, a reference to whichever one or more of those liquidators the case requires. That, it seems to me, means that the reference in s 473(7) to a vacancy in the office of "a liquidator" is a reference to a vacancy in the office of whichever of one or more of the liquidators is appropriate in the circumstances of the case. [11] Thirdly, … the same amending Act as introduced s 530 inserted into the definition of "liquidator" in s 9 the provision in subparagraph (a) of that definition, to the effect that it has "a meaning affected by paragraph 530(b) (which deals with two or more persons appointed as liquidators)". It seems to me that the purpose of the amendments in question, both to s 530 and to the definition of "liquidator" in s 9, was to facilitate the then expanding practice of appointing co-liquidators, particularly in large administrations. Doubt had arisen as to whether joint or co-liquidators could act severally as well as jointly, and the amendments were intended, in part, to resolve that doubt, but, as it seems to me, fairly plainly reflected a legislative intent to endorse and facilitate the practice of appointing co-liquidators. [12] In that context, it would be rather extraordinary if, as Lindgren J seems to have thought, the insertion of s 530 made it impossible, where it had previously been possible, to appoint a replacement for a retiring co-liquidator under s 473(7). There seems absolutely no utility in the narrow construction of s 473(7) which appears to have been favoured in the two Federal Court cases to which I have referred [Condon v Watson and Nixon], and while considerations of utility cannot overcome intractable words in legislation, there is nothing intractable about the language here. For the reasons I have just given, it seems to me that the parliamentary intent that the use of co-liquidators should be facilitated, rather than constrained, supports the broader approach. 13 For those reasons, both because authority in this Court so holds and because, in my respectful opinion, that authority is correct and to be preferred to the competing Federal Court authority, I would hold that s 473(7) authorises an order to the effect of that sought.
Further, Brereton J considered that, if a power did not exist under section 473(7), then the Court was empowered by section 472(1) which provided, "On an order being made for the winding up of a company, the Court may appoint an official liquidator to be liquidator of the company". At [22]-[23]: 22 … It is well-established that that section authorises not only the appointment of a liquidator on the making of a winding up order, but the subsequent appointment of an additional liquidator. This power is not uncommonly exercised to appoint special purpose liquidators. See Re Obie Pty Ltd (in liq) (No 4) (1984) 8 ACLR 967; Re Spedley Securities Ltd (in liq) (1991) 4 ACSR 555; and Re One.Tel Limited [2009] NSWSC 1172; (2009) 262 ALR 150. 23 If the Court can, after the original winding up order, appoint a special purpose liquidator to act concurrently with the general purpose liquidator, then it seems to me s 472(1) must equally authorise the appointment of an additional general purpose liquidator to act concurrently with the existing general purpose liquidator. Accordingly, under s 472(1) also, there is jurisdiction to appoint Mr Preston consequent upon the retirement of Mr Honey.
I cannot fault Brereton J's analysis. If the Court has seen fit to appoint a liquidator to a corporation and, indeed, seen fit to appoint more than one liquidator given the scale or complexity of the winding up, then the Corporations Act might be thought a likely repository of a power to replace that liquidator or liquidators if the circumstances warrant it, for example, a liquidator wishes to retire. It would be an odd result if, for the Court to deal with such a situation, it must create an artificial vacation of the office of liquidator by removing all of the liquidators, whether they wish to retire or not. If construction of a statute leads to an absurd, impracticable or inconvenient result, it may suggest that the construction is incorrect, it being presumed that Parliament does not intend to enact legislation with unreasonable consequences: Perry Herzfeld and Thomas Prince, Interpretation (2nd ed, 2020, Thomson Reuters) at [9.30].
For completeness, in 2017, Condon v Watson was followed by Besanko J in Naudi, In the matter of ACN 156 335 787 Pty Ltd (in liq) [2017] FCA 815 as the plaintiffs did not seek to argue that the decision was wrong: at [19]. In Winterbottom, in the matter of Ballistic Hydraulic Hose and Fittings Pty Ltd (in liq) [2017] FCA 1101, Gleeson J followed Naudi: at [12]. Neither was taken to Re Preston, including Brereton J's conclusion that section 472 provided an alternate head of power.
Mercifully, the Corporations Act has since been amended such that this judicial controversy is no longer relevant, except potentially for companies which have been in liquidation for some time and, thus, it may have continuing relevance here. The first question is whether the old or amended Corporations Act applies to these applications.
Also for completeness, in Re Preston Brereton J considered that it was plainly established that it was desirable that there be a second liquidator of the HIH companies and that Mr Preston was an appropriate appointee. A matter which was overlooked at the hearing before Barrett J was to seek leave under section 411(7) in respect of Mr Preston. That leave is now sought nunc pro tunc, and considered at [53]. Since his appointment as liquidator and scheme administrator, Mr Preston has progressively taken over the primary conduct of each liquidation and the administration of each scheme.

