The recent Supreme Court of New South Wales decision of AMC Commercial Cleaning (NSW) Pty Ltd v Stephen Keith Coade & Anor; Rockcliffs Solicitors & IP Lawyers v Schon Condon as liquidator of AMC Commercial Cleaning (NSW) (No 2)  NSWSC 332 confirms that a liquidator may be personally liable to pay costs where the liquidator initiates proceedings to claim funds for the company in liquidation.
AMC National was involved in a dispute with AMC NSW. The dispute was resolved by way of a settlement deed (Deed), under which AMC National was to make payments to AMC NSW in instalments.
AMC NSW directed those payments to be made directly to its solicitors, Rockcliffs Solicitors & IP Lawyers (Rockcliffs) in satisfaction of amounts owing by AMC NSW under a costs agreement with Rockcliffs.
After an order for the winding up of AMC NSW was made, the liquidator of AMC NSW requested AMC National to stop making payments to Rockcliffs.
As AMC National did not want to be involved in the dispute between the liquidator and Rockcliffs, it paid the next instalment due under the Deed into the Supreme Court of New South Wales and sought costs on an indemnity basis.
Rockcliffs brought an application for the disposition of the funds. The Court ordered that the funds be paid to Rockcliffs and that the liquidator pay Rockcliffs’ costs.
The liquidator sought an order that AMC NSW, and not he, pay Rockcliff’s costs or alternatively that the liquidator pay costs only to the extent that AMC NSW held sufficient assets to indemnify him.
The Court considered previous authority in relation to a liquidator’s liability to pay costs and confirmed:
- there is a clear distinction between the case where the liquidator is sued and the case where the liquidator initiates proceedings;
- if proceedings brought against the liquidator are successful, generally a costs order will be made in such a way that the liquidator does not incur any personal liability;
- if the liquidator has “initiated” the proceedings, then he or she should pay the costs of the other party; and
- although the liquidator would generally be entitled to an indemnity from the assets of the company, this may be denied if the liquidator has acted unreasonably.
In applying these principles to the facts, the Court held:
- although Rockcliffs applied to the Court for the release of the funds, the application was forced by the actions of the liquidator, as the funds would otherwise have been paid to Rockcliffs pursuant to the Deed;
- therefore the liquidator should not be entitled to the protections that are normally afforded to defendant liquidators, and there was no “unfairness” in requiring the liquidator to pay the costs of Rockcliffs; and
- in blocking the transfer of funds to Rockcliffs, the liquidator may well have been acting in the best interests of AMC NSW and be entitled to an indemnity from the assets of AMC NSW, but it was his responsibility to ensure funds were available to meet any adverse costs order before putting Rockcliffs to the expense of having to bring proceedings.
Based on the above, the Court confirmed that the liquidator must pay Rockcliffs costs of the proceedings.
This case confirms that a liquidator may be personally liable to pay costs where the liquidator “initiates” proceedings, whether directly or indirectly, even where the liquidator was acting in the best interests of the company.