Introduction

New Zealand liquidators have had their powers recognised in Australia in a series of recent ground-breaking judgments.

These decisions in respect of Northern Crest Investments Limited, a New Zealand registered company listed on the ASX, demonstrate the broad powers which the courts are willing to provide to foreign representatives under the Cross-Border Insolvency Act 2008 (Cth) (the CBIA).

Obtaining powers of Australian liquidators

In Lawrence v Northern Crest Investments Limited (In Liq) [2011] FCA 672, her Honour Justice Jagot of the Federal Court of Australia made orders granting interim relief to the foreign representatives of Northern Crest Investments Limited (the Company) under the CBIA, including orders that:

  • enforcement or execution against the Company’s assets be stayed
  • the administration or realisation of all the Company’s assets in Australia be entrusted to the New Zealand liquidators
  • any person within the jurisdiction of the Court be restrained from transferring, encumbering or otherwise disposing of any assets of the Company
  • the New Zealand liquidators, in their capacities as foreign representatives of the Company, may, as they deem appropriate but subject to any further order of the Court, examine witnesses, take evidence and obtain delivery of information concerning the Company’s assets, affairs, rights, obligations or liabilities
  • subject to the provisions of the Corporations Act 2001 (Cth), all powers normally available to liquidators appointed under the provisions of the Corporations Act be made available to the New Zealand liquidators
  • any proceedings against the Company be stayed.

This article sets out the issues raised by this and a subsequent decision (and an intervening as yet unreported decision in respect of the Company) that may affect the conduct of insolvent administrations conducted under the CBIA.

Factors supporting order for interlocutory relief

In making orders providing the foreign liquidators with broad powers under Australian law, her Honour had regard to evidence that:

  • a former director of the Company was said to have been criminally charged in New Zealand for a failure to keep proper records in respect of the Company and its associated companies
  • that director was believed to be conducting in Australia a similar operation to that conducted by the Company in New Zealand, which resulted in multi-million dollar losses for investors in New Zealand
  • despite requests being made by the New Zealand liquidators to other directors of the Company resident in Australia, the New Zealand liquidators had been refused access to the books and records of the Company
  • the New Zealand liquidators had been advised that the intellectual property of the Company had been transferred to sub-licensees for no value
  • the Company appeared to have entered into “voidable transactions” under New Zealand law in relation to its assets.

In granting the interim relief sought by the New Zealand liquidators, her Honour also noted that the directors had adopted a position that the New Zealand liquidators had no powers in Australia, and that the directors were not therefore required to provide the New Zealand liquidators with any information or documents or otherwise to cooperate with the New Zealand liquidators.

Utilisation of powers granted in interim orders

The New Zealand liquidators had not been provided with access to the books and records of the Company, and were concerned that assets of the Company were being dissipated.

In a subsequent application before the Federal Court, the New Zealand liquidators were successful in obtaining orders from Justice Stone that:

  • the directors of the Company provide the New Zealand liquidators with access to the Company’s books and records held by them
  • the New Zealand liquidators have issued to their delegate a warrant allowing them to access the Company’s registered office, and any other place reasonably believed to house the books or property of the Company, pursuant to section 530C of the Corporations Act.

Orders of this nature would usually be made on application of an Australian liquidator, and in this situation, the New Zealand liquidators used the powers granted to them by the Federal Court to obtain standing to seek these orders.

Final recognition granted

On 8 July 2011, in Lawrence v Northern Crest Investments Limited (In Liquidation) [2011] FCA 925, his Honour Justice Emmett recognised the New Zealand proceeding as a foreign main proceeding, and granted the final relief sought by the New Zealand liquidators (in terms similar to the interlocutory relief already provided), for reasons similar to those given by Justice Jagot at the interlocutory stage.

Justice Emmett also noted that, in the absence of the relief sought by the New Zealand liquidators, the New Zealand liquidators were unable to discharge their duties as liquidators of the Company, resulting in prejudice to the numerous creditors of the Company.

Practical applications

The decisions in the Northern Crest Investments cases practically demonstrate the evidence which will be required and the ways in which a foreign representative may utilise the UN Model Law and CBIA to assist them in their conduct of an insolvent administration.

In particular, these cases show that in circumstances where:

  • there is a risk of dissipation of assets
  • directors are not co-operating with the insolvency practitioner
  • the insolvency practitioner is not being provided with access to the books and records of the company,

the courts are willing to make orders empowering that practitioner to obtain access to the assets, books and records of the company.

In addition, it may in certain cases be appropriate for foreign representatives to seek orders providing them with the powers of an Australian liquidator, so that they may seek orders compelling the production of books and records or, as was the case in Northern Crest Investments, obtain a search and seizure warrant under section 530C of the Corporations Act.

In the Northern Crest Investments cases, the applications and orders under the CBIA allowed the foreign representatives to carry out their functions in the administration when otherwise they may have had no ability to do so.