Coshott v Burke

STEWARD J: 1 Mr Clyde White is the liquidator of a number of companies and the trustee of a number of bankrupt estates. He is also a director of PCI Partners Pty Ltd, trading as PCI Partners. He now wishes to commence his retirement. On 8 June 2018, I made a series of orders for the appointment of replacement liquidators and trustees in bankruptcy. What follows are my reasons for judgment.

BACKGROUND 2 Mr White has been a registered liquidator since 7 August 1987 and a registered trustee in bankruptcy since 16 July 1992. He has worked in the insolvency industry for over 36 years. Mr White is currently the liquidator of certain court-appointed liquidations. In some cases, the appointments were made by this Court; in others by State Supreme Courts. He is also the liquidator of certain creditor appointed voluntary liquidations and is the trustee in bankruptcy of a number of estates. His decision to retire is for personal reasons and not because of some regulatory issue or because of any concern about his conduct as a liquidator or trustee. 3 After consulting with his fellow directors, Mr White considers that the most efficient and cost-effective way to ensure a smooth transition for all affected companies and estates in administration is for the appointment of Mr David Quin, Mr Philip Newman and Mr Stephen Michell, being fellow members of the PCI team, to be replacement liquidators and trustees. Each of these individuals is a registered liquidator and registered trustee in bankruptcy. Mr White's view, which I accept, is that there are synergistic benefits which would flow from the appointment of existing PCI team members as replacements. Each individual has an existing familiarity with the company or estate Mr White wishes them to administer, and each would have, I infer, easy access to the necessary files and materials. Each has also consented to becoming a replacement liquidator and/or trustee and has agreed to be remunerated on the same existing terms and conditions as Mr White. Mr White is otherwise not aware of any prejudice which might result from the appointment of these gentlemen as his replacement.

PROCEDURAL HISTORY 4 By originating process filed 7 May 2018, each of Messrs White, Quinn, Newman and Michell, as plaintiffs, sought the following final orders: (1) orders pursuant to s 473A of the Corporations Act 2001 (Cth) (the "Act") for the appointment of replacement liquidators in the case of the court-appointed liquidations; (2) orders pursuant to s 499 of the Act for the appointment of replacement liquidators for the creditor-appointed voluntary liquidations; (3) orders pursuant to s 532(2)(b) of the Act giving leave for Messrs Quin, Newman and Michell, to act as liquidators; (4) determinations specifying the remuneration of each of Messrs Quinn, Newman and Michell, as replacement liquidators, pursuant to s 60-10 of the Insolvency Practice Schedule (Corporations) in Sch 2 of the Act (the "IPSC"); (5) orders accepting the resignation of Mr White as trustee of certain bankrupt estates pursuant to s 180 of the Bankruptcy Act 1966 (Cth) (the "Bankruptcy Act"); (6) orders appointing replacement trustees for those estates pursuant to s 90-15 of the Insolvency Practice Schedule (Bankruptcy) (the "IPSB") in Sch 2 of the Bankruptcy Act. 5 The plaintiffs appeared before me by a solicitor on the record, Mr Lhuede of Piper Alderman. He relied upon five affidavits (sworn or affirmed by Messrs White, Quin, Newman, Michell and Kyrou) in support of the orders sought and tendered into evidence a letter from the Australian Securities and Investment Commission ("ASIC") dated 8 June 2018. ASIC had been sent a copy of the originating process and the affidavit of Mr White. The same documents had also been sent to the Australian Financial Security Authority ("AFSA"), which replied on 17 May 2018 to advise that it did not object to the orders being sought by Mr White. ASIC's reply was perhaps more circumspect. It advised that it did not propose to intervene and considered that that the matter was properly left for determination by this Court. 6 There are two further matters of procedural history I should note. First, the plaintiffs have not sought the consent of any creditor. In his affidavit, Mr White explained that he had chosen to rely on this Court's power to order replacement liquidators and trustees as, in his view, this was a cheaper and more efficient way of addressing his impending retirement. In relation to the court-appointed liquidators, he contended that he needed orders from a court in any event. That statement is not entirely correct; ASIC also has the power to fill such vacancies. In the case of each creditor's voluntary winding up, Mr White estimated that it would cost at least $2,500 (plus GST) in each case to prepare the necessary papers and then convene a meeting of creditors. He further deposed that his own firm was meeting the legal costs of the proceeding before me. 7 Secondly, PCI Partners has, in the case of a number of companies in liquidation, an entitlement by way of undrawn remuneration payable to the respective liquidators who are members of that firm in excess of $5,000 arising out of the conduct of each liquidation. The plaintiffs are concerned that, without the leave of the Court, they may be considered to be creditors of each said company, and thus disqualified by reason of s 532 of the Act from being appointed liquidators.

