In a recent case[1], a liquidator was ordered to pay the costs of the appeal from their own funds with no recourse to the assets of the company in liquidation.
Facts
- The liquidator had applied for directions to the Supreme Court that they were justified in compromising a proceeding and entering into terms of settlement.
- The Federal Commissioner of Taxation (Commissioner) had been given leave to appear as a contradictor both at the original hearing and the appeal.
- The Court gave directions contrary to the liquidator’s submissions and the liquidator appealed the decision.
The Commissioner argued
- If a liquidator appeals against a Court’s determination after seeking the advice of the Court, the liquidator is in the same position of any other litigant.
- The liquidator appealed at their own risk and the costs should not be borne by the company and its creditors, rather the liquidator personally.
- The failure by the liquidators to convene a meeting of creditors, where one was requested provides further reason why the liquidators should pay the costs personally.
The liquidators argued
- The costs of both parties should be costs in the winding up the company, both at first instance and on appeal.
- The usual position is that a liquidator is entitled to an indemnity out of the assets of the company in respect of costs ordered against the liquidator in proceedings unsuccessfully brought by the liquidator, so long as the proceeding was properly brought and was not an abuse of process.
The Court found
- The question of indemnity of liquidator’s costs is determined by deciding whether the costs were reasonably and honestly incurred.
- In applications for directions, it is generally desirable that liquidators should use the resources of the court to seek directions as to the discharge of their responsibilities. However, a liquidator has no automatic right to costs even in that situation.
- The liquidator’s costs of the initial proceeding seeking directions was paid from the assets of the company.
- The liquidator sought the guidance of the Court and then appealed it (unsuccessfully) and therefore took the appeal at their own risk.
Conclusion
The Court found that the Liquidators were to pay, with no right of indemnity from the assets of the company:
- The Commissioner’s costs; and
- Their own costs of the appeal.
Lesson
Liquidators need to be very careful in deciding whether to appeal the decision of the Court after seeking directions. If they do so, this case highlights that they may be doing so at their own personal cost.
[1] McDermott and Potts in their capacities as joint and several liquidators of Lonnex Pty Ltd (in liquidation) [No 2] [2019] VSCA 62
