Judicial discretion to give directions to a liquidator on questions relating to disputed claims against third party

05 February 2010

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In the case of Re Mento Developments (Aust) Pty Ltd (2009) 73 ACSR 622, the liquidator of Mento Developments (Aust) Pty Ltd (Mento) applied for directions from the Victorian Supreme Court under section 479(3) of the Corporations Act 2001 (Cth).

The liquidator sought answers to a number of questions relating to the trust relationship between Mento, a third party and certain trusts.

The court considered whether its discretion to give directions under section 479(3) allowed it to give directions where the questions relate to disputed claims against a third party.

Facts

Mento was wound up in insolvency by an order of the court on the application of Rexwell Pty Ltd (Rexwell).

Rexwell’s claim against Mento arose out of a guarantee given by Mento. Mento executed the guarantee as trustee of certain trusts, but there was a dispute as to exactly what trusts Mento was a trustee of at the relevant time. It was claimed that another entity, Wixart Pty Ltd (Wixart), was the trustee of some of those trusts.

Despite investigations and examinations of the key witness, the liquidator could not determine exactly in respect of which trusts Mento was relevantly the trustee of , which in turn affected his ability to continue his administration of the winding up of Mento. Accordingly, he sought assistance in order to proceed with the liquidation.

Decision

Wixart submitted that the court’s jurisdiction under section 479(3) “does not enable [it] to make binding orders in the nature of judgments”. Wixart argued that it was usually only proper for the court to exercise the power where the matter involved guidance to the liquidator on matters of law or principal or to protect him against accusations of acting unreasonably.

Yet in determining to give directions, despite the issue potentially resulting in adversarial proceedings, Robson J held that:

• The liquidator was entitled to seek directions on the administration of the winding up even though the issue about which a direction was sought may be or become an adversarial issue in other proceedings.
• The direction or advice is to be directed to advising the liquidator on whether or not the liquidator was justified in conducting the winding up in a certain way and not deciding disputes between competing parties.
• The liquidator did not seek a resolution of any issue between Mento and Wixart and Wixart had not commenced any proceedings to obtain Mento assets, but rather the court was “assisting the liquidator to get on with winding up Mento and focusing on the real issues it faces”.

His Honour’s directions were to the effect that the liquidator was justified in conducting the winding up on the basis of Mento being the trustee of certain trusts.

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