In the recent decision of Idoport Pty Limited (in liquidation) [2015] NSWSC 1412 (Idoport) the Supreme Court of New South Wales has affirmed the position that where a purely commercial decision of a liquidator has attached to it an element of controversy, the Court will overlook its usual reluctance to give judicial directions on such matters and entertain a Liquidator’s application under  s479(3) of the Corporations Act 2001 (Cth).

In Idoport, Black J gave directions to the effect that the liquidator of that company, Mr Sherman, was justified in entering into a deed of release with NAB, National Market Groups Ltd and AUSMAQ Ltd.

Ordinarily, where a matter arising in a liquidation solely requires the exercise of commercial judgement on the part of the liquidator, the court is reticent to intervene and give any directions on whether the decision is justified.  However, where a solely commercial decision also has attached to it some element of controversy, such as an unusual legal issue or where an attack on the propriety and reasonableness of the decision has been raised,  the Court may overlook its usual practice and intervene to add (or refuse to provide) its imprimatur to the matter (see for example Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115).

Justice Black referred in his decision to the decision of Warren CJ of the Victorian Supreme Court in Handberg (in his capacity as liquidator of S & D International Pty Ltd (in liq) )v MIG Property Services Pty Ltd [2010] VSC 336. In that case, His Honour observed that the liquidator was;

“Not seeking commercial advice from the Court. He has already made what he regards as the appropriate and reasonable commercial decision. It is contained in the settlement deed. Having made that decision, he now asks the Court to protect him from the potentially unreasonable behaviour of other parties involved in these proceedings. He is seeking the protection which the Court is able to provide him in light of the difficult and litigious circumstances in which he finds himself, and the risk that they pose to his continuing ability to effectively and equitably wind up the second plaintiff.”

Black J observed that in the present case, the liquidator was not seeking to have the Court substitute its own commercial judgement for his, rather, he had already made a commercial judgement to enter into the deed of release.  The liquidation of the company had up to that point involved a lengthy and litigious history and His Honour found that in the circumstances the liquidator was justified in his fear that his decision, though essentially an exercise of commercial judgement, may attract controversy if he were not given the protection that the Court may provide pursuant to s479(3).

Ultimately for those reasons, and because the the course proposed by the liquidator was clearly a rational commercial decision which had been made consistently with the exercise of the liquidator’s duties and in good faith, His Honour Black J was content to make a direction that the liquidator would be justified in adopting that course.

The case is highly relevant for any insolvency practitioner faced with a significant commercial decision that he or she is legitimately concerned will generate controversy, whether amongst creditors or any other other stakeholders, in a liquidation context.

For more information please contact ERA Legal.