A recent decision of the Supreme Court of New South Wales has potentially altered the “default position” that, when a company under administration is wound up by the court, the court will appoint the liquidator nominated by the petitioning creditor, rather than the incumbent administrator.

In Workers Compensation Nominal Insurer v. Perfume Empire Pty. Limited [2011] NSWSC 380, the court was faced the following common situation: –

1. A company had failed to pay its workers compensation premiums.
2. The Workers Compensation Nominal Insurer had applied to the court to wind the company up.
3. The company had responded by appointing an administrator shortly before the hearing date.
4. The administrator was then required to deal with the winding up application.

In this case, the administrator did not recommend that the administration continue. He concluded that the company had no future and should be wound up. However, the administrator contended that he should be appointed as the company’s liquidator, rather than the petitioning creditor’s proposed appointee. This was the sole issue that was argued.

There were no extraordinary reasons why the administrator said he should be appointed as liquidator – he merely cited the usual reasons, i.e. that he was a qualified liquidator and was independent and impartial, and he and his staff had already undertaken substantial work investigating the company’s affairs and thereby accumulated knowledge and formed relationships that could be leveraged in the winding up.

These factors are of course present in all such matters, but courts have traditionally been reluctant to appoint the incumbent administrator by reason of these matters alone. Instead it has long been the court’s practice to appoint the petitioning creditor’s nominated liquidator as a matter of course. The decision in Unifor Office Systems Aust Pty. Limited v Brewer Partnership Pty. Limited [1999] NSWSC 137 is often cited as authority for this “general principle”.

Yesterday’s decision in Perfume Empire represents something of a turning point in this area. Rather than appointing the petitioning creditor’s nominee without further consideration, the court instead: –

1. noted the significant work that had been undertaken by the incumbent administrator;
2. observed that there was “no basis for any apprehension of inability on [the incumbent administrator’s‍] part to act independently and dispassionately”; and
3. pointed out that, notwithstanding any “general principle” one way or the other, “it is the norm, in cases where administration matures into creditors voluntary winding up, for the administrator to become the liquidator unless a positive decision to displace him or her is made by creditors”.

Concluding that “there will be advantages, including by way of likely costs savings”, in appointing the incumbent administrator as the company’s liquidator, the court made orders to that end. The incumbent administrator was given leave to be appointed as the company’s liquidator, and the appointment was made.

This decision has been a long time coming, and it is encouraging that the court clearly did not regard itself as constrained by a restrictive principle that inevitably reduces the funds available for distribution. Yesterday’s decision was undoubtedly a positive step and it is to be hoped that the same approach will be taken in future matters.