In the matter of MKC Media Corporation Pty Limited (in liquidation) [2016] NSWSC 690

Companies where Mr Farnsworth is court-appointed liquidator

1. The first category of the application relates to five entities of which Mr Farnsworth has been appointed as court-appointed liquidator. The Court has been provided with signed memoranda of resignation from Mr Farnsworth in respect of those companies, which will become effective when they are lodged in the Registry and notified to ASIC.
2. Section 473 of the Corporations Act 2001 (Cth) relevantly provides that a liquidator may resign and a vacancy in the office of a liquidator appointed by the court must be filled by the court. Rule 7.1 of the Supreme Court (Corporations) Rules 1999 (NSW) in turn provides that liquidator's resignation takes effect on the filing of a memorandum of resignation with the Registrar and its lodgement with ASIC. The orders proposed by Mr Farnsworth proceed on that basis. Several decisions have dealt with the circumstances in which the court may appoint a replacement liquidator, and it is very common for the court to appoint a replacement liquidator from the same firm as the liquidator who resigns, largely for reasons of costs efficiency: for example Re Free [2010] NSWSC 1079 at [6]; Re Porter and Mansfield [2012] NSWSC 220 at [5]; Re Kukulovski [2015] NSWSC 2040 at [7].
3. Mr Shepard, who is Mr Farnsworth's partner in the firm of Farnsworth Shepard, consents to be appointed by the Court and to act as liquidator of each of the companies of which Mr Farnsworth will resign as court-appointed liquidator. He indicates in respect of each company that he is not aware of any conflict of interest or duty that would make it improper for him to act as liquidator of the company. There is no reason to doubt that indication, in circumstances that, first, the enforceable undertaking identifies matters leading to it as being issues relating to disclosures given by Mr Farnsworth, at the point of his appointment as liquidator of several entities, rather than matters relating to the conduct of any of the court appointed liquidations. Importantly for present purposes, the enforceable undertaking itself contemplates that Mr Farnsworth would be replaced by Mr Shepard as external administrator in the relevant administrations. It seems to me that the Court can properly give considerable weight to the fact that ASIC, as statutory regulator and having undertaken a specific inquiry in respect of the relevant matters, has been prepared to execute an enforceable undertaking which contemplates Mr Shepard's appointment in place of Mr Farnsworth in the particular circumstances, and that provides strong reason to conclude that Mr Shepard may properly be appointed to that position. That course is, of course, consistent with the usual course, adopted in the authorities to which I have referred above, which generally has the advantage of minimising the waste of costs on the replacement of a liquidator, by allowing a firm to continue to use the staff that may have been acting on a particular liquidation on the replacement of the liquidator, and avoiding or minimising wasted costs involved in that process.
4. For those reasons, I am satisfied that I may properly make the order sought in order 1 under s 473 of the Corporations Act in respect of the five entities that are in court appointed liquidation.

