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[2001] QSC 405
defendant. The application to remove the respondents as liquidators was dismissed; costs were reserved for submissions.
A creditor and a shareholder were allowed to bring the application, but they did not establish that the liquidators should be removed. The shareholder had a possible financial interest if a large creditor’s proof was rejected. The creditor had acquired a smaller debt through a deed, and the Court held that the debt and proof-related rights remained capable of assignment despite winding up and lodgment of a proof. Although the liquidators’ professional connections created a perception of possible bias on specific issues, the Court considered that an additional liquidator could deal with those issues more efficiently and at lower cost than replacing the existing liquidators. The removal application was dismissed.
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2,199 words · generated 02/10/2026
In McDonald v Dare [2001] QSC 405, Mullins J considered an application under s 503 of the (Cth) to remove two liquidators of Doolan Properties Pty Ltd. The applicants were Warwick McDonald, who claimed to be a creditor by assignment, and William Doolan, a shareholder of the company. The respondents, Tracey Joy Dare and Philip Arthur Hennessy, were KPMG partners and the appointed liquidators ([1]–[2]).
No linked legislation citations have been extracted yet.
The company’s financial position was connected to a loan made by McLaughlins Nominee Mortgages Pty Ltd to Berrima Properties Pty Ltd. Doolan Properties had guaranteed Berrima’s obligations. Berrima defaulted, McLaughlins obtained judgment, and Doolan Properties was wound up on McLaughlins’ application in May 1999 ([3]–[5]). McLaughlins later lodged a proof of debt for $751,435.46 in Doolan Properties’ liquidation. At the hearing, the liquidators had not admitted or rejected any proofs. They held $154,949.54 for possible distribution, subject to statutory priority payments ([12]).
The application raised two principal strands. First, the applicants said that a separate Supreme Court proceeding, alleging problems with sales of property and other conduct, gave rise to a conflict or appearance of bias. Second, they relied on KPMG’s professional work for businesses associated with McLaughlins. KPMG was not McLaughlins’ auditor, but it acted as auditor and tax agent for McLaughlins Financial Services Limited and as accountant and tax agent for McLaughlins Solicitors ([13]–[16], [47]–[48]).
The first applicant’s claimed creditor status came from Marilane Pty Ltd, which had lodged a $1,200 proof for unpaid fees. Marilane assigned the debt and related rights to McDonald under a deed dated 30 July 2001. The deed stated that it assigned all of Marilane’s right, title and interest, including rights of action or litigation, in relation to Doolan Properties and the debt ([38]–[40]).
The respondents acknowledged the possible appearance of bias in dealing with McLaughlins’ proof and proposed appointing another insolvency practitioner to handle that proof and investigate specified potential claims against McLaughlins. The Court treated that proposal as an alternative to removing and replacing the liquidators ([49]–[50]). The application to remove them was dismissed ([57]).
The Court first dealt with standing. Section 503 says that the Court may, “on cause shown”, remove a liquidator and appoint another, but does not itself identify who may apply ([30]). Mullins J considered the approach in Deloitte & Touche AG v Johnson, where the Privy Council treated a legitimate interest in the relief as important to whether an applicant was a proper person to seek removal ([34]–[36]).
For the second applicant, the critical point was not simply his status as a shareholder. If McLaughlins’ proof were rejected in full, the Court reasoned, the liquidation could have a surplus. That possibility gave Doolan an interest in decisions about the proof and potential action against McLaughlins, and was sufficient for standing ([37]). The Court therefore did not treat the company’s apparent insolvency as automatically excluding a contributory from applying.
For the first applicant, the Court rejected the argument that winding up had extinguished the debt or that lodgment of a proof had made assignment impossible. It referred to Commissioner of Taxation v Macquarie Health Corporation Ltd, which distinguished the continuing existence of a debt from the restriction on enforcing payment outside the insolvency process ([41]–[43]). Mullins J reasoned that a creditor could assign the right to receive payment and that lodging a proof did not extinguish the underlying debt. The deed was broad enough to transfer the debt and, if needed, the right to prove. Notice of assignment was not disputed ([44]). The Court also found no demonstrated ulterior purpose or bad faith in the assignment, despite the small amount involved ([45]).
Having found standing, the Court considered whether there was cause to remove the respondents. The agreed test was that the applicants had to establish cause and show that removal would be for the general advantage of those interested in the winding up. The judgment cites Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd for that formulation ([51]).
Mullins J accepted that the professional relationship between KPMG and entities associated with McLaughlins could create a perception of bias in dealing with McLaughlins’ proof or investigating a potential claim against it ([48], [52]). But the Court did not regard removal as the only way to address that concern. It considered the liquidation’s advanced stage and the relative cost of replacement. The evidence did not require the Court to resolve the precise competing estimates of additional costs; the relevant conclusion was that removing and replacing the liquidators would cost more than the alternative proposal ([54]).
