In the matter of FAI Traders Insurance Co Pty Ltd; In the matter of HIH Insurance Ltd (in liq); In the matter of HIH Underwriting & Agency Services Ltd; In the matter of CIC Insurance Ltd; In the matter of FAI General Insurance Co Ltd; In the matter of Christopher John Honey & Anthony Gregory McGrath - as liquidators of HIH Underwriting & Insurance (Australia) Pty Ltd (in liq) ACN 004 906 110; In the matter of HIH Overseas Holdings Ltd; In the matter of HIH Underwriting & Insurance (Australia) Pty Ltd; In the matter of FAI Insurances Ltd; In the matter of HIH Insurance Ltd (in liq); In the matter of HIH Underwriting & Agency Services Ltd (in liq); In the matter of ACN 005 312 345 Pty Limited; In the matter of ACN 006 584 103 Ltd; In the matter of HIH Legal Services Pty Ltd; In the matter of HIH Holdings Pty Ltd; In the matter of HIH Underwriting Holdings Pty Ltd; In the matter of HIH Travel (Australia) Pty Ltd; HIH Underwriting Holdings Pty Ltd v FAI
[2015] NSWSC 2137
Supreme Court of NSW|2015-11-12|Before: Brereton J
In proceedings 2005/257832:
HIH Travel (Australia) Pty Limited (In Liquidation) ACN 061 983 355 (applicant)
[6]
In proceedings 2003/85330:
ACN 006 584 103 Limited (formerly Ready Plan Group Limited) (In Liquidation) ACN 006 584 103 (applicant)
[7]
In proceedings 2003/83560:
ACN 005 312 345 Pty Limited (formerly Ready Plan Asia Pacific Pty Limited) (In Liquidation) ACN 005 312 345 (applicant)
[8]
In proceedings 2004/182187:
HIH Underwriting Holdings Pty Ltd (In Liquidation) ACN 004 829 494 (applicant)
[9]
In proceedings 2005/257832:
FAI (CTP) Pty Limited (In Liquidation) ACN 004 726 774 (applicant)
[10]
In proceedings 2002/63107:
HIH Investment Holdings Limited (In Liquidation) ACN 008 664 293 (applicant)
[11]
In proceedings 2001/58777:
HIH Overseas Holdings Limited (In Liquidation) ACN 008 636 566 (applicant)
[12]
In proceedings 2001/58662:
FAI Traders Insurance Company Limited (In Liquidation and subject to a Scheme of Arrangement) ACN 000 177 177 (applicant)
[13]
In proceedings 2001/58784:
FAI Insurances Limited (In Liquidation and subject to Schemes of Arrangement) ACN 004 304 545 (applicant)
[14]
In proceedings 2001/58780:
HIH Underwriting and Insurance (Australia) Pty Limited (In Liquidation and subject to a Scheme of Arrangement) ACN 004 906 110 (applicant)
[15]
In proceedings 2001/58772:
CIC Insurances Limited (In Liquidation and subject to a Scheme of Arrangement) ACN 004 078 880 (applicant)
[16]
In proceedings 2001/58774:
FAI General Insurance Company Limited (In Liquidation and subject to Schemes of Arrangement) ACN 000 327 855 (applicant)
[17]
In proceedings 2001/58776:
HIH Casualty and General Insurance Limited (In Liquidation and subject to Schemes of Arrangement) ACN 008 482 291 (applicant)
Representation: Counsel:
D G Healey (applicants)
HIS HONOUR: By interlocutory processes originally filed on 29 October 2015 and amended today, the liquidators of the remaining companies in the HIH group - that is to say, those in respect of which the liquidation has not yet been completed and the company deregistered - apply to have Mr Jason Preston, an official liquidator, appointed as liquidator of those companies jointly with Anthony Gregory McGrath, who is to continue as their liquidator, upon the impending retirement of Christopher John Honey as a liquidator.
Mr McGrath and Mr Honey were appointed joint and several liquidators of certain of the companies on 9 and 10 December 2004. At that stage, Mr McGrath and Mr McIntosh were appointed joint and several liquidators of other of the companies. Mr McIntosh retired, and upon his retirement Mr Honey was appointed a liquidator to act jointly and severally with Mr McGrath of the remaining companies [see McGrath as Liquidators of HIH Insurance Ltd (in liq) [2005] NSWSC 506; (2005) 54 ACSR 55]. Thus, at present, Mr McGrath and Mr Honey are the joint and several liquidators of all the remaining HIH companies.
Both of them were partners in McGrathNicol, as was Mr McIntosh. Mr Preston, the proposed replacement liquidator, is also a partner in McGrathNicol. Mr Honey has retired from the partnership with effect from 30 June 2015, and wishes to reduce his current workload and commitments. He intends to retire as liquidator of the HIH companies with effect from 1 December 2015. He has executed the appropriate memoranda of resignation for lodgement with ASIC in respect of each of those companies, dated 27 October 2015, and expressed to be effective on 1 December 2015.