Companies in creditors' voluntary liquidation

1. Turning now to the companies which are in creditors' voluntary liquidation, Mr Farnsworth seeks an order under s 503 of the Corporations Act which provides that the court may, on cause shown, remove a liquidator and appoint another liquidator. In the present case, I am satisfied that cause is shown to remove Mr Farnsworth as liquidator of each of the relevant companies. That cause arises simply from the fact that Mr Farnsworth has agreed with the ASIC that he should not act, and may not act, as an external administrator of the relevant companies in the relevant period. In those circumstances, it would, of course, be quite inappropriate for Mr Farnsworth to act as external administrator, having agreed not to do so, and of course he does not seek to do so. It would no doubt have been possible for Mr Farnsworth simply to resign as liquidator for those entities, and for the Court to appoint a replacement liquidator under s 502 of the Corporations Act, as is common practice where, for example, a liquidator of a company in a creditors' voluntary liquidation retires. However, the approach which is sought to be adopted under s 503 of the Corporations Act seems to me to be equally open.
2. So far as the eight companies referred to in paragraph 2 of the orders are concerned, the approach agreed between Mr Farnsworth and ASIC, consistent with the approach adopted above in respect of the companies in court ordered winding up, was that Mr Farnsworth be removed and Mr Shepard be appointed in his place. It seems to me that the Court can properly appoint Mr Shepard in place of Mr Farnsworth, for the same reasons that I have taken that course in respect of the companies to which Mr Farnsworth was court-appointed liquidator, namely that that was the approach agreed between Mr Farnsworth and ASIC, and that that is consistent with the usual practice and is likely to minimise the wasted costs arising from Mr Farnsworth's replacement. Accordingly, I am satisfied that I can make an order in respect of order 2 providing for the replacement of Mr Farnsworth as liquidator in respect of each of those entities.
3. The third order sought relates to Dungowan Manly and is to be dealt with subsequently, as I noted above. The fourth order relates to the removal of Mr Farnsworth as liquidator and the appointment of Messrs Cathro and Darin as joint liquidators of MKC Media. That order is sought to give effect to a provision of the enforceable undertaking which provides that, in respect of several entities, of which only MKC Media remains relevant, Mr Farnsworth is to be replaced by a registered liquidator or liquidators acceptable to ASIC. ASIC has confirmed, by letter dated 10 February 2016, that the appointment of Messrs Cathro and Darin as joint and several liquidators of MKC Media is acceptable to it and that it does not object to the orders sought in the Originating Process generally.
4. The approach contemplated by the order, of removal of Mr Farnsworth and appointment of Messrs Cathro and Darin in his place is consistent with the approach contemplated by s 503 of the Corporations Act, and is also consistent with the approach that was taken by Barrett J, under that section, in Re Free above at [21], albeit in respect of the removal and appointment of joint liquidators. I am satisfied that I may properly take that approach, to give effect to the enforceable undertaking which has been agreed between Mr Farnsworth and ASIC, noting that in this case ASIC has evidently formed the view that it is preferable that a liquidator other than Mr Shepard be appointed, and I should proceed on that basis.
5. Finally, order 5 contemplates that Mr Farnsworth would be removed as the sole liquidator of, and Messrs Farnsworth and Shepard would be appointed as joint liquidators of, Moore Australasia. That again reflects the approach contemplated by the enforceable undertaking, which contemplated that Mr Shepard, or another registered liquidator acceptable to ASIC, would be appointed jointly and severally as liquidator with Mr Farnsworth to Moore Australasia. Again, that course can be affected by s 503 of the Corporations Act, adopting a similar approach to that which was taken by Barrett J in Re Free above at [21]. I am satisfied that such an order can properly be made, to give effect to the enforceable undertaking.
6. Accordingly, I make orders in accordance with the short minutes of order initialled by me and placed in the file deleting paragraph 3, renumbering the subsequent paragraphs 4 to 6 as 3 to 5 and adding a new order 7, liberty to apply on one business days' notice specifying the relief sought.

