Insolvency Update - June 2009

Performing Liquidator’s Duties 

Facts

The Companies Auditors and Liquidators Disciplinary Board (Board), made a finding that Mr Gould (Gould) had failed to carry out his duties as liquidator adequately and properly. This was argued to be due to a purported failure to include a ‘cap’ or ‘upper limit’ on his remuneration, in addition to a failure to refer to the company as being subject to a deed of company agreement (DOCA) in letters to creditors. The Board consequently suspended the registration of Gould as a liquidator for three months.

Gould had then sought review of this decision by the AAT which subsequently upheld the decision of the Board.

Order

The appeal from the AAT Decision was allowed and the proceeding was stood over for directions.

Salient issues and findings

Had Gould failed to satisfy a professional standard by failing to include a ‘cap’ or ‘upper limit’ on his remuneration

“Where the Administrator is to be remunerated on the basis of an hourly rate, the resolution for remuneration should include a specified amount and where remuneration is approved prospectively an upper limit must be included in a resolution of creditors or Committee of Inspection.”

Gould claimed at the time that it was widely accepted amongst fellow professional that the IPAA guidelines were simply that, guidelines. He claimed the extent to which they are followed will depend on the circumstances of the case.

Had Gould contravened section 450E(2) of the Corporations Act 2001 (Cth) (Act) in failing to refer to the company as being subject to the DOCA in letters to creditors?

S450E(2) of the Act states that:

Except with the leave of the Court, until a deed of company arrangement terminates, the company must set out, in every public document, and in every negotiable instrument of the company, after the company’s name where it appears first, the expression “subject to deed of company arrangement”.

An analysis of this section came down to what constituted a ‘public document’ for the purposes of section 450E(2).

Section 88A(1) of the Act provides that:

In the case of National Education Advancement Programs (NEAP) Pty Ltd v Ashton (1995) 33 IPR 281, Young J stated that interpreting this section requires one to look at what is the underlying theme running through the terms “business letter, statement of account, invoice, receipt etc.” He argued that all these documents are such that they are used in trade or commerce, with the test seemingly whether the document concerned was one that was possibly part of a process of a business transaction or business contract involving the company.

The purpose of section 450E(2) is generally similar in that it makes it clear to persons who are contemplating business dealings that they are or will be dealing with a company that is subject to a DOCA.

In the Court’s view the letters Gould sent were not business letters for the purpose of the section as they were not letters of the company. The judge held that the letterhead and the manner of signature by Gould showed that he was the author of these letters, not the company through him. Therefore these letters were not letters of the company concerned and did not purport to be signed or issued by or on behalf of the company.

Was Gould entitled to charge as an expense of the liquidation a late fee charged by ASIC for lodging documents outside the period allowed?

The Court held as to this contention that the late fees were not ‘properly incurred’ by Gould within section 556(1)(a) of the Act. Gould had to lodge the forms with ASIC, however, he chose to lodge these through an agent. Any late lodgement by the agent was a late lodgement by Gould and thus lodgement was not effected by delivery by Gould to his agent. The agent was purported to have posted the forms before the limitation period, however, posting of the document to ASIC is not a lodgement of the document with ASIC. ASIC’s practice is to accept posted documents as being lodged on the date they are received by ASIC.

Furthermore, it was held that where there is a postage delay that results in the document being received outside the allowed period, the liquidator must pay the late fee as the statutory obligation is strictly to lodge the document with ASIC.

Had Gould contravened section 539(1) of the Act by including a incorrect monetary amount in his six-monthly accounts?

Section 539(1) in connection with section 1308(4) of the Act requires a liquidator to lodge with ASIC six-monthly accounts. This allegation was ultimately thrown out as it was not outlined with sufficient precision.

Nonetheless, in view of the seriousness of the consequences the Court found that a failure to take reasonable steps to ensure the information was not false or misleading, as is required under s1308(4), would have to be “unreasonable or blameworthy” as distinct from a level that would give rise to a mere breach of the common law of duty of care to result in a contravention.

Did the AAT have jurisdiction to entertain certain amended contentions where ASIC had been refused leave to amend these?

In the case of Shi v Migration Agents Registration Authority (2008) 235 CLR 286 the High Court held that the AAT was entitled “to take into account facts and circumstances that had arisen since the primary decision.”