Reported Decision : 54 ACSR 55 New South Wales Supreme Court CITATION : McGrath & Anor in their capacity as liquidators of HIH Insurance Ltd (in liq) [2005] NSWSC 506 HEARING DATE(S) : 27/05/05 JUDGMENT DATE : 27 May 2005 Equity Division JURISDICTION : Corporations List JUDGMENT OF : Barrett J DECISION : Order for appointment of replacement liquidator CATCHWORDS : CORPORATIONS - winding up - appointment of two liquidators by the court - one liquidator about to resign - procedure for installation of replacement liquidator by the court Corporations Act 2001 (cth), ss.473, 503 LEGISLATION CITED : Supreme Court (Corporations) Rules 1999, r. 7.1 Re Aplin Brown & Co Ltd [1902] St R Qd 67 CASES CITED : Re Vouris (2004) 49 ACSR 543 Re Wily (2003) 49 ACSR 94 PARTIES : Anthony Gregory McGrath and Alexander Robert Mackay Macintosh - in their capacity as Liquidators of HIH Insurance Ltd (In Liquidation) - Applicants FILE NUMBER(S) : SC 1799/01 COUNSEL : Mr A.P. Ryan, Solicitor - Applicants SOLICITORS : Blake Dawson Waldron - Applicants LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J FRIDAY 27 MAY 2005 1799/01 - ANTHONY GREGORY MCGRATH AND ALEXANDER ROBERT MACKAY MACINTOSH - IN THEIR CAPACITY AS LIQUIDATORS OF HIH INSURANCE LTD (IN LIQUIDATION) JUDGMENT 1 The liquidators of HIH Insurance Ltd are Mr McGrath and Mr Macintosh. They were appointed to be liquidators together by order made by this court. 2 The application before me this morning arises from the circumstance that Mr Macintosh intends to resign as one of the liquidators on 1 July 2005. He says in his affidavit sworn on 19 April 2005 that this will be in consequence of his decision to reduce his overall workload and his commitments generally. The affidavit of the other liquidator, Mr McGrath, sworn on 21 April 2005 refers to Mr Macintosh's proposed resignation as liquidator and to the necessity Mr McGrath sees for two persons to continue as liquidators of not only HIH Insurance Ltd but also 42 other companies in respect of which corresponding applications are now before me. That necessity arises, in Mr McGrath's view, from the size and complexity of the winding up of the company itself and the windings up of the various other companies in the HIH group. The overall administration involves a significant number of entities and multiple jurisdictions and is expected to continue for at least another four years. 3 Mr McGrath and Mr Macintosh propose that Mr Honey, an official liquidator, who is a partner with them in the firm McGrath Nicol & Partners, should become joint liquidator with Mr McGrath, in consequence of Mr Macintosh's retirement. To that end, Mr McGrath and Mr Macintosh have filed an interlocutory process seeking appropriate orders of the Court. 4 Mr Ryan has this morning made submissions about the various possible procedural approaches that might be taken to this situation. He has referred to the decision in Re Vouris (2004) 49 ACSR 543, where an analogous situation arose but in the context of voluntary windings up. For reasons discussed at paragraphs [12] and following of that judgment, the situation in which one of two joint liquidators under a voluntary winding up was to resign and be replaced was dealt with by an order of the court removing both liquidators and appointing as liquidators both the pre-existing liquidator who was to continue and the incoming replacement for the liquidator who was to resign. That approach was taken because, in the case of voluntary winding up, s.503 is the only provision empowering the court to make an appointment and, in the circumstances of the particular windings up, considerations of cost and efficiency did not warrant the convening of meetings of members or creditors to make new appointments. The power under s.503 is a composite power both to remove and to appoint. There could thus be no appointment without a removal and it was in that context, and in view of the observations of Sir Samuel Griffith when Chief Justice of the Supreme Court of Queensland in Re Aplin Brown & Co Ltd [1902] St R Qd 67, that the matter was dealt with in the Vouris case by an order removing the two joint liquidators and re-appointing one of them together with the incoming appointee. 5 In this case, however, each winding up is a winding up by the court and the applicable provision is by s.473. In a case of that kind, s.473(1) enables a liquidator to resign and s.473(7) empowers the court – indeed, requires the court - to fill a vacancy in the office of a liquidator appointed by the court. Section 473(1) is in the following terms: "A liquidator appointed by the Court may resign or, on cause shown, be removed by the Court." Section 473(7) reads: "A vacancy in the office of a liquidator appointed by the Court must be filled by the Court." I also set out the terms of s.473(8): "If more than one liquidator is appointed by the Court, the Court must declare whether anything that is required or authorised by this Act to be done by the liquidator is to be done by all or any one or more of the persons appointed." 