To vote or not to vote - a chairperson's obligation to consider the Code

In the recent Federal Court of Australia decision in Brisconnections Management Co Ltd v Burness & Anor, In the matter of Thames Blund Holdings Pty Ltd (in liquidation) [2009] FCA 626, the Court held that the failure of a liquidator to consider factors relevant to his discretion as to whether to exercise his casting vote and his subsequent failure to exercise his casting vote in the circumstances were failures contrary to the IPA Code of Professional Practice for Insolvency Practitioners (Code).

Two liquidators appointed to Thames Blund Holdings Pty Ltd (in liquidation) (TBH) on 28 April 2009 convened a creditors' meeting on 8 May 2009, at which Mr Burness was appointed Chairman.  The meeting was called to, among other things, consider the nomination and appointment of alternative liquidators. 

Brisconnections Management Co Ltd (BMC), one of three creditors who proved in the liquidation and the majority creditor in value (99.8%), nominated two alternative liquidators.  The alternative liquidators had the benefit of an indemnity from BMC.

The Chairman declined to exercise his casting vote in favour of BMC's resolution and the motion was lost on a poll.

BMC successfully applied for relief in the Federal Court under sections 503 and 1321 of the Corporations Act 2001 (Cth) in respect of the Chairman's decision.  The Court found, in ordering that BMC's resolution be passed, that the Chairman failed to consider the factors relevant to his exercise of discretion, such as that:

  • BMC accounted for 99.8% of TBH's indebtedness; and

  • BMC was willing to provide an indemnity to an alternative liquidator but not to the current liquidators.

The Court held that, although the Code does not have the force of law, liquidators must have consideration to its terms when performing their duties and exercising their discretion.  In particular in this instance, the Court found that the Chairman's conduct was contrary to the guidelines prescribed by the Code which stipulate, in section 21.7.4, that:

The exercise of the casting vote is most appropriate in circumstances where...creditors with a majority in value have such overwhelming interest that it is inappropriate to allow a majority in number, who do not have the same monetary interest, to carry the day...

Relevantly, section 21.7.4 prescribes various factors a liquidator should take into account in deciding whether or not to cast a deciding vote and, if so, how it ought be exercised.

All of the relevant circumstances should be carefully considered, reasoned and minuted when the decision is made to cast or not cast a deciding vote.

For further information please contact Alison Robertson on 9288 6872 or Amy Rumble on 9288 6809.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.