The Victorian Supreme Court case of In the Matter of Polat Enterprises Pty Ltd (in liq)1 demonstrates the full breadth of the Court’s powers under section 90-15 of the Insolvency Practice Schedule to re-appoint liquidators despite circumstances of invalid, and perhaps fraudulent, company resolutions to wind up and appoint liquidators.

The Facts
Although the proceedings commenced as an unfair preference claim initiated by the liquidators of Polat Enterprises Pty Ltd (Company), the case mainly focused on the validity of two company resolutions which placed the Company into liquidation and appointed the plaintiffs as liquidators.

The plaintiff challenged the company resolutions on the basis that as sole director and shareholder of the Company, she was allegedly unaware of and did not consent to her resignation from the position of director two weeks before the resolutions, the transfer of her majority shareholding or the two resolutions regarding liquidation.

The parties did not proceed to a full hearing regarding the unfair preference claim. Instead, Associate Justice Heytey approved proposed consent orders which declared the company resolutions invalid but granted leave for the plaintiffs to be re-appointed as liquidators. The plaintiff also entered a deed to pay $90,000.00 in exchange for being released from all further claims.

What does this mean for future cases?
Significantly, the case highlights the Court’s willingness to approve liquidation even if there is ‘attendant doubt’ and ‘irregularity’ regarding the company resolutions to enter liquidation and appointment of liquidators.2 Although the liquidators were appointed in questionable circumstances, the Court acknowledged that this does not necessarily mean that they acted unreasonably in their capacity as liquidators.

The case offers a potential source of protection for invalidly appointed liquidators. Section 90-15 of the Insolvency Practice Schedule grants the Court broad powers to make such orders as it thinks fit in relation to the external administration of a company. The outcome in this instance highlights the extent to which the Court may exercise its broad powers in favour of invalidly appointed liquidators. The liquidators were ultimately granted leave for re-appointment and obtained standing as creditors to seek remuneration for their unpaid fees. Whether or not this raises a conflict between their dual position as liquidators and creditors of the Company is a matter to be resolved in future cases.

1 [2020] VSC 485 (‘Polat Enterprises’).
2 Ibid.

 

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