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Commercial Litigation & Insolvency News Alert: With a little help from my friends - Seeking direction from the Court under S 479 (3) of the Corporations Act 2001 (Cth)

News Alert 21 July 2014

In the recent Federal Court decision of Hayes, in the matter of Henry Walker Eltin Group Limited (In Liquidation) (No 3) [2014] FCA 722, the Court reminded liquidators that it cannot be called upon to give advice or directions in decisions of a commercial nature when a liquidator is simply unsure of their propriety.

Rather, unless a question of law or legal principle is involved, a liquidator must draw on their commercial experience and expertise to make decisions for themselves.

Facts

Henry Walker Eltin (HWE) was placed into liquidation on 27 September 2013. The liquidators of HWE sought to grant a director, Mr Gidley-Baird (Baird), an ex gratia payment of $30,000 which they believed was reflective of his extraordinary efforts in attending to matters assisting the liquidators over and above that ordinarily expected of a director of a company in external administration. These included locating, liaising and communicating with shareholders since HWE’s external administration (originally Voluntary Administration) in 2005.

The liquidators applied to the Court under section 479(3) of the Corporations Act 2001 (Cth) (Act), seeking directions to the effect that they were justified in making the ex gratia payment to Baird.

Decision

In dismissing the liquidator’s application, Yates J found that the Court had no authority to give directions in relation to what was essentially a commercial decision to be made by the liquidators. Citing Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409, Yates J held that:

... the decision of the [liquidators] to make the payment to Mr Gidley-Baird is essentially a commercial decision of their own choosing. As s 479(4) of the Act emphasises, [they] must use their own discretion in the management of the affairs and property of HWE and the distribution of its property.

According to Yates J, the direction sought by the liquidators raised no controversial issue of power, conduct, propriety, reasonableness or legal principles on which the Court could focus its jurisdiction. Yates J pointed out that even where there is a live issue in relation to the propriety or reasonableness of a decision, which will usually manifest itself by some positive indication of potential criticism by a creditor(s), an application for directions remains inappropriate.

The Court refused to make any direction, leaving the question of the propriety of the ex gratia payment to Mr Baird open ended.

This decision reminds practitioners that the Act will only lend its assistance to a liquidator seeking directions from the Court as to matters of law or principle as to the proper course of action in the liquidation. The Court does not exist to grant liquidators comfort or ‘peace of mind’ in relation to a commercial transaction that may appear controversial - rather, such a decision must be made by the liquidator relying on their commercial experience and in fulfilment of their existing duties.


Kirsten Farmer, Partner
Sydney

Guy Moloney, Senior Associate
Sydney

News Alert 21 July 2014
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