[9]

WHICH ACT APPLIES

Effective 1 September 2017, section 473 of the Corporations Act was repealed by section 144 of Schedule 2 of the Insolvency Law Reform Act 2016 (Cth), and replaced by a new section 473 and 473A which provide: 473 Resignation of liquidators A liquidator appointed by the Court may resign. 473A Vacancies in office of court‑appointed liquidator (1) A vacancy in the office of a liquidator appointed by the Court may be filled by: (a) the Court; or (b) ASIC. … (4) If more than one liquidator is appointed under this section, the Court or ASIC (as the case may be) must declare whether anything that is required or authorised by this Act to be done by the liquidator is to be done by all or any one or more of the persons appointed. (5) If a declaration made by ASIC under subsection (4) is inconsistent with a declaration of the Court made under that subsection, the declaration of the Court prevails to the extent of any inconsistency.
The relevant difference between the old and new provisions is that "must" in the old section 473(7) has become "may" in section 437A(1). This difference is consistent with an appreciation by the draftsperson that, where more than one liquidator has been appointed and one wishes to resign, it may not be necessary to fill the vacancy thereby created if, for example, the winding up has reached the stage where the remaining tasks may be adequately performed by the continuing liquidator alone. It may also be consistent with an acceptance by the draftsperson that the powers of the Court to appoint another liquidator are as described in Re McGrath and Re Preston, that is, the Court has the power, where more than one liquidator is appointed and a vacancy arises by one resigning, to fill that vacancy.
The Insolvency Law Reform Act 2016 also added the Insolvency Practice Schedule (Corporations) as Schedule 2 to the Corporations Act, s 90-15 of which provides: Court may make orders in relation to external administration Court may make orders (1) The Court may make such orders as it thinks fit in relation to the external administration of a company. … Examples of orders that may be made (3) Without limiting subsection (1), those orders may include any one or more of the following: (a) an order determining any question arising in the external administration of the company; (b) an order that a person cease to be the external administrator of the company; (c) an order that another registered liquidator be appointed as the external administrator of the company; … The breadth of the Court's power under s 90-15 sweeps away any concern about the Court's ability to replace one of several liquidators without first removing all. The question is whether s 90-15 applies to the application before the Court.
The Insolvency Law Reform Act 2016 also added Part 10.25 to the Corporations Act, "Transitional provisions relating to the Insolvency Practice Schedule (Corporations)". In this Part, the winding ups of the HIH group of companies fall within the definition of "ongoing external administration", being an external administration of a company that started before the commencement day (1 September 2017) and ends after that day: section 1551, Corporations Act. Division 3 of Part 10.25 concerns the application of Part 3 of the Insolvency Practice Schedule (Corporations). Section 1578 contains a simplified outline of the division. In respect of an "ongoing external administration", section 1578 states: For external administrations that start before [1 September 2017] but are still ongoing … the Insolvency Practice Schedule (Corporations) applies in accordance with this Division but usually only in relation to new events. Generally, the old Act continues to apply to old events and processes that are incomplete …
Within Division 3, Subdivision H, "Review of the external administration of the company", contains section 1615 which provides: Application of Division 90 of the Insolvency Practice Schedule (Corporations) - general rule Division 90 of the Insolvency Practice Schedule (Corporations) applies in relation to an ongoing external administration whether or not the matter to be reviewed occurred before, on or after the commencement day. I note that section 1615 is not expressed to be "Subject to this Part". That is, the Court has power to make orders under Division 90 in respect of the ongoing HIH liquidations and schemes of arrangement, without qualification.
