Payback: Court grants costs indemnity to removed liquidator

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26 October 2012

On 29 August 2012, the Supreme Court of New South Wales (Court) delivered its decision in SingTel Optus Pty Limited v Weston (Costs) [2012] NSWSC 1002.  The decision confirms that a liquidator who is removed from their position will be entitled to an indemnity for costs incurred in defending the removal proceedings, unless they act improperly in those proceedings.

Background

On 19 June 2012, the Court removed Weston as One.Tel Limited’s (One.Tel) liquidator, on the application of various One.Tel creditors (Creditors).  Weston was removed for excessive remuneration and expenditure, disallowed expenses, and inflammatory and adversarial conduct in a dispute with the creditors’ Committee of Inspection (Removal Proceeding).  We have previously considered the Removal Proceeding in another article.

Weston and the Creditors subsequently agreed that Weston would be liable for the Creditors’ costs of the Removal Proceeding.  However, they disagreed as to whether Weston was entitled to an indemnity from One.Tel’s assets for those costs.  The Creditors argued that the reasons for Weston’s removal were such that he should not be indemnified.

decision

The Court held that Weston was entitled to an indemnity from One.Tel’s assets for the Creditors’ costs in the Removal Proceeding.

The Court stressed that the key question was not whether Weston had acted unreasonably or improperly during the liquidation generally – but, rather, whether Weston had “unreasonably or improperly maintained a defence” in the Removal Proceeding.

Thus, adverse findings in the Removal Proceeding relating to Weston’s remuneration and expenses could not be the sole grounds for denying indemnity.  The Court qualified this by noting that the Removal Proceeding had not involved detailed investigation of the Creditors’ claim that Weston’s remuneration was excessive; if the Creditors had properly proved that it was excessive, then this may have been a basis for finding that Weston’s defence, on this issue, was unreasonable.

The Creditors also argued that Weston had acted improperly by seeking to argue against removal for his conduct in the dispute with the Committee of Inspection.  However, the Court did not accept this submission, finding that Weston, in his defence, had not sought to justify his conduct in the dispute.  Rather, the Court held that Weston had, reasonably, sought to argue that his conduct did not amount to “misconduct” justifying removal.

Finally, the Creditors argued that it was unreasonable for Weston to defend against removal because his relationship with the Committee of Inspection was untenable.  However, Weston argued, and the Court accepted, that his opposition to his removal was reasonable despite the relationship breakdown, because of his knowledge of, and experience in, One.Tel’s liquidation.

Comment

This decision provides some assurance to liquidators that they can reasonably oppose removal, and even if held personally liable for costs, liquidators may have a right to an indemnity for those costs.  However, liquidators should ensure that any defence they mount against removal is reasonable.  It is clear from the Court’s reasoning that a liquidator who acts improperly during the liquidation and then seeks to defend their misconduct in the removal proceedings will risk being found to have acted improperly in the proceedings – and, therefore, risk being denied indemnity.

Contacts

James Whittaker

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John Stragalinos

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Kirsty Sutherland

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Mark Wilks

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Megan O'Rourke

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Michael Kimmins

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