There have always been two liquidators acting jointly and severally of each of the HIH companies. Mr McGrath and Mr Honey have both expressed the view that upon Mr Honey's retirement, it is desirable that there continue to be two liquidators. Reasons for this, which are self-evident enough, include the complexity of the liquidations; the desirability of having a liquidator available when another is absent, whether on other duties or on leave, and the prudential aspects of having two as opposed to a single liquidator.
The creditors' committees and committees of inspection have been informed of Mr Honey's intention to retire and of the proposal to appoint Mr Preston in his place. Mr Preston has had prior involvement in the HIH administrations, is familiar with them, and thus would come to them with a background of knowledge and familiarity. He is an experienced official liquidator and a partner in the same firm as the previous liquidators.
[20]
Endnotes
McGrath as Liquidators of HIH Insurance Ltd (in liq) [2005] NSWSC 506; (2005) 54 ACSR 55.
McGrath as Liquidators of HIH Insurance Ltd (in liq) [2005] NSWSC 506; (2005) 54 ACSR 55 at [9].
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.
[2010] NSWSC 1079 at [25]-[29].
[2013] NSWSC 2016 at [11].
See Re Equiticorp Australia Limited [2011] NSWSC 1368; Condon v Watson at [99]; In the matter of Bridgewater Investments Pty Limited and other Companies referred to in Schedules A and G to the Amended Originating Process [2013] NSWSC 426 at [12].
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Decision last updated: 01 September 2017
Parties
Applicant/Plaintiff:
In the matter of FAI Traders Insurance Co Pty Ltd; In the matter of HIH Insurance Ltd (in liq); In the matter of HIH Underwriting & Agency Services Ltd; In the matter of CIC Insurance Ltd; In the matter of FAI General Insurance Co Ltd; In the matter of Christopher John Honey & Anthony Gregory McGrath - as liquidators of HIH Underwriting & Insurance (Australia) Pty Ltd (in liq) ACN 004 906 110; In the matter of HIH Overseas Holdings Ltd; In the matter of HIH Underwriting & Insurance (Australia) Pty Ltd; In the matter of FAI Insurances Ltd; In the matter of HIH Insurance Ltd (in liq); In the matter of HIH Underwriting & Agency Services Ltd (in liq); In the matter of ACN 005 312 345 Pty Limited; In the matter of ACN 006 584 103 Ltd; In the matter of HIH Legal Services Pty Ltd; In the matter of HIH Holdings Pty Ltd; In the matter of HIH Underwriting Holdings Pty Ltd; In the matter of HIH Travel (Australia) Pty Ltd; HIH Underwriting Holdings Pty Ltd
Mr Preston has provided the requisite consent to act as liquidator of each of the subject companies. His membership of the same firm will facilitate continuity in the liquidation and the handover/takeover process. There is no reason to doubt that he is a fit and proper person to be appointed in the circumstances, or a suitable appointment, having regard to his background in these liquidations and his membership of the firm in question. The creditors and committees of inspection have raised no objection to his appointment. In my view, it is plainly established that it is desirable that there be a second liquidator following the resignation of Mr Honey and Mr Preston is an appropriate appointee for that purpose.
The issue which then arises is the Court's jurisdiction to appoint a second liquidator to act jointly and severally with a continuing liquidator upon the retirement of one of two joint and several liquidators. In McGrath, [1] Barrett J (as his Honour then was) considered that such a power existed under (CTH) Corporations Act 2001, s 473(7), which provides that "a vacancy in the office of a liquidator appointed by the Court must be filled by the Court". With reference to s 473(8) - which, as his Honour said, clearly contemplates the possibility that the Court will appoint more than one liquidator - as background against which the balance of s 473 should be read, his Honour reasoned that in referring to a vacancy in the office of a liquidator appointed by the Court, with "a liquidator" being in the singular, that comprehended the case envisaged by subsection (8) where more than one liquidator was appointed at the outset and a vacancy had arisen in the office of one only by reason of death, disqualification, or, as in that case and as in the present case, resignation. [2] It was by that course that Mr Honey was appointed in place of Mr McIntosh.
However, some doubt has been cast on that decision in a number of decisions in the Federal Court of Australia. In Condon v Watson, [3] Lindgren J held that there was only a vacancy in the office of a liquidator for the purposes of s 473(7) where a sole liquidator or all co-liquidators had ceased to hold office. His Honour's decision was at least provisionally followed by Edelman J in In the matter of Nixon. [4] The reasoning of Lindgren J was that by operation of Corporations Act, s 530, which was introduced in 2007 after the decision in McGrath, the consequence was that in the absence of any restriction in the order or resolution appointing multiple liquidators, any function or power of a liquidator could be performed or exercised by any one of them, and therefore someone remained to exercise those functions or powers after the retirement of one of multiple liquidators. So long as there remained at least one, it could not be said that there was a vacancy in the office of a liquidator.
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.
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.