Section 1617 provides: (emphasis added) 1617 Old Act continues to apply in relation to ongoing proceedings before a court - general rule (1) This section applies if proceedings are brought under the old Act in a court (on application or on the initiative of the court) in relation to the external administration of a company either: (a) before the commencement day; or (b) on or after the commencement day (in accordance with a provision of this Division). (2) Subject to this Part, nothing in Schedule 2 to the Insolvency Law Reform Act 2016 affects: (a) the proceedings; or (b) the power of the court to make orders in relation to the proceedings; or (c) any orders made by the court in relation to the proceedings; or (d) any enforcement in relation to, or as a result of, the proceedings (including giving effect to any court orders); or (e) any appeal or review in relation to the proceedings. (3) Subject to this Part, the old Act continues to apply on and after the commencement day in relation to the proceedings despite the amendments and repeals made by Schedule 2 to the Insolvency Law Reform Act 2016. (4) In this section: "proceedings" include civil and criminal proceedings, inquiries by the court, enforcement processes and any other processes.
As Brereton J explained In the matter of HIH Insurance Limited (in liquidation) & Ors [2018] NSWSC 1886 at [4]-[7], citing In the matter of PrimeSpace Property Investment Limited (In liquidation) [2018] NSWSC 919 at [18] (Black J), the effect of section 1617 is that the Corporations Act as in force up to 31 August 2017 (the old Act) continues to apply in relation to ongoing proceedings before a Court as at that date. The reference to "proceedings" is to the substantive proceedings rather than interlocutory applications brought in those proceedings.
Although the applications before the Court were filed after 1 September 2017, the substantive proceedings were commenced long ago. It was submitted by the liquidators' counsel that this had the result that section 473 of the old Act applied. However, I do not think that this is the case. Section 1617(2) and (3) are both "Subject to this Part". Three more divisions follow in Part 10.25. In particular, Division 5, "Application of other consequential amendments", includes section 1627 which provides: Vacancies in office of liquidator appointed by the Court (1) Despite the repeal of section 473 of the old Act by Schedule 2 to the Insolvency Law Reform Act 2016, that section continues to apply in relation to a vacancy in the office of a liquidator appointed by the Court that occurs before the commencement day. (2) Section 473A, as inserted by Schedule 2 to the Insolvency Law Reform Act 2016, applies in relation to vacancies in the office of a liquidator appointed by the Court that occur on or after the commencement day. Where there are 2 or more liquidators appointed by the Court (3) Subsections 473A(4) and (5), as inserted by Schedule 2 to the Insolvency Law Reform Act 2016, apply in relation to 2 or more liquidators appointed by the Court, whether the liquidators were appointed before, on or after the commencement day.
Section 1627 is a specific provision. When construing statutes, specific provisions enjoy primacy over general provisions: Herzfeld and Prince (2020) at [6.180], where the applicable Latin maxims are conveniently assembled. Put another way, section 1617 is "Subject to this Part" which includes section 1627, to which section 1617 is thus subject. Section 1627 also says nothing about the application of Division 90 of the Insolvency Practice Schedule which, according to section 1615, applies in relation to an ongoing external administration whether or not the matter to be reviewed occurred before, on or after 1 September 2017. Therefore, section 473 and 473A of the current Corporations Act and s 90-15 of the Insolvency Practice Schedule apply to the applications presently before the Court.
Orders were made under section 473A(1) of the Corporations Act and s 90-15(3)(c) of the Insolvency Practice Schedule in the same circumstances as those to hand in In the matter of Equiticorp Australia Limited (in liquidation) and other companies [2017] NSWSC 1456 where the winding up begun in 1989. Perhaps in an effort to avoid being drawn into the debate described at [5] to [8] and [12] to [19], the liquidator in Equiticorp commenced fresh proceedings after the commencement date of the Insolvency Law Reform Act 2016. In any event, I consider that the applications before the Court are governed by section 437A and s 90-15 of the Insolvency Practice Schedule.

