Australia: "All for one and one for all": Creditor successfully appoints SPLs to undertake tasks only it is willing to fund

This week's TGIF considers a decision of the Victorian Supreme Court which examined the merits of appointing special purpose liquidators in circumstances where a creditor was only willing to fund investigations if the appointment was made.

WHAT HAPPENED?

In May and June 2016, two registered education and training organisations (together, the RTOs) were placed into liquidation.

The RTOs had received millions of dollars in subsidy payments from the Victorian Government through the Department of Education & Training (DET). The payments were made by the Victorian Government to facilitate training services to eligible applicants pursuant to services and funding agreements.

The RTOs went into voluntary liquidation shortly after a review by an independent accountant was commissioned into the affairs of one of the RTOs by the DET. The independent accountant was engaged to conduct the investigations due to a number of instances of alleged non-compliance under the agreements including:

  • a failure to adhere to student eligibility guidelines;
  • pre-training review of students had not been completed; and
  • the quality of training services had been identified as inadequate to satisfy contractual funding obligations.

Each of the RTOs was placed directly into liquidation, as opposed to voluntary administration, which, it was submitted to the Court, suggested that neither had a trading operation capable of sale prior to the insolvency of each of the companies.

The liquidators appointed to the RTOs by the directors had insufficient funds to conduct investigations, however, indicated they were prepared to continue on a self-funded basis and, if necessary, seek funding at a later stage.

THE APPLICATION

On 7 December 2016, the DET filed an application seeking orders for the appointment of two special purpose liquidators (SPLs) of the RTOs.

The DET was the major creditor of the RTOs and was willing to fund investigations into the affairs of the RTOs, but only if SPLs other than the existing liquidators were appointed to conduct the investigations. This was said to be, at least in part, because the liquidators appointed to the RTOs were selected by the directors.

The liquidators were not opposed to the appointment of the SPLS but sought orders limiting the scope of the appointment to:

  • investigating payments made pursuant to the specific DET funding agreements; and
  • making recommendations to creditors as to any rights of action which should be pursued.

Whilst the existing liquidators led evidence that they had commenced investigations into the directors' conduct and antecedent transactions, it became apparent that such work had only started after the present application for the SPLs appointment had begun.

The critical question therefore was whether the contemplated examination of conduct and antecedent transactions should be conducted by the liquidators or the proposed SPLs.

The scope suggested for the proposed appointment necessitated a consideration of the relevant legal principles which apply in such circumstances and the desirability of SPLs being engaged by a major creditor to pursue a limited area of investigation.

THE RELEVANT PRINCIPLES

The Court has the power under the Corporations Act 2001 (Cth) (the Act) to appoint special purpose liquidators in compulsory liquidations.

That power has been held to extend, by s 511 of the Act, to a voluntary winding up. The essential question for the Court in exercising its discretion is whether the appointment would be just and beneficial to the general body of creditors.

Where the appointment of an additional liquidator is sought, it is often the case that the scope of such an appointment is in dispute. In many instances, the investigations can be limited by the Court to whether any rights of action exist, whether proceedings should be brought and the making of recommendations to creditors.

If none of the creditors is willing to finance investigations, it is likely that the appointment of an additional liquidator, at the instigation of an individual creditor, will be in the interest of the general body of creditors as the work envisaged may generate a fund that would benefit creditors as a whole.

THE DECISION

The Court noted that it was not in dispute that investigations were required into each of the RTOs. It was observed that there appeared to be serious questions about the proper utilisation of subsidy payments received and the manner in which millions of dollars paid by the DET had been expended.

Ultimately, the Court held that the investigations should be undertaken by the proposed SPLs. However, the appointments were not "at large" such that the existing liquidators were to be replaced.

Whilst no adverse findings were made against the existing liquidators, the factors which led to the Court's decision included:

  • the importance that liquidators are totally independent and seen to be so;
  • the fact that the firm of the existing liquidators had been appointed by the directors in other creditors' voluntary liquidations; and
  • the existing liquidators work was preliminary in nature and the proposed investigations were to be properly and fully funded.

WHAT DOES THIS MEAN FOR LIQUIDATORS?

This is a further example of a case in which a special purpose liquidator has been appointed by a creditor who is only willing to fund investigations by those it has nominated and, in some instances, for a specific purpose.

It serves as a reminder of the principles which will apply on the consideration of such an application and the overriding consideration of the Court which is, and will likely continue to be, whether the appointment of a special purpose liquidator will generally benefit the creditors as a whole.

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.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

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.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
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”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
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).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions