Liquidators are subject to rights and duties under common law and the Corporations Act 2001 (Cth) (CA). To provide some examples, liquidators owe a general duty to act honestly and impartially, a duty to act in good faith and in the best interests of the company and its members, and have the right to remuneration.
In the past the Courts have provided guidance on principles concerning liquidators. For example, a recent High Court decision affirmed that liquidators are entitled to be paid his or her costs and expenses properly incurred in realising assets of a company in priority to a secured creditor.2 In another recent example, an unsuccessful bidder argued that liquidators are subject to a duty to achieve the best possible price in asset sales. The Court found that the duty to achieve the best possible price did not apply and commented that generally Courts will be reluctant to interfere with liquidators’ decisions based on business judgment.3
This article considers another recent Federal Court decision that clarifies a liquidator’s right to remuneration and circumstances where a liquidator will not be considered an “officer” of the company.
The case of Owen, in the matter of RiverCity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed)  FCA 1008 dealt with an application made by the former administrators of the RiverCity Motorway Group (RCM Group). The RCM Group comprised of 10 corporations, one of which was RiverCity Motorway Management Limited (RC Management).
The administrators were subsequently appointed as liquidators and sought orders and directions from the Court. In the context of this article, we will focus on:
- the approval of the liquidators’ remuneration; and
- whether the liquidators were “officers” of RC Management for the purposes of the CA.
Liquidators' entitlement to remuneration from trust assets
It was noted that where liquidators fulfil their obligations they will incur costs and expenses in doing so. Further, in discharging their obligations, liquidators will also incur a right to remuneration. Justice Greenwood started from the proposition that the Court’s power to allow a trustee – or the administrator or liquidator of a corporate trustee – recourse to the trust assets for remuneration and expenses is sparingly exercised. This is particularly so where the trust instrument itself provides the extent to which the trustee is to be remunerated and reimbursed from the trust assets.
The liquidators raised concerns that in the context of discharging their duties, which included dealing with matters raised by various Court orders arising from proceedings involving RC Management, they were exposed to having to make payments from their personal funds.
The Court was satisfied that the work required of the liquidators was for the benefit of the trusts and their beneficiaries, and the liquidators were in the best position to efficiently and cost effectively undertake that work. The Court noted that the liquidators enjoy priority in the payment of their costs, expenses and remuneration.
Consequently, the Court ordered that the liquidators be indemnified out of the trust assets for remuneration, costs and expenses, with the proportion of the indemnity determined by the value of the funds held by the trusts at the time the indemnity is satisfied.
Whether the liquidators of RC Management are “officers”
The Court had regard to a number of factors when considering this issue. Pursuant to section 601(FD)(1) of the CA, an officer of a responsible entity of a registered scheme must, among other things, act in the best interests of the members and, if there is a conflict between the members’ interests and the interests of the responsible entity, the officer must give priority to the members’ interests.
The Court considered the definition of an “officer” under section 9 of the CA which includes an administrator or liquidator of the corporation. His Honour noted that the definition begins with the words “Unless contrary intention appears”.
His Honour found that the liquidators, on the face of section 601(FD)(1) of the CA, must act in the best interests of the scheme members, and in the event of a conflict between the members’ interests and the interests of the responsible entity, the liquidator must give priority to the interests of the scheme members. Moreover, a liquidator owes duties to the general body of creditors and those duties are not subordinated to the interests of scheme members.
Considering this, the Court held that for the purposes of Chapter 5C of the CA, there was a “contrary intention” such that a liquidator of a responsible entity is not an officer of the corporation for the purposes of section 601(FD) of the CA.
Take home tips
Liquidators can be subject to significant personal risk through their position. This case is among a series of recent cases that provide guidance on liquidators’ duties and rights.
This case demonstrates that the Court is prepared to grant an order for indemnity for the liquidator’s costs, expenses and remuneration, particularly in circumstances where these amounts are being incurred in conducting work for the benefit of an entity.
The decision also confirms that although the definition of “officer” expressly includes a liquidator, there are circumstances under which the Court will find a liquidator is not an officer of the company to which he or she is appointed.