Under sections 90-15 and 90–20 of Schedule 2 of the Insolvency Practice Schedule (Corporations) (Practice Schedule) of the Corporations Act 2001 (Cth) (the Act), a liquidator may apply to the court for directions and judicial advice in winding up.
Purpose of Judicial Advice
The purpose of judicial advice was to give the liquidator advice as to the proper course of action to take in the liquidation, as noted by Goldberg J in Re Ansett Australia Ltd and Korda [2002] FCA 90 (Ansett).
When liquidators seek directions from the Court in relation to any decision they have made, or propose to make, they are not seeking to determine rights and liabilities arising out of particular transactions, but are rather seeking protection against claims that they have acted unreasonably or inappropriately or in breach of their duty in making the decision. They can obtain that protection if they make full and fair disclosure of all relevant facts and circumstances to the Court. [edited for emphasis]
Liquidator’s Minimisation of Liability Acting under Judicial Advice
After being issued a direction or judicial advice, the liquidator should act in carrying out their functions. The binding effect of a direction or advice is that the liquidator, if they have made full and fair disclosure to the court, they will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by them in accordance with the direction.
Limitation of Judicial Advice
However, it is important to note that the courts will not advise on the decision making in relation to a business or commercial decision which would be more suited for the liquidator’s discretion. For instance, a liquidator’s consideration on the costs or utility of recovering from a party.
As raised by Goldberg J in Ansett:
[The courts will refrain from providing any direction or judicial advice] where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the [liquidator’s] decision in respect of which the directions are sought. … It may be a legal issue of substance or procedure. It is insufficient to attract an order giving directions that the liquidator … has a feeling of apprehension or unease about the business decision made and wants reassurance. A court should not give its imprimatur to a business decision simply to alleviate a liquidator’s or administrator’s unease. [edited for emphasis]
Takeaway
The Court’s powers to give direction and judicial advice under these sections are intended to facilitate the performance of a liquidator’s functions and to minimise claim as to liquidator’s liabilities in winding up.
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