Court decision

Dealing with proofs of debt involving conflicts between group companies: do you apply for a special purpose liquidator or seek alternative relief?

By Paul Betros / 12 January 2021
3 min.
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Worthwhile read for: Insolvency Practitioners

On 24 December 2020, the Federal Court of Australia published reasons for a decision in which I appeared for the liquidators of two related companies, Bestjet Travel Pty Ltd (in liq) and Wynyard Travel Pty Ltd (in liq). The decision can be accessed here

Markey (Liquidator), in the matter of Bestjet Travel Pty Ltd (in liq) v Bestjet Travel Pty Ltd (in liq) [2020] FCA 1881 is an important and useful decision that provides general guidance for the profession as to how to deal with a common problem that confronts insolvency practitioners on a regular basis.

The application was necessary because the same liquidators had been appointed to multiple companies in a corporate group. This often occurs in practice and is usually beneficial to stakeholders in that it creates significant cost-saving through one firm (rather than multiple firms) attending to the various tasks associated with the liquidations. 

The liquidators had caused one of the companies (Bestjet Travel) to lodge a proof of debt in the winding up of the other company (Wynyard Travel) for a significant amount. This meant that, absent the intervention of the Court, the liquidators were required to adjudicate on their own proof of debt. This is a common situation that had occurred many times in the past. Traditionally, liquidators had dealt with this problem by seeking the appointment of a special purpose liquidator to the company receiving the proof of debt for the sole and limited purpose of adjudicating upon (and otherwise dealing with) the contentious proof of debt.

However, a number of recent cases had dealt with the problem another way - by making a declaration that the existing liquidator would be acting properly in admitting the proof of debt. Additionally, there was potential that the Court may be minded (in an appropriate situation) to deal with the problem in a third way - by replacing the liquidator of one of the companies with a new independent appointee.

Hence, I was required to advise the liquidators as to which of these three courses of action they should look to take, inform the Court of each of the different options available to it and then argue which course of action was (and was not) appropriate in the circumstances (and why).

In this case, the liquidators decided to seek the appointment of a special purpose liquidator to deal with the contentious proof of debt. After considering the three options available to the Court, Reeves J made orders in these terms.

His Honour’s reasons for judgment provide clear and concise guidance as to the factors the Court should take into account when determining which of these three options is appropriate in any given case. They also provide useful assistance to insolvency practitioners and their lawyers as to what matters should be addressed in the material placed before the Court.

The judgment is clear, succinct and well worth reading. 

For more information on Insolvency matters, please contact Paul Betros.

Authors
Paul Betros
Partner
Paul is a Partner with a high level of expertise in insolvency and restructuring matters and dispute resolution.

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