Reasons why court replaced special purpose liquidator of One.Tel

A NSW Supreme Court judge has replaced the special purpose liquidator of the collapsed telecommunications company One.Tel.

Registered Liquidator, Paul Weston, who has served as special purpose liquidator since December 2003, was removed from his role after judge Patricia Bergin found creditors, led by Optus, had lost confidence in Mr Weston’s capacity “to bring a dispassionate mind to bear in exercising his powers in the liquidation”.  Mr Weston contended that the creditors’ loss of confidence in him was not enough to justify his removal. He contended that there must be some serious misconduct, conflict of interest or lack of independence.

Justice Bergin appointed another registered liquidator, Stephen Parbery, in Mr Weston’s place.

The application for removal of was Mr Weston was brought under section 503 of the Corporations Act 2001: “The Court may, on cause shown, remove a liquidator and appoint another liquidator.”

Issues considered in the case included:

• The special liquidator’s relationship with the creditors’ Committee of Inspection.
• The liquidator’s remuneration and expenses.

THE JUDGMENT ALSO CONTAINS A “BRIEF” HISTORY OF THE LONG BATTLE THAT HAS BEEN GOING ON BETWEEN THE PACKER/MURDOCH/RICH INTERESTS, THE SPECIAL LIQUIDATOR AND THE COMMITTEE OF INSPECTION.

Extracts from the court judgment, and a link to the full judgement of 19 June 2012, are given below.

“In a court appointed liquidation (or a liquidation by the Court), a liquidator, as an officer of the Court, is a representative of the Court, entrusted with the reputation of the Court. It is expected that the liquidator will discharge the relevant functions and powers with impartiality and proper dispatch: Commissioner for Corporate Affairs v Peter William Harvey [1980] VR 669. Albeit that it may be inappropriate to refer to the defendant as “an officer of the Court” in this particular liquidation, it is expected that he would discharge his relevant functions and powers with impartiality and proper dispatch.”  (para 151)

“It is expected that the defendant will maintain an “even and impartial hand” in his dealings with those interested in the liquidation … It is expected that he will be independent in the sense that he will deal impartially and objectively in the interests of the creditors …”. (para 152)

“In City & Suburban Pty Ltd v Smith, Merkel J observed at 336 (excluding citations): Section 503 of the Law provides that the court may “on cause shown” remove a liquidator and appoint another liquidator. It has long been accepted that the section and its predecessors were not confined to situations where it is established that there is personal unfitness, impropriety or breach of duty on the part of the liquidator. Cause is shown for removal whenever the court is satisfied that it is for the better conduct of the liquidation or, put another way, it is for the general advantage of those interested in the assets of the company that a liquidator be removed.” (para 160)

“In the present case the acrimony which has arisen between the liquidator and the committee of inspection has not come about as a result of any unreasonable conduct on the part of the committee. Rather, it has come about because the liquidator has carried out his tasks in respect of the liquidation with some insensitivity to the angst of the members of the committee of inspection.” (para 162)

“In AMP Music Box Enterprises Ltd v Hoffman [2002] BCC 996, Neuberger J (as his Lordship then was) considered the power under s 180(2) of the Insolvency Act 1986 (UK) to remove a liquidator “on cause shown” and said at 1001-1002:

On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. So to hold would encourage applications under s 108(2) by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay.” (para 164)

“Conclusion

1. I am satisfied that it is in the best interests of this liquidation for the defendant to be removed as special purpose liquidator and for Mr Parbery to be appointed in his place. The defendant is to meet with Mr Parbery and provide him with any advice, documents or other assistance sought by Mr Parbery so that he may be in a position to pursue the remaining purposes of the special purpose liquidation in the most cost efficient manner.
2. I am conscious that ASIC’s review of the defendant’s remuneration and fees has effectively been put on hold pending the outcome of these proceedings. I am satisfied that it is appropriate to defer any ruling in relation to conducting an inquiry under s 536 of the Act until ASIC’s review has concluded. It may be that, having regard to the defendant’s removal and/or the outcome of ASIC’s review, the plaintiffs may no longer wish to press for such an inquiry.”

FULL JUDGMENT:

SingTel Optus Pty Limited & Ors v Weston [2012] NSWSC 674 (19 June 2012)

Click here to read and/or copy judgment.