Selecting a liquidator where shareholders disagree

In the matter of BH Holdings QLD Pty Ltd [2024] NSWSC 132
What is the test for selecting a liquidator where shareholders disagree?

Overview

In this case, the court shed light on the factors it will consider when competing liquidators are proposed by a company’s shareholders. The court looked at the relative fitness, qualifications and costs of the proposed liquidators and concluded that both were equally qualified, but that one had rates which were significantly lower than the other. This - combined with a potential perception of conflict with respect to the solicitors and liquidators proposed by the other shareholder - was a sufficient basis for the court to determine that the proposed liquidator with the lower rates should be appointed.

Background

Beauwave Pty Ltd (Beauwave) and Benhollis Pty Ltd (Benhollis) are equal shareholders in two companies, BH Holdings Qld Pty Ltd (BHH) and BH Developments Qld Pty Ltd (BHD). The companies are the trustees of a trust created to develop the Burnett Heads Marina Project (Project), a DA-approved wet berth marina with a mixed-use waterfront building on leasehold land at Burnett Heads in Queensland.

The parties had agreed to fund the Project equally, but Beauwave had ended up contributing around $7 million and Benhollis had only provided just over $200,000. The relationship between Beauwave and Benhollis broke down and they agreed that the Project could not be continued under the current structure. At this time, only a minimal amount of dredging work had been undertaken and significant work remained to be done on the Project. Beauwave applied for orders winding up BHH and BHD and appointing a liquidator to each of the companies.

The parties could not agree on who should be appointed liquidator and asked the Court to rule on the issue.

The Court’s Decision

In the ordinary course of events, and all things being equal, the Court’s practice in winding up cases is to appoint the plaintiff’s nominated liquidator. To depart from this approach, there must be a reason, such that there is something to be said between competing nominees in relation to their fitness, qualifications or costs. It is for the defendants to establish grounds to depart from the usual course. All other things being equal, the court will select an option that is likely to involve less cost.

In addition, liquidators must be independent and have the appearance of independence so that the Court must judge whether there would be a reasonable apprehension by any creditor of lack of impartiality on the liquidator's part in the circumstances, by reason of prior association with the company or those associated with it, including creditors or indeed any other circumstances.

In this case, there did not appear to be any difference between the respective fitness or qualifications of the proposed liquidators. There was, however, a difference in the costs put forward by each of the prospective liquidators, in that the hourly rates and quote provided by Beauwave’s nominee were lower than those provided by Benhollis’s nominee. In the Court’s consideration, the differences in hourly rates could have a significant impact on the overall cost that might be incurred.

Benhollis had suggested that the prior experience of its nominee in relation to the sale of two other marinas meant that its nominee was better qualified to deal with the Project. The Court was not persuaded, finding that there was no direct evidence of the nominee’s involvement in each of those developments and how it would provide any benefit as compared to the generalised experience of the nominee proposed by Beauwave, particularly in circumstances where this Project had not even proceeded to the development of the marina.

Benhollis had also suggested that the location of its nominee in Brisbane would result in him having advantages over Beauwave’s Sydney-based nominee. Again, the Court was not convinced, finding that there was not a significant cost differential between the flights taken by either nominee. As a result, the court gave the respective travel costs little weight in its decision.

The Court was, however, prepared to give significant weight to any perceptions of conflict that might exist in this case. Without making any aspersions or drawing any negative inferences at all, the Court noted that there were perceptions of conflict having to do with the relationship between the solicitors for Benhollis and the liquidators proposed by Benhollis. There was no suggestion that the solicitors would do anything other than act in accordance with their professional obligations, and the Court expressed gratitude for the transparency and openness of all involved. However, perceptions are important, particularly where (as here) a significant amount of money is owing to the substantial creditor.

Conclusion

In light of the foregoing, the Court concluded that it should follow the normal practice to appoint Beauwave’s nominated liquidators.

Judge: McGrath J

Counsel for Beauwave: Andrew Fernon SC of University Chambers and Trent March of New Chambers

Solicitor for Beauwave: Swaab

Counsel for Benhollis: Mitchell Davis of 9 Selborne Chambers

Solicitor for Benhollis: Bartier Perry