It would be an act of both supererogation and superfluity to superimpose observations on this synthesis.
The Federal Court has approved under s 477(2B) of the Corporations Act a settlement reached by liquidators as to claims made against a former director under ss 588G and 588M and against the relevant holding company under ss 588V and 588W: Yeo (liquidator), in the matter of Tuftex Carpets Pty Ltd (in liquidation) [2025] FCA 1200.
The Judge saw no need to set out the details which he said were adequately provided in an affidavit of one of the liquidators. Nor did he address the issues involved in approving the settlement beyond referring to a 2001 decision of the Federal Court, Re Ansett Australia Ltd [2001] FCA 1439, adding no more, saying that:
“It would involve me in an act of both supererogation and superfluity to superimpose my own observations on this synthesis” at [9].
The Judge was satisfied that the undisclosed terms of settlement were commercial and constituted a reasonable compromise of the relevant claims under ss 588G, 588M, 588V and 588W. A confidentiality restriction was imposed.
Comment
We know little of how the insolvent trading laws work, in particular, if an action is successful, what funds flow through to unsecured creditors.
Not much, if any?
In that respect, s 588G may simply be a section that mostly supports funding of the tasks required of the practitioner. As one liquidator said, he makes his money from 588G. The same applies to other recovery provisions. Evidence before the 2023 PJC inquiry was that preference claims often served only to provide funding to the liquidator.
In another case like this, a judgment for over $600,000 was set aside with the court approving a settlement under s 477(2B) of $200,000.[1] Some details of the settlement were provided.
The impact of insolvency in severely impacting creditors’ rights requires transparency as to its processes. Here, it would have been neither supererogation nor superfluity to have at least comparable reasons for decision.
The courts could perhaps remedy the need for transparency under existing law in seeking to meet “the overarching purpose of the civil practice and procedure provisions”, under s 37M of the Federal Court of Australia Act, with a view to facilitating “the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible”. That purpose includes the efficient use of the judicial and administrative resources available and the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.
Matters of efficiency of the insolvency processes arise in the pursuit of recovery litigation that returns no dividend to creditors, balanced against the public interest in liquidators pursuing enforcement proceedings against directors.[2] Just as trustees in bankruptcy are required to exercise their powers and perform their functions in a commercially sound way,[3] so too are liquidators. Courts have a role in regulating their “officer” and their use of the court system.
The efficiency and effectiveness of the insolvency system was a focus of the 2023 PJC Report, referring to international guidance of the IMF. A 2019 IMF paper explains that the effectiveness of an insolvency system refers to the achievement of the objectives of the system, efficiency is the measure of the extent to which the system achieves those objectives with the minimum use of resources.[4]
We may assume that both were met here?
As to s 588G, in the absence of data as to its effectiveness and the efficiency of its processes, the section might well be replaced, one proposal being to include it as a duty within ss 180-183 of the Corporations Act.
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[1] Smith v Boné, in the matter of ACN 002 864 002 Pty Ltd (in liq) (No 3) [2016] FCA 1350
[2] Cardinal Group [2015] NSWSC 1761.
[3] Bankruptcy Act s 19
[4] WP/19/27, prepared by José Garrido (dir.), Wolfgang Bergthaler, Chanda DeLong, Juliet Johnson, Amira Rasekh, Anjum Rosha, and Natalia Stetsenko, February 2019. The Use of Data in Assessing and Designing Insolvency Systems (imf.org)