Dungowan Manly Pty Limited

1. By Originating Process filed on 12 February 2016 Mr Adam Farnsworth in his capacity as liquidator of Dungowan Manly Pty Ltd (in liq) ("Company") seeks an order, relevantly, under s 503 of the Corporations Act removing him and, as amended in the course of the hearing, appointing Messrs Cathro and Darin as liquidators of the Company. The application is supported by affidavits of Mr Farnsworth dated 12 February 2016 and 11 March 2016 and a consent to act as liquidator of Messrs Cathro and Darin is in evidence. Mr Farnsworth gives evidence of the circumstances leading to the application which I have summarised above.
2. Mr Farnsworth has entered an enforceable undertaking with the Australian Securities and Investments Commission which identifies certain concerns of ASIC, none of which relate to the Company, and records his agreement not to perform, for six months commencing in late December 2015, any duty or function which requires a person performing such duty or function to be registered as a liquidator under the Corporations Act. That enforceable undertaking relevantly provides, in respect of the Company, for Mr Farnsworth to be replaced by Mr Shepard as external administrator of the external administration to which he was appointed. Mr Farnsworth gave notice of this application, in respect of the Company, to the creditors of the Company and, as events have developed, he apprehends, it appears correctly, that the appointment of Mr Shepard would be opposed by Mr McLaughlin, a creditor of the Company, who appears in respect of the application today.
3. Mr Farnsworth has instead proposed the appointment of Messrs Cathro and Darin, who have confirmed that to the best of their knowledge they are not disqualified from acting as liquidators of the Company by reason of the provisions in s 532 of the Corporations Act. ASIC has also confirmed, by letter dated 11 March 2016, that the appointment of Messrs Cathro and Darin as joint and several liquidators to the Company would be acceptable to it.
4. I should pause to deal with the basis of the application, putting to one side for one moment the matters raised by Mr McLaughlin in submissions. It seems to me plain that Mr Farnsworth cannot longer act as liquidator of the Company, where to do so would be inconsistent with the enforceable undertaking which he has given to ASIC and would place him in breach of that undertaking. In those circumstances, it is also plain that the Court has a jurisdiction to remove Mr Farnsworth as liquidator of the Company and to replace him with another liquidator, and that jurisdiction is available under s 503 of the Corporations Act.
5. It seems to me that there is no reason, putting aside the matters raised by Mr McLaughlin for the moment, that the Court would not exercise that jurisdiction, either to appoint Mr Shepard, or to appoint third party liquidators. The appointment of Mr Shepard would, on one view, have had the advantage that he and his firm were likely to be familiar with aspects of the liquidation, and would minimise the costs to be involved in replacement of a liquidator. The appointment of a third party liquidator has an advantage of bringing a fresh mind to bear on what has been a long, complex and controversial liquidation, as several previous decisions of the Court attest, although it has the corresponding disadvantage that costs are likely to be incurred by Messrs Cathro and Darin in familiarising themselves with matters which would already be known to Mr Farnsworth and Mr Shepard. In the circumstances, and given Mr McLaughlin has appeared and made clear that he, as a major creditor of the Company, would oppose the replacement of Mr Farnsworth with Mr Shepard, it seems to me that the view that Mr Farnsworth has taken that it would be preferable for third party liquidators to be appointed is a prudent one. In those circumstances, the balance seems to me to favour the appointment of Messrs Cathro and Darin, as to whom no question of independence arises, in respect of the Company.
6. I now turn to Mr McLaughlin's position. Although he has ultimately determined not to tender evidence in this application and to make only limited submissions, Mr McLaughlin draws attention to the fact that disputes between the Company, under the control of its former directors, and Mr and Mrs McLaughlin have had a very long history, and that at least part of that history has involved the liquidation. That long history has been set out in several previous judgments of this Court, at first instance, in the Court of Appeal, and then again in several recent judgments at first instance. Mr McLaughlin advances several complaints as to the conduct of the liquidation which were identified but not fully elaborated in the circumstances of this application.
7. It seems to me that, as I raised in submissions, and as Mr McLaughlin fairly accepted, the proposition that Mr McLaughlin is dissatisfied, whether fairly or unfairly, with Mr Farnsworth's performance of his duties as liquidator is a matter that, in the present circumstances, is not likely to lead to a different result in this application. Mr Farnsworth is unable to continue as liquidator, and the proposition that Mr McLaughlin is dissatisfied with previous actions he has taken or steps he has not taken as liquidator would not alter that position. In making that observation, I express no view as to whether Mr McLaughlin's dissatisfaction is justified or not, and that would have to be determined in the circumstances of what, on any view, would have been a complex and difficult liquidation for any liquidator to have undertaken. If it be assumed that Mr McLaughlin's complaints as to the conduct of the liquidation had some justification, then that would still not provide any reason not to replace Mr Farnsworth as liquidator, where he is now unable to complete that role, and it would not provide any reason not to replace him with third party liquidators, where that is the course for which Mr McLaughlin contends. In those circumstances, it seems to me that the matters raised by Mr McLaughlin, although not fully developed, do not provide any reason not to make the orders sought.
8. I note, for completeness, that Mr McLaughlin raised the possibility that other proceedings might be commenced. The Court has, of course, a supervisory jurisdiction over liquidators and although its statutory jurisdiction is directed, in the first instance, to court-appointed liquidators, it has exercised that jurisdiction in respect of liquidators in creditors' voluntary liquidations. However, as I noted in the course of submissions, the commencement of further proceedings is a matter to which Mr McLaughlin would have to give the most careful consideration, first, because any new liquidator to be appointed will have to consider the position in the liquidation, before determining what steps should be taken. Second, no order could properly be made requiring Mr Farnsworth to take steps in the liquidation, where he would be disabled from doing so by the enforceable undertaking and by his replacement as liquidator. Third, the history of these proceedings to date suggests that any further proceedings are likely to be complex, to involve several parties and to have potential cost implications for Mr McLaughlin. Those are, however, all matters to be taken into account by Mr McLaughlin, and it is a matter for him whether he does or does not bring any such further application and expose himself to any such further costs. It does seem to me, however, that Mr McLaughlin was correct in ultimately forming the view that the matters which he sought to agitate today, if they are to be agitated at all, would properly be agitated in a separate application, rather than in opposition to an application for Mr Farnsworth's replacement in the relevant circumstances.
9. For these reasons I am satisfied that, consistent with the views which I have expressed in respect of several other companies, where these issues had not arisen, it is appropriate to make an order removing Mr Farnsworth as liquidator of Dungowan Manly Pty Ltd and provide for his replacement by Mr Cathro and Mr Darin. Accordingly, I make the following orders:
10. Pursuant to s 503 of the Corporations Act, Mr Adam Farnsworth be removed as liquidator and Messrs Simon Cathro and Christopher Darin be appointed as joint liquidators of Dungowan Manly Pty Ltd (in liquidation) ACN 003 175 004.
11. This order be entered forthwith.

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