[10]

REPLACEMENT OF LIQUIDATOR

The evidence on these applications was that the winding up of the HIH group of companies is a sizable and complex task which will take at least another year to finalise. Both Mr McGrath and Mr Preston express the view that it is desirable that, when Mr McGrath retires on 1 July 2020, there continues to be two liquidators of the HIH Companies. Mr Preston also gives evidence that, in his experience, it has been convenient to have two liquidators appointed so that planned and unplanned absences as between co-liquidators can be managed effectively and to permit progress towards finality with as little disruption as practicable.
Mr McGrath and Mr Preston have informed a significant part, by value, of the HIH companies' creditor body that Mr McGrath will retire, through chairing meetings on 22 April 2020 with the Creditors' Committees and Committees of Inspection. The minutes of those meetings advise of Mr McGrath's proposed retirement date of 1 July 2020, their intention that Ms Sozou succeed Mr McGrath as one of the liquidators and that an application would be brought in respect of the proposed appointment of Ms Sozou for that purpose.
Ms Sozou has consented to act as a liquidator of the HIH companies and is not aware of any conflict making it improper for her to act. Ms Sozou is a registered liquidator with over 18 years' experience, 14 of which have been with McGrathNicol. Ms Sozou has been a partner at McGrathNicol since 2017. Ms Sozou has worked on a substantial number of liquidations, receiverships and voluntary administrations, including with Mr McGrath and Mr Preston. Her current appointments include being one of the two liquidators of the Dick Smith group (with Mr Preston) and Allco Finance Group Ltd (with Mr McGrath). Ms Sozou states that her existing and foreseeable commitments are such that she can devote the time necessary, together with Mr Preston, to take an active part in the winding up of the affairs of the HIH companies. Mr McGrath and Mr Preston both consider that Ms Sozou is a suitable and appropriate candidate to act as liquidator of the HIH companies. So do I.
It is also Mr Preston's opinion that there would be efficiencies in time and cost in having a liquidator who replaces Mr McGrath being within the same firm of which he is a partner. There is benefit to the replacement liquidator coming from the same firm as the outgoing liquidator, particularly where one of the liquidators already appointed will continue: Re Free at [6]; Re Bridgewater Investments Pty Ltd [2013] NSWSC 426 (Black J) at [4]; Re Thomas at [11]. This is what occurred in Re McGrath, Condon v Watson and Re Preston.
The HIH companies have always had two liquidators. Multiple appointments have practical advantages. Appointees able to act severally can divide tasks between them. A multiple appointment takes care of unavoidable absences and can be the sources of checks and balances that are beneficial to prudent administration: Re Free at [16]. Consistent with the findings of Barrett J in Re McGrath and Brereton J in Re Preston on this subject, I accept that another liquidator should be appointed in Mr McGrath's stead. I agree that Ms Sozou is an appropriate appointee.
Notwithstanding that Mr McGrath's resignation has not yet taken effect, the Court has power to make an order relating to the replacement of the retiring liquidator in these circumstances: Re Wily v Wily (2003) 49 ACSR 94; [2003] NSWSC 1260 (Palmer J) at [6]; Re McGrath (Barrett J) at [8]-[9]; Re Thomas (Black J) at [6]; Re Free & others [2010] NSWSC 1079 (Barrett J) at [11]; Re Porter and Mansfield [2012] NSWSC 220 (Black J) at [6]. Such an order has immediate effect but is expressed to fill the vacancy to arise upon completion of the necessary steps: Re McGrath at [10]; Re Free at [11]; Dean-Willcocks, Re Militto's Transport Pty Ltd (in liq) (2006) 61 ACSR 356; [2006] FCA 1792 (Gyles J) at [2]. A fixed date (or an "end date") for the resignation to be made complete is desirable: Re Thomas at [6]; Re Porter and Mansfield at [8].

