FEDERAL COURT OF AUSTRALIA AJ Azzopardi Industries Pty Ltd v ACN 104 635 369 (formerly known as Total Plant Services Pty Ltd) (in liquidation) [2014] FCA 710 Citation: AJ Azzopardi Industries Pty Ltd v ACN 104 635 369 (formerly known as Total Plant Services Pty Ltd) (in liquidation) [2014] FCA 710 Parties: AJ AZZOPARDI INDUSTRIES PTY LTD (ACN 060 651 845) v ACN 104 635 369 PTY LTD FORMERLY KNOWN AS TOTAL PLANT SERVICES PTY LTD (IN LIQUIDATION) ACN 104 635 369, STEPHEN ARTHUR GLADMAN IN HIS CAPACITY AS FORMER LIQUIDATOR OF FIRST DEFENDANT and WILLIAM JAMES HAMILTON File number(s): NSD 2065 of 2013 Judge(s): FARRELL J Date of judgment: 3 July 2014 Catchwords: CORPORATIONS – insolvency – resignation and replacement of suspended liquidator – applications pursuant to ss 502 and 503 of the Corporations Act 2001 (Cth) – replacement liquidator member of nascent partnership with suspended liquidator – suspended liquidator to manage day-to-day operation of liquidation – whether appointment would undermine Companies Auditors and Liquidators Disciplinary Board – purpose of suspension Legislation: Corporations Act 2001 (Cth) Cases cited: Re Militto's Transport Pty Ltd (in liq) (2006) 61 ACSR 356 Re Rosaub Pty Ltd (in liq) [2005] NSWSC 689 Date of hearing: 30 May 2014, 3 June 2014, 6 June 2014, 13 June 2014, 26 June 2014 Date of last submissions: 26 June 2014 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 54 Solicitor for the Plaintiff: Ms H Thurairajah of Thurai Rajah Lawyers Counsel for the First and Second Defendants The first and second defendants did not appear Counsel for the Third Defendant: Mr J Svehla (30 May 2014, 3 June 2014) The third defendant appeared in person on 6 June 2014 and 13 June 2014 Counsel for the Amicus Curiae Mr P T Russell (30 May 2014, 3 June 2014, 6 June 2014) (Australian Securities & Investments Commission) IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2065 of 2013 BETWEEN: AJ AZZOPARDI INDUSTRIES PTY LTD (ACN 060 651 845) Plaintiff AND: ACN 104 635 369 PTY LTD FORMERLY KNOWN AS TOTAL PLANT SERVICES PTY LTD (IN LIQUIDATION) ACN 104 635 369 First Defendant STEPHEN ARTHUR GLADMAN IN HIS CAPACITY AS FORMER LIQUIDATOR OF FIRST DEFENDANT Second Defendant WILLIAM JAMES HAMILTON Third Defendant JUDGE: FARRELL J DATE OF ORDER: 27 June 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to section 502 of the Corporations Act 2001 (Cth) (the Act), Graeme Beattie and Christopher Darin of Worrells Solvency and Forensic Accountants, Suite 3, Level 1, 96 Phillip Street Parramatta NSW 2150, be appointed Liquidators of the First Defendant. 2. Pursuant to section 477(2B) of the Act, the Court approves the retainer agreement made between the Plaintiff and Graeme Beattie and Christopher Darin of Worrells Solvency and Forensic Accountants, Suite 3, Level 1, 96 Phillip Street Parramatta NSW 2150 comprising Annexure C of the affidavit of Adam Azzopardi sworn 26 June 2014. 3. That the costs of the Interlocutory Process be the costs and expenses of the winding up of the First Defendant. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2065 of 2013 BETWEEN: AJ AZZOPARDI INDUSTRIES PTY LTD ACN 060 651 845 Plaintiff AND: ACN 104 635 369 PTY LTD FORMERLY KNOWN AS TOTAL PLANT SERVICES PTY LTD (IN LIQUIDATION) ACN 104 635 369 First Defendant STEPHEN ARTHUR GLADMAN IN HIS CAPACITY AS FORMER LIQUIDATOR, ALTERNATIVELY LIQUIDATOR OF FIRST DEFENDANT Second Defendant WILLIAM JAMES HAMILTON Third Defendant JUDGE: FARRELL J DATE: 3 July 2014 PLACE: SYDNEY REASONS FOR JUDGMENT 1 These are my reasons for making orders appointing Mr Graeme Beattie and Mr Christopher Darin as liquidators of the first defendant (TPS) under s 502 of the Corporations Act 2001 (Cth) (Corporations Act) and approving their retainer agreement under s 477(2B) on 27 June 2014 pursuant to an application made by the plaintiff on 12 June 2014. All references to section numbers in these reasons should be taken to refer to provisions of the Corporations Act unless otherwise indicated. 2 The application was supported by two affidavits of Mr Adam Azzopardi (Mr Azzopardi), the sole director of the plaintiff, the first sworn on 12 June 2014 and the second on 26 June 2014. The 26 June 2014 affidavit attests to steps taken by the plaintiff to identify a liquidator to fill a vacancy in the office of liquidator following the resignation of the third defendant (Mr Hamilton) on 3 June 2014. Annexure B to the affidavit is a copy of a consent to act as liquidator signed by Messrs Beattie and Darin and dated 25 June 2014 and Annexure C is an email chain which comprises the retainer agreement (retainer agreement). 