Lewis (liquidator), in the matter of Concrete Supply Pty Ltd (in liq) [2020] FCA 841 (16 June 2020): s 477(2B) Corporations Act 2001 application, approval for liquidator to retain solicitor who act for creditor of the company in liquidation

July 16, 2020 |

In Lewis (liquidator), in the matter of Concrete Supply Pty Ltd (in liq) [2020] FCA 841 White considered the relevant principles in considering an application under section 477(2B) of the Corporations Act 2001.


Between August 2009 and November 2017, ABCL had supplied concrete to Concrete Supply [5].

In October 2017, ABCL discovered that it had been underpaid about $12 million by Concrete Supply.  The underpayment was disguised by false entries made by one of its employees.  ABCL sought payment of the shortfall from Concrete Supply. On 14 November 2017, the directors of Concrete Supply resolved that it was, or was likely to become, insolvent and appointed Messrs Cooper and Cantone at Worrells as administrators. On 19 December 2017, the creditors of Concrete Supply resolved that it enter into a Deed of Company Arrangement (” DOCA”) [5].

ABCL opposed the entry into the DOCA and brought proceedings to have it set aside and to recover the full amount of the shortfall. On 12 November 2019 the Judge found that:

  • an ABCL employee had caused statements of account to be sent to Concrete Supply which significantly understated its indebtedness to ABCL;
  • two of the directors of Concrete (Rino and Jason Obbiettivo):
    • recognised that the statements of account were mistaken;
    • sought to take advantage of that situation by various forms of subterfuge so as to prevent ABCL becoming aware of the mistake;
    • had not believed that the understatements in the statements of account represented rebates granted by ABCL;
  • Concrete Supply was indebted to ABCL [6].

This resulted in orders providing:

(a) an order pursuant to s 445D of the Act terminating the DOCA and appointing the applicants as joint and several liquidators of Concrete Supply;

(b) a declaration that Concrete Supply is indebted to ABCL in the sum of $12,457,472.22; and

(c) a declaration that, between April 2009 and November 2017, Concrete Supply had failed to keep written financial records which complied with s 286 of the Act [7].

The appointment of the applicant took effect from the close of business on 17 December 2019 [8].

On 20 December 2019 the applicants entered into a written retainer with Lipman Karas for it to provide legal services [9].

The retainer was likely to last for more than 3 months given the Court’s findings in the judgment of 12 November 2019 and the potential recovery actions identified by the applicants as including:

(a) the finding that the directors knew that the company was not entitled to rebates gives rise to a prima facie insolvent trading claim, as the company appears to have been insolvent without the alleged rebate;

(b) the finding that the company was paying rent to one of its directors which was well above a commercial rent appears to give rise to a breach of duty case against the directors;

(c) the finding that one of the directors was signing cheques without knowledge of the capacity of Concrete Supply to meet those cheques may give rise to a breach of duty claim against the directors; and

(d) the finding that the company’s former administrators’ investigation of the affairs of the company was “deficient by a substantial margin” may give rise to a recovery action against those administrators [12]


His Honour identified the principles as:

(a) an assessment having regard to the purposes for which liquidators’ powers exist, including the serving of the interests of those concerned in the winding up, the achievement of what is necessary for the proper realisation of the assets of the company, and assisting in its winding up;
(b) a primary consideration is the impact of the agreement on the duration of the liquidation and whether that is, in all of the circumstances, reasonable in the interests of the liquidation;
(c) the Court’s approval is not an endorsement of the proposed agreement but merely constitutes permission for liquidators to exercise their commercial judgment;
(d) the Court does not refuse an approval unless there can be seen to be some lack of good faith, some error in law or principle or some real and substantial grounds for doubting the prudence of the liquidator’s conduct;
(e) a court may refuse approval if the terms of the proposed agreement are unclear;
(f) the role of the Court is to grant or deny approval to the liquidator’s proposal,  not to develop some alternative proposal which might seems preferable; and
(g) the Court does not simply “rubber stamp” whatever is put forward by a liquidator [16].

The court noted that there is argument and possibly authority that an agreement between a liquidator  and a firm of solicitors is not an agreement to which s 477(2B) applies, [19], however did not reach a view on that point (particularly as there was no argument on the point).  He was prepared to proceed on the basis that the provision applies because:

(a) it is at least reasonably arguable that, by entering into the retainer in their capacity as joint and several liquidators of Concrete Supply, the applicants made it plain that they were doing so as agents for the company;

(b) the very nature of the services to be provided under the retainer would, at least for the most part, be to, or for the benefit of, Concrete Supply, and not to the applicants personally; and

(c) on this ex parte application, it is appropriate for the Court to act out of an abundance of caution [20].