[11]

DISPENSATION OF CREDITOR REPORTING REQUIREMENT

The applicants seek an order under section 467(3) of the Corporations Act 2001 (Cth) and s 90-15(1) of the Insolvency Practice Schedule that the requirements of rule 70-40 of the Insolvency Practice Rules (Corporations) 2016 (Cth) be dispensed with in relation to the appointment of Ms Sozou. Rule 70-40 of the Insolvency Practice Rules (Corporations) 2016 provides: 70‑40 Report about dividends to be given in certain external administrations (1) This section: (a) is made for the purposes of section 70‑50 of the Insolvency Practice Schedule (Corporations); and (b) applies if a liquidator has been appointed in relation to a company. (2) The liquidator must provide to the creditors of the company a report containing information on the following: (a) the estimated amounts of assets and liabilities of the company; (b) inquiries relating to the winding up of the company that have been undertaken to date; (c) further inquiries relating to the winding up of the company that may need to be undertaken; (d) what happened to the business of the company; (e) the likelihood of creditors receiving a dividend before the affairs of the company are fully wound up; (f) possible recovery actions. (3) The report must be provided within 3 months after the date of the liquidator's appointment. (4) A copy of the report must be lodged with ASIC in the approved form at the same time as it is provided to the creditors.
The power to make the rule was conferred by s 70-50(1) of the Insolvency Practice Schedule, found in Subdivision D of Division 70 of that schedule. Section 1591 of the Corporations Act provides that Division 70 of the Insolvency Practice Schedule applies in relation to an "ongoing external administration". Section 1597 of the Corporations Act provides that Subdivision D of Division 70 of the Insolvency Practice Schedule applies whether or not the information, report or document referred to in s 70‑50(1) of the Insolvency Practice Schedule is in respect of actions or events that occurred before, on or after 1 September 2017. Thus, the requirements of rule 70-40 apply on the appointment of Ms Sozou.
Mr Preston explains why there would be no utility and unnecessary costs in complying with rule 70-40. Each of the HIH companies has now been in liquidation for almost 19 years. The liquidation of HIH Insurance Limited and its subsidiaries has been an extremely complex process, including the subject of a Royal Commission. In respect of the main operating subsidiaries in the HIH group which became subject to schemes of arrangements, the determination of creditor claims and the distribution of the assets of those companies has been undertaken under the schemes, as well as reporting to scheme creditors. The liquidations are largely completed, and in the case of three companies, final dividends have been paid and the liquidations are simply awaiting the completion of the liquidations of the other HIH companies.
Section 467(3) of the Corporations Act provides that the Court may dispense with any notices being given or steps being taken that are required by the Act. As McKerracher J noted in Bell Group Ltd (in liq) and Ors v ASIC (2018) 128 ACSR 247; (2018) 358 ALR 624; [2018] FCA 884 in respect of a similar request for dispensation of the requirements of Rule 70-40, at [95(b)]: …There has been an alteration to the definition of 'this Act', contained in s 9 of the Corporations Act, to include the Insolvency Practice Rules. Therefore, the Court's power under s 467(3)(b), to 'dispense with any notices being given or steps being taken that are required by this Act', includes the power to dispense with requirements prescribed under the Insolvency Practice Rules. Further, as already mentioned, s 90-15(1) of the Insolvency Practice Schedule applies and provides that the Court may make such orders as it thinks fit in relation to the external administration of a company.
Preparation of reports of the type required by rule 70-40 following the appointment of Ms Sozou will have limited or no utility and is likely to be time consuming and costly, given the long and complicated history of the liquidations and that the reporting requirements under rule 70-40 applicable to each of the HIH companies include matters regarding the inquiries that have been undertaken in relation to the company to date, what happened to the business of the company, the likelihood of creditors receiving a dividend before the affairs of the company are fully wound up, and possible recovery actions.
Bell Group v ASIC, McKerracher J dispensed with the requirements of rule 70-40 because, as stated at [96]: In the present circumstances, there is no reason to consider that such reporting would either be possible, or that it would be of any utility, given that the companies have been defunct for 22 to 25 years. It is very unlikely that former directors would be able to prepare an informative or accurate report under s 475 of the Corporations Act. There is no reason to consider that a liquidator would, therefore, be able to prepare a comprehensive report to creditors about dividends to be given, as contemplated by rule 70-40 of the Insolvency Practice Rules.
The circumstances here are relevantly the same as in Bell Group v ASIC and I consider it appropriate to dispense with the requirements of rule 70-40 to the Insolvency Practice Rules.

