Liquidators to have a proper basis to issue Demands

Parker, in the matter of Worldwide Specialty Property Services Pty Ltd (in liq) v Worldwide Specialty Property Services Pty Ltd (in liq) [2017] FCA 687 recently considered a liquidator’s application to extend time to pursue voidable transactions under section 588FF Corporations Act 2001.

While the liquidator ultimately obtained relief to extend time to pursue limited transactions by approximately four months, Justice Lee identified two matters of concern which caused him disquiet.

One such matter was evidence given by the liquidator in cross-examination (quoted at paragraph [67]) to the effect that the liquidator would send demands without a “complete basis”, and that the demands were sent “with a view to potentially recover funds for the benefit of creditors”.

At paragraph [68] the Court made the following comment:

“A liquidator holds an important statutory office. It is a matter of concern that any liquidator would make demands of third parties for the recovery of monies when the liquidator did not have, at the time the demand was made, a proper basis for making that demand. Notwithstanding that Mr Parker was motivated by the laudable motive of seeking to maximise the recovery of monies for creditors, this is insufficient to justify demands being made in the hope that a third party will effectively accept the demand as a 'fair cop'.  If this is a common practice then, in my view, it should be deprecated.  A demand should only be made by a liquidator if the liquidator believes, on reasonable grounds, that there is a proper legal and factual basis to make such a demand.”

It is, unfortunately, quite common for liquidators to issue preference demands without regard to matters like the running account. Creditors then incur legal cost associated with responding, and in some instances, discover that there was no claim at all.

Liquidators must have a proper basis to issue demands.  Third parties aggrieved by improper demands may have recourse against the liquidator, and should seek legal advice.