The threshold issue
99 The special purposes for which the SPL is sought to be appointed by the plaintiffs are set out at [40] above. As was made clear by the plaintiffs' written submissions, the primary purpose for which the SPL is sought to be appointed is to investigate what they describe as the "hasty sale" of BMR's assets in November and December 2019 while the company was in voluntary administration, which they allege "could lead to a recovery of CAD$10 [million]". The plaintiffs claim that the voluntary administrators should not have accepted the ESI payment as a provable debt.
100 With particular reference to special purposes [1(c)], if a SPL was appointed on the terms sought by the plaintiffs, it would authorise the SPL to conduct an unrestricted investigation into all aspects of the liquidators' conduct while they were administrators. Even if the SPL's special purposes were limited to potential claims arising out of the sale process described above, it would necessarily still involve an investigation of the voluntary administrators' conduct
101 Thus, a threshold issue for this Court is whether, with reference to Brereton J's judgment in Honest Remark Pty Ltd v Allstate Exploration NL [2006] NSWSC 735; 234 ALR 765, a SPL can be appointed to investigate the incumbent liquidators in relation to their conduct as voluntary administrators immediately preceding the liquidation.
102 In Honest Remark, the defendant (Allstate), who was in deed administration, sought summary dismissal of the plaintiffs' application seeking appointment of a special purpose administrator. A special purpose administrator was sought to investigate transactions entered into by Allstate with Macquarie Bank Ltd, alleging that deed administrators had acted in a manner prejudicial to the interests of the members and unsecured creditors of the defendant, both in that role and previously as voluntary administrators. The Court was required to decide whether, under the now repealed ss 447A or 447E of the Corporations Act, or the Court's inherent jurisdiction, the Court had power to appoint an additional administrator to investigate the conduct of the incumbent administrator.
103 After reviewing some caselaw, Brereton J importantly concluded at [62] that "there is no power to appoint a special purpose liquidator for the purpose of investigating the conduct of the original liquidator as such". The primary basis for this conclusion was explained by his Honour at [58]-[59] and [61]-[62], which are extracted below (emphasis added):
[58] Accordingly, while Honest Remark's submission that special purpose liquidators have been appointed in circumstances where the potential claim was against the liquidator (plaintiff's supplementary submissions on summary disposal application, para 7) is in terms correct, no case has been discovered in which a special purpose liquidator has been appointed to investigate the conduct of one of the original liquidators in the conduct of the relevant liquidation. Rather, they have been appointed to investigate or conduct claims arising apart from the liquidation, in respect of which the liquidator has or may have a conflict of interest and duty.
[59] There are very good reasons why this is so. The investigation of the conduct of a liquidator qua liquidator is not part of the matters entrusted to a liquidator; it is a supervisory function of the court. The court does not readily embark on or permit inquiries into the conduct of liquidators, in the absence of conduct liable to attract sanctions or control for what might broadly be described as disciplinary reasons: Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434 at 443; 1 ACSR 79 at 87; 8 ACLC 39 at 43; Belvista Pty Ltd v Murphy (1993) 11 ACSR 628 at 630 (Belvista). As the cases referred to by Mullins J in McDonald show, courts protect their liquidators by refusing to allow them to be the subject of proceedings without leave. As Young J has said in Re Biposo Pty Ltd (1995) 120 FLR 399 at 403 (Re Biopso):
The liquidator, even in a voluntary winding up, has very strong powers which have been given to him under the Corporations Law, virtually as the delegate of the court, or the delegate of the Australian Securities Commission, to see that fair play is done between the competing interests in a liquidation. Up until the bulk of the work became so heavy and, indeed, as is still the case in some other jurisdictions, the matters which under New South Wales law are entrusted to a liquidator were part of the functions of a court official.
The court will be very jealous of its delegate exercising the powers that it is given. The court will take every precaution to make sure that those powers are used impartially and for a proper purpose. The corollary of this is that the court will not permit its officer to be sued by a creditor or have an inquiry made under s 536 unless it is satisfied that there is a prima facie case: Re Siromath Pty Ltd 9 ACLC 1583 at 1590.
