In the recent Federal Court of Australia case Sands Contracting Pty Ltd v Foodcorp (Vic) Pty Ltd1, the Court reaffirmed that replacing a liquidator is a ‘rather extreme step,’ warranted only by significant breaches of duty or misconduct by the liquidator.

When will the Court remove a liquidator?

When deciding whether to remove a liquidator, the Court considers what will be beneficial for the liquidation and persons with an interest in the assets of the company. The Court also gives weight to the course of action that will maintain confidence in the integrity and objectivity of winding up.2 The plaintiff might raise grounds for removal ranging from ‘moral turpitude, to bias or partiality, lack of independence, incompetence, or other unfitness for office.’ 3

The Case

In this case, the plaintiffs alleged that the liquidator had failed to make proper enquiries of the proof of debt of creditors. The liquidator failed to correct their initial mistake of stating in a circular that a creditor was owed, rather than claiming, $250,000.00.

The Court noted that certain decisions made by the liquidator were ‘not adequately explained’ and that ‘more should have been done to examine the plaintiffs’ claim.’ 4 However, Justice McKerracher found that the liquidator’s deficiencies did not reach the threshold required to warrant a replacement, staying true to a previous court’s view that ‘it should not be seen to be easy to remove a liquidator merely because it can be shown that… his conduct has fallen short of ideal.5

The case is a pertinent reminder that liquidators will not be removed merely because creditors disagree with their decisions or because there is a lack of confidence in the liquidator.6 The Court maintains a cautious approach to replacing liquidators and will generally choose alternative forms of relief.

1 [2020] FCA 1274.

2 Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544 (at 550).

3 Domino Hire Pty Ltd v Pioneer Park Pty Ltd [2003] NSWSC 496 at [58].

4 Sands Contracting Pty Ltd v Foodcorp (Vic) Pty Ltd [2020] FCA 1274, 124.

5 AMP Music Box Enterprises Ltd v Hoffman [2002] BCC 996.

6 Multi-Core Aerators Ltd v Dye [1999] VSC 205, 48.

 

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