Court refuses to saddle liquidator with personal costs

The Federal Court of Australia has declined to order indemnity costs against a liquidator who unsuccessfully defended a creditor challenge to his handling of proofs of debt and removal from office, holding that his conduct did not rise to the “exceptional circumstances” required to justify personal liability.

The issue arose in the liquidation of construction contractor Sunshine Contracting Group Pty Ltd. Three creditors, including Shuxin Zong, challenged decisions made by liquidator, Cameron Woodcroft of Pilot Partners, at a creditors’ meeting of Sunshine Contracting. The Court admitted the creditors’ proofs of debt for voting purposes and ordered Mr Woodcroft’s removal, replacing him with Edwin Narayan and Domenic Calabretta of Mackay Goodwin as liquidators.

After succeeding in the underlying application, the creditors sought indemnity costs against the liquidator personally and argued he should be denied recourse to the company’s assets for his own legal costs. They relied on a settlement proposal sent during the litigation, contending that the liquidator acted unreasonably by rejecting the offer and continuing to defend the proceedings.

The Court rejected that argument, finding the letter did not constitute a valid Calderbank offer capable of supporting indemnity costs. It was not expressed “without prejudice save as to costs” and did not expressly foreshadow an application for indemnity costs if the offer was refused. In addition, there was no evidence the liquidator had acted unreasonably in rejecting the proposal, particularly given the incomplete state of the evidence at the time.

Turning to the request for personal liability, the Court reiterated the established principle that liquidators are generally protected from personal costs exposure when defending proceedings on behalf of a company in liquidation, absent exceptional circumstances. Such circumstances may arise where the liquidator acts unreasonably, negligently, or improperly in conducting litigation.

The Court found no such misconduct. The liquidator had assessed the creditors’ proofs of debt based on the material available at the time and did not provoke the litigation. His defence of the proceeding also raised legitimate issues, including the appropriate standard of review for his decisions, and the creditors ultimately relied on additional evidence that had not been provided during the creditors’ meeting.

Accordingly, the Court ordered that the creditors’ costs be paid on a standard “party and party” basis out of the company’s assets, while the liquidator’s own costs were payable from the estate on an indemnity basis pursuant to his statutory right of indemnification.

Read the decision here.

Professionals involved:

• Robert Glasson of 6 St James Hall Chambers, counsel, and Emerson Lewis Lawyers, solicitors, for the plaintiffs, Shuxin Zong et al.

• Samuel Walpole of 16 Quay Central Chambers, counsel, and Synkronos Legal, solicitors, for the defendants, Cameron Woodcroft of Pilot Partners as liquidator and Sunshine Contracting Group