The recent Federal Court of Australia (Court) decision in CBA Corporate Services (NSW) Pty Ltd, in the matter of ZYX Learning Centres Ltd (receivers and managers appointed) (in liq) v Walker [2013] FCA 243 confirms that liquidators owe a heavy duty of disclosure to the court and that the materiality of facts to be disclosed is to be assessed on a case by case basis.


A consortium of banks (the Banks) brought an application seeking to set aside orders of the Court (Funding Orders) allowing the liquidators of ABC Learning Group (the Liquidators) to enter into a funding agreement with IMF (Australia) Limited (IMF).  Following the Funding Orders, the Liquidators and the relevant companies of ABC Learning Group (ABC) brought proceedings against the Banks seeking to set aside several floating charges and claiming restitutionary relief (Charge Proceedings).

The Banks’ application contended that the Liquidators had failed to disclose a material fact to the Court when seeking the Funding Orders, namely that IMF was funding both the Charge Proceedings and a class action (Class Action) brought by shareholders against ABC Learning Group.

The Banks argued that this placed the Liquidators and IMF in a position of conflict because in the Charge Proceedings, the Liquidators are “carrying out their duty to get in assets of [ABC]”, whereas in the Class Action, ABC is the defendant in a proceeding which, if successful, will reduce the dividend available to the existing creditors who were not funded by IMF.


His Honour began by noting that “[t]here was no debate about the well established proposition that the liquidators owed a heavy duty to disclose to the Court all facts that were material to the application for approval of the funding”.

Jacobson J held that the matters on which the Banks’ application relied were not material and the Liquidators were not guilty of “material non-disclosure” in their application for the Funding Orders.

His Honour held that a relevant consideration was that it was in the best interests of unsecured creditors to enter into the funding agreement for the Charge Proceedings and without it, there was no real possibility of any dividend in the liquidation.

Jacobson J held that the Court considered all relevant matters relating to the reasonableness of IMF’s fee when making the Funding Orders, and the possibility of IMF earning a fee from the Class Action was highly contingent because IMF did not propose to fund the Class Action (at least not before the Charge Proceedings had been decided) even though leave to proceed had been granted.

His Honour concluded by emphasising that “despite the finding that there was no material issue as to disclosure, in this instance, practitioners should in no way depart form the principle that they owe a duty of full disclosure in making an application of the kind made in the charge judgment”.


This decision reinforces the heavy duty of full disclosure that liquidators owe to courts when making applications.  In ascertaining what is a material fact requiring disclosure, courts will consider this on a case by case basis.  As Jacobson J stressed in this judgment, it is better to err on the side of caution, especially where a litigation funder may be acting in more than one capacity.