Creditors beware: liquidator’s discretion not to call a creditor’s meeting upheld in NSWSC judgment

On 13 June 2025, the Honourable Black J delivered judgment in the Supreme Court of NSW in In the matter of Balamara Resources Limited (in liquidation) [2025] NSWSC 618. His Honour confirmed that the liquidators of Balamara Resources Limited (Balamara) were justified in declining to convene a meeting of the creditors of Balamara at the direction of a consortium of creditors pursuant to s 75-15 of the Insolvency Practice Schedule (Corporations) (IPSC), which satisfied the requisite threshold to direct such a meeting to be convened. His Honour’s judgment serves as an important reminder, and warning, to creditors and liquidators alike regarding their rights and responsibilities under the Corporations Act 2001 (Cth) and the Insolvency Practice Schedule (Corporations).

Background

Balamara was a public Australian mining company with interests in coking coal deposits in the Republic of Poland. Balamara had sought, but was not able to obtain, the necessary permission from the Polish Government to commence mining activities in those coal deposits, and its only significant asset, as at the date of Balamara entering liquidation, is a potential claim against the Republic of Poland.

On 18 October 2024, Balamara, upon application of a shareholder, was wound up on just and equitable grounds: see In the matter of Balamara Resources Ltd [2024] NSWSC 1309.

On 9 December 2024 a consortium of creditors comprising more than 25% in value of Balamara’s creditors issued a direction to Balamara’s liquidators pursuant to s 75-15 of the IPSC directing the convening of a meeting of Balamara’s creditors for the purpose of the creditors resolving, if they saw fit, resolutions which would replace the Court appointed liquidators of Balamara and would appoint alternative liquidators.

By 17 December 2024, Balamara’s liquidators had declined to convene the creditors’ meeting and had indicated their reasons for doing so to the consortium of creditors, including expressing the view that the direction was unreasonable. On 20 December 2024, the liquidators filed an interlocutory process which sought an order that the liquidators were justified in declining to convene the meeting of Balamara’s creditors.

The law

The consortium of creditors relied on s 75-15 of the ISPC to compel Balamara’s liquidators to convene the directed creditors’ meeting. The parties had proceeded on the basis that the threshold question of the value of creditors had been satisfied. The statutory context is relevant. The explanatory memorandum to the bill introducing the provision expresses a stated intention to ‘address current regulatory and market failures by – enhancing competition within the market for insolvency services; and – empowering stakeholders with an interest in the conduct of an insolvency administration to better protect their own interests’. It was stated during the second reading of the bill that ‘Creditors will be empowered under the bill to remove a practitioner appointed to a personal or corporate insolvency through a simple resolution of creditors at any time, and without court involvement’.

The issues in dispute were whether the direction was not reasonable for the purposes of s 75-15(2) – (3) of the ISPC, which provides that an external administrator need not comply with a direction if the direction is not reasonable and that the Insolvency Practice Rules (IPR) may prescribe circumstances in which a direction is, or is not, reasonable, and for the purposes of r 75-250 of the IPR. That section provides that a direction to the external administrator of a company to convene a meeting of the creditors is not reasonable if the external administrator, acting in good faith, is of the opinion that:

• complying with the direction would substantially prejudice the interests of one or more creditors or a third party and that prejudice outweighs the benefits of complying with the direction; or
• the direction for the meeting is vexatious.

His Honour’s consideration

His Honour Black J considered a number of factors relevant to the application of the relevant provisions of the ISPC and IPR.

His Honour had determined that, on the proper construction of s 75-15 of the IPSC and r 75-250 of the IPR, a Court is not required to assess a liquidator’s reasons for their decision not to call a meeting as though it were a merits review by a Court.  His Honour went on to state that:

• the first question is whether, having regard to the matters to which the liquidators relied in their decision not to call the meeting and their reasoning as to intermediate facts, the liquidators held the opinion that complying with the direction to call the meeting would substantially prejudice the interests of one or more creditors or a third party and that prejudice outweighed the benefits of complying with the direction; and
• the second question is whether the liquidators held that opinion in good faith.

His Honour, in assessing reasonableness, had also determined that whether a direction to call a meeting is unreasonable must depend on what that meeting is intended to do, particularly where a direction itself incorporates reference to what the meeting will address.

His Honour also stated that although, as a matter of general principle, factors such as the early stage of a liquidation and the alignment of creditors to former officers or employees of the company now in liquidation should not be taken into account when determining the reasonableness of a direction, the correctness of that general principle will depend upon the facts of a particular case.

In his judgment, the Honourable Black J expressed concerns that an application to remove a liquidator appointed by the Court after competing nominations are put before the Court, and to replace them with the liquidator not preferred by the Court may be of substantial prejudice to the interests of third parties, including the community and that such an application may be vexatious if there is no apparent explanation for the creditors’ wish to replace the liquidator other than a hope or expectation that a newly appointed liquidator would be less independent than his or her predecessor.

Turning to the subjective facts of the case, his Honour then considered the written records of the reasons that the liquidators gave in declining to convene a meeting. Ultimately, his Honour found that the liquidators had formed the requisite opinion that calling the meeting would substantially prejudice the interests of one or more creditors or a third party and that prejudice outweighed the benefits of complying with the direction and that the opinion was held in good faith.

Lessons to be learnt

This judgment serves as a warning to creditors that a direction to convene a creditors’ meeting is not a foregone conclusion and that the power is not absolute. Creditors who wish to do so must be aware that liquidators may be able to refuse to call such meetings on various grounds, including the interests of all creditors and the impact on the liquidation.

If you would like further information, please do not hesitate to contact our team.

If you found this insight article useful and you would like to subscribe to Gadens’ updates, click here.

Authored by:
Matthew Lunney, Partner
Timothy Buckley, Senior Associate
Ahmed El-Jaam, Lawyer