In the recent decision of Wentworth Metals Group Pty Ltd v Leigh and Owen (as liquidators of Bonython Metals Group Pty Limited); In the matter of Bonython Metals Group Pty Ltd (In liq)  FCA 349, the Federal Court considered the duties owed by a liquidator when selling assets and the circumstances in which a court should interfere with the decisions of a liquidator.
The liquidators appointed to Bonython Metals Group Pty Limited (BMG) sought to realise BMG’s major asset, its joint venture interest in a mining tenement.
The liquidators entered into an extensive sale process which included advertising, negotiations with various bidders and an assessment of the compliance of proposed bids with the requirements under the applicable joint venture agreement.
Ultimately, the liquidators accepted a bid from Pure Metals Pty Ltd (Pure Metals) even though they had received a higher bid from Wentworth Metals Group Pty Ltd (WMG). They did so for reasons including that the WMG bid had a less certain cash component and required amendments to the approved assumption deed to the joint venture agreement. Aside from offering a larger cash component, Pure Metals also offered an indemnity in respect of any claims arising out of the joint venture agreement and releases and indemnities backed by a secured guarantee from a separate corporate entity. The liquidators considered that the Pure Metals bid presented an immediate realisation in cash, eliminated the risk of no return to shareholders and minimal loss to all parties through an expedient sale process.
WMG sought an interlocutory injunction (pursuant to section 1321 of the Corporations Act 2001 (Cth) (Act)) to prevent the sale on various grounds including that the liquidators had breached their duty to achieve the best possible price under section 420A of the Act.
Section 420A of the Act requires that controllers take all reasonable care to sell property of the company for not less than its market value (if there is one) or otherwise, the best price reasonably obtainable. Giffiths J held that section 420A of the Act has no application to liquidators because they are not “controllers” (as defined in the Act). Liquidators are subject to some relevant duties, including duties of skill and care and duties owed to a fiduciary of the company, its creditors and shareholders. Liquidators have a wide discretion in exercising their powers under section 477 of the Act which requires use of their business or commercial judgment in determining whether or not to sell the assets of a company and the terms of such a sale.
The courts have generally been reluctant to interfere with decisions of liquidators where their actions benefit from the business judgment rule under section 180(2) of the Act. Griffiths J adopted Justice French’s approach in ASIC v Forrestview Nominees Pty Ltd (Receivers and Managers Appointed)  FCA 1530. In order for the Court to interfere with the decision of a liquidator, it will consider:
- the significance of the liquidators’ decision in relation to the affairs of the company;
- whether the decision was made in bad faith, upon some error of law or significant factual error or is so unreasonable that it should not be allowed to stand; and
- the extent to which business judgment is involved.
The onus was on WMG to establish that the liquidators acted unreasonably (as set out above) or that their decisions were defective in a way to warrant judicial intervention.
Griffiths J held that WMG had failed to discharge its onus on the basis that:
- section 420A of the Act did not apply;
- WMG failed to establish that the liquidators’ conduct was unreasonable or defective – it was open to the liquidators to accept Pure Metal’s offer (using their commercial judgment and business acumen in exercising their broad powers relating to the sale); and
- WMG failed to establish that the liquidators’ decision was effected by other defects, such as irrelevant considerations, factual errors or misunderstandings.
This case clarifies the principles a court will take into account when exercising its discretion to review liquidators’ decisions. While courts are reluctant to interfere with the decisions of liquidators, the court will interfere where there is a clear case of bad faith or error on the part of the liquidators. Liquidators are required to make practical commercial judgments by applying business acumen. The fact that their decision is not fully reasoned or supported by the fullest investigation is not grounds for the Court to interfere. The case also confirms that liquidators are not under the same duties as controllers under section 420A of the Act.