Liquidators liable if plaintiff’s impecunious

No matter what misgivings liquidators of a company might have about the conduct of separate liquidators appointed to a related entity, they must always resist the temptation to apply to wind up that related entity if it’s subject to a deed of company arrangement (DoCA).

That’s the message Supreme Court of West Australia Master Craig Sanderson delivered last week when he published his decision in respect of whether indemnity costs should be awarded in respect of an ill-fated application to have Lottah Mining Pty Ltd (Subject a Deed of Company Arrangement) wound up.

“A provisional liquidator is, according to the wording of the Act, a liquidator who is appointed provisionally. It follows then, if a liquidator cannot be appointed to a company the subject of a deed, then it is not open to the court to appoint a provisional liquidator.” West Australia Supreme Court judge Craig Sanderson.

Dundas Mining Pty Ltd (In Liquidation) brought the interlocutory application to terminate the deed on July 28, a month after the creditors of Lottah Mining passed a resolution to put it into DoCA and seven days after the deed was executed.

Dundas is a material creditor of Lottah Mining and iNO’s mail is that its liquidators – KordaMentha partners Richard Tucker and John Bumbak – had concerns about what they saw as omissions in the Lottah Mining report to creditors that assessed the comparative benefits of the company being placed into deed administration as opposed to liquidation.

The authors of that report were Lottah’s then administrators – Chris Darin and Graeme Beattie of Worrells.

That mail appears to be confirmed by his honour in Dundas Mining Pty Ltd (In Liquidation)-v- Lottah Mining (Subject to a Deed of Company Arrangement) [2023] WASC 68 in which he details how Tucker and Bumbak were moved to make the application because they wanted further analysis of what they alleged was “deficient investigations and reporting”. Darin did not respond to iNO’s inquiries by deadline.

Dundas and Lottah are related entities linked to the recently re-opened Avebury nickel mine near Zeehan on Tasmania’s mineral rich west coast.

Dundas purchased the mine for $25 million and took control of it in July in 2017 but the financing behind it was not straightforward and after an event of default its secured creditor appointed receivers from BDO in 2021.

The directors then installed the KordaMentha pair as administrators in December of that year and Dundas was wound up in liquidation at the second meeting of creditors on February 22, 2022.

Six weeks after that Darin and Beattie issued their DIRRI in respect of their appointments as Lottah’s administrators.

What is revealed in Master Sanderson’s judgment is that the application to wind up Lottah was not only ill-advised but rendered redundant when in mid-August 2022 the DoCa was terminated because its terms weren’t satisfied.

This occurred the day before Dundas’s application was due to be heard and despite the deed containing a mechanism to extend the timeframe for the payment of the DoCA fund under the terms of the DoCA.

That meant Lottah was wound up and Darin and Beattie became its liquidators, which wasn’t the outcome Dundas and its liquidators wanted given their aforementioned misgivings.

It also meant that the proceedings were dismissed save as to the question of who should pay the costs the defendants incurred defending the interlocutory applicaiton, which Darin and Beattie argued should be paid on the indemnity basis, something with which his honour agreed.

“This is one of those rare cases where I am satisfied an award of indemnity costs is appropriate,” the judge said.

“It is very difficult to see how the plaintiff, properly advised, could have persisted with this action. To succeed, the plaintiff would have had to persuade the court it was appropriate to wind up a company which was subject to a DOCA.

“No matter which way the matter is approached, whether it is on the basis of the interlocutory application as first filed, or on the basis of the proposed amended interlocutory applications, the action could not succeed.

“It represented an attack on the fundamental principle of the DOCA regime. Furthermore, counsel for the defendants from the first drew the attention of the plaintiff and their legal advisors to the difficulties they faced. In the circumstances, I am satisfied an award of indemnity costs is justified.”

Seeing the practitioners whose reporting they questioned anointed as recipients of indemnity costs must be an unpalatable enough sandwich for Tucker and Bumbak to munch but the judge laid it on even thicker by ensuring that the Worrells duo wouldn’t be short changed by an assetless plaintiff.

He added a further order allowing Darin and Beattie to apply to have their costs orders paid by Tucker and Burbank personally if Dundas proves impecunious.