3 Mr Hamilton had filed an application on 16 April 2014 seeking to remove himself as liquidator and appoint Mr David Clout of David Clout and Associates in his place under s 503 of the Corporations Act. Mr Hamilton's application was a consequence of a decision of the Companies Auditors and Liquidators Disciplinary Board (CALDB) made on 3 April 2014 to suspend Mr Hamilton's registration as a liquidator for six months with effect from 3 June 2014. The application was withdrawn on 3 June 2014 in the circumstances described below and Mr Hamilton subsequently consented to an order that he pay the plaintiff's costs in an amount of $5,000 in relation to his application. BACKGROUND 4 On 9 July 2013, a meeting of shareholders and creditors of TPS was held pursuant to s 509(2) of the Corporations Act, but no quorum was present. On 15 July 2013, the second defendant (Mr Gladman), the then liquidator of TPS, filed with the Australian Securities & Investments Commission (ASIC) a return under ss 509(3) and 509(4) in relation to the meeting on 9 July 2013. Under s 509(5), ASIC must deregister a company three months after the date on which a return is lodged (in this case, 15 October 2013). 5 Immediately before the meeting on 9 July 2013, Mr Azzopardi learned of a report prepared by Mr Gladman for ASIC. Following a complaint made to ASIC in May 2011 by a former officer of TPS, Mr Gladman conducted an investigation of TPS' affairs. The investigation was funded by ASIC. The investigation resulted in a confidential report to ASIC and a supplement to the report. ASIC was not willing to fund pursuit of the matters covered by the report. The report to ASIC indicated that TPS may have available causes of action relating to: Breach of directors duties; Payment of a $600,000 dividend by TPS; Payment of a management fee exceeding $1 million to companies related to TPS; and Advice provided by an external accountant. 6 Although documents filed with ASIC by Mr Gladman indicate that he ceased to be liquidator of TPS with effect from 9 July 2013, Mr Gladman convened meetings of creditors on 6 August, 3 September and 24 September 2013, with the last meeting adjourned to 8 October 2013. It appears that these meetings dealt with the possibility of assigning these causes of action to the plaintiff. 7 Based on legal advice, Mr Gladman was ultimately unwilling to execute an assignment of the causes of action to the plaintiff. After negotiations, Mr Gladman allowed the plaintiff's legal advisors access to the documents on which Mr Gladman based his report to ASIC so that they could advise the plaintiff about the possible actions. 8 The plaintiff had provided some funding to Mr Gladman for investigations in 2011 and it had funded storage of TPS documents to prevent their destruction. However, the plaintiff was not prepared to fund Mr Gladman to pursue the actions against TPS' former officers and accountant and it appears that Mr Gladman did not wish to undertake further investigation or actions funded by the plaintiff. Application made on 8 October 2013 9 On 8 October 2013, the plaintiff filed an application for orders under ss 502 or 503 appointing Mr Hamilton as liquidator, under s 477(2B) approving Mr Hamilton's retainer and s 509(6) setting the date on which TPS must be deregistered as 31 October 2016 instead of 15 October 2013. Mr Azzopardi swore an affidavit on 8 October 2013 in support of the application, setting out the background of the plaintiff's dealings with TPS and his dealings with Mr Gladman and the previous liquidator (8 October Affidavit). 10 Counsel appeared for Mr Gladman and TPS when the application was heard on 8 October 2013. Counsel for Mr Gladman confirmed that he did not oppose Mr Hamilton's appointment and that Mr Gladman was prepared to confirm his resignation in writing. Leave was granted to the plaintiff to proceed against TPS. 11 The 8 October Affidavit put the Court on notice that Mr Azzopardi had been an indemnified witness in a New South Wales Independent Commission Against Corruption investigation in relation to conduct of officers of Rail Corporation New South Wales (RailCorp). The Commissioner reported on this investigation in the September 2008 "Investigation into bribery and fraud at RailCorp – Fourth report" (Fourth Report). TPS had contracts with RailCorp, and the plaintiff was a subcontractor of TPS in relation to the provision of services to RailCorp under the contracts. 