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Australia – Costs Against Liquidators Personally.

28 November, 2013

 

Legal News & Analysis – Asia Pacific – Australia – Insolvency & Restructuring

 

International Cat Manufacturing Pty Ltd (in liq) & Anor v Rodrick & Ors [2013] QSC 307


WHAT YOU NEED TO KNOW

 

  • Where a liquidator commences proceedings, they bear a high risk of costs being awarded against them personally if the action fails. There is no general right to limit the award of costs to the assets of the company.
 

WHAT YOU NEED TO DO

 

  • You need to take particular care when deciding to commence proceedings on behalf of the company in your capacity as liquidator to ensure that you have very good prospects of success.
 

On 7 November 2013, the Queensland Supreme Court handed down a decision making it perfectly clear that liquidators do not enjoy any special immunity with respect to costs being awarded against them in unsuccessful litigation that they have commenced.


The Background


In International Cat Manufacturing Pty Ltd (in liq) & Anor v Rodrick & Ors, the liquidators commenced proceedings against a lender and an alleged “de facto director” that were wholly unsuccessful. The liquidators subsequently tried to avoid a personal costs order, arguing that a liquidator should only be held personally liable for costs when their actions in conducting the litigation were “improper”.


The Decision


Justice McMurdo rejected the liquidators’ argument, and in doing so, reiterated a number of fundamental principles governing personal costs orders against liquidators which are soundly based in policy. They were:

 

  • Where a liquidator is joined as defendant to an action where their defence is unsuccessful, an award of costs will normally be restricted to the extent of the company’s assets available for this purpose (unless the liquidator has acted unreasonably). To hold otherwise would be a disincentive for qualified professionals to take on liquidation appointments.
  • Conversely, where a liquidator commences proceedings, the defendant generally will not succeed on any application for security for costs. As a result, it would be unreasonable to deny a successful defendant their costs when they have been involuntarily subjected to litigation. There is no justification to grant liquidators a special immunity which is not conferred on other litigants.

The Implications For Insolvency Practitioners


The decision highlights that while liquidators must always seriously consider the merits of engaging in litigation, including the potential risks and benefits to the company’s creditors, they should take particular care when deciding to commence proceedings.

 

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For further information, please contact:

 

John Lobban, Partner, Ashurst
john.lobban@ashurst.com


Brianna Bell, Ashurst

bri.bell@ashurst.com 

 

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