Questions of advantage and efficiency in assessing insolvency practitioner independence

In a further indication of the changing views of the judiciary in relation to the need for the independence of insolvency practitioners, the Federal Court has accepted that a practitioner may be both the trustee of a director’s bankruptcy and the liquidator of his company: Abate, in the matter of Chang (No 2) [2018] FCA 241. 

This arose in an unusual context, a Chilean insolvency of a Mr Chang, described by his insolvency appointee – Mr Abate – as “the author of what is being reported in the media as Chile’s largest Ponzi scheme”’. Mr Abate was appointed as liquidator and, in effect, as trustee, by the Chilean Civil Court of Santiago. He applied to the Federal Court of Australia seeking to have his Chilean proceeding ‘recognised’ in Australia under the Cross-Border Insolvency Act 2008 and the Model Law on Cross-Border Insolvency. In that recognition process, the Court must also approve the foreign practitioner as a ‘foreign representative’.

While the recognition of the foreign representative normally follows the recognition of the proceedings, I have recently explained that there can be cases where the merits or otherwise of the representative can come under scrutiny and be challenged. This would involve the Australian court rejecting the foreign jurisdiction’s appointment of the foreign practitioner, a decision not to be made lightly.  As my article explained, this did occur recently in relation to a Russian liquidator whose recognition was revoked by the English High Court: see Cross-border recognition of Insolvency Practitioners [2018] INSLB.

In rejecting a foreign representative, an Australian court would need to rely on the general authority given by Article 6, that recognition would be ‘manifestly contrary’ to the public policy of Australia.

In this case, Mr Abate had been appointed liquidator of both Mr Chang and his company Onix. The Federal Court accepted submissions on his behalf that ‘this created the potential for a conflict of interest in certain scenarios’.

‘For example, Onix might seek to recover assets held in Mr Chang’s name, giving rise to a question as to whether the assets are held by Mr Chang personally or as trustee for Onix. Further, although the vast majority of creditors are the same for Mr Chang and Onix, the two groups are not identical. For example, … at least one Australian creditor of Mr Chang … appears to have no claim against Onix’.

But Justice Gleeson agreed with the submission that

‘Mr Abate’s appointment as Mr Chang’s liquidator in these circumstances is not contrary to Australian public policy – let alone manifestly so – such that would warrant his non- recognition under Art 6 of the Model Law’.

The Chilean Civil Court was aware of Mr Abate’s position as the liquidator of Onix and Justice Gleeson accepted it could be inferred that the Court considered the potential for conflict and was satisfied that it was appropriate and expedient for Mr Abate to be also appointed as Mr Chang’s trustee. Justice Gleeson accepted that

‘this is consistent with the position in Australia, where the appointment of a liquidator to multiple related entities is not precluded by the existence of a potential conflict: ASIC v Bilkurra Investments Pty Ltd: [2016] FCA 371 at [115-117]. 

While, as the Judge acknowledged, this involved the appointment of a single liquidator to related companies,

“the reasoning applies equally to a situation such as this where the related parties are a company and a director”.


“the similarity of facts and commonality of interests between the creditor groups means that the appointment of a single liquidator will result in costs savings for creditors and procedural efficiency”. 

There was also a significant overlap of causes of action between the two groups, with Mr Chang guaranteeing sums due to many of Orix’s creditors.

Justice Gleeson acknowledged that

“questions of advantage and efficiency are precisely the circumstances under which Australian law may support the appointment of a liquidator to related entities”.

She also noted that Mr Abate is already acting as liquidator of both Onix and Mr Chang in jurisdictions around the world including Chile, the United States and England.

Requiring separate liquidators for Mr Chang and Onix in Australia would be

inconsistent with Art 8 of the Model Law, which promotes uniformity in the application of the Model Law. It would also be inconsistent with the Court’s overarching purpose to facilitate the just resolution of disputes as quickly, inexpensively and efficiently as possible.


This follows a trend I reported in Insolvency practitioner independence – a ‘fair-minded’ or ‘uncharitably-minded’ assessment.

Apart from the considerations raised by Gleeson J, it may be that the courts are recognising at least three things:

  1. the increasing complexity of business and personal financial structures, and the need for a focused untrammelled investigation of the whole insolvency, in particular where a fraud may be involved;
  2. the need to pay higher regard to the ability of practitioners to deal with a conflict and assess its degree, and take what action might be necessary; and
  3. that, as Justice Gordon recognised in her trial decision in ASIC v Franklin, the reasonable person can be assumed to know the way liquidators and trustees are appointed, and their responsibilities, such that the threshold of their reasonable apprehension of bias is raised.

Or, in the words of the WA Court of Appeal,

the law looks to a fair‑minded observer, not one who is ‘uncharitably‑minded’.


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