The recent Supreme Court of NSW decision of ASIC v Wily & Hurst, provides useful guidance regarding the Court’s criteria to inquire into a liquidator’s conduct under former section 536 of the Corporations Act 2001(Cth). The decision is relevant as to how a Court may determine such an application made under the Insolvency Practice Schedule (Corporations). The decision is also useful to insolvency practitioners as it clarifies the scope of their duty to disclose information in statutory reports (such as the section 533 Report).
In ASIC v Wily & Hurst, the Supreme Court of New South Wales considered the criteria to inquire into a liquidator’s conduct under former section 536 of the Corporations Act 2001 (Cth) (the Act), (currently under the Insolvency Practice Schedule (Corporations)).
The Court also helpfully clarified the scope of an insolvency practitioner’s duty to disclose information in statutory reports such as the section 533 Report.
Numerous companies provided labour hire and/or administrative services to Crystal Carwash Pty Ltd which operated various car wash sites.
In October 2007, Andrew Wily was appointed as a liquidator, following creditors’ voluntary windings-up, of seven of these companies (2007 Companies).
In 2009, Mr Wily and David Hurst were appointed liquidators, following creditors’ voluntary windings-up, of twelve of these companies (2009 Companies).
Five of the 2007 Companies and five of the 2009 Companies shared common directors.
ASIC applied to the Supreme Court of NSW for orders that an inquiry be carried out into the liquidators’ conduct and ultimately, that they be struck off or prohibited from being liquidators.
In considering ASIC’s application under the now repealed section 536 of the Act (replaced by provisions of the Insolvency Practice Schedule (Corporations) at Schedule 2 of the Act), the Court had to consider whether ASIC had put forward enough evidence to establish a “well based suspicion” justifying further investigation into the liquidators and whether the Court should exercise its discretion to conduct such an inquiry.
In particular, ASIC argued that the liquidators failed to:
The Court considered that to sufficiently establish a “suspicion”, ASIC needed to persuade it that there was a “positive feeling of actual apprehension or mistrust, as distinct from mere wondering“.
ASIC fell short of producing sufficient evidence and the Court dismissed the application with costs against ASIC.
In reaching this conclusion the Court held:
Given the criticism of the Court, ASIC may be more reluctant to bring matters before the Court without first undertaking a thorough investigation. ASIC may also choose to avail itself more often of its own investigative powers that are provided for in the Insolvency Practice Schedule (Corporations).
  NSWSC 521.
 See now Corporations Act 2001 (Cth) at Schedulkle 2: Insolvency Practice Schedule (Corporations).
 In particular cl 45-1, 90-5, 90-10, 90-15 and 90-20.
 ASIC v Wily & Hurst  NSWSC 521 .
 Clasquin SA v AAR International Pty Ltd (1989) 15 ACLR 9, 11−12; Re Bisopo Pty Ltd (1995) 17 ACSR 730, 734; Jenkins v Jonkay Pty Ltd [2007 FCA 858 ; Re GTL
Tadeup Pty Ltd (in liq) (2015) 104 ACSR 633,  FCA 223 ; ACN 151 726 224 Pty Ltd (in liq)  NSWSC 1801 .
Barbara-Ann Sim, Partner
Petar Damnjanovic, Solicitor