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Liquidators’ perils in jumping the gun ….

A liquidator has been ordered to personally pay the legal costs of a creditor in a liquidation because he jumped the gun in assuming the creditor was not lodging a proof of debt and went on to finalise the liquidation.  The creditor had to apply to the court for resolution of its proof of debt, and then again for an order for costs.

The solicitor for the creditor had contacted the liquidator saying a proof of debt would be lodged, for a substantial amount. Seven weeks passed and no proof of debt arrived. The liquidator considered he had waited a reasonable period of time and was entitled to assume that the creditor no longer proposed to submit a proof. He took the view that it is not up to him as a liquidator to wait indefinitely for a proof of debt, nor to pursue this or any creditor to submit their claims.

But the Judge disagreed. The liquidator was proposing to call a final meeting, which would have potentially defeated the creditor’s ability to lodge its proof. He should have first made an inquiry of the creditor or its lawyer whether it was still intending to lodge a proof and then allowed some short further time for it to do so. Any delay would have caused minimal prejudice to the liquidation.

See In the matter of J A Westaway Pty Limited (in liquidation) [2016] NSWSC 868.

Comment

As an English Judge once said, in Pulsford v Devenish [1903] 2 Ch 625, the duty of a liquidator is

… not merely to advertise for creditors, but to write to the creditors of whose existence he knows, and who do not send in claims, and ask them if they have any claim”. 

But if there is another creditor who do not lodge its claim, usually because it is not aware of the liquidation, and the liquidator could not reasonably have been aware of that creditor, then it will not be able to re-open the liquidation, or at least it will have great difficulty in persuading the court to allow this.  This is because of one obvious reason, that the liquidator will have paid out the known creditors, and have no funds left over. The liquidation process will have ended, and as the law says, the company then “ceases to exist”.

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