Getting a handle on the new funds handling provisions under the ILRA 2016

25 September, 2017

On 4 February 2020, the Federal Court of Australia considered the circumstances in which it might be said that a provisional liquidator of a company ought not be appointed as the official liquidator because of an alleged “reasonable apprehension of bias”. The issue was ventilated before the Court in the matter of  Frisken (as receiver of Avant Garde Investments Pty Ltd v Cheema [2020] FCA 98.

Appointing a provisional liquidator

The Court has the discretion to appoint a provisional liquidator “at any time after the filing of a winding up application and before the making of a winding up order or, if there is an appeal against a winding up order, before a decision if the appeal is made” (section 472(2) of the Corporations Act 2001 (Cth)) (the Act).

The functions and powers of the provisional liquidator is conferred on him or her by the legislation, the relevant rules, or by order of the Court (subsection 472(3) of the Act). Provisional liquidators also have the power to continue the affairs of the company (subsection 472(4)(a)).

Provisional liquidators are commonly appointed if there is no dispute as to the insolvency of the company and there is an immediate need for an external administrator to protect the company’s creditors. Accordingly, the day following Mr Banerjee’s appointment as provisional liquidator to Avant Garde Investments Pty Ltd (Company), he convened a meeting for the Company’s secured creditors to discuss funding arrangements for his investigations into the Company’s financial affairs, including whether any voidable transactions took place.

Appointing a liquidator following completion of the Company’s provisional liquidation

Following the completion of the provisional liquidation of the Company, on 4 February 2020 an application to wind up the Company was made, and a dispute emerged between the director of the Company and the provisional liquidator as to who should be appointed as liquidator.

When assessing whether or not Mr Banerjee should be appointed as liquidator, the Federal Court had regard to the “three guiding principles” that Derrington J referred to in Deputy Commissioner of Taxation, in the matter of WD Hall Pty Ltd v WD Hall Pty Ltd [2017] FCA 767 (WD Hall) at [5]:

  1. Liquidators must be independent and have an appearance of independence to the company’s creditors, so as to avoid any reasonable apprehension by any creditor that the liquidator lacked impartiality due to a prior association with the company, including its creditors;
  2. Liquidators should not be chosen by the directors or other principals of the company, as the interests of the creditors must sit independent from the interests of the company; and
  3. The fees of the liquidator – as the Court would prefer a liquidator with less costly rates.

Had the well been poisoned?

The director of the Company argued for the appointment of a liquidator other than Mr Banerjee, because the “conduct of Mr Banerjee subsequent to his appointment as provisional liquidator is such that a reasonable person might have a reasonable apprehension that Mr Banerjee, if appointed as liquidator, might not be impartial.”

The director relied on the expansive principle that a liquidator must be impartial and fair when carrying out its duties as a liquidator in the best interests of creditors, and as such, they must not have any prior involvement with the Company, any of its directors, major shareholders or creditors. The director pointed to the following conduct of Mr Banerji:

  1. Mr Banerjee was retained and represented by the same solicitors as the solicitors for the receiver of the Company following his appointment as provisional liquidator;
  2. An affidavit by Mr Banerjee was prepared for him and filed by the solicitors for the receiver, which was also said to be filed on behalf of the receiver; and
  3. Mr Banerjee convened a meeting only for secured creditors of the company seeking funding for his investigations into the affairs of the company.

In assessing whether there existed any reasonable apprehension that Mr Banerjee could not continue impartially, Jagot J found that “the principles referred to in WD Hall in all of these circumstances weigh heavily in favour of the appointment of Mr Banerjee as a liquidator”. Some key factors findings of the Court included:

  1. At all times, Mr Banerjee was independent and had the appearance of independence from all creditors;
  2. Directors or other company principals should not appoint a liquidator “because of the inevitable perception of bias such an appointment might arise”;
  3. Mr Banerjee had already done a substantial amount of work, and as such, it would be efficient for the provisional liquidator to continue the liquidation of the Company;
  4. Mr Banerjee’s fees are less than the fees of the director’s proposed liquidators;
  5. Mr Banerjee’s meeting with the secured creditors to obtain funding was a rationale step, and it may be inferred to protect the interests of both secured and unsecured creditors; and
  6. Mr Banerjee retained new independent solicitors to act on his behalf, as he had initially retained the same lawyers who acted for the receiver. This finding was in response to a submission made by the director of the Company’s to the effect that the “well has already been poisoned” and that Mr Banerjee is therefore no longer independent.

How to avoid poisoning the well

The starting point is that all liquidators including provisional liquidators must act in the best interests of the company’s creditors, by ensuring they are, and appear to be, completely independent and impartial. This impartiality may come under attack if there are common legal representatives acting for the liquidator of a company and other interested parties, or where the referrer of an external administrator has a vested interest in the company which is at odds with the interests of creditors as a whole.

When assessing whether a liquidator should be nominated, the Court will also look at cost and time efficiency factors, which include the nominated liquidator’s fees and whether the nominated liquidator has knowledge of the company’s affairs by reason of its work done as provisional liquidator.

McCabes’s insolvency group offers expertise and experience in corporate and personal insolvency, delivering commercially relevant advice to businesses of all sizes, insolvency practitioners and individuals.

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Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
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Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). 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Published by Leighton Hawkes
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Litigation and Dispute Resolution

Expert evidence – The letter of instruction and involvement of lawyers

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