In brief: To be ordered to pay an adverse cost order personally, without recourse to the assets of the company, is something liquidators wish to avoid at all costs. A recent case found that liquidators who were “imprudent” but “not unreasonable” were not liable for costs.

This article examines in what circumstances liquidators will be held personally liable for an adverse cost order.

The relevant case is Qualify Me Pty Ltd v Get Qualified Australia Pty Ltd (No 5) [2017] FCA 676.

What you need to know

The Court may order costs against a liquidator where:

  • It considers the liquidator’s conduct to be unreasonable.
  • The liquidator’s actions caused the litigation to occur.

The facts

  • When the liquidator was appointed to Get Qualified Australia Pty Ltd (“the Company”) there was litigation on foot against the Company, which included a cross-claim lodged by the Company.
  • The Plaintiff wrote to the liquidators asking whether they would continue with the cross-claim and whether they would oppose the Plaintiff’s application for security for costs.
  • The liquidators would not sign consent orders dismissing the cross-claim despite not wanting to continue the litigation. This resulted in the Plaintiff having to make an application to dismiss the proceedings.
  • It was only when the parties were before the Court arguing about costs that the liquidators agreed to file a notice of discontinuance in the cross-claim.

The findings of the Court

A Court can find a liquidator personally liable if they act unreasonably. The Court, however, balances this against the following:

  • The discretion for liquidators to pay costs should be exercised sparingly (JGM Nominees Pty Ltd v Tulip Investments Pty Ltd [2013] VSCA 125)
  • the Court should take into account the undesirability of discouraging liquidators from performing their public duty in pursuing litigation ( Bent v Gough (1992) 108 ALR 131)

The Court found that the liquidators in this case were “imprudent” by not bringing the litigation to a timely end but “not unreasonable” and costs were not awarded against them.

When have costs been ordered against a liquidator?

The Court has ordered costs against liquidators personally when the liquidator is considered to be the instigator of the litigation. The Courts have ordered that liquidators be personally liable for costs in the following cases:

  • A liquidator requested funds be paid to them, where the funds were clearly payable to another party under a settlement agreement. The third party then had to commence proceedings to reacquire the money that was clearly due to them. (Rockcliffs Solicitors & IP Lawyers v Schon Condon as liquidator of AMC Commercial Cleaning (NSW) (No 2) [2013] NSWSC 332).
  • The Plaintiff had purchased properties from the now insolvent company. They had paid all but $49,500 of the purchase price, and had caveated their interest. The liquidators then issued lapsing notices over the caveats. They also said that they would not honour the contract of sales and would sell the properties to third parties. This forced the applicants into costly litigation that the liquidators continued even after Calderbank offers were made. (Lum v M V Developments (Lane Cove) Pty Limited (in liquidation) [2016] NSWSC 1248).

In both of these cases the conduct of the liquidator was considered to be unreasonable.

Lessons

The Court may order costs against a liquidator where:

  • It considers the liquidator’s conduct to be unreasonable.
  • The liquidator’s actions caused the litigation to occur.

Liquidators should be reasonable in their dealings with all parties involved in a liquidation. Liquidators should be particularly mindful that they may be subjected to a personal adverse costs order where they have initiated the proceedings or forced proceedings to be initiated by the other party.

Where possible, liquidators should obtain written legal advice as to the reasonableness of their actions and where appropriate seek directions from the Court in order to minimise the risk of having costs awarded against them.

 

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