12 The Fourth Report indicates that Mr Azzopardi was involved, from 2003 to early 2007, in a scheme of producing false invoices which were paid by RailCorp through TPS. The invoices referred to in [13] below do not relate to the period which was the subject of the Fourth Report. 13 Mr Azzopardi deposed that the plaintiff lodged proofs of debt in the liquidation of TPS for approximately $570,800. Mr Azzopardi provided copies of the plaintiff's invoices to TPS to the then liquidator of TPS. The plaintiff says it never received payment of the invoices. Based on documents provided to the then liquidator by a former officer of TPS in May 2011, it is alleged that the plaintiff's invoices were reversed so as to remove the plaintiff as a creditor; this enabled TPS to enter into a members voluntary winding up on a solvent basis pursuant to a resolution passed on 18 March 2010. The plaintiff was treated as a creditor for voting purposes at creditors' meetings and was recorded in reports as to affairs of TPS as a creditor for approximately $570,800, but although the proofs of debt were not rejected it is not clear whether they were admitted. 14 Counsel for the plaintiff submitted that there was some urgency to pursue possible claims TPS may have against RailCorp due to imminent expiry of limitation periods. 15 On 9 October 2013, I made an order under s 502 appointing Mr Hamilton as liquidator of TPS to replace Mr Gladman who confirmed his resignation as liquidator so that it was not necessary to remove and replace him under s 503. I also approved a retainer agreement between TPS and Mr Hamilton under s 477(2B) set out in the schedule to the originating process filed on 8 October 2013. The plaintiff agreed to fund Mr Hamilton to conduct public examinations of former officers of TPS and its accountant with a view to obtaining legal advice concerning whether any action should be pursued. 16 The plaintiff's application also sought an order under s 509(6) that TPS be deregistered on 31 October 2016, effectively deferring its deregistration by three years. Section 509(6) provides: On application by the liquidator or any other interested party, the Court may make an order that ASIC deregister the company on a specified day. The Court must make the order before the end of the 3 month period after the return was lodged. 17 Having regard to the principles set out by Barrett J in Re Rosaub Pty Ltd (in liq) [2005] NSWSC 689 at [10]-[17] and the matters referred to above, I was satisfied that a beneficial purpose would be served by making the order; it was common ground between the representatives of the plaintiff and Mr Gladman at the hearing on 8 October 2013 that there were available actions as envisaged by the report to ASIC. 18 I was also satisfied that the plaintiff was an interested party. Although it is not clear that either Mr Gladman or his predecessor admitted the plaintiff's proof of debt, the plaintiff has been treated as a creditor and its claims to be a creditor are part of the matrix of issues which Mr Hamilton would investigate based (among other things) on documents and evidence given by a former office of TPS which indicate that inappropriate steps may have been taken by an officer of TPS and its accountant to reverse unpaid invoices issued by the plaintiff. Ms Marleen Durgali, an officer of AzBuild Pty Ltd (AzBuild), swore an affidavit on 8 October 2013 in support of the plaintiff's application. AzBuild is a creditor of TPS for $1,056. The plaintiff asserts that they are the only creditors of TPS. Although other creditors appear to have attended creditors' meetings from time to time, the plaintiff's claim is by far the greatest. Mr Gladman did not oppose this order being made. 19 I was not satisfied that the power under s 509(6) could be exercised more than once and any order must be made within the three month period after the liquidator makes the return under s 509(3): in this case, the return was lodged with ASIC on 15 July 2013. For that reason, to allow time for any action which might be taken by TPS' liquidator to be pursued (including any appeal), I determined that the date of deregistration should be 31 October 2018. MR HAMILTON'S APPLICATION 20 On 16 April 2014 Mr Hamilton filed an interlocutory process seeking orders pursuant to s 503 of the Corporations Act that a registered liquidator who is on a general consent with the Court be appointed the liquidator of the first defendant. The application was heard on 30 May 2014. 