The Court also relied on authority supporting appointment of an additional liquidator for a discrete part of an administration, particularly where replacement would bring expense and loss of efficiency in a substantially completed liquidation. It cited Re Obie Pty Ltd (in liq) (No 4) ([55]). Given the respondents’ recognition of the perception issue and their proposal to have another practitioner deal with the relevant matters, Mullins J was not satisfied that cause for removal had been shown ([56]).
The separate proceeding did not change that assessment. It had not been served, the plaintiffs had not indicated at the hearing that they were willing to pursue it, the pleading had apparent problems, and leave was required before pursuing claims arising from the liquidators’ conduct ([13], [22]–[26]). The Court consequently declined to treat it as a ready proceeding that required a different set of liquidators or the joinder of Doolan Properties ([26]–[27]).
The judgment did not purport to create a comprehensive new test for removal. It applied s 503 and the established proposition, recorded as common ground between the parties, that applicants must show both cause and general advantage to those interested in the winding up ([30], [51]). Its contribution lies in applying that framework to the particular standing and conflict questions before it.
On standing, the decision considered the general approach that an applicant must be a proper person with a legitimate interest in the requested relief. It accepted that a shareholder may have such an interest where a potential surplus is possible, even though the liquidation otherwise appeared insolvent ([35]–[37]). The reasoning is fact-sensitive: the possible surplus depended on the prospect that the major creditor’s proof might be rejected.
On debt assignment, the judgment clarified the distinction between the existence of the debt and the ability to enforce it outside the liquidation. It held that a company’s winding up restricts enforcement but does not extinguish the debt, and that proof of debt does not itself extinguish the underlying obligation ([42]–[44]). Applying that reasoning, the deed could transfer both the debt and the rights needed to participate in the liquidation.
On conflicts, the judgment does not hold that an appearance of bias is irrelevant. It accepted that a perception of bias existed in relation to specified work on the major creditor’s proof and potential claims ([52], [56]). It instead assessed the proposed response in the circumstances: an additional liquidator for discrete matters, against the cost and efficiency consequences of replacing the existing liquidators in an advanced administration ([54]–[56]).
The judgment therefore presents a practical application of the removal jurisdiction, not a general rule that an additional liquidator will always be an adequate substitute for removal. Its conclusion turned on the recognised concern, the proposed limited appointment, the stage of the liquidation, and the comparative cost.
At [37], Mullins J said that if McLaughlins’ proof were rejected, “there would be a surplus of assets in the liquidation”, giving the shareholder “a real interest” in decisions about the proof and possible claims. In plain English, a shareholder’s interest was not merely theoretical: a possible surplus could make the shareholder financially interested in how those matters were handled.
At [43], the Court reasoned that a debt continued to exist after winding up even though the right to enforce payment was restricted. At [44], it stated: “Mere lodgment of a proof of debt could not result in the extinguishment of the underlying debt.” In plain English, filing a claim in the liquidation did not erase the debt or prevent the creditor transferring it.
At [45], the Court noted the debt was small compared with the total proofs, but found no good reason to prevent the assignee from exercising a creditor’s rights. The amount alone did not defeat standing; the Court also considered whether the assignment was made for an ulterior purpose or in bad faith, and found no such case had been shown.
At [56], the Court said it was “not satisfied that the applicants have shown that there is cause for removal”. This reflects the balance it drew between the perceived conflict and the proposed additional-liquidator solution. The decision did not declare the professional relationship harmless; it found the evidence and proposed alternative insufficient to justify replacing the respondents.
The formal order at [57] was that “the application be dismissed”. At [58], the Court clarified that any application for an additional liquidator would need to be made in the file relating to the winding-up application. That procedural observation did not itself appoint an additional liquidator.
The reasoning is most directly relevant where a person seeks removal of a liquidator under s 503 and the person’s connection to the liquidation is disputed. For a shareholder, the decision illustrates that a possible surplus may supply a legitimate interest where the outcome of a major proof or proposed recovery could affect whether value remains for contributories ([37]). It does not establish that shareholder status alone will always suffice.
The assignment discussion is relevant where a creditor transfers a debt after winding up or after lodging a proof. The judgment distinguishes the debt itself from the statutory restriction on enforcing it, and considers whether the transfer instrument covers the debt and associated proof rights ([42]–[45]). The deed in this case used broad language and the notice issue was not contested, facts that should be kept in view when applying the reasoning to another instrument.
