Public interest supports time extension for insolvency recovery action

Litigation claims brought by insolvency practitioners (IPs) are not like the usual commercial claims on behalf of a commercial, or government, client.  Despite marginal returns to creditors, there are public interest considerations that can apply, such as the need to enforce the insolvency laws, or even to allow recovery of remuneration.  Nevertheless, there is a need for transparency as to the outcome of IPs’ litigation claims, public interest or otherwise.

 Extension of time to sue – s 588FF

The public interest was recognised in a recent Federal Court of Australia decision in a 2020 liquidation where the liquidators succeeded in obtaining an extension of time of 3 years, to 2026, under s 588FF of the Corporations Act, to commence recovery proceedings. This was despite the Judge saying that even if the liquidators succeeded, “any dividends to creditors are likely to be modest in comparison to the debts owed to creditors”: Krejci, in the matter of Union Standard International Group Pty Limited (No 8) [2023] FCA 1054 (18 September 2023) (

Based on the liquidators’ investigations to date, up to about $300 million in investor and trading clients’ funds were not accounted for.  Significant payments to identified categories of recipients were potentially recoverable. The investigations had been substantial and time consuming. The affairs of the Company were complex, with significant overseas connections.

Relevant issues were:

  • The liquidators had appropriately sought and received the approval of the Committee of Inspection in respect of the substantive steps taken and the forensic direction contemplated.
  • Reasonable efforts had been made by the liquidators to notify the potential defendants, and ASIC, with no substantive opposition forthcoming;
  • There is a “public interest in permitting experienced liquidators, acting in a diligent and proper fashion, to expose, by way of investigation, the true state of a company’s affairs in order to discharge their duties …”. The evidence “demonstrates a particularly strong case …”.
  • The liquidators had established that the prospects of success were sufficient to favour the making of the orders. 
  • The liquidators’ remuneration would be subject to oversight by the creditors, the committee of inspection or by the Court.

Further relevant issues in favour of granting the time extension were:

  • The modest return to creditors was a function “of the very large aggregate amount of debts owed by the Company and the high volume of individual creditors”. In that respect, what was relevant was the anticipated total recovery for creditors and the range of amounts to be distributed rather than the anticipated dividend to individual creditors: Hall v Poolman [2009] NSWCA 64; 75 NSWLR 99.
  • And even if the recovery proceedings did not result in any return to creditors, it did not necessarily follow that the proceedings were improperly brought: Hall v Poolman.
  • There was a strong public interest in the liquidators bringing the proceedings against the named former CEO and his company for breach of duty or insolvent trading and proceedings for recovery of unfair preferences.
  • The proceedings were otherwise directed to exposing the role of the company’s auditors, who are parties to the action, which may also serve the public interest given the public purpose served by company and AFSL auditors.
  • The liquidators may have been criticised later on for having continued the proceedings despite the limited dividend return and a court direction would serve to exonerate them from personal liability.
  • The final point was that if the funds were not used to pursue the proceedings, there would, in any event, be a minimal dividend to individual creditors. That is, individual creditors were unlikely to be impacted in a material way by the extension.   

PJC Report on Corporate Insolvency 2023

This decision is relevant to various comments in the 2023 PJC Report about insolvency and the public interest, for example that

“in administering an insolvent company, insolvency practitioners attend not only to the interests of private creditors and employees, but also to broader public interests. In particular, insolvency practitioner investigations of director misconduct are largely a public interest function, even allowing that such investigations also serve private interests inasmuch as they can assist efforts to recover creditor funds”. 

Who pays for such matters has been referred by the PJC for further consideration. 

Linked to that, the decision is also relevant to the costs of recovery actions generally, and the extent to which ‘successful’ recoveries result in any return to creditors, in particular in relation to preference recoveries. The extent which successful recoveries went only to pay IPs’ fees was bluntly acknowledged by the PJC when it said that if unfair preference claims were made less onerous for creditors, as many submissions requested,

“liquidators’ costs and fees would need an alternative funding source …”. 

In the case in hand, it seems that even if remaining funds were not used to pursue the recovery proceedings, and were paid out, there would still be a minimal dividend to individual creditors. 

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