Emerton Pty Ltd v Referral Marketing Services Pty Ltd [2022] FCA 211 | Case summary

DERRINGTON J: 1 The application before the Court is slightly unusual. It has been brought by Mr Brendan Nixon, an insolvency practitioner, who is the liquidator of a number of companies and trustee in bankruptcy of a number of insolvent estates. He is the only liquidator and bankruptcy trustee of the firm, SM Solvency Accountants Pty Ltd (SM Solvency) but has given notice of his intention to resign from that firm in order to take a break from his professional practice. SM Solvency will not be replacing him with a person qualified to continue in the roles of trustee or liquidator. He is presently the sole liquidator of 37 companies and the sole trustee in bankruptcy of 69 bankrupt estates. Obviously, there is a necessity for orders to be made replacing Mr Nixon in those capacities, such that the administration of those insolvencies might continue. 2 Mr Nixon has proposed Mr Combis, Mr Staatz and Ms Leslie, each of whom are a director of Vincents Chartered Accountants (Vincents), as his replacements. Each are registered liquidators and Mr Combis and Ms Leslie are registered trustees. Each are known to the Courts as well regarded insolvency practitioners of substantial reputations. There can be no concern about their suitability for taking over the administration of any of the estates or companies and they have consented to replacing Mr Nixon. By the terms of the application, the insolvencies have been specifically allocated to each of the substitute appointees. Mr Nixon asked the Court today for orders effecting the transfer of those administrations. 3 Turning first to the liquidations in question, the application was served on the Australian Securities and Investments Commission (ASIC), which neither opposes nor supports the orders sought. The companies themselves have not been served. That is logical given that, as Mr Nixon is the sole external administrator, he would simply be effecting service upon himself. Under r 1.34 of the Federal Court Rules 2011 (Cth) (Federal Court Rules), the Court may dispense with compliance with any of the rules either before or after the time for compliance arises. This is a paradigm case, in which one might apply that rule, which is made applicable to the circumstances of this case by r 1.3 of the Federal Court (Corporation) Rules 2000 (Cth) (FCCR). There is no utility in serving Mr Nixon with his own application. Accordingly, it is appropriate that service, as required by r 2.7 of the FCCR, be dispensed with. 4 As to the power to remove and replace a liquidator, it is undoubted that an external administrator may resign without leave of the Court by a notice in writing: Corporations Act 2001 (Cth) (Corporations Act) ss 449C, 473, 506(1)(b). That is different from the position of a trustee in bankruptcy, where the Court's leave is required. However, the difficulty in these circumstances is that Mr Nixon is the sole external administrator of the companies in question. There is no person within SM Solvency who might automatically replace him. His resignation would lead, ultimately, to an interregnum in the administration of the companies and, as Mr Downes of Counsel has submitted, that is wholly undesirable. Such was emphasised by Edelman J (as his Honour then was) in Nixon, in the matter of Nixon [2015] FCA 976, where his Honour adopted the observations of Brereton J in Emerton Pty Ltd v Referral Marketing Services Pty Ltd [2009] NSWSC 738. Edelman J said at [38]: In Emerton Pty Ltd v Referral Marketing Services Pty Ltd & Ors [2009] NSWSC 738 [19], Brereton J said that if "a liquidator wishes to resign and can do so out of court, but instead approaches the Court as in the present case, in order to avoid a gap in the administration, it is in the interests of the administration that the liquidator be removed under s 503, in order that he or she might be replaced without delay and interruption to the administration". I adopt the views expressed by their Honours in those cases. 5 The Court's power to remove an external administrator and appoint a replacement is provided for in Sch 2, s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS) to the Corporations Act. Sections 90-15 and 90-20 are part of Division 90, which applies to the external administration of a company, notwithstanding that the external administration commenced before the IPS took effect. For that reason, it is not necessary to consider prior iterations of the Court's power to replace external administrators. 6 By virtue of Mr Nixon's position as an external administrator of each company, he has standing to apply for his removal and replacement. As Mr Downes identified, this case is, perhaps, novel, in the sense that Mr Nixon is not being replaced by a member of his existing firm. Here, his resignation is coupled with the application to transfer the administrations to new external administrators who are members of different firms. I accept that there is no difficulty under the existing powers of the Court to effect that change. I gratefully adopt the relevant principles for the removal and appointment of external administrators set out by Mr Downes in [17] of his submissions as follows: (a) IPS 90-15(3)(c) provides that the orders which can be made under s 90-15(1) include "an order that another registered liquidator be appointed as the external administrator of the company". (b) By the text of the previous legislation, the court could exercise the power to appoint an additional liquidator if satisfied that it would be "just and beneficial" to do so. Whilst the text of IPS 90-15 is, in comparison, "unconstrained", an applicant seeking to replace the external administrator must still demonstrate the appointment is just and had sufficient (or material) utility. (c) The discretion to replace the external administrator will usually be favourably exercised where "it is demonstrated that such an order would be for the better conduct of the liquidation" or "for the general advantage of the persons interested in the winding up". 