The conflict analysis is relevant where a liquidator or the liquidator’s firm has professional connections with a creditor whose proof or conduct may be examined. The decision shows that the Court may examine the nature of the relationship, the particular tasks giving rise to concern, the stage of the administration, and whether a limited appointment could address the issue without wholesale replacement ([48]–[56]).
It is also relevant where applicants rely on a separate proceeding alleging misconduct by liquidators. Here, the proceeding was unserved, the plaintiffs’ commitment to it was unclear, the pleading had apparent difficulties, and leave remained necessary ([13], [22]–[26]). Those features meant it was not treated as a proceeding ready to materially shape the removal application.
The supplied judgment text does not report any later judicial consideration of McDonald v Dare. It therefore does not establish whether later courts followed, distinguished, approved, or limited its reasoning. The citations in the judgment concern authorities considered by Mullins J, not later treatment of this decision.
For research purposes, the propositions that can be attributed to this judgment are limited to its own reasoning and result: possible surplus may give a contributory a legitimate interest; an underlying debt is not extinguished merely by winding up or lodging a proof; and an additional liquidator may be a less costly means of addressing discrete concerns in an advanced administration. Whether later courts have adopted or qualified those propositions cannot be determined from the judgment supplied here.
The judgment does not specify what evidence would be sufficient to establish that a proposed additional liquidator would be independent, adequately resourced, or practically able to deal with a disputed proof and potential claims. In this case, the respondents proposed the appointment and the Court compared its likely cost with replacement, but the appointment application itself was not decided ([49]–[56], [58]).
Nor does the decision settle how far the result would extend where the perceived conflict concerns the liquidators personally, rather than professional work by their firm for entities associated with a creditor; where the liquidators oppose an independent review; or where the liquidation is at an earlier stage. Those circumstances were not the facts before Mullins J.
On assignment, the Court treated the deed’s broad wording as sufficient and noted that notice was not in issue ([40], [44]). The judgment does not address every possible restriction in a debt instrument, every form of assignment, or a contested notice question. Its reasoning should therefore be read in the context of the particular deed and the parties’ submissions.
Finally, the judgment did not decide the merits of the allegations about property sales, the validity or amount of McLaughlins’ proof, or the separate proceeding’s claims. It treated that proceeding as not ready to affect the removal question and dismissed the application on the basis that removal had not been justified ([26]–[27], [56]–[57]).
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[1] MULLINS J: This is an application for the removal of the first and second respondents, Tracy Joy Dare and Philip Arthur Hennessy, as liquidators of Doolan Properties Pty Ltd (in liquidation) ("Doolan Properties") pursuant to s 503 of the Corporations Act 2001 ("the Act"). The first applicant, Mr Warwick McDonald, asserts that he is a creditor of Doolan Properties. The second applicant, Mr William Doolan, is a shareholder of Doolan Properties. The first and second respondents are partners of chartered accountants KPMG.
[2] The applicants allege that the grounds for the removal of the respondents are the prospect, existence, or appearance of bias or of a conflict of interest in light of Supreme Court proceeding S9643 of 2001 ("the Supreme Court proceeding").
[3] Commercial property known as the Watergarden Convenience Centre ("the Watergarden") was owned by Berrima Properties Pty Ltd ("Berrima"). Doolan Properties held 50% of the shares in Berrima the other 50% of the shares was held by Landvest Construction Pty Ltd ("Landvest"). McLaughlins Nominee Mortgages Pty Ltd ("McLaughlins") advanced $3.48m to Berrima in October 1997 by way of deed of loan which was secured by first registered mortgage over the Watergarden. The loan was guaranteed by Paul Thomas Brooks, Landvest, the second applicant and Doolan Properties. McLaughlins also took third party security over land owned by Landvest. At some stage further third party security was provided by Volo Developments Pty Ltd ("Volo"), another company associated with Mr Brooks.
[4] Berrima was in default under the loan. As a consequence McLaughlins cancelled the loan and on 31 July 1998 demanded immediate repayment of the loan and called upon the guarantees. On 10 May 1999 judgment in the sum of $4,008,084.53 was entered against Berrima by McLaughlins.
[5] On 2 June 1999 the second applicant was made bankrupt on McLaughlins' application and the first respondent was appointed as trustee of his bankrupt estate. On 10 May 1999 Doolan Properties was wound up on McLaughlins' application and the first and second respondents were appointed as the liquidators.
[6] McLaughlins sold the Watergarden in November 1999 for $4.1m.
[7] McLaughlins also sold some of the lots which had been mortgaged to it by
[8] The first respondent as the second applicant's trustee in bankruptcy sold his property situated at 8 Sankey Street, Hill End by contract dated 5 January 2000 for the sum of $262,250 which settled on 5 May 2000.
