TGIF 11 July 2025 – Liquidators’ right to refuse a direction by creditors confirmed

In Re Balamara Resources Ltd (in liquidation), the NSW Supreme Court clarified the scope of a liquidator’s discretion to refuse a direction by creditors to convene a meeting for the purpose of replacing the liquidator.

Key takeaways

• In reviewing a liquidator’s refusal to convene a creditors’ meeting under section 75-15 of the Insolvency Practice Schedule (Corporations), courts will primarily consider whether the decision was made in good faith, not necessarily whether it was the correct one.
  
  
• Courts are generally unwilling to interfere with a liquidator’s decision where their reasons are set out clearly. In exercising a decision to decline a creditors’ request, liquidators should clearly set out the opinions that they have reached and the reasons for doing so with reference to the relevant provisions of the Insolvency Practice Rules.
  
  
• Courts will not merely rubber stamp a direction to convene a creditors’ meeting; the right to direct is qualified and must be weighed against the exceptions which allow a liquidator to refuse. When issuing a direction, creditors should ensure it is justified and consider explaining the rationale within the direction itself.

Background

Balamara Resources Ltd (in liquidation) (Balamara) is an Australian based mining company that had interests in coking coal deposits in the Republic of Poland. This case follows from the earlier decision of Black J in Re Balamara Resources Ltd [2024] NSWSC 1309 where orders were made to wind up the company and appoint liquidators in response to multiple failures in Balamara’s governance and the refusal of a licence in Poland.

In December 2024, creditors representing more than 25% of the value of Balamara’s creditors (the Directing Creditors) issued a direction to the liquidators pursuant to section 75-15 of the Insolvency Practice Schedule (Corporations) (IPSC) to convene a meeting of Balamara’s creditors. The purpose of the meeting was to pass a resolution under section 90-35(1)(a) of the IPSC that the liquidators be removed and replaced with new liquidators nominated by the Directing Creditors. Several of the Directing Creditors were former directors of the company that were implicated in the governance failures exposed in the winding up application.

The liquidators refused to convene the meeting. The liquidators expressed the view that the direction was unreasonable or vexatious within the meaning of rule 75-250(2)(a) and (d) of the Insolvency Practice Rules (IPR). The liquidators recorded their reasons for not doing so in a file note and in a letter advising the Directing Creditors of their decision. Included in their reasons, the liquidators noted that:

• there was an absence of any specific complaint regarding the liquidators;
  
  
• the identity of the Directing Creditors and their incentive to avoid further investigation; and
  
  
• the implied purpose of the direction as an attempt to bypass the Court’s decision and the cost of replacing the liquidators in the context of ongoing proceedings against the Polish government.

The liquidators then brought an application in the Supreme Court of New South Wales seeking an order under IPSC section 90-15 that they were justified in refusing to convene the meeting of creditors. Representatives of the Directing Creditors opposed this order and claimed that the liquidators should instead be directed under IPSC section 90-15 to convene the creditors’ meeting as per the direction.

Creditors’ power to remove a liquidator and its limits

IPSC section 75-15 requires liquidators to convene a meeting of creditors when directed by creditors holding at least 25% of the total value of claims. At such a meeting, creditors are empowered under section 90-35(1)(a) to remove liquidators without court involvement.

IPR rule 75-250 provides an exhaustive list of circumstances under which a liquidator may refuse to convene a creditors’ meeting when directed to do so under IPSC section 75-15. That rule states a liquidator may refuse the direction if:

• they believe that convening the meeting would substantially prejudice the interests of one or more creditors or a third party, and that prejudice outweighs the benefit of complying with the direction; or
  
  
• if they consider the direction to be vexatious.

Courts’ role in assessing a liquidator’s decision?

Previous decisions regarding IPSC section 75-15 and IPR rule 75-250 suggested that it was not the role of a court to assess the reasons for a liquidator’s refusal to convene a creditors’ meeting. Black J rearticulated the position, stating two questions had to be answered in determining whether a liquidator’s refusal was reasonable:

1. Having regard to the matters to which the liquidator referred to, did the liquidator hold the opinion that complying with the direction would substantially prejudice the interests of one or more creditors or third party, and that this prejudice would outweigh the benefits of the direction?
   
   
2. Did the liquidator hold the opinion in good faith?

If the answer to those questions is ‘Yes’, Black J considered that courts should be ‘slow’ to interfere with a liquidator’s discretion. In his Honour’s view, a more active role for courts in the liquidator’s decision-making process would only serve to undermine the predictability and purpose of the relevant insolvency provisions, and would increase the likelihood of disputes in the liquidation process.

Black J proceeded on the basis that the requirement of ‘good faith’ would be satisfied if the liquidators made a genuine attempt to inform themselves about the relevant subject matter and weigh the costs and benefits of their decision. Noting his two-step test was more stringent than the existing position, his Honour ultimately applied it with the support of both parties.

Finding

On the facts, Black J accepted the liquidators had formed the opinion that convening the meeting would be prejudicial and vexatious, and had done so in good faith. His Honour ultimately granted the order sought by the liquidators and refused the order sought by the Directing Creditors.

Black J noted the liquidators’ decision was contentious and that they had only demonstrated a ‘possibility’ that the direction was prejudicial or vexatious. However, this did not mean that the liquidators were wrong in reaching their conclusion, nor were the merits of the liquidators’ decision determinative for the Court.

For Black J, it was clear from the liquidators’ file note, letter to the Directing Creditors, and affidavit evidence, that the liquidators had made a genuine attempt to assess:

• the potential prejudice of allowing previous directors involved in wrongdoing to replace a liquidator;
  
  
• the concern that the Directing Creditors were attempting to bypass the Court’s appointment; and
  
  
• the cost of replacement in the context of the Polish proceedings.

As no benefits were identified by the Directing Creditors, his Honour held that the liquidators were justified in giving only minor weight to the benefits of complying with the direction.

Comment

This case provides guidance for liquidators on refusing  a direction by creditors. The liquidators were assisted by having specifically referred to IPR rule 75-250(a) and (d) in their file note and letter to the Directing Creditors, and by including relatively comprehensive reasons for their decision.

Black J noted a direction is more likely to be considered vexatious if the creditors do not explain their reasons. Creditors may therefore benefit from clearly stating the purpose of their direction, requiring liquidators to directly engage with those reasons when deciding whether to convene a meeting.

In Re Balamara, the Directing Creditors failed to effectively outline the benefits of convening a creditors’ meeting in opposition to the liquidators’ reasons for refusing to convene one. Such an imbalance left the Court with little choice but to follow the liquidators’ decision-making process. In seeking or resisting a direction under section 75-15 of the IPSC, creditors and liquidators should be fully prepared to enunciate and evidence the benefits of their respective positions.