Most Read Contributor in Australia, September 2016
The recent Federal Court decision of ASIC & Franklin
& Ors  FCA 68 represents, respectfully, a noteworthy
exercise by the Court in applying the law in a commercial common
Justice Davies was asked to consider ASIC's application for
disqualification of the Liquidators of Walton Construction Pty Ltd
(in liq) and Walton Construction (Qld) Pty Ltd (in liq)
(the Companies). The Liquidators were appointed
the Administrators of the company having been referred to the
directors of the Companies by Mawson Group.
Mawson Group had provided business advisory and restructuring
services to the Companies prior to the appointment. It became
apparent that transactions involving the Companies and Mawson Group
personnel required investigation by the Liquidators. The
Liquidators' firm had an ongoing commercial relationship with
Mawson Group which generated significant fees. As Davies J
summarised: ASIC argued that the circumstances give rise to a reasonable
perception or apprehension that the Liquidators would not bring an
impartial and unprejudiced mind to the investigation of the
pre-appointment transactions, and would favour interests associated
with the Mawson Group at the expense of the interests of creditors,
whether consciously or not, because of their interest or concern
not to damage the referral relationship – as ASIC
colloquially put it, "not to bite the hand that feeds
Section 503 of the Corporations Act is designed to deal with
situations where it appears that the Liquidator is in a position of
apparent conflict because of some relationship. In considering the
circumstances of this case the Court said: The fair minded observer, appropriately informed, would know
that the Liquidators' firm is commonly referred voluntary
administrations and other insolvency work by solicitors, business
advisors and accountants and would know that this is the nature of
the firm's business relationship with the Mawson Group. A fair
minded observer would also know that the Mawson Group is a business
advisory firm providing corporate restructuring advice to troubled
companies, and that its relationship with the companies was a
professional one... [and] would also know that there is nothing
about the conduct of the other insolvencies referred by the Mawson
Group to the Liquidators' firm that brings the firm's
independence and impartiality into question having regard to their
professional relationship with the Mawson
Davies J went onto say that the Liquidators had adequately
disclosed their firm's business association with Mawson Group,
noting that Mawson Group refers insolvencies from time to time, and
explained why the referral relationship did not compromise their
The existence of the relationship was not sufficient for a
finding of lack of independence. ASIC failed to establish that the
relationship was of such a nature that the independent and
impartial exercise of the duties of the Liquidators would be
impeded or interfered with.
The case is a true example of the Court applying the law in a
context of the modern commercial world. That is not to understate
the importance of independence and the function of the declaration
of relevant relationships and the role it has to play in creating a
confident creditor body. Indeed, true independence and impartiality
are central to the roles of administrators and liquidators.
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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