[9] The first and second respondents sold the half interest of Doolan Properties in the property situated at 315 Boundary Street, West End to the co-owner Mr Ramon Pollach by contract which was negotiated between June and September 2000 and settled on 6 October 2000.
[10] McLaughlins lodged a proof of debt on 8 June 2000 in the winding up of Doolan Properties. It was a accompanied by a copy of a settlement and compromise agreement made on 2 June 2000 between McLaughlins and McLaughlins Solicitors
(which is the legal practice with which McLaughlins is associated) on the one part and Mr Brooks, Volo and Landvest on the other part which are described in the agreement as "the Released Parties". The agreement relates to the guarantees given or the assumption of the obligations of Berrima undertaken by the Released Parties in respect of the moneys borrowed by Berrima from McLaughlins. The agreement recites that McLaughlins asserts that Berrima and the Released Parties as well as others are indebted to it for an amount of at least $350,000. The agreement provides for the payment by the Released Parties of the sum of $175,000 to McLaughlins and that McLaughlins releases and discharges the Released Parties from any further claims in respect of the matter. Clause 5 of the agreement provides:
"Each of the parties hereto acknowledge and agree that they have no further claims as against the other party and each of the parties hereto acknowledge and agree that all matters of dispute between them are hereby resolved and no further matters will be disputed between them."
[11] The agreement also provides that McLaughlins will take no further action against Berrima until it receives all funds that it is entitled to receive from the bankrupt estate of the second applicant and the liquidation of Doolan Properties and McLaughlins warrants that if it receives a minimum $100,000 from the distribution, it will release Berrima. Clauses 8 and 9 of the agreement provide that McLaughlins and the Released Parties are to cooperate to maximise the return to them of any distributions from the second applicant's bankrupt estate and the liquidation of Doolan Properties and that if McLaughlins receives more than $125,000, it agrees to pay to the Released Parties half of any amount received in excess of $125,000.
[12] Mr Michael Richard Congram is an insolvency manager in the employ of KPMG
who has the day to day conduct of the liquidation of Doolan Properties under the
supervision of the respondents. In his affidavit filed on 25 September 2001 Mr Congram deposed to proofs of debt totalling $801,940.27 having been received in the liquidation and that the sum of $154,949.54 was held by the respondents and available for distribution to creditors, subject to the priority payments referred to in s 556 of the Act. In Mr Congram's affidavit filed on 5 October 2001, copies of all proofs of debts received in the liquidation are exhibited. McLaughlins' proof of debt is for the sum of $751,435.46. Mr Congram also states that the respondents have not admitted or rejected any proofs at this stage of the administration.
[13] The claim and statement of claim were filed in the proceeding on 6 November
2000. They have not been served. Berrima is named as first plaintiff. The second and third plaintiffs are respectively Mr Brooks and Landvest. McLaughlins is named as the first defendant, KPMG as the second defendant and the first and second respondents are respectively the third and fourth defendants.
[14] The plaintiffs in the Supreme Court proceeding ("the plaintiffs") claim against McLaughlins for damages in the sum of $3,131,500 for breach of s 85 of the Property Law Act 1974 or for negligence or for breach of fiduciary duty. The allegation is made that the Watergarden was sold below market value and that commission of $82,500 was paid in connection with the sale which should not have been paid.
[15] The plaintiffs also allege that the first respondent failed to ensure that the property at 8 Sankey Street was sold at market and claims damages in the sum of $28,000 in relation to that sale. It is pleaded that the property at 8 Sankey Street was sold at
$245,000, when it was in fact sold at $262,250 which makes the damages claim significantly less. The plaintiffs have not quantified the claim for damages in relation to the allegation that the first and second respondents delayed in selling the interest of Doolan Properties in the property at 315 Boundary Street which resulted in a greater pay out to the mortgagee of that property and additional rates and charges being incurred.
[16] There is also an allegation in the Supreme Court proceeding that the several lots belonging to Landvest were sold at an undervalue. The total sale price from the lots owned by Landvest was $359,500. It is alleged that those lots should have been sold at $508,500.
[17] It is immediately apparent that there are a number of difficulties with the Supreme
[18] The point is taken by the respondents that the Supreme Court proceeding is outside the parameters of, and irrelevant to, the liquidation of Doolan Properties. It is argued that the Supreme Court proceeding is an attempt to pursue the respondents for conduct in respect of the liquidation of Doolan Properties and the first respondent in respect of her conduct as trustee in bankruptcy of the second applicant, when neither the second applicant or Doolan Properties are parties to the Supreme Court proceeding.
