Emerton Pty Ltd v Referral Marketing Services Pty Ltd

LEGAL PRINCIPLES AND CONSIDERATION - CHOICE OF LIQUIDATOR

I recently summarised the principles involved in determining the identity of a liquidator to be appointed by the court in the matter of BH Holdings QLD Pty Limited [2024] NSWSC 132 at [15]-[18]. 15 The principles on which the court should make a determination in that regard are clear. They are those which have been expressed in Re El Zorro Transport Pty Ltd [2013] NSWSC 1082 in which Brereton J at [5] (citations omitted) made plain that: It is the practice of the Court that, all things being equal, it will appoint the plaintiff's nominee as liquidator where there is a contest to the appropriate identity of the appropriate appointee, and there is nothing to be said between the competing nominees as to their respective fitness, qualifications or cost. 16 It is also worth noting that in Workers Compensation Nominal Insurer v Denny Earthmoving & Bulk Haulage Pty Ltd [2008] NSWSC 1167, Barrett J said (at [10]-[12]) that there are three guiding principles, being, first, that: [L]iquidators must be independent and have the appearance of independence so that the Court must judge, in the words of Santow J in Advance Housing Pty Ltd v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230: ...whether there would be a reasonable apprehension by any creditor of lack of impartiality on the liquidator's part in the circumstances, by reason of prior association with the company or those associated with it, including creditors or indeed any other circumstances. 17 It was also emphasised in the Workers Compensation that, all other things being equal, the court will select an option that is likely to involve less cost. 18 I also wish to draw attention to the principles stated in Re Crow Inn Pty Ltd (No 2) [2020] NSWSC 1749, in which Rees J said at [290] (citations omitted): In the ordinary course of events, and all things being equal, the Court's practice in winding up cases is to appoint the plaintiff's nominated liquidator. To depart from this approach, there must be a reason, such that there is something to be said between competing nominees in relation to their fitness, qualifications or costs. It is for the defendants to establish grounds to depart from the usual course.
In addition, in the matter of Atlas Construction Group Pty Limited (in liquidation) [2018] NSWSC 1189, Ward CJ in Eq (as her Honour the President then was), set out further considerations that arise in relation to the choice of liquidator at [86]-[89]: 86 In Emerton Pty Ltd v Referral Marketing Services Pty Ltd [2009] NSWSC 738 (Emerton), Brereton J considered an application (under the now repealed s 502 of the Corporations Act) to appoint a liquidator of the plaintiff's choice which liquidator it was prepared to fund. The plaintiff, Emerton Pty Ltd, was not prepared to fund the existing liquidators. At [24], Brereton J cited with approval Citrix Systems Inc v Telesystems Learning Pty Ltd (in liq) [1998] FCA 1050; 28 ACSR 529 (Citrix Systems), where Moore J (at 28 ACSR 538) held that the liquidator should be appointed from the list of official liquidators and said (at 538-539): … Proceedings such as these should not become a vehicle for disgruntled creditors to endeavour to secure the appointment of a preferred liquidator when a company is in voluntary liquidation. Appointing the nominated liquidator may tend to encourage such an approach. If it emerges that other applications are made for that purpose then it may be appropriate to appoint a liquidator who is not the nominated person. However it is not necessary in the present case. 87 In Emerton, Brereton J said at [25]; and [27]: ... [T]he purpose of appointing a liquidator is that there be an independent and impartial person to make those inquiries, primarily in the interests of the creditors. ... However, a liquidator making such inquiries does not do so as an agent of an aggrieved creditor. … The Court should not be forced to accede to a party's selection of a liquidator by a statement that a creditor is prepared to fund only a particular liquidator. In my view, having regard to the course of the proceedings to this point, if the Court were to accede to Emerton's application in this respect, there would be an appearance of acceding to Emerton's sustained attempts to have the liquidator of its choice appointed. This would do precisely what Moore J said should be discouraged, namely, to allow the proceedings to become a vehicle for the plaintiff to secure the appointment, not of an appropriate liquidator, but of the plaintiffs preferred liquidator. 88 In In the matter of Evcorp Grains Pty Ltd (No 2) [2014] NSWSC 155 (Evcorp), Brereton J (at [21]) reiterated the importance of those considerations, saying that: ... [T]he Court should not accede to a party's preference for a particular liquidator on account of its threat or promise to fund that liquidator but no other. To do so would encourage parties to be selective in their funding of liquidators for an irrelevant reason, and effectively abdicate the Court's responsibility to select an appropriate, rather than a party's preferred, liquidator ... 89 Again, in Re Plutus Payroll Australia Pty Ltd [2017] NSWSC 1041, Brereton J at [22] said that it was not appropriate for the Court to take into account any suggestion by a plaintiff that it would be prepared to fund only the liquidator of its choice.