[12]

CONFORMING ACCOUNTS LODGEMENT PERIODS

The applicants seek orders under section 1322(4)(d) of the Corporations Act to abridge the time for the lodging of accounts by the incoming liquidator, so that Ms Sozou's administration return year aligns with Mr Preston's return year and a single annual administration return may be lodged for each HIH company each year. Comparable orders were made by Barrett J in Re Free at [25]-[26], by Black J in Re Thomas at [11] and by Brereton J in Re Preston at [24], all of which were in respect of section 539(1) of the old Act, which has been repealed and replaced by section 70-5 of the Insolvency Practice Schedule. Section 70-5 states: 70-5 Annual administration return Application of this section (1) This section applies if a person is the external administrator of a company during all or part of an administration return year for the external administrator for the company. (2) However, this section does not apply if: (a) the external administration of the company ends during the administration return year; and (b) the person is the external administrator of the company when the external administration of the company ends. Annual administration return to be lodged (3) The person must lodge a return in relation to the external administration of the company by the person during the year or part of the year (as the case requires). (4) The return must: (a) be in the approved form; and (b) be lodged with ASIC within 3 months after the end of the year. Meaning of administration return year (5) Each of the following is an "administration return year" for an external administrator for a company: (a) the period of 12 months beginning on the day on which the person first began to be an external administrator of the company; (b) each subsequent period of 12 months.
As already mentioned at [37], the effect of section 1591 of the Corporations Act is that Division 70 of the Insolvency Practice Schedule applies to the HIH companies. Further, section 1592 of the Corporations Act provides: Administration returns for 2017-18 and later years (1) Sections 70-5 and 70-6 of the Insolvency Practice Schedule (Corporations) apply in relation to the financial year starting on 1 July 2017 and later financial years. Accounts under old Act (2) Subsection (3) of this section applies in relation to the repeal of each of the following sections of the old Act by Schedule 2 to the Insolvency Law Reform Act 2016: (a) 438E; (b) 445J; (c) 539. (3) To the extent that a repealed section relates to a period for which an account or statement must be lodged: (a) the repeal of the section applies in relation to periods starting on or after 1 July 2017; and (b) the section applies in relation to periods starting before 1 July 2017 and ending after that day as if the period ends on 30 June 2017. Continuation of audits under old Act (4) For the avoidance of doubt, despite the repeal of a section mentioned in subsection (2) by Schedule 2 to the Insolvency Law Reform Act 2016, audits may be continued under that section in relation to accounts lodged under that section as if the old Act continued to apply.
In Re Preston, Brereton J considered it appropriate to make similar orders. At [24]: …This is, obviously, sensible, and will avoid unnecessary duplication of costs and accounts in preparing multiple sets of accounts without prejudicing the routine and ongoing monitoring and reporting of the liquidation on a six monthly basis. Barrett J made such an order in Re Free [at [25]-[29]] as did Black J in Re Thomas [at [11]]. I consider it appropriate to grant the relief sought for the same reasons articulated by Brereton J

[13]