[19] The respondents submit that the allegations made in the statement of claim therefore depend on alleged relationships between the respondents and the plaintiffs and allegations of duties owed by the respondents to the plaintiffs which are not borne out by the known facts or are novel.
[20] Paragraph 22 of the statement of claim in the Supreme Court proceeding pleads that since July 1998 McLaughlins and the respondents have disposed of the real property and assets of the plaintiffs, the second applicant and Doolan Properties for the purpose of satisfying the debt owed by Berrima to McLaughlins. Although the respondents were appointed liquidators of Doolan Properties on the application of McLaughlins, the winding up of Doolan Properties is not being conducted for the purpose of satisfying the debt owed by Doolan Properties to McLaughlins pursuant to the guarantee given in support of Berrima's obligations to McLaughlins. The winding up of Doolan Properties is being conducted by the respondents as liquidators in accordance with the relevant legislation to wind up the affairs of Doolan Properties and distribute its assets amongst its creditors, according to law. Similarly, the conduct of the bankrupt estate of the second applicant by the third respondent pursuant to the Bankruptcy Act 1966 (Cth) is for the purpose of collecting the assets of the second applicant and distributing them amongst the relevant creditors, according to law. If the allegation in para 22 of the statement of claim cannot be maintained, there is no factual basis for alleging in paras 27 and 28 of the statement of claim the duty of good faith, the duty to refrain from acts of gross negligence and the duty pursuant to s 85 of the Property Law Act 1974 as being owed by the respondents to the plaintiffs.
[21] There is an alternative pleading in para 29 of the statement of claim that the respondents, in discharging their duties as liquidators, and the first respondent, in discharging her duty as the trustee of the bankrupt estate of the second applicant, knew or ought to have known that McLaughlins owed to the plaintiffs the duties referred to in paras 27 and 28 of the statement of claim and that the respondents have failed, refused or neglected to take legal proceedings against McLaughlins for breaches of the duties. Theoretically, Mr Brooks and Landvest may have an interest in ensuring that the assets of Doolan Properties and the second applicant are maximised in the respective administrations to ensure that a maximum distribution from those administrations is made to McLaughlins, to the extent that it may affect the contributions to the relevant debt required from Mr Brooks and Landvest. It is unnecessary, however, for there to be an allegation in para 29 of the statement of claim that the respondents failed to pursue McLaughlins for selling the Watergarden at an undervalue and the other breaches alleged against McLaughlins in relation to the sale of properties, when the plaintiffs can pursue McLaughlins directly for these alleged breaches of duties.
[22] Apart from the fact that the statement of claim obviously requires review, there is also a problem that in this application no person associated with the plaintiffs in the Supreme Court proceeding has indicated a willingness to pursue the Supreme Court proceeding.
[23] The second applicant in his affidavit filed on 25 September 2001 states that he has provided instructions to his solicitors on behalf of Berrima to prosecute the Supreme Court proceeding. The second applicant ceased to be a director of Berrima upon the commencement of his bankruptcy and his continued bankruptcy
operates to disqualify him from managing corporations: ss 203B, 206A(2) and
206B(3) of the Act.
[24] Mr Brooks is the sole director of Berrima, according to the search of the records held by the Australian Securities and Investments Commission. Mr Brooks is therefore the obvious person on behalf of Berrima, Landvest and himself to indicate what instructions he proposes to give in relation to the Supreme Court proceeding. The second applicant in his affidavit filed on 25 September 2001 deposes as follows:
"I am informed by my solicitors, who also act on behalf of Brooks and Landvest, and are plaintiffs in the above claim, that they have been unable to contact Brooks and Landvest to obtain any instructions, in regard to this application."
The settlement and compromise agreement entered into between McLaughlins and Mr Brooks, Volo and Landvest may be an impediment to the pursuit of the Supreme Court proceeding by Mr Brooks and Landvest.
[25] Another problem with the Supreme Court proceeding is that as it seeks relief against the respondents for alleged breaches of duty arising in the course of performing their duties as liquidators, the leave of the court is required before such a proceeding is commenced: Sydlow Pty Ltd (in liquidation) v TG Kotselas Pty Ltd
[1996] FCA 1384; (1996) 65 FCR 234, 241 and Mamone v Pantzer [2001] NSWSC 26; (2001) 36 ACSR 743, 746. Before the plaintiffs seek to serve the claim and statement of claim in the Supreme Court proceeding, leave should be sought nunc pro tunc in respect of commencing the Supreme Court proceeding.
