COURT
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J(1)

CWDS
  Corporations - winding up  - liquidator - partner of former receiver of some
company assets - whether appearance of conflict - leave given to applicant to
seek to be appointed and to act as liquidator of a company.
  Corporations Law ss. 269, 460, 532
  McPherson, The Law of Company Liquidation 3rd Ed.
  Re Photo Holdings Pty Ltd (1976) 2 ACLR 117
  Re Stewden Nominees (No. 4) Pty Ltd (1975) 1 ACLR 185
  Re Capital Management Securities Ltd (1986) 4 ACLC 157
  Re TEA (1983) Ltd (Receivers and Manages Appointed) (1984) 2 ACLC 183
  Re Kabat Pty Ltd (1985) 3 ACLC 828

HRNG
PERTH, 14 July 1993
#DATE 21:7:1993
  Counsel for the Applicant:     Mr G. Flynn
  Solicitors for the Applicant:  Mallesons Stephen Jaques
  No appearance for the Respondent:

ORDER
The Court orders that:
On the Applicants motion filed 16 June 1993:
    1. The Court gives leave to Jeffrey Laurence Herbert to consent to
    be appointed and to act as liquidator of Mistral Mines NL.
    2. There be liberty to apply for further directions.
    3. The applicant bear its own costs of the motion.
Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal
Court Rules.

JUDGE1
REASONS FOR JUDGMENT ON MOTION FOR LEAVE FOR LIQUIDATOR TO CONSENT TO
APPOINTMENT
FRENCH J   On 11 June 1993 Mallesons Stephen Jaques filed an application in
this Court for an order under s.460(1) of the Corporations Law that Mistral
Mines NL be wound up.  On 16 June Mallesons filed a motion seeking leave for
Jeffrey Laurence Herbert to consent to be appointed and to act as the
liquidator of the company in the event that a winding up order is made.  The
need for such leave was perceived because Mr Herbert is a partner of a person
who held office as receiver and manager of the company less than two years
ago.  The administration of that receivership has been completed for some
twenty three months.
2.  The factual position is that the proposed liquidator, Jeffrey Laurence
Herbert, is a partner in Arthur Anderson and Co., accountants. One of the
other partners in the firm, David John Beatty, was appointed on 29 January
1991 by Tricontinental Corporation Ltd as receiver and manager of certain
mining tenements held by Mistral. This appointment was pursuant to a charge
granted by the company to Tricontinental.  The proceeds of the sale of the
tenements enabled the debts secured by the charge to be repaid.  On 28 May
1991 notification of discharge was filed with the Australian Securities
Commission pursuant to s.269(1) of the Corporations Law.  That section
requires the holder of a registered charge to make an acknowledgment of
release or discharge within fourteen days of a request made by the chargor.
The charging company may then lodge the memorandum with the Australian
Securities Commission and particulars of the matters stated in it will be
entered in the Register. The memorandum filed in this case noted that the debt
was "paid or satisfied in full and all property was released".  The
receivership continued until 21 August 1991.  Mr Beatty's appointment extended
only to part of the assets of Mistral, being the mining tenements in question.
Apart from the sale of those assets there was no other interference in the
affairs of the company.
3.  The records of Tricontinental show a debt presently owing by Mistral to
Tricontinental in the amount of $130,000 in respect of legal fees incurred by
Tricontinental.  A corporate solicitor employed by Tricontinental was unable
to explain how the fees came to be incurred and on what basis they were said
to be owing by Mistral. Tricontinental has indicated that it has no objection
to Mr Herbert's appointment as liquidator.
4.  On 28 May 1993 Mr Herbert sought a direction from the Australian
Securities Commission that s.532(6)(b) of the Corporations Law under which his
partner, Mr Beatty, is deemed to be an officer of the company should not
apply.  In reply the Commission said:
    "The Commission is guided by the case law on this
    subject which indicates that the principle adopted by
    the courts requires not only that a liquidator be
    independent but also be seen to be independent (sic).
    Despite your assertion to the contrary, your
    appointment as liquidator of Mistral Mines NL (the
    company) could be perceived to be in a position of
    conflict given that Mr Beatty of your firm was
    previously appointed Receiver and Manager of the company."
The ASC refused the application.
Statutory Framework
5.  Section 532 of the Corporations Law provides in the relevant parts:
    "532(2)  Subject to this section, a person shall not,
    except with the leave of the Court, seek to be
    appointed, or act, as liquidator of a company:
    .
    .
    .
    (c) if:
    (i) the person is an officer of the company (otherwise
    than by reason of being a liquidator of the company
    or of a related body corporate);
    .
    .
    .
    (v) the person is a  partner, employer or employee of
    an officer of the company;
    .
    .
    .
     532(6)  For the purposes of subsection (2), a person
    shall be deemed to be an officer or auditor of a company if:
    (a) the person is an officer or auditor of a
    related body corporate; or
    (b) except where the Commission, if it thinks
    fit in the circumstances of the case,
    directs that this paragraph shall not
    apply in relation to the person - the
    person has, at any time within the
    immediately preceding period of 2 years,
    been an officer, auditor or promoter of
    the company or of a related body corporate."
Whether Leave Should be Granted
6.  Section 532 of the Corporations Law embodies a long standing albeit
qualified prohibition against the appointment of an officer of a company as
its liquidator.  Statutory predecessors are to be found in s.417 of the
Companies Codes and s.277A of the Uniform Companies Acts 1961 - see also s.335
Companies Act 1948 (UK).  These disqualification provisions are "...designed
to preclude the appointment of a liquidator whose personal circumstances may
make it difficult for him to discharge his duties with complete impartiality"
- McPherson, The Law of Company Liquidation 3rd Ed. pp 208-209.  Thus, where
the appointment of a company's auditor as its liquidator might create the
occasion for his independence to be challenged by a creditor, leave was
refused - Re Photo Holdings Pty Ltd (1976) 2 ACLR 117 at 118 (Kaye J).  See
also Re Stewden Nominees (No. 4) Pty Ltd (1975) 1 ACLR 185.   In Re Capital
Management Securities Ltd (1986) 4 ACLC 157, McLelland J refused leave under
s.417 of the Companies Code to a member of a firm of accountants who had been
the company's auditors since its incorporation saying as he did:
    "It is clear from the terms in which section 417 is
    expressed that the policy of the legislature therein
    evidenced should be applied unless some substantial
    ground for departing from it in a particular case is established."
A mere possibility of a conflict of interest with no evidence on which to
found a proper assessment of the risk did not prevent appointment of a
company's previous receivers and managers as liquidators in Re TEA (1983) Ltd
(Receivers and Managers Appointed) (1984) 2 ACLC 183.  In Re Kabat Pty Ltd
(1985) 3 ACLC 828 appointment of the scheme manager of the applicant as
liquidator was refused.  Master Lee QC extracted from the cases which he
reviewed the propositions that a liquidator must be and must appear to be
independent and impartial from creditors:
    "The Court will not normally appoint as the liquidator
    a person who may be placed in a position where his
    interest and duty may conflict."  (p 830)
7.  In the present case, I am satisfied that the possibility of conflict
between Mr Herbert's duties as liquidator and his interests as partner of a
former receiver of some of the company's assets is remote. There is no
suggestion he is not fitted to fill the appointment.  The legal cost of
$130,000 claimed by Tricontinental against Mistral does not, on the face of
it, appear to have any connection with Mr Beatty's duties as former receiver.
The statutory period of two years has almost elapsed.  Any suggestion of lack
of impartiality by reason of Mr Beatty's former appointment would be
speculative and in the circumstances fanciful.
8.  In the circumstances I am satisfied that leave should be granted.