6 Ancillary provision with respect to the resignation of court appointed liquidators is made by rule 7.1 of the Supreme Court (Corporations) Rules 1999: " 7.1 Resignation of liquidator (Corporations Act s 473 (1)) (1) A liquidator appointed by the Court who wishes to resign office must file with the Registrar, and lodge with the Commission, a memorandum of resignation. (2) The resignation takes effect on the filing and lodging of the memorandum." 7 Rule 7.1 makes it clear that Mr Macintosh's intention of resigning with effect on 1 July 2005 will have to be implemented by his filing with the Registrar of the court and lodging with ASIC on that day a memorandum of resignation as required by the rule. In view of the evidence Mr Macintosh has given, I proceed on the assumption that he will do this. 8 The appropriate procedural approach is, in my view, for the court simply to make an order under s.473(7) that any vacancy in the office of a liquidator of HIH Insurance Ltd arising by reason of resignation of Alexander Robert Mackay Macintosh taking effect on 1 July 2005 be filled on 1 July 2005 by the appointment on that date of Christopher John Honey of Level 9, 10 Shelley Street, Sydney, an official liquidator, he to hold office together with Anthony Gregory McGrath, an existing liquidator of the company. 9 I am of the opinion that such an order may be made in the case of a joint appointment such as the present. Section 473(8) clearly contemplates the possibility that the court will appoint "more than one liquidator" and the remainder of s.473 must be read against that background, with the result that, when s.473(7) refers to a "vacancy in the office of a liquidator appointed by the Court" - with "a liquidator" being in the singular - it must comprehend the case where, as envisaged by s.473(8), more than one liquidator was appointed at the outset and a vacancy has arisen in the office of one only by reason of death, disqualification or, as here, resignation. 10 It is true that Mr Macintosh's resignation has not yet taken effect but an order in the form I have outlined will ensure that it does not operate to install Mr Honey except upon the occurrence on 1 July 2005 of a vacancy created by the resignation of Mr Macintosh. A prospective order of this kind was made under s.473(7) by Palmer J in Re Wily (2003) 49 ACSR 94 in relation to replacement of a sole court-appointed liquidator who was about to resign. The same approach to cases of that kind was also taken in Re Vouris (above) at [5] – [6]. 11 As to the substantive aspect of the present application, as distinct from the procedural, it is sufficient to say that Mr McGrath's assessment of the necessity for two liquidators to be in office in relation to HIH Insurance Ltd (as well as the other 42 companies to which I have referred) is readily accepted. The windings up are of great complexity and the court, having in the first instance appointed two persons to preside over them must now, in conformity with s.473(7), ensure that the impending vacancy resulting from the resignation of one of them is appropriately filled. Mr Honey, being a partner in the firm McGrath Nicol & Partners and having had for some time a close association with the administrations in question, is obviously a suitable person to fill the vacancy. 12 In the case of HIH Insurance Ltd, I will make an order in the terms I have already outlined. The order will be made upon delivery of appropriate form of order to my associate in chambers. A corresponding order will be made separately in relation to each of the other 42 relevant companies. 13 In each of the 43 cases where Mr Honey is to replace Mr Macintosh, it will be appropriate that the relationship between Mr McGrath and Mr Honey be the same as that which was originally created as between Mr McGrath and Mr Macintosh. I will therefore also make, in each case, a declaration pursuant to s.473(8) of the Corporations Act that anything that is required or authorised by the Corporations Act to be done by Anthony Gregory McGrath and Christopher John Honey, as the liquidators of the company, may be done by either or both of them. Such a direction is commonplace and does not detract from the reality that there are two liquidators in office with responsibility resting upon both of them. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.