21 In written contentions dated 8 May 2014 which Mr Hamilton provided to the plaintiff and to the solicitors for some of the examinees, Mr Hamilton reported that based on five examinations conducted during December 2013 he had concluded as follows. RailCorp paid approximately $528,000 (inclusive of GST) to TPS no later than 13 December 2007. The plaintiff was not paid for work done. Instead, assets were stripped from TPS for the benefit of one of TPS' directors and her children. A dividend of $600,000 was declared in favour of its sole shareholder. It is unclear whether the dividend was declared on 1 July 2008 or 29 June 2009. TPS may have been insolvent at the time the dividend was declared having regard to the unpaid invoices. TPS may also have been insolvent at the time the dividend was paid which appears to have been between 22 July and 27 August 2009. Hearing on 30 May 2014 22 Submissions lodged by Mr Hamilton's Counsel on 30 May 2014 in support of his application indicated that: Following the public examinations in December 2013, the plaintiff did not enter into a new funding agreement with Mr Hamilton and the plaintiff appeared to be unwilling to do so; Further examinations had been set down for 21 to 25 July 2014 (originally planned for mid-May); Mr Hamilton sought to arrange a formal mediation with the solicitors for some of the examinees with a view to settlement, avoiding the need for further examinations. Amounts between $729,189.13 and $875,313.92 (inclusive of interest) would be sought. The solicitors were provided with a copy of Mr Hamilton's 8 May 2014 contentions under cover of a letter of the same date. Preparation for either the further examinations or mediation would involve the liquidator and his or her lawyers becoming familiar with a large volume of documents, the preparation of position papers and an abbreviated form of court bundle to be provided to the mediator. Mr Hamilton had already conducted analysis of the documents produced in preparation for the examinations conducted in December 2013. 23 At the hearing, Counsel for Mr Hamilton indicated that as a result of the examinations it appeared that RailCorp had paid accounts rendered by TPS (with the possible exception of $20,000), so that there was no issue of limitation periods with regard to any potential action against RailCorp. However, limitation periods for claims against directors of TPS and the external accountant may soon expire if the $600,000 dividend was declared on 1 July 2008, instead of in June 2009. Counsel indicated that it may be necessary to file proceedings imminently to preserve the claims in view of the possible expiry of the limitation periods, and that TPS' former officers are aware of that possibility. 24 The written submissions summarised the CALDB's reasons in relation to its decision to suspend Mr Hamilton's registration as a liquidator as follows (as written): a) Mr Hamilton's involvement in the complaint giving rise to the CALDB decision arises out of Mr Hamilton being a joint liquidator with his then partner at the time and co-liquidator, Pino Fiorentino ("Mr Fiorentino" in respect of the conduct of the liquidation of ERB International Pty Ltd (in Liquidation )("ERB"); b) Mr Hamilton's involvement in ERB was as a secondary liquidator; c) Mr Fiorentino had the day to day conduct of the liquation of ERB; d) Mr Hamilton was not accused of any misappropriation of assets orany malfeasance. 25 At the hearing, Mr Hamilton's Counsel drew to the Court's attention that ASIC's contentions to the CALDB included: a. that Mr Hamilton had not conducted sufficient investigations, considered remedies available to creditors or sought Court approval or the approval of creditors before signing a deed of release in relation to compromising indebtedness of directors of ERB. Counsel indicated that the release was provided in consideration of a payment of $60,000 for the benefit of the company in liquidation. b. that the September 2008 report to creditors of ERB had been unclear, lacked concise and meaningful information and contained irrelevant information and the April 2009 report suffered from similar defects, especially in relation to assessment of the reasonableness of the liquidators' claims to remuneration and it failed to account adequately to creditors regarding the conduct of the winding up. Counsel for Mr Hamilton indicated that these documents had been prepared without input from Mr Hamilton and the CALDB found that there needed to be greater involvement. c. the liquidators failed to lodge a report under s 533 with ASIC when there were possible breaches of the Corporations Act by directors. 