There is no challenge by either side on this application to any of the skills, qualifications or fitness of those persons who have been put forward as the proposed liquidators. There is, therefore, nothing to be said between the competing nominees in relation to those grounds. This is not, however, a straightforward application of the principles that I summarised in BH Holdings because, as I have already indicated, it is fortuitous as to which party is in fact the plaintiff on the application given it was quite clear on the evidence that Deer Park could well have been the plaintiff. As such, this is not a case in which I consider it is appropriate to, in effect, regard the Association as the plaintiff and, therefore, provide preference to the plaintiff's nominated liquidator should all matters otherwise be equal.
There is, however, no equality on the issue of cost which is one of the principles to which I must give regard in the choice of liquidator. The hourly rates that are proposed to be charged by each of the liquidators who are being proposed is not the same. It is clear to me on the evidence that at each of the hourly rates for those who are the main persons who would be working on the liquidation, that the rates of Farnsworth Carson are substantially below the rates that are charged by Worrells. It seems to me that if any substantive work was to occur, on the basis of those hourly rates, it is likely that the cost that would be incurred by Farnsworth Carson would be less than those to be charged by Worrells.
I do, however, need to take into account the issues that are raised by the considerations in the judgments such as Emerton to which Ward CJ in Eq gave consideration in Atlas, as well as the decision in Evcorp, where it was made plain that one of the important considerations in the choice of a liquidator is that a court should not accede to a party's preference for a particular liquidator on account of a threat or promise to fund the liquidator but no other. One of the matters to which I need to give careful consideration is that there should not be any appearance of my acceding to a choice of liquidator simply on the basis that that liquidator is to be funded by one of the parties proposing that liquidator.
In the present matter, Deer Park have provided an undertaking from Mr Glamocic to provide $50,000 to fund Mr Farnsworth if he is appointed the liquidator of the Association. That is a matter to which I must give consideration on the principles which have been set out by Brereton J in the decisions to which I have referred of both Emerton and Evcorp.
I am not persuaded, however, that if Mr Farnsworth is not appointed and funds are not forthcoming from Deer Park that there is any other source of funds pursuant to which the liquidator would be able to resort. I have given particular consideration to s 545 of the Corporations Act 2001 (Cth) which makes it plain that a liquidator is not able to incur any expense in relation to the winding up of a company unless there is sufficient available property. It does not appear to have been shown on any of the evidence that is before me that it is likely that there will be funding that would be forthcoming on a liquidation from either the Australian Securities and Investments Commission (ASIC) or from any of the creditors.
In the circumstances it seems to me that I need to take a more middle path which overcomes the problems in relation to appointing a liquidator who is proposed to fund, but only that liquidator, and in circumstances where there are cost considerations which point in the other direction from the proposed liquidator put forward by the Association.
In the circumstances it seems to me that I need to focus on the issue of cost and use it as the one which is the deciding factor. The least costly route is if I appoint as the liquidators each of Jason Tang and Ozem Kassem who charge less in respect of a number of categories of those persons who might be working on the liquidation in the event that significant work is to be done. The rates of KPT are cheaper than those of the other proposed liquidators and it is also the case that Mr Tang and Mr Kassem do not have any of the issues of the sort that I identified in the judgments to which I have referred of both Emerton and Evcorp. In those circumstances I propose that the choice of liquidator should be each of Mr Tang and Mr Kassem. Those are the orders I propose to make.

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Judgment (8 paragraphs)

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Legislation Cited (2)

Cases Cited (9)