In a contest, costs are the deciding factor in appointment of liquidators - Insolvency/Bankruptcy

The New South Wales Supreme Court has recently delivered judgment in the case of In the matter of Bosnian Islamic Council of Australia [2024] NSWSC 247. In the case, the Court reviewed the relevant authorities and considered the factors to be taken into account in appointing a liquidator where an alternative proposed liquidator is nominated.

Ultimately, the Court's decision to appoint the nominee of the party applying for the liquidation was made solely based on cost in circumstances where there was likely to be no funds available to the liquidators. This was despite there being an undertaking by the interested party to fund an alternative liquidator.

Key Takeaways

Where an alternative proposed liquidator is nominated by another creditor or interested party, the Court will, all things being equal, generally appoint the nominee of the party applying for the winding up. To depart from this approach, there must be some reason, such as the liquidator's independence, fitness, qualifications, or costs. It is for the defendant to establish grounds to depart from the usual course.
A Court should not be forced to accede to a party's nomination on the basis that a creditor is prepared to fund that liquidator only, as this would encourage parties to be selective in the funding of liquidators for irrelevant reasons.
In this case, the Court's decision to appoint the plaintiff's nominee was made solely on the basis that their hourly rates were lower, despite the fact that there were likely no funds available in the liquidation and the interested party had filed an undertaking to fund the proposed alternative liquidator.

Background

The plaintiff, the Bosnian Islamic Council of Australia Incorporated (Association), applied to be wound up pursuant to s 63 of the Associations Incorporation Act 2009 (NSW). The Australian Bosnian Islamic Centre Deer Park Inc (Deer Park) appeared as an interested party, supporting the application to wind up, but not the choice of liquidator. Deer Park filed an undertaking to provide $50,000 of funds to its nominated liquidator.

The Court made the winding up order for a number of reasons, including the Association's failure of governance, the fact that it was dormant and without assets and activities, and because there were disputes between those asserting membership of the Association, of which the Association had no funds to deal with.

Decision

As to the principles involved in determining the identity of a liquidator to be appointed by the Court, the Court referred to a recent summary of the principles in BH Holdings QLD Pty Limited [2024] NSWSC 132 at [15] – [18]. It noted the authorities show that where there is a contest as to the appointment of the liquidator, all things being equal, it is a Court's practice to appoint the plaintiff's nominee. To depart from that approach there must be a reason, such that there is something between the nominees in relation to their fitness, qualifications or costs, and it is for the party nominating the alternative liquidator to establish those grounds.

The Court emphasised that the liquidator must be independent and have the appearance of independence, and if all things are equal, which liquidator costs less.

The Court then referred to considerations relating to an undertaking to fund an alternative liquidator as set out in In the matter of Atlas Constructions Group Pty Ltd (in liquidation) [2018] NSWSC 1189. There, the Court said that 'proceedings such as these should not become a vehicle for disgruntled creditors to endeavour to secure the appointment of a preferred liquidator'. A Court will not accede to a creditor's preference for a liquidator by a statement that a creditor is prepared to fund only a particular liquidator.

In this case there was no challenge by either side as to the skills, qualifications or fitness of the proposed liquidators. However, given Deer Park has previously indicated it would make an application to wind up the Association itself, the Court considered it was quite clear that Deer Park could have been the plaintiff, and therefore it would not be appropriate to provide preference to the plaintiff's nominee. In any event, the Court noted there was no equality on the issue of costs and appointed the liquidator with the lowest hourly rates, being the second set of liquidators nominated by the plaintiff. The Court was not persuaded by the submission that, if Deer Park's proposed liquidator was not appointed, and funds were not forthcoming from Deer Park, there was any other source of funds and so Deer Park's nominee should be appointed.

Comment

This case provides a reminder of the factors a Court will consider when there is a contest as to which liquidator should be appointed by a Court. While a Court will generally prefer the nominee of the party applying for the winding up, all other things being equal, cost can be one of the guiding considerations. A Court will not simply accede to a party's preference for a particular liquidator on account of a threat or promise to fund the liquidator, but will consider independence, fitness, qualification and costs.

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.