7 Importantly, I note that each of the proposed new external administrators have consented in writing and that consent has been filed and served. In the circumstances, I accept that each of the proposed new appointments are appropriate for the following reasons. First, each is a registered liquidator and have filed their consents to being appointed. They have, in those consents, confirmed their independence, eligibility and that there is no conflict of duty that would make it improper for them to act as external administrators. Secondly, Vincents is a large firm with the resources necessary to assume the responsibility for the 37 external administrations, and has the capability to manage their ongoing conduct. It is a well-known insolvency firm with many talented insolvency practitioners, and the Court would have no hesitation in placing the responsibility for the administrations in its hands. Thirdly, each proposed appointee has the requisite experience to conduct the relevant external administrations. Fourthly, as Mr Downes submitted, is it would be possible in respect of any voluntary liquidations for Mr Nixon to be replaced by a creditors' meeting, subject to resolutions being passed. However, as Mr Nixon has deposed, that would cost up to around $155,000 to convene the requisite number of meetings. Such a cost would be an unduly onerous burden on the companies and deprive the creditors of what little money they may receive in any of those administrations. The process, sought to be achieved by the current application, avoids any unnecessary wastage of costs. Fifthly, as mentioned earlier, ASIC has been served with this application and it does not oppose it, nor does it seek to be heard. That is not an insignificant factor, given ASIC's role as regulator. Sixthly, there is real and obvious utility and benefit in the replacement of Mr Nixon as the external administrator of the various companies. 8 Accordingly, it is appropriate to make the orders sought in respect of the corporate insolvencies. 9 I turn then to the application in respect of the bankrupt estates. An application of this nature is ordinarily required to be served on the Official Receiver, the bankrupts and any other person that the Court directs. The application itself and the supporting affidavits have been served on the Official Receiver, who neither appears nor objects to the present application. The bankrupts have not been personally served. It is deposed that the estimated costs of serving them would exceed $11,000 and again, that would involve a significant wastage of costs. In any event, all of the bankrupts, save in one instance, have been provided with the application and supporting affidavits and have been given the opportunity to appear at the application. In that sense, they have been informally served and that suffices for the purposes of the present application. It is possible to waive the requirements for service in this case, by reliance on r 1.34 of the Federal Court Rules which is made applicable by r 1.04 of the Federal Court Bankruptcy Rules 2016 (Cth) (FCBR). The applicant seeks an order for that waiver and, given the inconvenience and expense to the bankrupt estates of refusing it, an order should be made dispensing with service on the bankrupts. I note that similar orders were made in Re Shanahan [2014] FCA 1080, although, in that case, there was the difference that the replacement trustee was from the same firm. That is of little or no consequence in the present matter. 10 Accordingly, for the reasons mentioned, it is appropriate to dispense with the requirement for personal service. 11 Some initial concern arose in relation to the case of Mr Clinton Kerr, who has not been notified of the proceedings. However, since the making of the sequestration order, he has been difficult to locate. Indeed, the evidence discloses that although the sequestration order was made in 2018, Mr Kerr has not lodged his statement of affairs and it has not been possible to serve notices upon him compelling him to do so. His whereabouts are unknown. The evidence also discloses that Mr Kerr owned real property which was sold by a mortgagee exercising power of sale. The mortgagee was also unable to contact Mr Kerr. Mr Nixon presently has no contact details for him, he has not contacted the office of SM Solvency during his period of bankruptcy, and has not cooperated in any way. In those circumstances, it is quite apparent that Mr Kerr has no interest in the administration of his estate and, for that reason, it is also appropriate to waive any requirement for service on him for the purposes of this application. This does not affect his substantive rights in any way. In those circumstances, I am satisfied that all persons who need to be informed of these proceedings have been, such that the requirement for giving notice has been satisfied. 12 Turning to the resignation of Mr Nixon as a trustee and his replacements. Section 180 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) permits a trustee in bankruptcy to resign their office. An application under that section must be supported by an affidavit stating the grounds upon which the resignation is made: FCCR r 8.02. In the present circumstances, it is entirely appropriate to permit Mr Nixon to resign and for the Court to order his removal as the trustee in bankruptcy. There should be no difference in approach in dealing with the removal of a trustee in bankruptcy and that applicable to the removal of company liquidators. 13 I am satisfied that Mr Nixon should be entitled to resign his role as trustee in bankruptcy of the 69 bankrupt estates. He has provided an adequate explanation for his need to resign and it is quite apparent that his departure from SM Solvency would have the result that he would lack sufficient resources to continue with the administrations. As mentioned earlier, Mr Combis and Ms Leslie of Vincents are prepared to undertake the administration of those estates and they are qualified to do so. The Court can be satisfied that they will administrate those estates properly. In particular, they are members of the firm Vincents, which is adequately resourced to deal with those estates. Further, as Mr Downes submitted, whilst Mr Nixon could be replaced at a creditors' meeting under s 159 of the Bankruptcy Act, the cost of calling meetings in respect of the 69 bankrupt estates would be approximately $345,000. That is an excessive amount which, if such meetings were required, would be borne by the estates and, therefore, by the creditors indirectly. It would be an unnecessary waste of time, energy and costs for such meetings to occur. It follows that, it is in the best interests of the conduct of the bankrupt estate for there to be orders made for the appointment of the trustees as proposed in the application. 14 In those circumstances, I am prepared to make the orders effectively substituting Ms Leslie and Mr Combis as trustees in bankruptcy of the estates in lieu of Mr Nixon. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.

Emerton Pty Ltd v Referral Marketing Services Pty Ltd

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