In the recent case of Canavan v ICRA Rolleston Pty Ltd (Receivers and Managers Appointed) (In Liquidation),1 the Federal Court of Australia considered the circumstances that would warrant the exercise of its power, pursuant to section 90-15 of the Insolvency Practice Schedule (IPS) to the Corporations Act 2001 (WA) (Corporations Act), to appoint an additional or special purpose liquidator to carry out specific functions in the liquidation of a company.
The case revolved around a claim by Mr John Canavan, the sole director of the first defendant, ICRA Rolleston Pty Ltd (ICRA), that the existing liquidators of ICRA (Liquidators) should be removed on the basis that their initial appointment to ICRA (as administrators) had been supported by a key creditor of ICRA, Rolleston Coal Holdings Pty Ltd (RCH), but an important task in the liquidation was going to be an investigation of a sale of ICRA assets by receivers appointed by RCH to RCH itself.
In resolving the matter, Downes J considered the question of whether there has to be an actual or perceived conflict of interest to justify the exercise of the power under section 90-15 of the IPS.
The plaintiff, Mr Canavan, was the sole director of ICRA.
ICRA was a party to a coal mining joint venture with RCH (Joint Venture).
On or about 10 July 2020, ICRA failed to make certain payments to RCH under the Joint Venture, and instead paid substantial dividends to the sole shareholder of ICRA which was also controlled by Mr Canavan. RCH subsequently obtained orders in the Supreme Court of Queensland in November 2020 declaring that RCH was entitled to withhold ICRA’s share of certain coal sale proceeds as security for the unpaid amounts. Then on 8 December 2020, pursuant to the terms of the Joint Venture agreement, RCH appointed receivers and managers over ICRA’s interest in the Joint Venture and its associated assets (Receivers).
On 10 December 2020, Mr Canavan resolved that ICRA was insolvent and appointed an administrator to ICRA under section 436A of the Corporations Act. However, at the first creditors’ meeting, RCH successfully challenged Mr Canavan’s appointees and the creditors appointed RCH’s nominated administrators (the eventual Liquidators) instead.
In February 2021, the Receivers commenced a sale process of the assets over which they were appointed and ultimately sold those assets to RCH itself in June 2021 (Sale Process).
In September 2021, the creditors of ICRA resolved to place ICRA into liquidation, and the Liquidators were appointed to ICRA.
Following their appointment, the Liquidators:
RCH subsequently agreed to fund the investigation of the Potential Canavan Claims, which would comprise a substantial aspect of the liquidation of ICRA.
Separately, Mr Canavan agreed to fund an initial investigation into the Potential Receivers Claims.
Mr Canavan then commenced proceedings on 23 September 2021 seeking orders to remove the Liquidators on the basis that ‘a reasonable fair-minded observer might reasonably apprehend that the liquidators might not discharge their duties as liquidators of the Company with independence and impartiality’ (Removal Application).
Mr Canavan argued that the apprehension arose from the fact that the Liquidators’ initial appointment as administrators had been proposed and supported by RCH and RCH was going to be funding a substantial portion of the liquidation, but the Liquidators would then have to investigate the Sale Process and the conduct of the Receivers (appointed by RCH) in selling the relevant assets to RCH.
On 17 February 2022, Mr Canavan, the Liquidators and RCH agreed a set of proposed orders to resolve the Removal Application, which effectively provided (among other things) that:
The orders were supported by RCH and by Winfield Global Investments Pty Ltd (Winfield Investments), an entity controlled by Mr Canavan, which between them held 99.93% of the debts owing by ICRA.
The Liquidators then applied to the Court to formally make the proposed orders.
Downes J noted that section 90-15 confers broad powers on the Court, and that the Liquidators’ application had been validly brought as ICRA was under external administration and the Liquidators are an “officer of the company” with standing to apply for orders under section 90-15.
Her Honour observed that the following circumstances supported the appointment of the SPLs:
Importantly, Her Honour cited Reeves J in the case of Markey (Liquidator), in the matter of Bestjet Travel Pty Ltd (in liq) v Bestjet Travel Pty Ltd (in liq)2 at  and noted that:
[w]hether or not there is an actual or perceived conflict currently faced by the liquidators in light of the above matters, this is a situation where it would be useful and just that certain matters be investigated by a different liquidator…
Downes J concluded that in this situation, the appointment of a different liquidator with charge over the Potential Receivers Claims would enable the appointee to make decisions in relation to those claims (such as whether or not to pursue them) without being open to criticism of the kind made against the Liquidators by Mr Canavan.
This case serves as a useful reminder that a finding of an actual or perceived conflict is not required to justify the appointment of a special purpose liquidator, and that the courts may be willing to appoint a special purpose liquidator to uphold the confidence of stakeholders in the integrity and transparency of a liquidation even if there is no actual or perceived conflict of interest.
If you have any questions about an application to appoint a special purpose liquidator, the experienced Lavan team is here to help.
 Canavan v ICRA Rolleston Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (No 2)  FCA 137.
 Markey (Liquidator), in the matter of Bestjet Travel Pty Ltd (in liq) v Bestjet Travel Pty Ltd (in liq)  FCA 1881.