LEAVE TO ACT AS LIQUIDATOR AND SCHEME ADMINISTRATOR

The applicants also sought leave to be appointed as scheme administrator under section 532(2)(c)(i) of the Corporations Act, which provides: (emphasis added) 532 Disqualification of liquidator (2) Subject to this section, a person must not, except with the leave of the Court, seek to be appointed, or act, as liquidator of a company: … (c) if: (i) the person is an officer or employee of the company (otherwise than by reason of being a liquidator of the company or of a related body corporate); …
The definition of "officer" in section 9 of the Corporations Act provides: (emphasis added) officer of a corporation means: … (g) a trustee or other person administering a compromise or arrangement made between the corporation and someone else.
Whilst Ms Sozou is seeking to be appointed as a liquidator of the scheme companies at a time when she is not an officer of the companies, upon assuming the roles of liquidator and scheme administrator she will continue to act as a liquidator of the companies whilst also an officer (as scheme administrator). As Barrett J explained in Re McGrath & Anor (in their capacity as liquidators of HIH Insurance Ltd & Ors) (2010) 266 ALR 642; (2010) 78 ACSR 405; [2010] NSWSC 404 at [47]: … the court's power to grant leave extends not only to allow appointment (or, more precisely, the seeking of appointment) but also to allow acting, in the sense of ongoing exercise of the office. That, it seems to me, is entirely consistent with the present form of the section. The prohibition is imposed by the words, "must not … seek to be appointed, or act". The "except with the leave of the Court" qualification comes immediately after "must not" and therefore applies to both seeking appointment and acting. … Under the present legislation, the court may grant leave so as to allow a person not yet appointed both to seek appointment and to act once appointed; and it may, as a separate matter, grant leave to act to a person who, being already in office, is, by subsequent events, brought within one of the categories that attract the prohibition on acting.
In Re Octaviar Ltd (in liq) [2016] NSWSC 16, Brereton J expressed doubt as to Barrett J's reasoning on this issue, which I confess I do not share, but did not consider it necessary to resolve the issue and, instead, granted leave to the extent it was required: at [32]-[33]. In an abundance of caution, the applicants seek leave under section 532(2)(c)(i), to the extent it is required, in relation to Ms Sozou's proposed appointment as liquidator of the three HIH companies subject to schemes of arrangement.
As to whether leave should be granted, in Re McGrath [2010] NSWSC 404, Barrett J observed that "the guiding consideration is the legislative intention that a liquidator should be free from the potentially conflicting allegiance unless the Court sees that independent judgment will nevertheless still be available": at [50]. In Re Octaviar, Brereton J granted leave where there was no risk that the appointment would jeopardise the assets in the winding up whilst, on the other hand, there was considerable advantage in avoiding duplication.
The same can be said of the applications before the Court: there is no suggestion that Ms Sozou will be compromised in her ability to act as liquidator of the scheme companies by reason of the fact that she will also be scheme administrator. Granting Ms Sozou leave to act in both roles will have the result that the costs of completing the liquidation and scheme of arrangement will be attended to at least cost to the creditors of the scheme companies.
A similar grant of leave nunc pro tunc is also sought for Mr Preston's existing appointment as liquidator of the scheme companies. The question does not appear to have been raised or considered in Re Preston when the Court appointed Mr Preston as a liquidator of the scheme companies. The Court has the power to grant such leave nunc pro tunc: Re Jick Holdings Pty Ltd (in liq) [2009] NSWSC 574 at [26]-[27]; (2009) 234 FLR 22 at 30. This is an appropriate case for the grant of such leave. The need to seek leave only became apparent to the liquidators' legal representatives yesterday and leave has been promptly sought. There is no question that Mr Preston has acted in good faith since he was appointed as liquidator of the scheme companies. He has acted properly in now seeking leave and it is in the interests of creditors that leave be given.
As mentioned at [11], Ms Sozou and Mr Preston also seek leave under section 411(7) which, it will be recalled, provides that a person must not be appointed to administer "and must not administer" a scheme of arrangement where the person has at any time within the last 12 months been an officer of the corporation, except with the leave of the Court. Taking the same approach to construing section 411(7) as Barrett J interpreted section 532 in Re McGrath [2010] NSWSC 404, the Court's leave may be necessary to permit Ms Sozou to not only to be appointed as scheme administrator but to then act in that role as scheme administrator notwithstanding that she will also be also an officer of the corporation in her role as liquidator. The considerations for granting leave, and the reasons why I consider it appropriate to grant such leave here, are the same as set out at [52]-[53]. Likewise, Mr Preston seeks leave nunc pro tunc and, for the reasons expressed at [52], I consider it appropriate to grant such leave.
Finally, the applicants seek an order that the costs of the applications be paid as expenses of the winding ups of the relevant HIH company as, in liquidations which have been in train for over a decade, they are an ordinary incident of such a liquidation. Orders of this kind have been made in similar circumstances: In the matter of Equiticorp Australia Limited (in liq) [2011] NSWSC 1368 (Barrett J); Re Bridgewater at [12], Condon v Watson at [99] and Re Preston at [25]. Such orders are appropriate here.

