Do liquidators have to obtain approval of the court, committee
of inspection or the creditors to enter into costs agreements with
Yes – according to the NSW Supreme Court judgement
handed down in Hutchison v Hillcrest Litigation Services
Limited on 23 August 2010 (Hillcrest
Background to the Hillcrest Proceedings
Austin Australia Pty Limited (in liquidation)
(Austin) had engaged lawyers to act in arbitration
proceedings against the Auburn Council (Auburn
After Austin was placed into administration, Austin's
administrators entered into a costs agreement with Austin's
existing lawyers in the Auburn Proceedings.
Following the administrators' appointment as
liquidators, Austin's existing lawyers continued to act in
the Auburn Proceedings. The liquidators then entered into a
litigation funding agreement with Hillcrest and later entered into
a second costs agreement with Austin's lawyers.
The committee of inspection approved entry into the litigation
funding agreement which provided for the retention of
During the Hillcrest Proceedings, Hillcrest claimed that the
costs agreements with Austin's lawyers were void and
unenforceable as Austin's liquidators had not obtained
approval under section 477(2B) of the Corporations Act
To '477(2B)' or not to be
Section 477(2B) requires liquidators to obtain the approval of
the court, the committee of inspection or a resolution of creditors
before entering into an agreement which:
has a term of three months or more; or
imposes obligations which may be discharged more than
three months after the agreement is entered.
Approval is required even if the term may end or the obligations
may be discharged within the first three months of the
If approval is not obtained before entering into the agreement,
liquidators are able to apply to the court for retrospective
In the Hillcrest Proceedings, Austin's liquidators
obtained the committee of inspection's approval after
Hillcrest alleged that the costs agreements were void and
The court accepted the liquidator's evidence that he had
not '...ever witnessed another liquidator seeking such
approval before retaining lawyers to act in ongoing or prospective
Having accepted that it was not ordinary practice for
liquidators to obtain prior approval to enter into costs agreements
with their lawyers, the court provided retrospective approval to
enter into the costs agreements under section 477(2B) of the
Corporations Act 2001 (Cth).
What does this mean for liquidators?
Although it does not appear practical, liquidators need to
obtain approval to enter into costs agreements with their
The approval should be obtained from the committee of inspection
or the creditors.
If a litigation funding agreement is proposed, approval should
be obtained for both the funding agreement and the costs
No longer will liquidators be able to place their hands on their
hearts and say they have never heard of the need to seek approval
to enter into a costs agreement with a lawyer.
We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).