4(a) Standard of Independence for Liquidators
190 It is first expedient to examine the principles that must be applied to the appointment and removal of liquidators.
191 All counsel agree that the summary of the law given in the 4th edition of McPherson, The Law of Company Liquidation (op cit) pp 290-4 sets out the basic principles that should be applied.
192 What the Court looks for in a liquidator is a person who can deal with the disputes that will inevitably arise in the liquidation in a fair and just way. The duties of a liquidator in this aspect of his or her task may be considered briefly under three heads, the duty to be independent, the duty to act impartially and the duty to avoid conflict between duty and interest or duty and duty. The duties owed by a liquidator in a court winding up and a liquidator in a creditors' voluntary winding up are analogous; see McPherson (op cit) at p 294; Re Intercontinental Properties Pty Ltd (1977) 2 ACLR 488 at 491; Re Mecirt Holdings Pty Ltd (1998) 16 ACLC 1148 at 1151. I will briefly consider these three aspects of duty.
193 The authorities truly say that it is necessary for a liquidator not only to be independent, but also to be seen to be independent: Re Chevron Furnishers Pty Ltd; QAI v Harris (1993) 12 ACSR 565 at 570. Usually this means that the liquidator must have no prior or other involvement either with the company in liquidation, its directors and major shareholders, or one of its creditors so that he or she could not fairly and impartially carry out his or her duties as liquidator requiring him or her, in broad terms, to act in the best interests of the general body of creditors; Re Chevron Furnishers Pty Ltd at 570; Re National Safety Council of Australia Victorian Division [1990] VR 29 at 34; Re Queensland Stations Pty Ltd (1991) 9 ACLC 1341 at 1344; Re Giant Resources Ltd [1991] 1 Qd R 107; Re Club Superstores Australia Pty Ltd (1993) 10 ACSR 730.
194 Although this principle has been slightly eroded by three practices: (a) the practice to permit a company which has consulted an insolvency accountant about its future and has been advised to go into liquidation to nominate that accountant as liquidator; (b) the practice to permit a voluntary liquidator to be appointed who has given financial advice to the directors; and (c) the practice to permit creditors to nominate a liquidator in an ordinary winding up in insolvency, the general rule still applies.
195 While the duty of independence incorporates the requirements that the liquidator be impartial, the duty of impartiality is established as a separate and distinct duty of a liquidator. The liquidator must maintain an even and impartial hand between all the individuals or corporations whose interests are involved in the winding up, namely, the creditors and members: Re Contract Corp (Gooch's case) (1872) LR 7 Ch App 207 at 211; Re Intercontinental Properties Pty Ltd (supra) at 491; Re Allebart Pty Ltd (in liq) [1971] 1 NSWLR 24 at 28, 30-31.
196 Further, the authorities insist that a liquidator must ensure that he does not place himself or herself in a position where there is, or might be a conflict between the liquidator's duty to creditors and members and the liquidator's personal interest. McPherson, (op cit) pp 292-293 points out that the application of the conflict of duty and interest rule means that liquidators have a duty not to profit from their office otherwise than to the extent expressly allowed by law and must not enter into contracts with the company; see eg Re Timberland Ltd (1979) 4 ACLR 259; Re Gertzenstein Ltd [1937] Ch 115.
197 In the Timberland case (supra) at p 286, Marks J made the strong point that, in at least some respects, a liquidator is in the same position as a judge. It is clear to his reference to the decision of LW Street J in Duffy v Super Centre Development Corp Ltd [1967] 1 NSWR 382, 383 that this thinking was directed to the decisions that a liquidator makes as the de facto or de jure delegate of the Court, but it is hard to draw the line as to where this aspect of a liquidator's task stops and another commences. It certainly includes duties such as determining whether to admit or reject a proof of debt. See also Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 338-339, 341; Re Chevron Furnishers Pty Ltd (supra) at 569.
198 As Mr Gleeson SC submits, the judicial duty in this context at least includes the obligation not to act in circumstances where the "judge" has a not insubstantial, direct, pecuniary, or proprietary interest in the outcome of the decision making process; see Ebner v Official Trustee in Bankruptcy (2000) 75 ALJR 277, 287 [58].
199 There was some debate as to whom the liquidator owes his or her duties. Clearly one of the beneficiaries is the Court and through the Court the public and the creditors generally. However, the proposition was put by Mr Gleeson SC that the liquidator owed duties to each creditor. It is difficult to see authorities which would support this submission. Indeed the reasoning in cases such as In re Peters; Ex Parte Lloyd (1882) 47 LT 64, 65 and Leon v York-O-Matic Ltd [1966] 1 WLR 1450 tell against it. The duty is to the creditors as a whole, though, sometimes a single creditor may be able to complain to the Court that that duty is not being carried out.
200 Although what I have to decide is whether or not I should appoint Mr Sheahan as liquidator, the considerations on such issue are no higher than those when the Court is deciding whether to remove a liquidator. In such cases, the authorities show that the Court routinely removes a liquidator or suggests that the liquidator resign where it appears there is a lack of independence or impartiality or when a conflict of interest and duty arises or appears to have arisen, pursuant to its powers under s 503: see City & Suburban Pty Ltd v Smith (1998) 28 ACSR 328 at 338, 339; Citrix Systems Inc v Telesystems Learning Ltd (in liq) (1998) 28 ACSR 529 at 535-537.
201 In Re Biposo Pty Ltd (1995) 17 ACSR 730 at 734, after consideration of the relevant authorities, I held that the question to be considered when an application was made to remove a liquidator was whether, in the interests of the public, the removal of the liquidator would be for the general advantage of persons interested in the winding up. See also Re Ross Wood & Sons Pty Ltd (1997) 23 ACSR 291.
202 I also noted in Re Biposo Pty Ltd that (a) the court should look to the conduct, both before and after the liquidation commenced, in cases where the essential attack is that the conduct of the liquidator has demonstrated a lack of independence (p 732); and (b) the Court will be less likely to discharge a liquidator towards the end of the winding up, after he has become acquainted with the affairs of the company, than it would early in the winding up (p 734).
203 The essential question in such an application is whether it would be perceived by a reasonable observer that the liquidator has manifested a tendency to favour certain interests at the expense of others: Re Biposo Pty Ltd at 735.
204 Messrs Lindsay SC and Hutley SC rely on the decision of Santow J in Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 at 232-234, that there must be a real, not just theoretical possibility of conflict; see also Re Club Superstores Australia Pty Ltd (1993) 10 ACSR 730, 735. There is no doubt about this proposition and, indeed, the Advance Housing case was followed in Re Bisposo.
205 The Maconochie interests say that when the Court applies the principles enunciated in the above cases and others, such as Re Central Spring Works Australia Pty Ltd (2000) 34 ACSR 164 at 167 and (2000) 34 ACSR 169, there is no basis for an order for the removal of Mr Sheahan as liquidator. They put that, to paraphrase the Corporations Law section 503, there has been no "cause shown" for his removal.
206 It is at this stage that I must refer to the submissions of Mr S Finch SC who appeared for Mr Sheahan. He submits that the Court needs to examine the transactions with which Mr Sheahan was associated in the "real world". When looking at the case in this way, it is grossly unrealistic to treat the NAB parties as creditors of the company whatever may be their strict legal status.
207 Mr Finch SC puts that the important matters are: