TGIF– High Court willing to test pooling orders - Insolvency/Bankruptcy

In this week's TGIF, we consider Morgan & Ors v McMillan Investment Holdings Pty Ltd & Anor [2023] HCATrans 122, a decision to grant special leave, paving the way for the High Court to clarify the law with respect to pooling orders.

Key takeaways

The High Court's granting of the special leave application ought to provide clarification as to the availability of pooling orders and the property of liquidated companies which may be combined under a pooling order.
The High Court will need to consider whether the joint right of liquidated companies to sue is property which may be pooled and whether the deregistration and reinstatement of a company within the group breaks the required nexus.

Background

On 10 March 2023, we considered the Full Federal Court decision of McMillan Investment Holdings Pty Ltd v Morgan [2023] FCAFC 9. We examined the uphill battle faced by liquidators in convincing a court to grant a pooling order. A pooling order allows a liquidator to group together company assets to seek to satisfy creditors for all entities within the group.

By way of brief background, the liquidator of Sydney Allen Printers Pty Limited (in liq) (SAP) applied for and obtained a pooling order grouping SAP and Sydney Allen Manufacturing Pty Ltd (in liq) (SAM). A court may decide to grant a pooling order where one or more companies within the group owns property used for a joint business, scheme or undertaking. The pooling order enabled SAP and SAM to jointly bring a claim against McMillan Investment Holdings to seek to recover part of the proceeds of sale of the business. The decision was appealed and the Full Federal Court overturned the Federal Court's decision, denying SAP and SAM the ability to seek to recover monies from McMillan Investment Holdings.

High Court to consider pooling orders

On 15 September 2023, the High Court granted special leave, paving the way for the High Court to consider the Full Federal Court's decision and the law regarding pooling orders. Given most applications for special leave are refused, the decision suggests that the High Court regards pooling orders to be of public importance and this case is a suitable vehicle for the High Court to clarify the criteria for the making of pooling orders.

We will wait to see if the High Court's decision to grant special leave translates to success for the liquidator on the central issue of allowing SAM and SAP to jointly sue McMillan Investment Holdings for part of the proceeds of sale of the business. However, notwithstanding the outcome, the High Court's decision ought to give guidance to:

liquidators when considering whether a pooling order is appropriate, the companies to be pooled and the particular property at the heart of the pooling order; and
creditors in assessing the commercial viability of challenging pooling orders.

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