Court considers statutory basis for liquidator claims against accountants of a company in liquidation

This week's TGIF considers the recent Federal Court (Court) decision in Low (Liquidator) v Hughes (No 2) [2026] FCA71exploring the statutory framework for liquidator claims against external accountants.

Key takeaways

• Liquidators need to take care that relief is available under the applicable statutory framework when formulating claims for relief against third parties who are alleged to have assisted a breach of duty or insolvent trading by directors.
• The availability of compensation for the company based on 'accessorial liability' under statute (in addition to any claims available under contract or tort) may depend on the timing of the relevant conduct and liquidators' claim, among other things.
• Whilst injunctive relief and damages under section 1324 of the Corporations Act 2001 (Cth) may be available, in appropriate cases, section 1324 should not be relied on as a free-standing right to compensation in circumvention of Pt 9.4B of the Act which governs civil penalties.

What happened?

Titan Interactive Pty Ltd (Titan) went into liquidation in 2019. According to the liquidator's pleaded case, which remains before the Court, it is alleged that Titan had been insolvent since 2013 but carried on business as an IT services provider until 2018.

The liquidator claimed that Titan incurred debts of over $5.5 million whilst insolvent and had a practice of entering into payment arrangements with the Commissioner of Taxation, with the expectation that it would receive tax refunds (and other amounts) sufficient to discharge any outstanding taxation liabilities. As such, the liquidator alleged Titan's directors breached certain duties and failed to prevent insolvent trading.

Further, the liquidator claimed Titan's external accountants and tax agents (Accountants) had breached certain contractual and tortious duties of care owed to Titan and also that they were relevantly complicit in the alleged breaches by the Titan directors.

The liquidator formulated the claim for relief against the Accountants under section 1324 of the Corporations Actas:

• an injunction under section1324(1) of the Act to restrain the Accountants from negotiating further payment arrangements with the Commissioner of Taxation (Commissioner) on Titan's behalf and a mandatory injunction to require the Accountants to disclose the effect of relevant tax laws to their clients; and/or
• damages under section 1324(10) of the Act in addition to, or in substitution for, that injunctive relief.

In July last year, the Court ordered a separate question be determined as to whether the Court could grant these forms of relief if the liquidator's pleadings were established.

Decision

The Court approached the separate question by addressing whether, in each case assuming the alleged facts, the liquidator and/or Titan had standing and whether the Court had power to grant relief under section 1324, both generally and in the specific terms sought against the Accountant under section 1324.

Standing and general power under section 1324

The Court found Titan would clearly have standing, assuming the alleged facts, and that it was unnecessary to determine whether the liquidator separately had standing - noting this would depend partly on whether the alleged conduct affected the liquidator's 'interests', as broadly construed in the authorities.

The Court also found the Court would have power, as a general matter, to grant an injunction under section 1324 if the alleged facts were established.

However, the focus of the decision was on whether the Court would have power to grant the specific form of relief sought against the Accountants on the alleged facts.

Relief sought against the Accountants

The Court found it would not have power to grant the relief sought against the Accountants on the facts alleged.

Before making that finding, the Court referred to some unusual aspects of the claim, including:

• no compensation order was sought under section 1317H in Part 9.4B of the Act, providing for claims against persons involved in certain contraventions (e.g. breaches of the duty of care and diligence and to prevent insolvent trading)
• the availability of compensatory relief under section 1317H against persons &ldquoinvolved in a contravention" of the alleged breaches of duty (under sections 180(1) and 588G(2) respectively) had only come into force as part of the Part 9.4B regime after the alleged conduct and Titan's entry into liquidation (among other limitations raised by the Accountants)¹
• instead, the liquidator and Titan sought damages under section 1324(10) of the Act, which depended on there being power to grant an injunction
• the injunction sought was relevantly to restrain the Accountants from negotiating payment arrangements with the Commissioner on Titan's behalf (and a mandatory injunction to make a disclosure to Titan as to the effect of certain tax laws)
• it may be inferred that the "real objective" in seeking an injunction was damages under section1324(10) of the Act, given that an injunction on its own would be "cold comfort"for the liquidator and Titan's creditors and
• whilst the claim for injunctive relief may seem "passing strange", where there was "no prospect" of the alleged conduct continuing (i.e. any future negotiation of payment arrangements with the Commissioner of Taxation), this was not determinative of the Court's power or discretion (noting section 1324(6) of the Act and authorities that injunctions may also serve to mark the Court's disapproval even if there is no intention to continue the conduct).

The Court found that section 1324(10) did not create a "freestanding right" to an award of damages and that, whilst the Court would have power to grant an injunction on the facts alleged, it would not have power to grant the injunctive relief sought by Titan and its liquidator under section 1324(1).

Relevantly, the injunction sought to restrain the future negotiation of payment arrangements. The Court found that this future conduct would not involve "aiding or abetting" under subsection 1324(1)(c) nor involve the Accountants being "directly or indirectly, knowingly concerned in, or party to" a contravention under subsection 1324(1)(e). Moreover, Titan and its liquidator had accepted as much but had sought the injunction irrespective of whether the Accountants would be "intentional participants" in a contravention if they did negotiate any future payment arrangements.

As a result, the Court found it would not have power to grant the injunction sought under section 1324(1) and, accordingly, determined that it would not have power to award damages under section 1324(10).

Whilst that finding was determinative, the Court also provided an independent reason for finding that the damages claim was unavailable even if the injunction had been available. In doing so, the Court commented approvingly of Queensland appellate authority to the effect that, relevantly, section1324(10) of the Act conferred a power to award damages only as a "substitute remedy, or supplementary remedy, for an injunction to remedy" a contravention of the Act. In this case, the damages claim for alleged pastcontraventions would not be a "substitute" or "additional" remedy in respect of the injunction sought under section 1324(1).

Comment

This case is a reminder that liquidators must carefully consider the form of compensatory relief sought against any third parties alleged to have been complicit in breaches by a company's directors, including whether the claim is made under general law (including contract or tort) or under statute.

Where compensation against a third party is otherwise unavailable (e.g. under section 1317H), it should not be assumed that a compensation claim can be shoe-horned into an application for an injunction under section1324.

^{1Under the Treasure Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth).}