The basis for approving the grant the approval of the retainer on the basis that:

(a) the applicants have, with the benefit of a detailed judgment of this Court, formed the view that it is appropriate that solicitors be retained to investigate and pursue potential recovery actions;

(b) the applicants have entered into the retainer for the purpose of fulfilling their duties as liquidators of Concrete Supply;

(c) the applicant have formed the view, on reasonable grounds, that it is in the interests of Concrete Supply for Lipman Karas to be the legal firm engaged in the matter;

(d) the terms of the retainer are clear;

(e) although there is no evidence that the applicants have sought to negotiate the rates proposed by Lipman Karas as may have been possible in the circumstances, Mr Lewis has deposed that those terms and fees are consistent with his experience of the commercial rates and terms of solicitors in Adelaide engaged in the kind of work to be undertaken under the retainer; and

(f) this is a case in which the very nature of the work to be undertaken, and its expected duration, makes it improbable that the work to be undertaken pursuant to it could be completed within the period of three months [21].

While it was clear that s 477(2B) required the approval to be sought before a liquidator enters into an agreement as the court has the power to give approval retrospectively, given the disruption of COVID 19 the court was prepared to make the orders retrospective to 20 December 2019 [22] – [24].

In seeking the direction under cl 90 – 15 of the IPS that it is appropriate to retain Lipman Karas, despite the firm having acted for ABCL in the previous proceedings and continuing to do so, [27], the court noted:

  • the principles are, in effect, the same as those which are applied in the exercise of the power under the former s 479(3) ( a court?ordered winding up) or under s 511 (a voluntary winding up) of the Corporations Act [30];
  • the power to give directions should be interpreted widely to give effect to that intention:
  • the power is to give a liquidator advice as to the proper course of action to be taken in the liquidation
  • the Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion but  not when the subject of the directions sought relates to the making and implementation of a business or commercial decision and when there is no particular legal issue raised and no attack on the proprietary or reasonableness of the decision
  • the Court won’t interfere with or seek to second guess the liquidator’s judgment unless there is evidence of:
    • a lack of good faith,
    • an error of law or principle,
    •  real and substantial grounds for doubting the prudence of the liquidator’s conduct
    • the liquidator’s decision being not proper and reasonable [31]
  • the effect of a direction is to sanction a liquidator’s course of conduct so that providing full disclosure has been made to the Court, the liquidator may adopt the course free from the risk of personal liability for breach of duty
  • directions do not bind third parties  and do not determine substantive matters in dispute between the liquidator and third parties
  • while there are authorities which indicate that it is generally inappropriate for a liquidator to obtain legal advice from a lawyer who acts for a party interested in the liquidation there is no absolute rule precluding a liquidator from engaging solicitors who act for a substantial creditor [33] – [34].  The critical question of appropriateness turns on the prejudice to the liquidator’s independence [35]

In acceding to the application to have Lipman Karas to assist the liquidators the court considered:

  • Lipman Karas having considerable accumulated knowledge which can be applied to the benefit of the liquidation because, at [36]:
    • the trial leading to the judgment involved the tender of a substantial volume of documentary evidence of which Lipman Karas was familiar and would avoid other solicitors absorbing  considerable time becoming familiar with both the oral and documentary evidence with the attendant significant time and cost;

    • it would not be appropriate to retain any of the other firms who acted in the litigation because of potential conflicts;

    • there is a significant degree of common interest between ABCL and Concrete Supply;

    • although ABCL is a substantial creditor of Concrete Supply, there is no dispute between it and Concrete Supply

    • the applicants intend to seek independent advice in the event that a conflict between the interests of Concrete Supply and the interests of ABCL arises during the course of the liquidation


These types of applications are made on a reasonably regular basis though liquidators often have their preferred solicitors who probably were not in the substantive litigation or issues involving the company prior to its liquidation.  The applications should be made early in time and before engaging the solicitors, neither of which happened here.  That said the court accepted the explanation for delay, partly due to the COVID 19 disruption, and the importance of having the solicitors engaged having regard to the facts.  Normally that may present difficulties.  The facts in this case, where there was a long running trial preceding the liquidiation, made it practically compelling that Lipman Karas should be appointed.

It is a useful decision in that the court set out the relevant principles and the evidence required to assist the court.  

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