Nikitins, In the matter of The Managed Investment Schemes [2010] FCA 207

What happened

This was a short Federal Court application about changing liquidators, rather than a decision determining the merits of a dispute between investors or the entities in liquidation. Gordon J heard the application on 9 March 2010 and made orders on 10 March 2010. The reasons contain nine numbered paragraphs.

John Georgakis had been appointed liquidator of five unregistered managed investment schemes on 27 March 2008 under s 601EE(2) of the Corporations Act 2001 (Cth). He was appointed liquidator of one company associated with the schemes on that date and of the other four on 9 April 2008. Separately, he had been appointed liquidator of W Span Pty Ltd on 28 May 2007 under s 459A ([1]).

Georgakis had been a partner in Ernst & Young's insolvency and restructuring team. After tendering his resignation from the partnership on 18 December 2009, he indicated that he intended to resign as liquidator of the schemes, their associated companies, and Span ([1]-[2]). Adams Pauls Nikitins, a registered and official liquidator and an executive director in EY's insolvency and restructuring team, was proposed as the replacement ([2]).

ASIC had been served with the application. It did not oppose the orders so long as investors did not bear the application's cost ([2]). The Court ordered Nikitins's appointment to the Schemes under s 601EE(2), and to the companies listed in Schedules B and C under s 473(7), upon Georgakis's resignation. It ordered the first plaintiff to bear the costs of and incidental to the application ([3]).

Schedule A identifies the five schemes. Schedules B and C list the companies covered by the company appointments, including Earning Pty Ltd, four other named companies, and W Span Pty Ltd. The reasons do not decide questions about the schemes' underlying investments, investor claims, or the conduct of the entities.

Why the court decided this way

Gordon J treated the schemes separately from the companies because the Court's source of power differed ([4]). For the Scheme Companies and Span, the Court considered whether it could make the appointment and how to ensure a smooth handover. The reasons say those issues had been addressed in Re Wily, with references also to Re Application by Vouris and Re McGrath ([5]).

For the company liquidations, Gordon J relied on ss 473(1) and 473(7). Section 473(1), as described in the judgment, permits a court-appointed liquidator to resign and permits removal by the Court on cause shown. Section 473(7) provides that a vacancy in the office of liquidator must be filled by the Court ([6]). Gordon J therefore stated that the Court not only had power to appoint a replacement but must do so if a vacancy arose.

The choice of Nikitins was explained as a continuity measure. Gordon J considered that appointing another EY insolvency and restructuring team member would preserve the work already undertaken and the team's knowledge, rather than losing or duplicating it ([6]). That is the stated reason for finding this appointment appropriate, not a finding that an EY colleague must always replace an outgoing liquidator.

The orders coordinated the dates of resignation and appointment. Georgakis's resignation was to take effect on 10 March 2010, and Nikitins's appointment was to take effect on and from that date. Gordon J said this form would ensure that the transition was seamless ([7]). The appointment was not expressed as immune from later challenge: the reasons note that an application for Nikitins's removal on cause being shown remained possible under s 473(1) ([6]).

The Court approached the Schemes under s 601EE(2). Gordon J accepted the submission that the subsection gave the Court jurisdiction throughout the winding up to make orders resolving issues arising during it. A liquidator's intended resignation, while the winding up still had to be completed, was an issue for which the Court considered an appointment appropriate ([9]). Continuity again mattered. The Court also said the form of the orders protected the investors' position so far as possible, and observed that an appointment remained subject to Court supervision ([9]).

Before and after state of the law

The judgment records the statutory framework it applied; it does not provide a comprehensive account of the law before or after 10 March 2010. It is therefore safest to describe the decision's treatment of the provisions, rather than infer broader changes to the law.

For company liquidations, the reasons explain that s 473(1) addresses resignation and removal of a court-appointed liquidator, while s 473(7) requires the Court to fill a vacancy ([6]). The judgment applies those provisions to a planned resignation and replacement. It also records that the replacement appointment remains open to a later removal application on cause being shown ([6]). The decision does not suggest that this qualification was displaced.

For the Schemes, the judgment describes s 601EE(2) as giving the Court jurisdiction throughout the winding up to resolve issues arising in its course ([9]). It uses that power to address the outgoing liquidator's intended resignation and the need to complete the winding up with a liquidator in place.

The reasons cite earlier decisions in support of their approach: Re Wily, Re Application by Vouris, and Re McGrath on the company-liquidation issues ([5]-[7]); and Re GDK Financial Solutions and Australian Securities and Investments Commission v Atlantic 3 Financial on the s 601EE(2) jurisdiction ([9]). This judgment itself does not set out those earlier cases' full reasoning. Nor does the supplied judgment contain later decisions that would establish how subsequent courts treated Nikitins. Any account of later developments would require sources beyond this judgment.