[26] Even if the plaintiffs were willing to prosecute the Supreme Court proceeding, the shortcomings of the statement of claim and the need for leave to be obtained to prosecute the proceeding, mean that the Supreme Court proceeding should not be treated as a matter that is ready or about to proceed. That conclusion is reinforced by the lack of support from the plaintiffs about the Supreme Court proceeding on the hearing of this application.
[27] This application for removal of the respondents at this stage should therefore not be considered in the context of the Supreme Court proceeding and any perceived need for the respondents to make decisions relative to whether Doolan Properties becomes a party to that proceeding. I therefore reject the submission of the applicants that in order to complete the winding up of Doolan Properties, that company needs to be joined to the Supreme Court proceeding.
[28] In correspondence from the solicitors acting on behalf of the second applicant to the respondents'solicitors, it was foreshadowed that the second applicant would seek to be joined as a plaintiff in the Supreme Court proceeding. Although a significant part of the affidavits relied on in this application related to the sale of 8 Sankey Street by the trustee in bankruptcy, the difference between the sale price obtained by the first respondent and that which the second applicant contends was achievable is $9,750. The allegation made against the respondents in respect of the delay in selling Doolan Properties' interest in the Boundary Street property also does not appear to involve any significant sum, because of the limited nature of the claim. Both allegations are quite insignificant in value in comparison with the complaint of the second applicant that McLaughlins sold the Watergarden at an undervalue.
[29] The respondents challenge the standing of the applicants to bring the application.
"The Court may, on cause shown, remove a liquidator and appoint another liquidator."
[31] The respondents submit that although s 503 of the Act does not indicate who may apply to remove a liquidator, the application ought to be made by the liquidator, a contributory or a creditor, no other person having any legitimate interest in the liquidation.
[32] It is suggested in Andrew Keay McPherson The Law of Company Liquidation (4th ed) at 309-310 that a creditor and a liquidator have the necessary standing to apply for removal and the general view is that a contributory may also apply (for which there are authorities), except that reference is also made to the decision of Harman J in Re Corbenstoke Ltd (No 2) [1990] BCLC 60. In that case the applicant for removal of the liquidator claimed to be the registered shareholder for 49 out of 100 issued shares. As the subject company was insolvent, it was concluded that the applicant had no locus standi as a contributory to make the application. Relying on authority that a contributory could not present a petition for winding up unless the contributory alleged that there would be a surplus for contributories after payment of all creditors, Harman J stated at 62:
"If the company be insolvent, the only persons with an interest must be creditors for the dividends which may be paid upon their debts in the liquidation and cannot be a contributory who by definition will receive nothing."
[33] The effect of the authority relied on by Harman J in relation to the standing of the holder of fully paid up shares to apply for winding up which was Re Rica Gold Washing Company (1879) 11 ChD 36 has been abrogated in Australia by s 467(5) of the Act (and its predecessors). The rationale for giving a contributory standing to apply for the winding up of a company is to allow the contributory to protect its investment in the company's share capital: Re Kolback Group Ltd (1991) 4 ACSR
165, 172.
[34] The question of who was entitled to apply for the removal of a liquidator was considered by the Privy Council in Deloitte & Touche AG v Johnson [1999] 1 WLR
1605. The opinion of the Privy Council was delivered by Lord Millett and concerned a provision in companies legislation similar to s 503 of the Act which did not specify the qualification of the person entitled to make the application for removal of the liquidator. The decision in Re Corbenstoke Ltd (No 2) was approved. Lord Millett observed at 1610 from the numerous authorities which had been cited on the circumstances in which the English Court will exercise its powers to remove a liquidator for cause that:
"They do, however, show that the court has consistently regarded the creditors (in the case of an insolvent liquidation) and the contributories (in the case of a solvent liquidation) as the proper persons to make the application, being the only persons interested in the liquidation."
[35] Although this opinion approved the decision in Re Corbenstoke Ltd (No 2), the reasoning was not limited to the analogy with the circumstances when a contributory had standing to apply for winding up. The applicant for removal in the Privy Council case was a debtor of the subject company. Lord Millett stated at
1611:
"Where the court is asked to exercise a statutory power, therefore, the applicant must show that he is a person qualified to make the application. But this does not conclude the question. He must also show that he is a proper person to make the application. This does not mean, as the plaintiff submits, that he 'has an interest in making the application or may be affected by its outcome.' It means that he has a legitimate interest in the relief sought.
...
The standing of an applicant cannot therefore be considered separately and without regard to the nature of the relief for which the application is made. Section 106(1) does not limit the category of persons who may make the application. The plaintiff, therefore, does not lack a statutory qualification to invoke the section. But the question remains whether it has a legitimate interest in the relief which it seeks.
...
