INSOLVENCY SOLUTIONS NEWS ALERT: RETAINED BUT NOT APPROVED

News Alert - 27 September 2012

The recent case of In the matter of Rivercorp Pty Ltd (receivers and managers appointed) (in liquidation) [2012] NSWSC 1078 provides a timely reminder that a liquidator must seek Court approval to enter costs agreements with solicitors if the matter will extend past 3 months in the absence of approval by creditors or a committee.

Facts:

The liquidator of Rivercorp Pty Ltd (Rivercorp) entered into retainers with two firms of solicitors to advise and appear in claims against third parties for the recovery of preference payments made by Rivercorp under s 588FA of the Corporations Act.  Having failed to seek the approval of a committee of inspection or a resolution of the creditors, Rivercorp’s liquidator sought orders retrospectively approving his entry into those agreements.

The liquidator’s evidence was that:

1. both firms accepted instructions on the basis that payment was contingent on the recovery of funds;
2. he was unable to retain the firms other than on that basis as he was without funds in the liquidation;
3. he was unaware of the requirement for approval of the costs agreements and retainers under s 477(2B);
4. he was confident in the skill and expertise of the firms; 
5. with the assistance of the firms, he had, in fact achieved recoveries well in excess of the costs incurred; and
6. in his experience the fees the firms charged were reasonable on their face. 

Court Held:

Justice Black held that in granting retrospective approval for the entry of such an agreement, “the Court is not concerned with matters of commercial judgment but is concerned to be satisfied that the entry into the agreement is a proper exercise of power and not ill advised or improper on the part of the liquidator”. 

His Honour was satisfied with the evidence provided by the liquidator and held that there was nothing to suggest that the liquidator’s entry into the agreements was ill-advised or is in any way inappropriate.

The case serves as a reminder that creditor or committee approval should be sought prior to the entry into agreements for terms of longer than 3 months.  If such approval has not or cannot be provided, application must be made to the Court for retrospective approval under s477(2B).

Kirsten Farmer 
Partner
Phone: 61 2 9228 9327
Kirsten_Farmer@tresscox.com.au

Guy Moloney
Senior Associate
Phone: 61 2 9228 9372
Guy_Moloney@tresscox.com.au

Alex Staples
Solicitor
Phone: 61 2 9228 9307
Alexander_Staples@tresscox.com.au

To see the contact details of the entire TressCox Insolvency Team, please click here.