A surprising Federal Court decision has determined that a liquidator “is not an officer of the corporation for the purposes of the [Corporations] Act”.

At first glance, the decision seems contrary to paragraph (f) of the definition of “officer” in section 9 of the Act, which expressly says that “officer” includes “a liquidator of the corporation”.

However, as always, it was not that simple.

In RiverCity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) [2014] FCA 1008, the situation was as follows:

• The corporation was the responsible entity for a managed investment scheme.
• Section 601FD of the Act says that the officer of such an entity must “act in the best interests of the members”.
• The court observed that “[the] liquidator, of course, owes duties to the general body of creditors, and those duties are not subordinated to the interests of scheme members”.
• To enable the court to reach this conclusion in the face of section 601FD, the court engaged in the following reasoning process:
  • Section 9 (which defines “officer” to include a liquidator) opens with the words “Unless the contrary intention appears”.
  • For the purposes of the managed investment scheme provisions, the case law makes it clear that a liquidator’s duty to creditors trumps his or her duty to scheme members.
  • Thus, in the case law, there “appears” (or so the court held) an intention that a liquidator is not an officer of the company.

At first blush, this may seem like an elegant solution to an ill-thought-out piece of legislative drafting. However, it is not without its own problems:

• The case law suggests that, after a company becomes insolvent, directors may have certain duties to creditors (refer to the discussion at paragraph 4396 and onwards in Bell Group v Westpac [2008] WASC 239). Does this mean that directors are also no longer “officers”?
• What impact does this all have on the standard directors’ duties in section 180-184?
• If the liquidator of a managed investment scheme responsible entity is not an “officer”, can he or she ignore the other duties in section 601FD, like the duty to “act honestly” or to ensure the responsible entity complies with the Act?
• What if an administrator is appointed? If the liquidator is not an “officer” then how does the “powers of other officers suspended” provision (section 437C) work?

These are only some of the issues that arise as a result of this decision. It will be interesting to see how they are tackled.

In the meantime, it seems now to be the law that “a liquidator of a responsible entity is not an officer of the corporation for the purposes of the Act”.