STATUTORY POWERS 8 I am satisfied that I have the statutory power to appoint Messrs Quin, Newman and Michell as replacement liquidators and trustees in bankruptcy. In that respect, I note that the applicable provisions are those which follow the enactment in 2017 of the Insolvency Law Reform Act 2016 (Cth). 9 In relation to the court-appointed liquidations, s 473A of the Act now provides: (1) A vacancy in the office of a liquidator appointed by the Court may be filled by: (a) the Court; or (b) ASIC. (2) If ASIC fills a vacancy in the office of a liquidator under subsection (1), ASIC must: (a) publish notice of the filling of the vacancy; and (b) publish the notice in the prescribed manner. (3) If ASIC fills a vacancy in the office of a liquidator under subsection (1), the liquidator is taken, for the purposes of this Act, to be appointed by the Court. (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. 10 In relation to the creditor appointed liquidations, s 499(3) of the Act now provides: If a liquidator, other than a liquidator appointed by, or by the direction of, the Court resigns: (a) the Court; or (b) ASIC; or (c) the creditors; may fill the vacancy by the appointment of a liquidator. 11 In relation to the appointment of replacement trustees in bankruptcy, whatever the position may have been in the past (cf Registrar in Brankruptcy v Bradley (1984) 3 FCR 91; Coshott v Burke [2013] FCA 155), s 90-15 of the IPSB has clarified the power of this Court. Section 90-15 provides: (1) The Court may make such orders as it thinks fit in relation to the administration of a regulated debtor's estate. (2) The Court may exercise the power under subsection (1): (a) on its own initiative, during proceedings before the Court; or (b) on application under section 90-20. (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 administration of the estate; (b) an order that a person cease to be the trustee of the estate; (c) an order that another person be appointed as the trustee of the estate; 12 I also have the following powers: (1) to determine the remuneration of the replacement liquidators pursuant to s 60-10 of the IPSC which provides: (1) A determination, specifying remuneration that an external administrator of a company (other than an external administrator in a members' voluntary winding up) is entitled to receive for necessary work properly performed by the external administrator in relation to the external administration, may be made: (a) by resolution of the creditors; or (b) if there is a committee of inspection and a determination is not made under paragraph (a)--by the committee of inspection; or (c) if a determination is not made under paragraph (a) or (b) -by the Court. (2) to give leave, pursuant to s 532(2)(b) of the Act, for each of Messrs Quin, Newman and Michell to be replacement liquidators, notwithstanding that, on one view, they are creditors of the relevant companies in liquidation, in a capacity otherwise than as liquidator of those companies, in a sum which exceeds $5000. That section provides: (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: … (b) if the person is, otherwise than in his or her capacity as liquidator, a creditor of the company or of a related body corporate in an amount exceeding $5,000… (3) to give Mr White leave to resign as trustee in bankruptcy pursuant to s 180 of the Bankruptcy Act which provides: The Court may, subject to such terms and conditions as it thinks just, accept the resignation of a registered trustee from the office of trustee of an estate.