…
[61] A special purpose liquidator is appointed to co-exist with the existing liquidators, to fulfil a specific purpose which would otherwise form part of the responsibilities of the original liquidator, but which is carved out from those usual responsibilities because of difficulties in the original liquidator performing it. Because the investigation of the conduct of a liquidator is not part of the matters entrusted to a liquidator, but a supervisory function of the court, an investigation by one of several liquidators into the conduct of another in the liquidation does not involve carving out of the liquidation a part of the ordinary responsibilities of the liquidator. To the contrary, it involves circumventing the ordinary and proper procedures for supervision of liquidators, and the protections that attend them.
[62] In my opinion, there is no power to appoint a special purpose liquidator for the purpose of investigating the conduct of the original liquidator as such. As has been seen, it is not the duty of a liquidator (or one of several liquidators) to investigate allegations against themselves or some of them: Re Bond. Such an investigation is not part of the administration, and it cannot therefore be carved out of the administration and given to a special purpose liquidator. In the terms used by Chitty J, it is not a matter arising in the course of the liquidation, conduct of which can be allocated to one of several liquidators. In the terms of s 473(8) of the Corporations Act, it is not a thing required or authorised by the Act to be done by a liquidator.
104 At [63], Brereton J concluded that the position was no different with respect to an administrator.
105 As mentioned, there is apparently no reported case in which a SPL has been appointed to investigate the conduct of an incumbent liquidator either in that capacity or their prior capacity as an administrator (see Honest Remark at [58]). Moreover, Brereton J's conclusion in Honest Remark has been cited with approval in cases following the enactment of the IPS: see Shangri-La at [90]-[91] per Connock J; Re Aus Streaming (in liq) [2020] VSC 313 at [49]-[50] and [66] per Connock J; see also Commonwealth of Australia, Re ACN 093 117 232 Pty Ltd (in liq) v ACN 093 117 232 (in liq) [2018] FCA 1922 at [33] per Derrington J. In Shangri-La, after extracting relevant parts of Honest Remark, Connock J at [91] observed:
Although these observations were made prior to the introduction of sch 2 and s 90-15, their underlying force appears to continue to resonate in the context of applications for the appointment of SPLs made pursuant to s 90-15 - at least so far as the exercise of discretion is concerned. Whether or not the same force remains in relation to the question of the court's power under s 90-15 to make such an order need not be explored given the facts of the present application and the confined nature of the SPL's purposes. If the occasion arises for this issue to be considered in the future, no doubt one of the relevant matters will be the extent to which, if any, the specific review powers set out in sub-d C of div 90 of sch 2 impact upon the proper construction of s 90-15(1) in this regard.
106 I did not understand the plaintiffs to challenge the correctness or the ongoing force of Brereton J's reasons in Honest Remark with respect to applications made under s 90-15 of the IPS. Rather, the plaintiffs' primary contention was that the circumstances of this case are distinguishable from Honest Remark because the application to appoint a SPL to BMR is to investigate conduct which occurred before the liquidation, namely during the voluntary administration. To support this proposition, particular reliance was placed on Brereton J's reference to Santow J's decision in Hill v David Hill Electrical Discounts Pty Ltd (in liq) [2001] NSWSC 271; 37 ACSR 617. In Hill, Santow J acceded to an application for the appointment of a new liquidator and removal of an incumbent liquidator, who had also been the voluntary administrator and deed administrator, in circumstances where a referee report ordered by the Court established sufficient prospects of a finding of serious misconduct against the liquidator for conduct which occurred during deed administration. At [55], in summarising Santow J's decision, Brereton J in Honest Remark concluded:
… Santow J held that, in light of the findings of a referee, there was an urgent need for an impartial liquidator with no interest in the outcome to investigate whether action should be brought against the deed administrator for insolvent trading, and that the original liquidator (who had been the deed administrator in question) should be removed and replaced. Although the conduct in question arose in the course of the deed administration, it was a claim that arose preceding the liquidation, and did not involve examination of the liquidator's conduct in the liquidation, but his conduct as deed administrator before the liquidation.
107 Indeed, after reviewing Hill and a number of other authorities, Brereton J stated at [58] that the plaintiffs had demonstrated that SPLs "have been appointed to investigate or conduct claims arising apart from the liquidation".
108 While I accept that Brereton J drew a distinction between the appointment of a SPL to investigate conduct during liquidation as opposed to prior or apart from the liquidation, for the following reasons this distinction does not assist the plaintiffs.
