Will Colwell.
John Lindholm.
The sting in this tale’s clear. Don’t accept an appointment as receivers, fail to recover much in the way of assets, generate fees and costs that upset your appointor, create a conflict, assert your entitlement to a lien and then expect to be appointed as liquidators when the time comes.
“…. the time must shortly arrive where the courts will, by necessity, be required to develop a new process for the appointment of external administrators, being one which is not founded upon extant deep-rooted relationships and associations between external controllers and the applicants for appointment or, perhaps more accurately, their lawyers.” Justice Roger Derrington.
The just released August 7 judgment of Federal Court justice Roger Derrington in Australian Securities and Investments Commission v A One Multi Services Pty Ltd (No 3) [2024] FCA 1209 details why such an expectation is hard to justify, particularly when receivers aspiring to be liquidators are encumbered with a conflict courtesy of some $550,000-odd in legal and other costs they incurred since being appointed by the court in 2021.
In the application for a winding up and the appointment of liquidators brought by ASIC the receivers – KPMG partners John Lindholm and Will Colwell – argued that the work they’d done and the knowledge accumulated would assist them in acting as the liquidators of A One Multi Services Pty Ltd.
Between being appointed in October 2021 and April 2023 they’d made recoveries of about $2.3 million, most of which came about from the seizure of real property linked to the company’s director Mr. Aryn Hala, and the former director, Ms. Heidi Walters.
Since then a further $100,000 has been received from a settlement but outgoings – which include $1.45 million in receivers’ fees and legal costs – have devoured almost all of the amount so far recovered.
If that wasn’t enough to upset ASIC Justice Derrington referred to a potential conflict and to other issues which explain why ASIC nominated Grant Thornton’s Michael McCann and Graham Killer as its preferred liquidators.
“The major point raised by ASIC in relation to this issue is that the receivers are currently, or claim to be, substantial creditors of the company,” the judge said.
“Pursuant to s 532(2) of the Corporations Act, a person must not, except with leave of the Court, seek to be appointed, or act, as a liquidator of a company if they are a creditor of the company with a debt exceeding $5,000.
“The difficulty here is that the receivers claim that substantial amounts are owing to them from the performance of their duties as receivers.
“Most importantly, they have claimed outgoings of some $550,000 for legal and other fees.
“They assert a lien, or an entitlement to a lien, to protect their right to recover those fees. To some extent, it may be apprehended that they do so on the basis of the principle in In re Universal Distributing Company Limited (in liquidation) (1933) 48 CLR 171, being that, where a party creates a fund available for the benefit of others, that party is usually entitled to the proper costs in establishing it.
“It should, however, be noted that ASIC raised issues about whether or not the lien is enforceable in the present case.
“There is merit in that proposition, mostly because there is some issue as to the quantum of the amounts claimed and whether they are properly entitled to recover those fees.
“Secondly, there is some issue as to whether the fees and disbursements were expended in the course of creating the fund (or funds) which may come into existence.
“There is no need, at this point, to resolve the disputation about the issues surrounding the receivers’ entitlement to a lien. In short, the disputation is bona fide.
“There exists the potential for a real conflict of interest were the receivers to be appointed as liquidators, mainly because they would be in the position of having to consider the veracity of their own claims in relation to that lien.
“That is important where it is apparent that a not insignificant amount of money will come into the company in the future as a result of litigation which the receivers have instigated and pursued.
“That, of course, is relevant to their right and entitlement to the lien, but the facts and circumstances of that are beyond determination on an application such as this.”
The winding up and appointment orders were made by the judge on August 7 but the judgment was released only this week.
Whilst the circumstances surrounding the relationship between the regulator and the receivers comprises the bulk of what’s been published, his honour was also moved to speculate on whether the courts needed to develop a new method to deal with applications for the appointment of insolvency practitioners, speculation which appeared to demonstrate concern with the role that relationships between lawyers and insolvency practitioners play in referrals and nominations.
“As an aside, it may be apprehended that the principle of appointing the insolvency professionals proposed by the applicant for winding up has many disqualifying features to it.
“Experience has shown, all too starkly, that faithful adherence to the statutory duties required of liquidators and other external controllers, is often abdicated in favour of the pursuit of a profitable administration for the external controller.
“It seems that, in many cases, external controllers regard themselves as restructuring professionals who, regardless of whether they are liquidators, receivers, administrators or deed administrators, seek to embed themselves in any process by which a company or its business is revitalised.
“With that, they tend to gravitate towards the creditor or other interested party who is most likely to fund the work required.
“The abandonment of the independence which external controllers are obliged to observe can also be seen in the long-standing relationships which have developed between regular applicants for winding up and their lawyers on the one hand, and insolvency practitioners on the other.
“Whilst this is not the occasion to explore that further, the time must shortly arrive where the courts will, by necessity, be required to develop a new process for the appointment of external administrators, being one which is not founded upon extant deep-rooted relationships and associations between external controllers and the applicants for appointment or, perhaps more accurately, their lawyers.”
Further reading:
Receivers’ prospective remuneration bid refused
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