Key passages with plain-English translation

At [6], Gordon J stated: “The Court not only has the power but must make the appointment if there is a vacancy.” In plain English, once a vacancy arose in the office of liquidator for the companies, s 473(7) required the Court to fill it. The sentence addresses the statutory consequence of a vacancy; the judgment does not treat the selection of Nikitins as automatic in every case.

At [6], the Court explained that Nikitins's appointment was appropriate because it meant “the work undertaken by, and the knowledge of, EY staff” would not be lost or duplicated. Put simply, the existing team's familiarity with the liquidations supported a handover within that team. This was a case-specific reason given in the judgment.

At [7], Gordon J said that the orders “will ensure that the transition is seamless.” The order made the outgoing liquidator's resignation and replacement's appointment effective on the same date. The practical point is that the orders were framed to avoid a gap between office-holders.

At [9], the Court described s 601EE(2) as giving it jurisdiction “throughout the course of the winding up” to make orders resolving issues arising in that process. In plain English, the Court considered that its authority to manage the Schemes' winding up was not confined to the initial winding-up orders; it could deal with a later issue such as replacing a liquidator.

Finally, at [9], Gordon J said the orders protected investors “so far as possible.” The reasons do not explain particular safeguards in detail beyond noting that the appointment remained subject to Court supervision and referring to paragraph 4 of Goldberg J's 27 March 2008 orders. The phrase should therefore be understood as the Court's description of the orders' purpose, not as a detailed finding about every investor's position.

What fact patterns trigger this precedent

The decision is most directly relevant to a procedural situation where a court-appointed liquidator of a company intends to resign and a replacement appointment is needed to fill the resulting vacancy. Its application depends on the statutory framework discussed in the reasons: ss 473(1) and 473(7) of the Corporations Act ([6]). The Court's statement that a vacancy must be filled relates specifically to the office of liquidator under s 473(7).

It is also relevant where the matter involves a winding up of an unregistered managed investment scheme and a liquidator's resignation creates an issue requiring orders during the winding up. The decision treats s 601EE(2) as the source of authority for resolving such an issue throughout the winding-up process ([9]).

The factual features Gordon J expressly relied on included that the winding up remained to be completed; the outgoing liquidator intended to resign; Nikitins was an experienced liquidator and part of the EY insolvency and restructuring team; and maintaining continuity could avoid loss or duplication of work ([2], [6], [9]). For the schemes, the Court also referred to investor protection and continuing Court supervision ([9]).

The judgment does not establish that the same replacement should be appointed whenever a liquidator resigns. It does not set out a general test for comparing candidates, address a contested appointment, or examine objections from investors or creditors. Nor does it determine the consequences of a resignation where there is no proposed replacement. Those questions are outside the reasons' short, uncontested procedural determination.

How later courts have treated it

The judgment text supplied here contains no later judicial decisions discussing or applying Nikitins. It cannot therefore establish whether, or how, later courts have treated the decision.

The cases identified in the reasons are earlier authorities, not later treatment of Nikitins. Gordon J refers to Re Wily, Re Application by Vouris and Re McGrath in discussing the company appointment power and transition ([5]-[7]). The reasons also refer to Re GDK Financial Solutions and Australian Securities and Investments Commission v Atlantic 3 Financial in support of the Court's jurisdiction under s 601EE(2) ([9]). These citations show the authorities Gordon J relied on, but the supplied text does not provide a subsequent history of Nikitins.

The judgment is short and expressly says its reasons record why the orders were made ([4]). Its utility on later treatment is consequently limited without additional case sources. No inference about later endorsement, limitation, or departure should be drawn from this judgment alone.

Still-open questions

Several matters are not resolved in the reasons. First, the judgment does not explain what evidence or criteria would govern a contested choice between potential replacement liquidators. It gives continuity of EY staff's work and knowledge as the reason Nikitins was appropriate on these facts ([6], [9]), but does not formulate a general selection test.

Second, the reasons do not detail how the orders protected investors “so far as possible” beyond noting Court supervision and referring to the earlier orders governing the Schemes ([9]). They do not assess individual investor interests, the value or status of scheme assets, or the consequences of the replacement for any investor.

Third, although the judgment notes that an application for removal on cause being shown remained possible in relation to the company appointments ([6]), it does not specify what facts might amount to cause or address any such application. No removal application was before the Court.

Fourth, the reasons do not discuss any substantive winding-up decisions, creditor claims, scheme liabilities, or distribution of assets. The subject of the application was the replacement appointments and costs, not the merits of those matters.

Finally, the decision does not state how later courts have interpreted either statutory provision in a different factual or legislative setting. The scope of this analysis is limited to Gordon J's description and application of ss 473 and 601EE in the judgment itself.

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