Liquidators: speak softly and carry a big stick

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The famous US President Theodore Roosevelt once described his foreign policy as “speak softly, and carry a big stick”.  The same maxim can equally be applied to daunting task of effecting a company liquidation, while managing the competing interests of creditors, employees and directors.

After the failure of a company, liquidators are often forced to deal with recalcitrant and uncooperative directors who refuse to accept their misfortune.  The winding-up of a company can also occur against the background of reprehensible conduct by directors who continue their obstinate behaviour when the fruits of their misdeeds are visited upon them.

Oftentimes this conduct extends to absconding from the jurisdiction, concealing company property or books, dealing with property of the company or dealing with their own property in anticipation of civil proceedings being brought against them.

In the wake of the 1988 Harmer Report, the Corporations Act 2001 (Cth) (the Act) was amended to give liquidators a “big stick” in the form of s 530C of the Act, which gives the court the power to issue a warrant for the search and seizure of company property.

In order to issue a warrant under s 530C, the court must be satisfied that a person has concealed or removed the company’s property with the result that the liquidator will be prevented or delayed from taking the property into their control.  Depending on the situation, the court may also attach conditions to the exercise of such a warrant however this is not mandatory and unconditional warrants are often issued.  It is important to note that warrants under s 530C can be issued in relation to property where ownership has been transferred, even where such property is registered in the name of a third party.

Many liquidators don’t realise what a powerful weapon they have in s 530C and the corresponding arrest powers of the court under s 486B of the Act and the provisions are therefore sadly underused. This article will concisely outline the process for obtaining a warrant pursuant to s 530C and the procedure and practice employed by the courts.

Sections 530C and 486B of the Corporations Act 2001 (Cth)
Section 530C of the Act is expressed in the following terms:

(1)    The Court may issue a warrant under subsection (2) if:

  • a company is being wound up or a provisional liquidator of a company is acting; and
  • on application by the liquidator or provisional liquidator, as the case may be, or by ASIC, the Court is satisfied that a person:
  • has concealed or removed property of the company with the result that the taking of the property into the custody or control of the liquidator or provisional liquidator will be prevented or delayed; or
  • has concealed, destroyed or removed books of the company or is about to do so.

(2)    The warrant may authorise a specified person, with such help as is reasonably necessary:

  • to search for and seize property or books of the company in the possession of the person referred to in subsection (1); and
  • to deliver, as specified in the warrant, property or books seized under it.

(3)    In order to seize property or books under the warrant, the specified person may break open a building, room or receptacle where the property is or the books are, or where the person reasonably believes the property or books to be.(4)    A person who has custody of property or a book because of the execution of the warrant must retain it until the Court makes an order for its disposal.

The “specified person” referred to in s 530C(2) will generally be the liquidator and the court may require an undertaking to be given by the liquidator to be responsible for any loss or damage caused as a result of action taken under s 530C(3).

Section 486B outlines the court’s power to issue an arrest warrant upon the application of a liquidator (including a provisional liquidator) or ASIC and says:

(1)    The Court may issue a warrant for a person to be arrested and brought before the Court if: 

  • a company is being wound up in insolvency or by the Court, or an application has been made for a company to be so wound up; and
  • the Court is satisfied that the person:
  • is about to leave this jurisdiction, or Australia, in order to avoid:
  • paying money payable to the company; or
  • being examined about the company’s affairs; or
  • complying with an order of the Court, or some other obligation, under this Chapter in connection with the winding up; or
  • has concealed or removed property of the company in order to prevent or delay the taking of the property into the liquidator’s custody or control; or
  • has destroyed, concealed or removed books of the company or is about to do so.

In Re Rainbow Systems of Australia Pty Ltd, Wily v Parker (1996) 21 ACSR 171 at 172, it was noted that when a warrant under s 530C yields no results, a liquidator should apply for an order under s 486B for the arrest of the person they believe to be concealing the relevant material.

Requirements for issuing a warrant under s 530C

Applying for the issue of a warrant under s 530C should be a liquidator’s last resort after they have exhausted all other avenues.  The criteria for the award of warrants is fairly simple, requiring the liquidator to demonstrate non-cooperation, concealment and obstruction by the officers of the company.

The criteria will usually be satisfied if the liquidator adduces evidence to show the reasonable steps they have taken in the liquidation to date and how the behaviour of the company officers has obstructed the efficient conduct of the liquidation.

Applications for warrants under s 530C will ordinarily be brought before the court on an ex parte basis, meaning that the matter will be determined in the absence of the other party.  This means that liquidators are obliged to be entirely candid with the court when making such applications however the obvious advantage of an ex parte proceeding is the lack of notice provided to the other party, giving them less time and warning to remove or conceal property.

Will the warrant be conditional?

As noted above, the court may choose to impose conditions on the issue of a warrant depending on the situation.  Such conditions may include, for example, notice requirements or a particular time frame for entry and removal of items.

Traditionally, the Federal Court has issued unconditional warrants whereas state courts have varied in their practice with New South Wales courts often placing myriad conditions on warrants in a manner similar to Anton Pillar orders.

Recent authorities in both state and Commonwealth jurisdictions suggest that the approach is now a more flexible one, with the imposition of conditions depending on the circumstance of the situation before the court.

In the matter of Steel Tigers Pty Ltd (in liq) [2014] NSWSC 1748, the New South Wales Supreme Court considered the case of a number of heavy vehicles which had been improperly transferred to related entities shortly before liquidation.  In that case at [4], Black J determined that the proper question for the court when deciding whether or not to impose conditions on a warrant was “what conditions are appropriate in a particular issue”. His Honour went on not to include any detailed conditions on the warrants issued in that case, noting at [19]:

It seems to me that such conditions would not be appropriate in this particular case, given the nature of the property to be recovered and the circumstances in which such warrants may be executed.  In particular, it seems to me that, where a warrant is to be executed as to large and moveable items, it would be undesirable to prescribe, for example, a specific requirement for a period of notice before the warrant was executed or the hours during which the warrant was executed.

Conclusion

Section 530C warrants will not be issued by a court lightly and obviously other options as to the recovery of company property need to be pursued before a liquidator makes such an application.  Where a liquidator has made reasonable efforts and is faced with obstinate company officers, however, s 530C provides them with a quick and effective remedy to get in and secure the company’s property.

2 thoughts on “Liquidators: speak softly and carry a big stick”

  1. A good article. The process is however seldom used because the liquidator is usually without funds, and needs to demonstrate a fairly onerous process / evidence before seeking the court’s assistance. Moreover, the liquidator will be required to give an undertaking as to damages.

    I did one in the matter of Ezyclad, and after significant cost of obtaining the warrant, and executing the warrant, I got my hands on books and records which the ‘phoenix’ directors said they didn’t have. Yet no repercussion for the directors. And by the time I got into making meaningful claims, the business was further phoenixes and my director declared bankruptcy.

    So a useful tool, yes. But viable?

    Regards

    1. Thanks for the comment and sharing your thoughts. We are keen to encourage more people to contribute like yourself on our articles so we can collaborate and share information and resources.

      Viability, as you say, is the key, I guess, as is a balancing act of what to pursue and what not to, within budget constraints.

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