Court considers scope of s.90-15
On 6 June 2023, the New South Wales Court of Appeal handed down its decision in One T Development Pty Ltd v Peter Krejci in his capacity as liquidator of ENA Development Pty Ltd [2023] NSWCA 120. The Court of Appeal dismissed an appeal against directions made by a judge that a liquidator was justified in treating certain property as beneficially owned by the company, despite there being other proceedings on foot to determine that question.
The case highlights the wide ambit of the Court’s power under section 90-15 of the Insolvency Practice Schedule (Corporations) to give directions to a liquidator in appropriate circumstances.
Background
ENA Developments Pty Ltd (in liquidation)(“ENA”) was the registered proprietor of property in Homebush, New South Wales, and also held certain shares in its own name (together “Property”). The books and records of ENA in the liquidator’s possession contained conflicting information regarding ENA. In particular, there was some information which suggested ENA was the former trustee of two trusts.
One T Development Pty Ltd (“One T”) claimed to be the current trustee of one of the relevant trusts, and maintained the Property was held on trust.
The liquidator of ENA applied to the Court for directions that he was justified in treating ENA as the beneficial owner of the Property. At the time the application was heard, there was pending litigation between the parties concerning title to the Property, which included allegations of serious fraud brought by the liquidator.
In considering all the available evidence, the primary judge expressed “grave doubts” about the authenticity of the relevant trust deed, and gave the directions sought. One T appealed.
The Appeal
On appeal, One T argued, amongst other things, that the directions obtained by the liquidator were beyond the scope of the power conferred on the Court under s.90-15. This was because there was a seriously contestable question regarding the beneficial ownership of the Property. Further, any transfer of the Property to a third party was likely to be irredeemable.
In rejecting this argument, the Court observed that the directions obtained did not finally resolve the issue of beneficial ownership. Rather, the orders provided the liquidator would be justified in acting in a certain way.
In any event, the Court emphasised that, while the predecessor to s.90-15 did not empower the Court to make determinations regarding “substantive rights,” this is not the case in respect of the current provisions, which confer a broader power. In particular, the current provision has been specifically expanded to empower the Court to make “an order determining any question arising in the external administration of the company”.
Further, the Court was not taken to any evidence to suggest the likelihood of a dealing with irreversible consequences in the event it turned out the Property was not beneficially owned by ENA. Rather, the Court inferred that the principal purpose of the order was to protect the liquidator in the pending litigation, in which questions of title would be determined.
Ultimately, given the primary judge’s doubts regarding the authenticity of the relevant trust deed, which was not seriously contested on appeal, the Court of Appeal found there was nothing wrong with the primary judge giving the directions obtained at first instance.
Takeaway
As acknowledged by the Court of Appeal in One T v Krejci, it is “scarcely uncommon” for a liquidator to be faced with the difficulty of making decisions based on incomplete information. The decision highlights the scope of the Court’s power under s. 90-15 to give directions to a liquidator in appropriate circumstances, including where substantive rights are in issue.
