ASIC v Edge [2007] VSC 170

What the court decided

ASIC sought an inquiry under section 536 of the Corporations Act 2001 (Cth) into Mr Edge's conduct as liquidator of 21 companies and orders under section 447E about his conduct as administrator or deed administrator of three companies [1].

Dodds-Streeton J held that on an inquiry under section 536(1) the Court may make a compensation order where its findings make that appropriate, whether or not a report under section 536(2) has been filed [89], [96]. That answered a doubt Crockett J had raised in Re Fermoyle about ordering a liquidator to make good a loss without such a report [87], [88]. Prejudicial conduct is a precondition of an order under section 447E(1) but not of the Court determining whether such conduct exists [97].

Her Honour held that Mr Edge's delegation of work on a number of liquidations to Harrisons Insolvency was a dereliction of duty, although that firm apparently did the work competently [203]. There was no valid impediment to his acting personally; he elected not to do the work because of his own and his assistant's demanding full-time employment, and in those circumstances his duty was to resign [205]. His standard 15% of that firm's fees could only be seen as a commission for providing the work, and his retention and delegation of the liquidations was a serious breach of duty [205]. The destruction of company books in breach of section 542 was extremely serious misconduct indicating unfitness for office [261].

On remuneration, her Honour held that, save perhaps for a deregistered company, the Court may inquire under section 536 into a liquidator's remuneration where there is a prima facie case, whether or not a resolution approving it has been passed [568]. In that context the Court is not constrained by the ordinary statutory regimes for review or fixing of remuneration [568]. In any event, the resolutions would not satisfy the criteria endorsed in Re Stockford and Re Aliance [571]. Where remuneration is based on a set of rates, the document setting out the rates should be provided before the resolution [574]. The industry guide relied on had no category for an unqualified staff member such as Mr Armistead, leaving his rate to the practitioner [579], [580]. The resolutions therefore did not supply a formula capable of objective application without a further decision by the liquidator [580].

ASIC sought an order that Mr Edge pay into Court a total of $410,564.77 drawn as remuneration [614]. Her Honour was not satisfied that he drew the remuneration in good faith believing it validly fixed, or as to what work had been performed, though ASIC accepted he had done some work [623]. She held that the amounts drawn without valid approval should be paid into Court and any application for approval of remuneration made to a Master [623]. She rejected the argument that the Court's powers were confined by the provisions that ordinarily govern review or fixing of remuneration [624], [625]. The Master is to determine his entitlement to fair and reasonable remuneration, with ASIC as contradictor [628].

Her Honour found that his failures as administrator or deed administrator, including inadequate section 439A reports and failing to ensure that deeds of company arrangement were executed, were prejudicial to creditors and members [632]. The Court had power under section 536 to make orders ensuring that his registration as a liquidator was cancelled, despite the submission that this was for the disciplinary board [613]. She found it unnecessary to decide whether declarations, or findings of breach of section 180(1), can properly be made in a section 536 inquiry [601]. She concluded that he should be removed from his current offices and prohibited for ten years from holding the office of liquidator, provisional liquidator, voluntary administrator, deed administrator or receiver [639]. She invited further submissions on the form of orders, including the precise amount to be paid into Court [629].

Why it matters

As a first instance decision, it supports the view that a section 536(1) inquiry can lead to compensation without a separate report, although the relief directed here was the payment into Court of remuneration drawn without valid approval. Creditors asked to approve time-based fees prospectively should be given the rates in advance, covering every person whose time will be charged. The section 180 question was expressly left open [601]. The formal orders were left to be settled after further submissions [629].

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.