26 In his affidavit sworn on 29 May 2014, which was read at the hearing, Mr Hamilton provided a copy of a consent to act as liquidator and declaration of interests executed by Mr David Clout of David Clout and Associates (Mr Clout) dated 29 May 2014 and a copy of Mr Clout's resume and his schedule of hourly rates. 27 Counsel for Mr Hamilton drew attention to the fact that Mr Clout had been a partner of Mr Hamilton's between 1980 and 1985, and since then their firms had had a largely dormant partnership. In response to questions, Counsel advised that it was proposed that Mr Hamilton's firm would render invoices to Mr Clout for work conducted by Mr Hamilton's firm in relation to TPS' affairs. Mr Hamilton would not be an employee of Mr Clout or his firm. Counsel indicated that Mr Hamilton would have the day-to-day conduct of TPS matters. 28 I expressed the concern that it appeared there would be no real change to the way TPS' affairs would be conducted. There is no reason in principle why Mr Hamilton should not be employed to assist a new liquidator in relation to the issues which confronted TPS. It would likely assist the efficient and cost effective administration of TPS if Mr Hamilton remained involved and that would be to the benefit of creditors. However, what was now proposed may be inconsistent with the fact that Mr Hamilton's registration had been suspended by CALDB with effect from 3 June 2014. 29 Counsel indicated that ASIC had not been advised of the proposal and he did not draw to my attention any authority which would support it. 30 The plaintiff's representative indicated that it had concern about duplication of cost through the involvement of a new liquidator. 31 I stood the matter down until 4 pm on 30 May 2014. At that time Counsel for Mr Hamilton filed in Court a further affidavit sworn on 30 May 2014 by Mr Hamilton. Annexed to it was an email from Mr Clout to Mr Hamilton which provided as follows (as written): I refer to my Consent to Act filed in the Matter of ACN 104 635 369 Pty Ltd (In Liquidation) and to the employment terms agreed on 1st May 2014. By way of confirmation of our verbal agreement, you and your employees of Hamiltons Chartered Accountants are to be employed by David Clout & Associates (DCA) from 1 May 2014 to assist with the establishment of a permanent presence for a DCA Office in Sydney. These resources combined with your depth of experience in the Insolvency Industry will provide the necessary expertise to operate in NSW on a full time basis. 32 Mr Hamilton's Counsel confirmed that Mr Clout's practice was in Brisbane and that day-to-day work would be conducted through Mr Hamilton's office in Sydney. Mr Clout had moved his Sydney address to Mr Hamilton's office on 23 April 2014. 33 Mr Russell appeared for ASIC and sought leave to appear as amicus curiae. Leave was granted. Mr Russell indicated that ASIC did not either oppose or support the application to appoint Mr Clout as liquidator but wished to assist the Court with some submissions. 34 Mr Russell referred to [287]-[288] of the CALDB's reasons: the CALDB noted the apparent lack of effective systems and processes in place at Mr Hamilton's firm to prevent the failures which occurred and this weighed in the CALDB forming the view that the matter was more serious than submitted by Mr Hamilton. A six-month suspension would give Mr Hamilton time to put into effect the undertakings which he agreed to provide before accepting new appointments to an office which must be filled by a registered liquidator. 