The company is insolvent. The liquidation is continuing under the supervision of the court. The only persons who could have any legitimate interest of their own in having the liquidators removed from office as liquidators are the persons entitled to participate in the ultimate distribution of the company's assets, that is to say the creditors. The liquidators are willing and able to continue to act, and the creditors have taken no step to remove them. The plaintiff is not merely a stranger to the liquidation; its interests are adverse to the liquidation and the interests of the creditors. In their Lordships' opinion it has no legitimate interest in the identity of the liquidators, and is not a proper person to invoke the statutory jurisdiction of the court to remove the incumbent office-holders."
[36] Notwithstanding the differences between the Australian jurisdiction and the English jurisdiction relating to the standing of the contributory to apply to wind up an insolvent company, the approach of the Privy Council in Deloitte & Touche AG v Johnson to the standing of an applicant for removal of a liquidator is logical in circumstances where the company is insolvent and the contributory therefore has no investment in share capital to protect.
[37] The primary concern of the second applicant is directed towards the respondents' attitude to the proof of debt of McLaughlins and the question of whether Doolan Properties pursues McLaughlins for the alleged breaches of duty in respect of the sale of the Watergarden. If McLaughlins' proof of debt were rejected in whole, there would be a surplus of assets in the liquidation. That gives the second applicant as a shareholder of Doolan Properties a real interest in the outcome of the decisions yet to be made by the respondents in connection with taking action against McLaughlins and dealing with the proof of debt of McLaughlins. The possibility of this interest of the second applicant is sufficient interest to give the second applicant standing to bring the application.
[38] On or about 17 July 2000 Marilane Pty Ltd ("Marilane"), the company which trades as Taylor Byrne, Valuers, lodged a proof of debt in the liquidation of Doolan Properties in respect of unpaid fees in the amount of $1,200.
[39] The first applicant entered into a deed with Marilane dated 30 July 2001 in which the debt owed by Doolan Properties to Marilane was assigned to the first applicant.
"That in consideration of the Purchaser paying to the Vendor the sum of $1,200.00 the Vendor hereby assigns to the Purchaser all of it's right, title and interest (including all rights of action or litigation which may be or become vested in the Vendor) in relation to Doolan Properties Pty Ltd and the debt owed by Doolan Properties Pty Ltd to the Vendor."
[41] The respondents submit that the deed of assignment was ineffective to constitute the first applicant as a creditor of Doolan Properties. Relying on Commissioner of Taxation v Macquarie Health Corporation Ltd (1999) 88 FCR 451, 471-472, the respondents submit that any cause of action in debt against Doolan Properties by a creditor had been extinguished as at the date of the winding up on 10 June 1999 and from that date the cause of action in debt was replaced by a statutory right to prove in the liquidation. It is therefore argued that as at the date of the deed of assignment, as Marilane had already exercised its statutory right to prove in the liquidation, there was no debt owed by Doolan Properties to Marilane.
[42] Emmett J stated at 472 in Commissioner of Taxation v Macquarie Health
"There is no doubt that the effect of winding up and of sequestration is that there is a restriction imposed on the capacity of a creditor to enforce payment of a debt without the leave of the Court. A creditor will not be entitled to payment from the debtor and if the creditor receives payment, he will be required to repay the amount to the liquidator or trustee in bankruptcy. In that sense, the creditor's remedies are converted into a right to prove in the winding up or in the bankruptcy. However, it does not follow, in my view, that the debt ceases to exist. The right to enforce payment is restricted. Nevertheless, the right to prove in the winding up or bankruptcy is a right to prove in respect of the debt which continues to exist."
[43] On the basis that on the winding up of a company a debt owed by the company still continues to exist, but the right to enforce payment is restricted, it is still possible for the creditor to assign the right to receive payment of that debt.
[44] When a company is wound up, the right to prove the debt is one of the rights that the creditor who is owed the debt can still enforce. Mere lodgment of a proof of debt could not result in the extinguishment of the underlying debt. The terms on which the debt were assigned by Marilane to the first applicant were quite general. If it were necessary to assign the underlying debt to enable the first applicant to stand in place of Marilane in order to prove the debt, that has been done by clause 1 of the deed of assignment. If it were necessary to assign the right to prove the debt in the winding up of Doolan Properties, that has also been done. There is no issue
about the notice of the assignment effected by the deed of assignment having been given to Doolan Properties.
[45] The quantum of the debt is relatively small, when compared with the total amount of the debts for which proofs have been lodged. Unless it were shown there were good reasons why the first applicant should not be allowed to exercise the rights that accrue to a creditor in a liquidation, irrespective of the size of the creditor's debt, the first applicant as a creditor of Doolan properties has the standing to bring the application for removal of the respondents. It has not been shown that there is any ulterior purpose or bad faith on the part of the first applicant in procuring an assignment of the rights, title and interests of Marilane in relation to the debt owed to it by Doolan Properties.
