Commencing proceedings against a liquidator

In the recent decision of Armitage v Gainsborough Properties Pty Ltd & Anor [2011] VASC 419 (31 August 2011) the Supreme Court of Victoria considered whether leave from the Court was required to bring a claim against a liquidator.

Facts

A liquidator was appointed by the court to Chairmakers Pty Ltd and Colorclad Pty Ltd (Companies).  The liquidator subsequently arranged for the removal and sale of plant and a forklift (Property) as part of the sale of assets of the Companies.  Armitage claimed to be the owner of the Property and after the liquidation had concluded, Armitage sought to pursue an action against the liquidator for conversion or negligence.

Armitage’s application for leave to commence proceedings against the liquidator was dismissed at first instance.  On appeal, the Victorian Supreme Court considered whether leave is required to sue a court appointed liquidator and whether Armitage’s delay in bringing the action affected leave being granted.

Decision

Justice Almond referred to “persuasive authority” that leave is required to sue a court appointed liquidator.  His Honour held that the Court will protect its officers from spurious litigation and the integrity of the winding up process.

In determining whether to grant leave to the plaintiff, His Honour considered the following relevant factors:

• Is there a prima facie case against the liquidator?
• How sufficient is the evidence adduced by Armitage as to the prospects of success of the action?
• Did the liquidator complete his liquidation tasks without complaint from Armitage?

Armitage argued that leave was not necessary as at the relevant time the liquidator was not acting in his capacity as official liquidator of the Companies.  Justice Almond rejected this argument on the basis that the liquidator was acting in the course of carrying out his duties as official liquidator of the Companies at the relevant time.

Justice Almond considered the timing of the action by Armitage, namely that Armitage commenced proceedings almost 6 years after the relevant events occurred and merely two days prior to the expiration of the relevant time period.  His Honour noted that it was significant that the liquidation of the Companies had finished as “no liquidator could feel safe that there would not be some belated action brought at the very time when the liquidator has no longer the wherewithal to be indemnified from the company’s assets”.  Justice Almond concluded that the delay was relevant to assessing whether leave should be granted to commence proceedings.

Accordingly, His Honour stated that the plaintiff had not made a prima facie case or established a realistic prospect of success in relation to the ownership of the Property and therefore refused leave to Armitage to commence proceedings against the liquidator.

Comment

The decision confirms that leave is required in order to commence proceedings against a court appointed liquidator.  It is also worth noting that protecting court appointed liquidators from illegitimate litigation, protecting the integrity of the winding up process and the status of the liquidation will all be important factors for the court when determining whether to grant leave to commence proceedings.