35 Accordingly, in addition to the six month suspension, Mr Hamilton would be required to undertake 16 hours of continuing education in forms agreed with ASIC in advance covering reporting (to creditors, ASIC and other practitioners), dealings with property, compliance and risk management and liquidator's duties to creditors and stakeholders. This would be additional to the yearly continuing education that liquidators are required to undertake. During Mr Hamilton's period of suspension and before he accepts any new appointments as a registered liquidator, he would be required to retain an appropriately qualified independent consultant agreed by ASIC to undertake a gap analysis of the firm's risk management and compliance procedures with respect to the conduct of liquidations and company administrations. The independent consultant would be required to prepare a report and oversee implementation of all recommendations made and ultimately provide an opinion concerning whether the compliance and risk management processes of the firm are appropriate and up-to-date. Mr Hamilton would also be required to submit the first four external administrations which he conducts as a liquidator to independent review and report to ASIC. 36 Mr Hamilton's Counsel pointed out that Mr Hamilton's practice had been split since the events under consideration by the CALDB and Mr Hamilton was now a sole practitioner in a different office space with three staff taken from the former practice. 37 Mr Russell drew attention to [275]-[276] of the CALDB's reasons: It is common ground, that the principle which guides the Board in exercising powers is protection of the public. We note that in Re Young and CALDB (2000) 34 ACSR 425 that the AAT said (at paragraph 80), that the jurisdiction created by s1292 is of a protective nature and: "it seems that the protection of the public should be the principal determinant of a proper order but that this may be achieved by an order affecting registration of the person in question. In other words, deterrence is an element of public protection." We agree with the statement in McVeigh at 12.7 that in exercising our powers under s1292(2): (a) Our prime concern has to be protection of the public; (b) The protection of the public includes the maintenance of a system under which the public can be confident that the relevant practitioner and all other practitioners will know that breaches of duty will be appropriately dealt with; (c) The personal circumstances of the practitioner are to be given limited consideration. In this matter the Board has found that Mr Hamilton failed to perform adequately and properly the duties of a liquidator in respect of nine of the ten contentions pressed in the SOFAC. 38 Mr Russell referred to the decision of Hammerschlag J in Re Purcom No 34 Admin Pty Ltd (rec and mgr appted) [2012] NSWSC 543. In that case, a receiver and manager had given an enforceable undertaking to ASIC that he would not carry out any function which required him to perform duties of a kind undertaken by a registered liquidator. It was proposed that Mr Sutherland would take over his role in a total of 20 voluntary liquidations and as receiver of Purcom No. 34 Pty Ltd. In considering whether to approve Mr Sutherland's appointment, Hammerschlag J said at [9]-[12]: The appointment of Mr Sutherland would be unexceptional but for the fact that Mr Ngan now works in his office. This raises the issue of Mr Sutherland's appointment being sufficiently an arm's length one and the concern described by Gyles J described in the application of Dean-Willcocks v Militto's Transport Pty Ltd (in liq) (2006) 61 ACSR 356 at [6] that the suspension of a liquidator may not achieve very much if the firm of which he is a member continues in practice to do the work. The Court must consider all of the circumstances, including the expense and convenience in the case of voluntary windings up to convene meetings of members and creditors to appoint a successor, the cost and convenience of having the administration transferred to an external administrator outside the firm or business where the former external administrator works and the experience and resources of the proposed replacement. In the present case, these factors support the making of the orders sought. More importantly however, in my view, is that the lack of arms length concern is alleviated by the comprehensive undertakings which Mr Ngan has given to ASIC. The seriousness of a failure to comply with those undertakings both Mr Ngan and Mr Sutherland, will undoubtedly not have escaped them. Moreover, I propose to include in the orders which I intend to make that notice of the orders be given to all relevant members and creditors to enable them to apply to vary the orders should they so be advised. 39 The plaintiff's representative submitted that its concern was one of cost and it was not in a position to nominate another liquidator. 