Dangers in liquidators running a ‘skinny case’

” … it might not be seen to be unreasonable [for insolvency practitioners] to avoid expending funds producing affidavits in relation to issues which might ultimately be agreed upon”.

But ..

All litigants and their lawyers have obligations to pursue matters economically, or, in the Federal Court, according to the ‘overarching purpose of the civil practice and procedure provisions’ being tofacilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible’. Legal recovery proceedings brought by insolvency practitioners have the additional factors of putting creditors’ limited funds at risk.

Sometimes quick and inexpensive approaches can go awry.

The hearing of liquidators’ voidable transaction proceedings listed for three days on 4, 5 and 6 March 2019 in the Federal Court had to be adjourned because on 1 March, one business day prior to the hearing, the plaintiffs filed and served a further and substantial affidavit of one of the liquidators as to the company’s insolvency.

While there may have been an issue as to why this arrived late, the real issue, according to the Judge, was that the original affidavit as to insolvency was inadequate for the purposes of the trial. The claim was for over half a million dollars. The liquidator’s second affidavit was ultimately persuasive, in that the defendant subsequently accepted the fact of ABA’s insolvency and as from the date identified in the affidavit.

Although its delivery may have ultimately shortened the trial, the Judge said that the adjournment was caused by the plaintiffs’ conduct and that they must pay the costs ‘thrown away’ by the adjournment of the trial.

The Judge continued:

“18. I should add that one can understand, in the circumstances of cases of this nature being conducted by liquidators, that, in an attempt to preserve what limited funds they might have, and in the hope that issues will be resolved before trial, it might not be seen to be unreasonable to avoid expending funds producing affidavits in relation to issues which might ultimately be agreed upon. That is, it is not necessarily unreasonable to run a “skinny case” until it is realised that, ultimately, the issue must be fully established. …”.

One might add that adverse costs outcomes arising from attempts to limit costs should not be made too readily using the benefit of hindsight.

Here, while the liquidators were to pay costs thrown away, this was in the overall context of costs and interest in their favour.

See Trenfield, In the matter of ACN 089 008 668 Pty Ltd (in liq) v JMD Park Pty Ltd (No 2) [2020] FCA 45

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