Receivers and mortgagees are well-versed as to the statutory
duty of sale enshrined in section 420A of the Corporations Act
2001 (Cth), but what of the duties owed by a
liquidator when undertaking asset sales?
The matter was considered in the recent Federal Court decision
of Wentworth Metal Group Pty Ltd v Leigh and Owen (as
liquidators of Bonython Metals Group Pty Ltd): In the matter of
Bonython Metals Group Pty Ltd (in liq)  FCA 349 (18
An order was made for the appointment of liquidators to Bonython
Metals Group Pty Ltd (BMG) on 27 February 2012. As
an incidence of the liquidation, the liquidators listed for sale
BMG's largest asset – its interest in a mining
After a sale process that included advertising, extensive
negotiations with various bidders, and an assessment of the
adherence of the proposed bids with the Joint Venture
Agreement's requirements for the sale of the interest, the
interest was sold to the Fourth Defendant, Pure Metals Pty Ltd.
The plaintiffs, Wentworth Metals Group Pty Ltd and its
directors, sought an interlocutory injunction to prevent the sale
of the interest pursuant to section 1321 of the Corporations Act
(the Act). The plaintiffs were unsuccessful
bidders of the interest and relied on various grounds for their
application, including a contention that the liquidators had
breached their alleged duty to achieve the "best possible
price" for the asset.
The competing bids
The plaintiffs' offer, while slightly higher than the
successful bidder's offer, was not as commercially favourable.
For example, the successful bidder offered a larger cash component
and offered an indemnity in respect of any claims arising out of
the Joint Venture Agreement. These terms meant that liquidators had
access to an immediate realisation in cash and eliminated any risk
that there may be no return to shareholders should a claim arise
under the Joint Venture Agreement.
Further, the successful bidder provided releases and indemnities
and a secured guarantee from a separate corporate entity. The
liquidators also gave weight to the fact that the successful
bidder's offer meant a more timely finalisation of the sale,
thus minimising loss to all parties.
"Best Possible Price"?
Under section 420A of the Act, controllers or receivers and
managers must take all reasonable care to sell property of a
company for not less than market value, or if there is no market
value, for the best price reasonably obtainable.
The applicants contended that section 420A applied similarly to
liquidators. Unsurprisingly, the Court held that section 420A had
no application to liquidators as liquidators are not
"controllers" of the company. The Court further commented
that in exercising the broad array of powers under section 477 of
the Act, liquidators have a wide discretion and a certain latitude
to use considerable business or commercial judgment in determining
whether or not to sell an asset and on what terms. 1
In addition, the Court favoured French J's broad approach in
ASIC v Forestview Nominees Pty Ltd (Receivers and Managers
Appointed), 2 where his Honour stated that the
courts ought only intervene with a sale process and exercise its
control if there was some defect arising out of a lack of good
faith or an erroneous approach in law or principle. The
significance of the decision to the affairs of the company is also
a material consideration for the court. This reasoning equally
applied to the court's ability to intervene in a decision made
by liquidators. In this case, the judge held that liquidators'
decisions should be considered within the dimension of their duties
to make practical commercial judgments which often involved the
application of business acumen.
The sound commercial reasoning adopted by the liquidators in
accepting the successful bid and the contemporaneous evidence of
the liquidators' decision-making process was regarded by the
Court as sufficient evidence to support a finding that the
liquidators had acted in accordance with their powers under section
477 of the Act.
The plaintiffs failed to establish a prima facie case that the
liquidators' conduct was unreasonable or otherwise defective
and their application was ultimately unsuccessful.
1This view is consistent with the Court's
general refusal to make directions under section 479(3) of the
Corporations Act where a matter relates to the making and
implementation of a business or commercial decision.
2 FCA 1530 at  to .
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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).