The Federal Court has recently continued the courts’ emerging practice of appointing incumbent administrators as liquidators when there is no reason to question their professionalism or independence, and where the continuation of their tenure may result in costs savings for creditors.

In Deputy Commissioner of Taxation v Impress Enterprises Pty Limited [2013] FCA 1126, the facts were relevantly as follows:

• On 2 September 2013, the ATO applied to wind up the company.
• A couple of weeks later, on 19 September 2013, the company appointed administrators.
• On 11 October 2013, the ATO’s winding up application was adjourned by consent until the morning of 25 October 2013, so that the administrators’ section 439A report could be considered.
• On 17 October 2013, the administrators published their section 439A report. They recommended that the company be wound up, and convened the second meeting of creditors to be held on the afternoon of 25 October 2013, after the court hearing.
• On 25 October 2013, the winding up application came before the court. The ATO moved to wind the company up and sought an order appointing its nominated liquidator. The parties all agreed that the company should be wound up. The only question was whether the ATO’s nominated liquidator, or the incumbent administrators, should be appointed to conduct the winding up.

Those familiar with the jurisprudence in this area will know:

• In the olden days, the petitioning creditor’s nominated liquidator basically got the job every time, more or less by default – Unifor Office Systems Aust Pty Limited v Brewer Partnership Pty Limited [1999] NSWSC 137.
• In 2011, in Workers Compensation Nominal Insurer v. Perfume Empire Pty Limited [2011] NSWSC 380, the Supreme Court of New South Wales (Justice Barrett) said that courts should really consider the administrators on their merits, rather than appointing over the top of them by default.
• This was a turning point. Later that year, the Federal Court picked up the decision in Perfume Empire and ran with it. In Deputy Commissioner of Taxation v R & J Percy Pty Limited [2011] FCA 1266, the Federal Court observed the need to guard against duplicated expenditure, and appointed the incumbent administrator as liquidator in an effort to keep costs down.

The Impress Enterprises decision was delivered by the same Federal Court judge (Justice Logan) who delivered the R & J Percy decision. It is based on the same sound policy, i.e. that where the incumbent administrators are independent and have done a thorough job, and where their appointment as liquidators is likely to keep costs down, their appointment as liquidators should be considered.

Such applications turn on their facts and are not always successful. Administrators confronted with a winding up application should note:

• that any application for leave to be appointed as liquidator will turn on:
  • whether or not the administrator is truly independent; and
  • whether or not her or she has done a decent job as administrator; and
• that, in our experience, the content of the DIRRI and the section 439A report are pivotal in satisfying the court as to these matters.

We are able to assist our clients with the review of draft section 439 reports and draft DIRRIs. They are complex documents, but never something a practitioner can afford to get wrong – particularly given the potential professional conduct consequences.

Practitioners with queries in this field are always welcome to contact one of our experienced insolvency lawyers for advice and assistance in this area.