When liquidators are appointed to a company, unsecured creditors
often don't take much of an interest in the liquidation
process, immediately assuming all is lost.
The recent Federal Court of Australia decision of Robinson,
in the Matter of ACN 069 895 585 Pty Ltd (formerly known as
Waterman Collections Pty Ltd) (in liq)  FCA 706 is an
example of a case where an unsecured creditor was able to secure a
better financial return by taking an active role in the liquidation
process, assisting the liquidator with a number of claims.
The case involved the liquidation of Waterman Collections Pty
In the liquidation an unsecured creditor, Insurance Australia
Limited (IAL), was owed approximately $600,000.
IAL had carried out examinations into the affairs of the company
and had discovered matters that indicated grounds to commence
recovery proceedings for uncommercial transactions under sections
588 and 588FF of the Corporations Act 2001 (Cth). There
were also some unresolved issues with the amount claimed for
remuneration and disbursements by a prior liquidator, and a
possible claim against a former employee who had allegedly
misappropriated money from Waterman in the order of $1 million.
The liquidator had insufficient funds to either commence or
contest proceedings relating to the various claims with Waterman
having less than $1,000 in its bank account at the relevant
IAL entered into a series of funding agreements with the
liquidator to assist the liquidator pursue or contest the claims.
Ultimately the amount of funding provided was $240,542.
The funding provided by IAL enabled the liquidator to add
$716,455 to the company's property pool, through a number of
commercial settlements regarding the various claims.
The liquidator and IAL applied to the Court for orders relating
to the distribution of this property.
The Court ordered, pursuant to section 564 of the
Corporations Act 2001 (Cth), that IAL should have priority
over other unsecured creditors both in terms of the funding
provided to the liquidator and the amount it was owed.
In deciding the order that should be made the Court considered
factors that included the following:
all creditors were given the opportunity to assist with funding
with only IAL agreeing to assist;
the risk taken by IAL that the claims would not yield any
results and the funding would be lost;
the actual outcome of the exercise - that the amounts recovered
were more than the funds contributed and that the expenditure
incurred was reasonable;
the significant assistance provided by IAL to the
the high value of the debt owing to IAL compared to the total
the amount of time that IAL remained out of pocket in relation
to its funds;
that without the assistance of IAL, there would have been no
assets to distribute to creditors as the liquidator had no funds to
either pursue or contest the claims;
the public interest consideration of encouraging creditors to
provide indemnities and funding to enable a liquidator to pursue
remedies that would result in recovery of company property;
that there was no adverse response to the proposed distribution
from any of the unsecured creditors.
In difficult economic times, the risk of finding oneself as
unsecured creditor owed money from a company in liquidation
Depending on the circumstances, it may be worth investing some
time and money assessing whether the financial return will be
better by assisting a liquidator with pursing claims to recover
Of course, no-one wants to 'throw good money after bad'
and it is therefore important to get frank and realistic advice on
the strength of any claims and the costs and benefits associated
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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.
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When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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