DISPOSITION 13 The next issue for determination is how I should exercise these various statutory powers. In relation to the appointment of a replacement liquidator, Mr White has yet to resign. However, I have the power to fill a future vacancy. In Re Application of Vouris [2004] NSWSC 384; 49 ACSR 543, Barrett J said in relation to former s 473(7) of the Act (a predecessor to s 473A) at [5]: On one reading, it might be thought that the Court should not make an order under s.473(7) until the vacancy has actually arisen by the resignation's taking effect. For my own part, I am satisfied that the Court may make an order under s.473(7) by reference to a vacancy that will arise at a particular future time by force of a resignation that has already been signed and is before the Court as Mr Vouris's several resignations are in this case. That reasoning applies to s 473A as well. In that case, his Honour relevantly exercised the power to replace a liquidator because that was an efficient and convenient means of filling a vacancy. At [11], Barrett J said: In circumstances of the kind with which I am dealing here, it would be unduly expensive and inconvenient to have to convene meetings to put to members or creditors of every relevant company the question of appointment of a successor or replacement liquidator. The incumbent liquidator finds it necessary to relinquish office and has taken the step of asking the Court to ensure continuity of administration in a way that avoids that expense and inconvenience for members and creditors. The Court can, and should in this case, exercise the overarching power under s.502 [of the Act] and I note that, in the Wily case [[2003] NSWSC 1260], Palmer J made an order under that section following s.459(3) resignation (there were apparently no instances involving members voluntary winding up before Palmer J). In the most unlikely event that the new appointee is for some reason not favoured by the members or creditors of a relevant company, they can, of course, approach the Court under s.503 with a view to some other appointment being substituted. 14 In Re Gollant [2017] FCA 1158, Davies J exercised the same power for similar reasons. Mr Gollant had resigned from his firm following his desire to downsize his practice. He was the liquidator of numerous companies and trustee in bankruptcy of numerous estates. Davies J ordered his replacement with other existing members of his firm. Her Honour said at [13]: The power of the Court to appoint liquidators in replacement of Mr Gollant in relation to those companies placed into court-ordered liquidation is contained in s 473(7) of the Corporations Act (as it was at the time that the application was filed). Pursuant to s 473(1) of the Corporations Act (as it was at the time that the application was filed), a liquidator appointed by the Court may resign, and pursuant to s 473(7), a vacancy in the office of a liquidator appointed by the Court must be filled by the Court. The Court has the power to replace a court-appointed liquidator in anticipation of the pending resignation of the incumbent liquidator: In the matter of Richard James Porter and David Ian Mansfield [2012] NSWSC 220 ("Porter and Mansfield") at [6] and the cases referred to therein. The appropriate process is for this to occur on the application of the existing liquidator to the Court in conjunction with the consenting liquidator, and Mr McLean and Mr Fettes have both given their consents to act as liquidators of the respective companies in respect of which it is proposed they be appointed as liquidator in replacement of Mr Gollant. Notwithstanding that some of the court appointments of Mr Gollant were made by the Supreme Court, the Federal Court has the power to hear the application in respect of those appointments and to make the appointments that are sought: Condon v Watson (2009) 174 FCR 314. I am, therefore, satisfied that I have the power to make orders for the appointment of Mr McLean and Mr Fettes as sought. I am also satisfied that it is appropriate to do so in the circumstances as their appointments will facilitate continuity and efficiency in the conduct of the liquidations: Porter and Mansfield at [5]. 15 Similar considerations apply here. Mr White is retiring, and the companies in liquidation and the bankrupt estates, for which he is responsible, must continue to be administered in the most efficient and appropriate way. Appointing members of Mr White's firm, who have the appropriate qualifications, as replacements, with their pre-existing knowledge of each matter and ease of administrative access to the relevant files, is a convenient and simple way of facilitating the continuity of administration. Having the Court make the appointment is also, I am satisfied, the cheapest solution, especially given PCI Partner's willingness to pay the legal costs of this proceeding. In that respect, Mr White's proposed resignation is not the product of some professional irregularity. There is no suggestion that he has failed to discharge his responsibilities as liquidator/trustee. He simply wants to retire. 16 In that respect, as Davies J observed, supra, it does not matter that some of the court-appointed companies in liquidation were made by state Supreme Courts. 17 The fact that the creditors here have not been served with the originating process and supporting affidavits, and their consent has not been secured, does not preclude the making of the orders sought here. That is so for three reasons. First, neither ASIC nor AFSA opposed the proposed orders. Secondly, if the creditors are dissatisfied with the appointments they can take steps themselves to have their respective liquidator or trustee replaced. Section 90-35 of the IPSC provides: (1) The creditors may: (a) by resolution at a meeting, remove the external administrator of a company; and (b) by resolution at the same or a subsequent meeting, appoint another person as the external administrator of the company. 18 Section 90-35 of the IPSB provides: (1) The creditors may: (a) by resolution at a meeting, remove the trustee of a regulated debtor's estate; and (b) by resolution at the same or a subsequent meeting, appoint another person as trustee of the regulated debtor's estate. 19 The availability of similar relief was also a matter which influenced Barrett J in making orders in Vouris, supra. 20 Thirdly, the presence here of each statutory power of appointment reflects Parliament's intention that this Court be able to appoint replacement liquidators/trustees in bankruptcy in addition to, and independently of, the power conferred on creditors to make the same appointments 21 I am also satisfied, in the circumstances here: (1) that I should, out of an abundance of caution, grant leave to Messrs Quin, Newman and Michell pursuant to section 532(2)(b) of the Act to act as liquidators of companies currently under the administration of Mr White. That potential relationship of creditor and debtor should not operate as a disqualification from acting as liquidator precisely because it arises out of the existing process of liquidation; (2) that I should grant Mr White leave to resign as trustee in bankruptcy. There is nothing about the circumstances of his intention to resign that should prevent me from granting leave. Mr White should be allowed to retire; (3) that I should make the remuneration determinations sought. Each of Messrs Quin, Newman and Michell do not seek a variation of the terms upon which Mr White is currently rewarded for the carrying out of his duties as liquidator. They merely seek a continuation of those terms. Accordingly, the rights of creditors are not relevantly prejudiced or inhibited by the making of such determinations. 22 For these reasons I granted the plaintiffs the relief they sought. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Steward.

SCHEDULE OF PARTIES VID 537 of 2018 Plaintiffs Fourth Plaintiff: PHILIP NEWMAN