Thirdly, as Mr Healey's helpful submissions point out, 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.
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, 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.
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.
In Condon v Watson, Lindgren J also raised but did not answer the question whether the word "must" in s 473(7) meant only that if a vacancy is to be filled, it is the Court and no-one else that must fill it or, alternatively, meant that the Court must fill any vacancy when it occurs, no matter what the circumstances. In McGrath, Barrett J appears to have thought that it had the latter meaning.
I am not convinced that it is necessary to resolve this question in order to determine the issues in the present application. However, for what it is worth, it seems to me that what the section intends to achieve by use of the word "must" is to identify the exclusive repository of the power to appoint a replacement liquidator, where the liquidator has been originally appointed by the Court.
First, while it is not on all fours with the sections which authorise the appointment of replacement liquidators or the filling of vacancies in cases where the liquidator has not been appointed by the Court, those provisions, such as s 495(3), s 499(5), s 502 and s 489EC, provide a context which tends to illustrate that the structure of the Act as a whole in these provisions is to identify who has the power to fill a vacancy, rather than to mandate that a vacancy be filled.
Secondly, it would be unusual for Parliament to impose a mandatory duty on the Court to appoint a replacement liquidator where no corresponding mandatory duty is imposed on the appointing bodies in the cases of voluntary liquidations.
Thirdly, the existence of a mandatory obligation to appoint a replacement liquidator would sit uncomfortably with the original power to appoint a liquidator under s 472(1), which provides that, on an order being made for the winding up of a company, the Court may - not must - appoint an official liquidator to be liquidator of the company.
Fourth, there may well be cases where there is a vacancy in the office of liquidator and it is undesirable, or at least unnecessary, to appoint a replacement - not only when one of multiple liquidators can continue to act, but also, for example, if upon the death or retirement of a liquidator, there was nothing further to be done in the liquidation. It is unlikely that Parliament intended that the Court, in those circumstances, should, nonetheless, have a duty to appoint a liquidator.
Fifth, imposing such a duty on the Court would be quite impracticable in the context that the Court normally acts only on applications brought before it. Otherwise, to discharge the supposed duty, the Court would have to vigilantly monitor the files of every liquidation within its jurisdiction, ascertain when there was a vacancy, and of its own motion make an appointment.
All these matters taken together, it seems to me, compel the conclusion that s 473(7) does not cast upon the Court a duty to appoint a replacement liquidator, but identifies the repository of the power to appoint a replacement liquidator in the case of a court-ordered winding up and confers the power to do so.
If power did not exist under s 473(7), the Court is empowered by s 472(1), to which I have already referred, to appoint an official liquidator to be liquidator of a company that has been wound up. 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. [5]
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.
The applicants also seek directions extending and abridging the time for the lodging of accounts by the retiring liquidator and the incoming liquidator, so that the six monthly cycle currently applicable in respect of Mr McGrath continues and so that Mr Honey's final accounts be concurrent with Mr McGrath's next accounts, rather than within one month after Mr Honey ceases to act, and that Mr Preston's first accounts be concurrent with Mr McGrath's next accounts and not within one month after the end of the period of six months from the date of his appointment. 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, [6] as did Black J in Re Thomas. [7]
As to costs, in lengthy and complex administrations such as these, which have now been underway for over a decade, the retirement and replacement of a liquidator is an ordinary incident of the liquidation and it is appropriate that the costs of the application be borne pro-rata by each of the companies in liquidation. [8]
I propose to make orders substantially to the effect of those sought in the amended interlocutory process. However, I will make the order for appointment of Mr Preston in terms that do not specifically refer to s 473(7), but are sufficiently general as to be supported both by s 473(7) and by s 472(1).
Accordingly, the Court orders that:
1. Upon the resignation of Christopher John Honey taking effect on 1 December 2015, Jason Preston of Level 31, 60 Margaret Street, Sydney, an official liquidator, be appointed as a liquidator of the company to hold office together with Anthony Gregory McGrath, an existing liquidator of the company.
2. Pursuant to Corporations Act, s 473(8), anything that is required, or authorised by the Act to be done by Anthony Gregory McGrath and Jason Preston as the liquidators of the company may be done by either, or both of them.
3. Pursuant to Corporations Act, s 1322(4)(d):
1. The period within which Christopher John Honey must lodge the account and statement prescribed by s 539(1) after he has ceased to act as liquidator of the company be extended to the next date upon which Anthony Gregory McGrath must lodge the account and statement required by s 539(1); and
2. The period within which Jason Preston must lodge the account and statement provided by s 539(1) of the Act after he has commenced to act as liquidator be abridged to the date upon which Christopher John Honey has lodged the account and statement prescribed by s 539(1) of the Act, pursuant to order 3(a) above.
1. The applicant's costs of this application and of the other applications made by them for like orders in the windings up of related companies heard concurrently be paid pro rata as expenses of the winding up of each of those companies.
The exhibits may be returned, including the Memoranda of Resignation.