Deputy Commissioner of Taxation v Foodcorp Pty Ltd

REASONS FOR JUDGMENT 1 Mr Taylor is the liquidator of Origin Internet Solutions Pty Ltd (in liquidation). The company was established in 1999 and conducted business as an internet service provider until February 2002 when its business was sold. Approximately four months after the sale the company's sole director formed the view that the company was insolvent and appointed Mr Taylor as administrator. According to Mr Taylor the company has no assets and its liabilities exceed $260,000. 2 At their second meeting held on 11 July 2003 the company's creditors resolved that the company be wound up. This was the most appropriate course as (1) there was no proposal that the company enter a deed of company arrangement and (2) it was not in the creditors' interests for the administration to end because the company was insolvent. 3 It now appears that the director is willing to provide $150,000 if the company enters into a deed of company arrangement. It is proposed that under the deed this amount will be distributed to creditors in full and final settlement of their claims against the company. The proposal also involves the release of all "related party claims" that the company may have against the director and others, especially for insolvent trading. 4 To enable the creditors to consider whether or not they will agree to the proposed deed of company arrangement, the company must first be placed into administration. The liquidator has power to appoint an administrator by virtue of s 436B of the Corporations Act 2001 (Cth). Mr Taylor believes that it is in the interests of the company that he be appointed administrator. However, s 436B(2) provides that this may only occur with leave of the court. This is the purpose of the present application. 5 The cases say that the main question on this type of application is whether the liquidator (subject to him being appropriately qualified) is an appropriate person to act as the company's administrator: Re Cobar Mines Pty Ltd (rec & mgr apptd) (in liq) (1998) 30 ACSR 125; Re Nardell Coal Corporation Pty Ltd (rec and mgrs apptd) (in liq) (2003) 47 ACSR 122. The cases also indicate that the court need not be concerned with whether the winding up should be stayed, although it is arguable that the effect of s 437C(1) is to suspend the liquidator's powers: Deputy Commissioner of Taxation v Foodcorp Pty Ltd (1994) 13 ACSR 796, 798 per Hodgson J. Not surprisingly, whether or not there should be a stay is a more difficult question than the one being considered. 6 Although the court is not unduly constrained in the way it exercises the discretion conferred by s 436B(2), it seems to me that the most important consideration is to ensure that there is no conflict of duty or interest if the liquidator is appointed as administrator. If for any reason it is preferable that a completely independent person act as administrator then the liquidator's application must be refused. 7 Provided there is no potential for conflict, where, as here, the liquidator has undertaken considerable work in connection with the liquidation (which would at least in part be reproduced by an independent administrator) it is plainly in the creditors' interests to grant the leave sought. Mr Taylor's appointment as administrator would save considerable time, trouble and expense in the administration. This is recognised by the creditors, especially the principal creditor who supports the application. In this case there is nothing which suggests that it would be inappropriate for Mr Taylor to take up the position. 8 Accordingly the order that Mr Taylor seeks will be made. The costs of the application will be costs in the proposed administration.