The Supreme Court of New South Wales has recently clarified the circumstances in which it will be appropriate for the court to appoint a special purpose liquidator in In the matter of Ambient Advertising Pty Ltd (in liquidation) [2015] NSWSC 1079.

The proceedings seeking the appointment of a special purpose liquidator were brought by Foot Traffic Media Pty Limited (Foot Traffic) which was the largest unrelated creditor in the liquidation of Ambient Advertising Pty Limited (in liquidation) (Ambient).  Foot Traffic sought orders that the court appoint a special purpose liquidator together with ancillary orders as to a funding agreement to allow for the payment of the special purpose liquidator’s remuneration.

As a result of preliminary investigations, creditors reports and meeting with the liquidators, Foot Traffic was of the opinion that Ambient’s liquidators would not be able to adequately pursue various rights of recovery against related parties as the liquidation was unfunded. The sole director and shareholder of Foot Traffic was willing to provide funding in order to enable such recoveries to occur, however would not provide funding to the liquidators due to:

1. A belief held by Foot Traffic that the liquidators had engaged in pre-appointment dealings with some of the related party creditors of Ambient; and
2. A view that the liquidators were not conducting the liquidation and recovery actions with sufficient urgency.

Foot Traffic did not seek for the current liquidators to be removed, rather that certain roles be delegated to the special purposes liquidator. A schedule of the scope of the role of the proposed special purpose liquidator was provided to the court by Foot Traffic.

The court held in appointing the special purpose liquidator that it was clear if the orders sought were not made it was highly likely that certain matters delegated to the special purpose liquidator would not be investigated due to a lack of funding.  This would impact on the recoveries in the liquidation.  Robb J was satisfied that the orders were beneficial to the administration of the winding up and in the interests of the general body of creditors.

Robb J further noted in regards to the funding arrangement that it was reasonable that Foot Traffic be paid 30% of any recoveries in priority to Ambient.

This decision clarifies that the court is willing to appoint a special purpose liquidator when it is deemed to be in the best interests of creditors as a whole.  One of the main factors that assisted the court in making the appointment was the clarity as to the distribution of tasks as between the various appointees which was submitted by Foot Traffic.

For more information please contact ERA Legal.