Insolvency Practitioners are increasingly falling under closer scrutiny, not only from the media and the Government’s regulator, but from the Courts as a result of actions taken by aggrieved stakeholders.
Liquidators (and their ilk) often carry with them a duty to act in the interest of all stakeholders and hold a particular position of trust given that they realise the assets of an insolvent company for the benefit of firstly creditors and then shareholders. The disbursement of the proceeds from the realisation of these company assets effectively comes out of the pockets of these creditors and/or stakeholders.
Where these stakeholders feel aggrieved by the decisions made by the Insolvency Practitioner, it is open to them to effectively complain to the Court. Such was the instance in the this recent decision of the NSW Supreme Court. In the matter of Joe & Joe Developments Pty Ltd (subject to a Deed of Company Arrangement) [2014] NSWSC 1444, it was alleged that the process of reviewing legal invoices incurred by the appointed Deed Administrators was insufficient. Accordingly, the Court was required to examine whether expenses incurred by the Deed Administrators had been reasonably incurred and the relevant invoices properly reviewed.
Whilst s 447E of the Corporations Act does not require the Court to review commercial decisions undertaken by an administrator, unfortunately for the Deed Administrators the Court found that due to their inability to substantiate that they had undertaken appropriate review of their solicitor’s invoices prior to their payment, the Deed Administrators managed the affairs of the Company in a way that was prejudicial to its creditors or members.
It was determined that, in this instance, only a scant review of these legal invoices was undertaken (if at all). The Deed Administrators were provided with further opportunity to provide evidence justifying their legal costs and, in the event they were unable to do so, they would be required to repay such costs to the Company.
As guardians of others money, utmost care must be taken in its disbursement.
Adrian Hunter 