Re Capital Management Securities Ltd (1986) 4 ACLC 157

Re TEA (1983) Ltd (Receivers and Manages Appointed) (1984) 2 ACLC 183

Re Kabat Pty Ltd (1985) 3 ACLC 828

Solicitors for the Applicant: Mallesons Stephen Jaques

1. The Court gives leave to Jeffrey Laurence Herbert to consent to

be appointed and to act as liquidator of Mistral Mines NL.

2. There be liberty to apply for further directions.

3. The applicant bear its own costs of the motion.

Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT ON MOTION FOR LEAVE FOR LIQUIDATOR TO CONSENT TO APPOINTMENT

FRENCH J On 11 June 1993 Mallesons Stephen Jaques filed an application in this Court for an order under s.460(1) of the Corporations Law that Mistral Mines NL be wound up. On 16 June Mallesons filed a motion seeking leave for Jeffrey Laurence Herbert to consent to be appointed and to act as the liquidator of the company in the event that a winding up order is made. The need for such leave was perceived because Mr Herbert is a partner of a person who held office as receiver and manager of the company less than two years ago. The administration of that receivership has been completed for some twenty three months.

2. The factual position is that the proposed liquidator, Jeffrey Laurence Herbert, is a partner in Arthur Anderson and Co., accountants. One of the other partners in the firm, David John Beatty, was appointed on 29 January 1991 by Tricontinental Corporation Ltd as receiver and manager of certain mining tenements held by Mistral. This appointment was pursuant to a charge granted by the company to Tricontinental. The proceeds of the sale of the tenements enabled the debts secured by the charge to be repaid. On 28 May 1991 notification of discharge was filed with the Australian Securities Commission pursuant to s.269(1) of the Corporations Law. That section requires the holder of a registered charge to make an acknowledgment of release or discharge within fourteen days of a request made by the chargor. The charging company may then lodge the memorandum with the Australian Securities Commission and particulars of the matters stated in it will be entered in the Register. The memorandum filed in this case noted that the debt was "paid or satisfied in full and all property was released". The receivership continued until 21 August 1991. Mr Beatty's appointment extended only to part of the assets of Mistral, being the mining tenements in question. Apart from the sale of those assets there was no other interference in the affairs of the company.

3. The records of Tricontinental show a debt presently owing by Mistral to Tricontinental in the amount of $130,000 in respect of legal fees incurred by Tricontinental. A corporate solicitor employed by Tricontinental was unable to explain how the fees came to be incurred and on what basis they were said to be owing by Mistral. Tricontinental has indicated that it has no objection to Mr Herbert's appointment as liquidator.

4. On 28 May 1993 Mr Herbert sought a direction from the Australian Securities Commission that s.532(6)(b) of the Corporations Law under which his partner, Mr Beatty, is deemed to be an officer of the company should not apply. In reply the Commission said:

"The Commission is guided by the case law on this

subject which indicates that the principle adopted by

the courts requires not only that a liquidator be

independent but also be seen to be independent (sic).

Despite your assertion to the contrary, your

appointment as liquidator of Mistral Mines NL (the

company) could be perceived to be in a position of

conflict given that Mr Beatty of your firm was

previously appointed Receiver and Manager of the company."

5. Section 532 of the Corporations Law provides in the relevant parts:

"532(2) Subject to this section, a person shall not,

except with the leave of the Court, seek to be

appointed, or act, as liquidator of a company:

.

.

.

(c) if:

(i) the person is an officer of the company (otherwise

than by reason of being a liquidator of the company

or of a related body corporate);

.

.

.

(v) the person is a partner, employer or employee of

an officer of the company;

.

.

.

532(6) For the purposes of subsection (2), a person

shall be deemed to be an officer or auditor of a company if:

(a) the person is an officer or auditor of a

related body corporate; or

(b) except where the Commission, if it thinks

fit in the circumstances of the case,

directs that this paragraph shall not

apply in relation to the person - the

person has, at any time within the

immediately preceding period of 2 years,

been an officer, auditor or promoter of

the company or of a related body corporate."

6. Section 532 of the Corporations Law embodies a long standing albeit qualified prohibition against the appointment of an officer of a company as its liquidator. Statutory predecessors are to be found in s.417 of the Companies Codes and s.277A of the Uniform Companies Acts 1961 - see also s.335 Companies Act 1948 (UK). These disqualification provisions are "...designed to preclude the appointment of a liquidator whose personal circumstances may make it difficult for him to discharge his duties with complete impartiality" - McPherson, The Law of Company Liquidation 3rd Ed. pp 208-209. Thus, where the appointment of a company's auditor as its liquidator might create the occasion for his independence to be challenged by a creditor, leave was refused - Re Photo Holdings Pty Ltd (1976) 2 ACLR 117 at 118 (Kaye J). See also Re Stewden Nominees (No. 4) Pty Ltd (1975) 1 ACLR 185. In Re Capital Management Securities Ltd (1986) 4 ACLC 157, McLelland J refused leave under s.417 of the Companies Code to a member of a firm of accountants who had been the company's auditors since its incorporation saying as he did:

"It is clear from the terms in which section 417 is

expressed that the policy of the legislature therein

evidenced should be applied unless some substantial

ground for departing from it in a particular case is established."

A mere possibility of a conflict of interest with no evidence on which to found a proper assessment of the risk did not prevent appointment of a company's previous receivers and managers as liquidators in Re TEA (1983) Ltd (Receivers and Managers Appointed) (1984) 2 ACLC 183. In Re Kabat Pty Ltd (1985) 3 ACLC 828 appointment of the scheme manager of the applicant as liquidator was refused. Master Lee QC extracted from the cases which he reviewed the propositions that a liquidator must be and must appear to be independent and impartial from creditors:

"The Court will not normally appoint as the liquidator

a person who may be placed in a position where his

interest and duty may conflict." (p 830)

7. In the present case, I am satisfied that the possibility of conflict between Mr Herbert's duties as liquidator and his interests as partner of a former receiver of some of the company's assets is remote. There is no suggestion he is not fitted to fill the appointment. The legal cost of $130,000 claimed by Tricontinental against Mistral does not, on the face of it, appear to have any connection with Mr Beatty's duties as former receiver. The statutory period of two years has almost elapsed. Any suggestion of lack of impartiality by reason of Mr Beatty's former appointment would be speculative and in the circumstances fanciful.

8. In the circumstances I am satisfied that leave should be granted.