It sometimes happens that stakeholders become disgruntled with the liquidator appointed to wind up the affairs of a company. So, what can be done?

There is power in s 473(1) of the Corporations Act 2001 (Cth) for the court to remove (and replace) a liquidator. But, how hard is this process?

Discussion of recent Federal Court case

The January 2016 decision of Jagot J in Queensland Mining Corporation Ltd v Butmall Pty Ltd, in the matter of Butmall Pty Ltd (in liquidation) [2016] FCA 16 looked at this very issue.

Not long after liquidators were appointed to Butmall Pty Ltd (Butmall), a Butmall director applied for the liquidators’ removal based on the liquidators having an actual or apparent conflict of interest. The appointed liquidators were BDO and another BDO partner was the auditor of Butmall’s major creditor.

The Butmall director expressed concern that the appointed liquidators might be perceived as not being independent. The director referred to two claims Butmall had against the major creditor, totalling $442,000, to support the conflict of interest allegations.

The presiding Judge cited numerous cases supporting these principles:

  1. A liquidator must be independent of the company, its directors, shareholders and creditors and must act impartially.
  2. A liquidator should not have a conflict of interest affecting duties to creditors, members or his or her personal interest.
  3. A liquidator with an actual or apparent conflict of interest can be deemed to lack objectivity such as to warrant being removed as liquidator. Removal can also be appropriate where a liquidator faces a conflict of interest or apparent bias from relationships with the company, management or persons interested in the company’s affairs.
  4. As officers of the court, liquidators are expected to conduct themselves with independence, impartiality and integrity – characteristics which are also consistent with the public interest.

For removal there needs to be a real, not theoretical, possibility of conflict of duty or interest.

The presiding Judge considered that the evidence put to him showed only the theoretical possibility of conflict, but did not amount to any real conflict so as to justify the liquidators’ removal. Based on the Judge’s finding it was not unusual for a firm (BDO) to have a relationship with a creditor. Further, the Judge found that Butmall’s claims ($442,000) against the major creditor were not, in any case, reasonably supportable. Accordingly, the removal application failed.

Closing observations

The Butmall director who made the removal application not only lost but was ordered to pay the liquidators’ costs of defending the application. The decision in Butmall’s case was consistent with earlier decided cases and clearly suggests that to support a successful removal application of liquidators, the evidence required must establish a real, not hypothetical, possibility of conflict of interest on the part of the liquidators. Evidence of business relationships of the liquidators or their firm with other parties cannot, alone, be expected to establish the real possibility of conflict of interest needed. The Butmall case stands as a timely reminder of the strength of evidence needed to oust a liquidator, based on the conflict of interest ground.