40 I indicated that I had no concern about Mr Hamilton continuing to provide services in relation to the liquidation of TPS under the supervision of a liquidator who would take responsibility for the proper performance of the role if that led to efficient and cost effective conduct of the liquidation. In this case, the CALDB had concern about the effectiveness of the risk management practices of Mr Hamilton's practice and had expressly addressed the fact that in the period of his suspension Mr Hamilton would have time to undertake further continuing education and undertake a review of his practice. In the absence of evidence of how Mr Clout proposed to address the issues created by the fact that his office was in Brisbane and Mr Hamilton would have the day-to-day conduct of the matter in Sydney, I was not satisfied that the arrangements would give effect to Mr Hamilton's suspension. I was not satisfied that anything would change. 41 I therefore required evidence of how Mr Clout proposed to conduct the liquidation and stood the matter over until the morning of Tuesday, 3 June 2014. I noted that TPS had no business operations and its only asset was a possible cause of action against its former officers and accountant. The plaintiff had not agreed to fund further work by Mr Hamilton since public examinations were conducted in December 2013. There would therefore not be significant prejudice if there were to be a temporary vacancy in the office of liquidator, if need be, due to Mr Hamilton's suspension coming into effect on 3 June 2014. It would also give the plaintiff an opportunity to nominate a different liquidator. 42 It is undoubtedly the case that mitigating the expense and inconvenience to creditors attendant on a change of liquidator in matters of this kind is a weighty consideration. However, I share the unease expressed by Gyles J in Re Militto's Transport Pty Ltd (in liq) (2006) 61 ACSR 356 at [6]. Unless the Court is willing to take steps to ensure that the CALDB's suspension orders are given effect (sometimes to the inconvenience of an individual creditor or group of creditors), liquidators or the public may come to believe that suspension need have little impact on the liquidator's practice. This would frustrate the protective purpose, deterrent effect and support of the confidence of creditors and shareholders in the performance of liquidators generally which the CALDB's orders are designed to achieve. Hearing of 3 June 2014 43 Although I had indicated that Mr Clout could attend by video conference, he attended in person and gave evidence. Mr Clout's evidence was that his firm would employ the staff of Mr Hamilton's firm (including Mr Hamilton) and would lease or license the premises and equipment of the Sydney firm. He regarded this as an opportunity to establish his firm in Sydney, utilising Mr Hamilton's experience and expertise. His practice in Brisbane employs insolvency software (CORE), which includes a checklist for the various steps in an administration or investigation, and which would allow him electronic access to all insolvency files of the practice in Sydney as well as Brisbane. He said that he intended to expand his practice, so that he will need to be in Sydney more often and he would conduct public examinations and mediations. 44 Mr Clout indicated that he knew of the impending end of the limitation periods in the TPS matter as well as the need to conduct a mediation and, if that failed, public examinations. In cross examination, Mr Clout said that the agreement for David Clout and Associates to take over the business of WJ Hamilton & Co was signed that morning, although it had been verbally agreed since 1 May 2014. In response to questioning from Mr Russell, it transpired that the agreement was only for six months, although Mr Clout hoped that it would continue. He confirmed that he would use the Sydney staff in the TPS matter (therefore, the same staff as had been engaged before Mr Hamilton's suspension), unless additional resources were required. When asked how the position would differ from if he and Mr Hamilton were in partnership, Mr Clout responded that Mr Hamilton would not share profits but due to his experience and expertise Mr Clout would regard Mr Hamilton as a senior manager/director, subject to Mr Clout's supervision. Mr Clout confirmed that if he did not receive funding from the plaintiff and he wished to proceed with the mediation/examinations, he would fund it without recourse to Mr Hamilton. 