109 First, as the facts of Honest Remark reveal, Allstate was in deed administration. The conduct of the deed administrator which the plaintiffs sought the SPL to investigate occurred both during the deed administration and in his previous role as voluntary administrator. As such, I do not accept that Brereton J's remarks at [58] were intended to draw a distinction between conduct during liquidation and another preceding form of external administration. Indeed, this would be contrary to the factual premise on which Brereton J concluded that the Court did not have the power to appoint a special purpose administrator in Honest Remark.
110 Secondly, while Brereton J did not expressly distinguish or disagree with Santow J's reasoning in Hill, it is important to note his Honour's discussion of Re George A Bond & Co Ltd (1932) 32 SR (NSW) 301 (Re Bond) at [47]-[48]. In Re Bond, contributories of a company alleged that the sale of its assets during voluntary liquidation occurred at a significant undervalue, and they applied for the removal of the liquidator. In summarising Re Bond, Brereton J noted at [47] that Long-Inness J held that a "prima facie case of misconduct [by a liquidator] might require removal in some, though not necessarily all, cases …". Where a liquidator is faced with a claim for misconduct against themselves, Brereton J saw Re Bond as standing for the proposition that in those circumstances, the "duty as liquidator did not exceed a passive duty to take no advantage of his positon such as to impede the prosecution of the claim, and an active duty to take such action as would permit of such prosecution". Justice Brereton concluded at [48] that "Re Bond therefore supports the proposition that a liquidator (or administrator) does not have a duty to investigate allegations against himself or herself of alleged misconduct in the discharge of the office of liquidator".
111 Thus, Santow J's decision in Hill can properly be understood as falling within the categories of case referred to by Long-Inness J in Re Bond where misconduct by a liquidator might require removal from office, and the appointment of a new liquidator. Hill was not a case concerning the appointment of a SPL, and does not contradict Brereton J's conclusion at [61] in Honest Remark that a SPL is appointed "to co-exist with the existing liquidators, to fulfil a specific purpose which would otherwise form part of the responsibility of the existing liquidators". The investigation of the conduct of the incumbent liquidator in their previous role as voluntary administrator cannot be carved out of their existing responsibilities, as they were under no duty to conduct such investigations (Re Bond; Honest Remark at [48]).
112 Thirdly, if there is any inconsistency between Santow J's reasons in Hill and Brereton J's reasons in Honest Remark, the latter should be preferred. Indeed, it can reasonably be inferred from the reasons for judgment in Hill that there was no dispute before Santow J as to the propriety of the new liquidator investigating the conduct of the existing liquidator as deed administrator.
113 Justice Brereton's reasons are strengthened by the current statutory regime for the supervision of administrators and liquidators under the IPS. As has been noted above, the Court's specific powers of supervision in the IPS, such as to inquire into the conduct of external administrators (ss 90-5 and 90-10) and to appoint a reviewing liquidator to investigate matters relating to the external administration of a company (s 90-23(6)), apply equally to both liquidators and administrators. The availability of these alternative statutory remedies for the supervision of the conduct of administrators and liquidators reinforces Brereton J's strong observations that SPLs should not be appointed to circumvent "the ordinary and proper procedures for supervision of liquidators, and the protections that attend them" (at [61]).
114 Courts have jealously guarded and protected their supervisory jurisdiction over liquidators, in particular by not permitting proceedings to be brought against a liquidator without the Court's leave (see Aardwolf Industries LLC v Riad Tayeh [2020] NSWSC 299 at [81]-[89] per Rees J and the authorities cited therein). This requirement reflects the Court's concern to ensure liquidators can carry out their official functions without undue encumbrance and as a means by which the Court can protect its own processes for the supervision of liquidators (see Eighty Second Agenda Pty Ltd v Handberg [2014] VSC 665 at [18]-[22] per Croft J).
115 In what can aptly be described as the uniform code established by the IPS, the supervisory jurisdiction of Courts over liquidators has been extended over all forms of external administration. As such, there is no reason of policy or principle to draw the distinction urged by the plaintiffs here. This Court does not have the power under s 90-15 of the IPS to appoint a SPL to investigate the conduct of the incumbent liquidator either as liquidator or in a previous role as voluntary or deed administrator.
116 For these reasons, the plaintiffs' primary claim for the appointment of an SPL must fail.