[46] Solicitors for the second applicant first advised the respondents of the issue of the Supreme Court proceeding by letter dated 9 May 2001. That was when the respondents were also first requested to resign as liquidators of Doolan Properties.
[47] Apart from the allegations made in the Supreme Court proceeding, the second applicant's solicitors raised on 17 May 2001 with the respondents' solicitors that they had been advised by the Queensland Law Society that KPMG was the auditor of McLaughlins and McLaughlins Solicitors and submitted that was a matter of conflict.
[48] The relevant facts are that KPMG is not and has never been the auditor of McLaughlins, but KPMG acts as auditor and tax agent for McLaughlins Financial Services Limited, another company associated with McLaughlins Solicitors, and as accountant and tax agent for McLaughlins Solicitors. This is the foundation of the applicant's claim of bias or the perception of bias against the respondents.
[49] By letter dated 9 July 2001 the solicitors for the respondents indicated to the second applicant's solicitors that in order to avoid any possible appearance of bias, the respondents were prepared to consent to the appointment of another insolvency practitioner to hold office jointly with them and to deal with the possible claim of Doolan Properties against McLaughlins in relation to the allegation of McLaughlins' failure to advance funds to Berrima, failure to properly market and sell the Watergarden and improper payment of commission.
[50] The solicitors for the respondents in their letter of 30 August 2001 to the second applicant's solicitors conveyed that the respondents considered that the claims raised against McLaughlins in relation to sale at an undervalue warranted investigation and that they proposed the appointment of another insolvency practitioner to deal with that and the adjudication of McLaughlins'proof of debt. It appears that the respondents have deferred proceeding with the application for appointment of another insolvency practitioner with them to deal with the claims against McLaughlins and the McLaughlins' proof of debt, pending the determination of the applicants'application for removal.
[51] There was no issue between the parties as to the appropriate law to be applied in considering whether the respondents should be removed as liquidators. The applicants bear the onus of establishing that there is cause for removal and that the removal is for the general advantage of the persons interested in the winding up: Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994)
14 ACSR 230, 233.
[52] The only substantial issue which is presently relevant to whether or not the respondents are removed is the perception of bias that might arise in relation to any consideration by the respondents of the proof of debt lodged by McLaughlins or an investigation of any claim against McLaughlins for sale of the Watergarden at an undervalue, because of the professional relationship between KPMG and McLaughlins Solicitors and McLaughlins Financial Services Limited.
[53] The applicants rely on the affidavits of Mr John Rees, an official liquidator, to submit that the respondents'proposal to seek to have a third liquidator appointed to deal with the McLaughlins' proof of debt and the claim against McLaughlins is unworkable. Mr Rees has expressed his opinion, however, in the context that a third liquidator would be dealing with the Supreme Court proceeding.
[54] The liquidation has been in progress for over 2 years and the administration is at an advanced stage. There is a difference in opinion between Mr Congram and Mr Rees as to what additional costs would be incurred if the respondents were to be removed and replaced with a new liquidator. It is not necessary to resolve that difference, because what can be concluded is that the step of removing the liquidators will be more costly than the alternative proposal of a third liquidator being appointed to deal with the claim against McLaughlins and McLaughlins' proof.
[55] There is authority to support the appointment of an additional liquidator to deal with a discrete aspect of the administration in order to avoid the expense and loss of efficiency involved in replacement of liquidators in a substantially completed administration: Re Obie Pty Ltd (in liq) (No 4) (1984) 2 ACLC 663 at 668.
[56] In view of the recognition by the respondents of the perception of bias that could apply to their dealing with the investigation of the claim against McLaughlins and McLaughlins'proof and their proposal that it be dealt with by the appointment of a third liquidator for dealing with those matters, the stage at which the liquidation of Doolan properties has reached and that there would be some saving in costs in the administration by implementing the proposal for the appointment of a third liquidator rather than replacement of the respondents, I am not satisfied that the applicants have shown that there is cause for removal of the respondents. The fact that the applicants also complain about the delay of the respondents in selling the interest of Doolan Properties in the Boundary Street property is not of sufficient consequence to affect this conclusion.
[57] I therefore order that the application be dismissed. I will hear submissions on the question of costs.
[58] The application for the appointment of the additional liquidator will need to be made in the file relating to the application to wind up Doolan Properties.
McDonald
Dare
(1999) 88 FCR 451
(1996) 65 FCR 234
The application to remove the respondents as liquidators was dismissed; costs were reserved for submissions.