45 ASIC submitted that having regard to Mr Clout's evidence, Mr Clout's practice is not in fact taking over Mr Hamilton's despite the agreement signed that morning. The agreement (which was not produced to ASIC or the Court) was plainly only for the period of Mr Hamilton's suspension, and taking into account Mr Clout's evident respect for Mr Hamilton, Mr Clout was likely to defer to Mr Hamilton. The Court should appoint a liquidator from the list maintained by the Court; the Court would have power to replace that person once negotiations for funding had been concluded. 46 Aside from any other consideration, the difficulty with the approach suggested by ASIC is that the Federal Court does not maintain a list of consenting liquidators: that practice has been discontinued. The plaintiff opposed ASIC's suggestion out of concern about the costs which would be incurred by a Court appointed liquidator who would then be replaced. The plaintiff's representative indicated that the plaintiff was in discussions with a number of liquidators to gauge their interest and would welcome a discussion with Mr Clout while he was in Sydney. 47 Taking these matters into consideration, and as TPS is a company without an operating business, there was no disadvantage to the matter being adjourned for a few days to give the plaintiff an opportunity to identify a liquidator who may be willing to act. I thought the situation could be usefully advanced if the agreement between David Clout and Associates and Mr Hamilton's firm was provided to the plaintiff and to ASIC, and Mr Hamilton agreed to do so. 48 While Mr Clout impressed me as a careful witness who had thought about a number of the issues, I indicated some concern that Mr Clout did not appear to have sought an opportunity to speak with the plaintiff while he was in Sydney. It would be consistent with his intention to control the matter, instead of Mr Hamilton, for him to do so. 49 Further, I was not concerned that Mr Clout's evidence demonstrated his respect for Mr Hamilton. However, the reality of Mr Hamilton's suspension would need to be addressed by both Mr Hamilton and any liquidator who consented to be appointed. I cautioned the parties that any appointment of a liquidator to TPS should not be a thin veneer to permit a suspended liquidator to continue to act as a liquidator. Although it is common for a liquidator to perform his or her functions through staff, due regard must be given to Mr Hamilton's suspension. While the plaintiff's concern about cost is not an irrelevant consideration, discussions with candidates for appointment as a liquidator must have regard to the matters which I identified. 50 Mr Hamilton expressed the desire to retire from the office of liquidator having regard to his suspension which became effective on 3 June, and I agreed with that course. ASIC withdrew from the proceedings. The proceedings were adjourned until 6 June 2014. 51 During the afternoon of 3 June 2014, Mr Clout withdrew his consent to act as liquidator and Mr Hamilton gave written notice of his resignation and of his wish to withdraw his application. Hearing of 26 June 2014 52 The plaintiff filed an application on 12 June 2014 seeking appointment of a registered liquidator who is on a general consent with the Court and approval under s 477(2B) for the liquidator to enter into a retainer agreement "to rank in priority in the winding up insofar as funds advanced has first priority of such funds as are available for distribution to creditor prior to the costs of winding up". There were directions hearings on 6 June and 13 June 2014 in relation to the plaintiff's progress in identifying a liquidator. 53 As mentioned above, Messrs Darin and Beattie consented to act as liquidators and ASIC indicated that it neither opposed nor supported that order. The consent indicated that they had no conflict of interest and I considered it appropriate to make the order. 54 The plaintiff's representative conceded that, insofar as the retainer agreement sought to confer a priority on distribution of amounts (if any) recovered by the liquidator, it would be necessary for an application to be made under s 564 at the time that the liquidator proposes to make distributions, and approval of the retainer agreement under s 477(2B) does not confer the priority. I considered it appropriate to make the order under s 477(2B). I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell. Associate: Dated: 3 July 2014