[14]

ORDERS

For these reasons, I have made the following orders in respect of HIH Insurance Limited (in liquidation), HIH Underwriting and Agency Services Limited (in liquidation), HIH Holdings Pty Limited (in liquidation), HIH Investment Holdings Limited (in liquidation), FAI Insurances Limited (in liquidation), HIH Underwriting and Insurance (Australia) Pty Limited (in liquidation), CIC Insurance Limited (in liquidation and subject to a scheme of arrangement), FAI General Insurance Company Ltd (in liquidation and subject to a scheme of arrangement) and HIH Casualty and General Insurance Limited (in liquidation and subject to a scheme of arrangement): 1. Pursuant to section 473A(1)(a) of the Corporations Act 2001 (Cth) (Act) and subsection 90-15(1) and (3)(c) of the Insolvency Practice Schedule (Corporations) (IPS), upon the resignation of Anthony Gregory McGrath taking effect on 1 July 2020, Katherine Sozou of Level 12, 20 Martin Place, Sydney, a registered liquidator, be appointed as a liquidator of the Second Applicant to hold office together with Jason Preston, an existing liquidator of the Second Applicant. 2. Pursuant to section 473A(4) of the Act, anything that is required or authorised by the Act to be done by Jason Preston and Katherine Sozou as the liquidators of the Second Applicant, may be done by either or both of them. 3. Pursuant to section 467(3) of the Act and s 90-15(1) of the IPS, the requirements of rule 70-40 of the Insolvency Practice Rules (Corporations) 2016 (Cth) be dispensed with in relation to the appointment of Katherine Sozou as liquidator of the Second Applicant. 4. Pursuant to section 1322(4)(d) of the Act, the period within which Katherine Sozou must lodge the annual administration return prescribed by s 70-5 of the IPS after she has commenced to act as liquidator be abridged to the date upon which Jason Preston as liquidator of the Second Applicant must lodge the annual administration return prescribed by s 70-5 of the IPS. 5. The Applicants' costs of this application be paid as expenses of the winding up of the Second Applicant.
I made the following additional order in respect of CIC Insurance Limited (in liquidation and subject to a scheme of arrangement); FAI General Insurance Company Ltd (in liquidation and subject to a scheme of arrangement) and HIH Casualty and General Insurance Limited (in liquidation and subject to a scheme of arrangement): (6) Pursuant to sections 532(2) and 411(7) of the Act: 1. Katherine Sozou have leave, insofar as it may be required, to be appointed and act as liquidator of the Second Applicant, and to be appointed to administer, and to administer, the scheme of arrangement in respect of the Second Applicant approved by orders made on 26 May 2006 in proceeding no. 6708 of 2004 (Scheme); and 2. Jason Preston have leave nunc pro tunc, insofar as it may be required, to be appointed and act as liquidator of the Second Applicant, and to be appointed to administer, and to administer, the Scheme.

CORPORATIONS - 19 year liquidation - two court-appointed liquidators - one liquidator retiring - whether under old s.473 (pre-Insolvency Law Reform Act 2016) all liquidators must be removed in order to replace just one: at [12]-[20] - Condon v Watson doubted - appropriate to appoint a new liquidator

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