On 2 March 2023 the Supreme Court of Victoria published its reasons in the matter of Atlas Gaming Holdings Pty Ltd  VSC 91 (the Atlas case) in which Gadens acted on behalf of the Liquidator of four companies seeking a pooling order pursuant to section 579E of the Corporations Act 2001 (Cth) (the Act). There have been very few judgments on section 579E which was introduced in 2007 by the Corporations Amendment (Insolvency) Act 2007 (Cth) Sch 1 items 133ff and operative from 31 December 2007.
Part 5.6 Division 8 of the Act contains section 579E in the ‘Pooling’ provisions. ‘Pooling’ is a decision to treat the affairs of a group of companies in liquidation as if they were a single external administration, such that the assets and liabilities of each of the companies are combined as a whole. The Pooling provisions allow the decision to pool to be made by the liquidator of the relevant companies under section 571 of the Act (a pooling determination), or by the Court under section 579E of the Act (a pooling order), as was done in the Atlas case.
Section 579E provides as follows:
(1) If it appears to the Court that the following conditions are satisfied in relation to a group of 2 or more companies:
(i) each company in the group is a related body corporate of each other company in the group;
(ii) apart from this section, the companies in the group are jointly liable for one or more debts or claims;
(iii) the companies in the group jointly own or operate particular property that is or was used, or for use, in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group;
(iv) one or more companies in the group own particular property that is or was used, or for use, by any or all of the companies in the group in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group;
the Court may, if the Court is satisfied that it is just and equitable to do so, by order, determine that the group is a pooled group for the purposes of this section.
Provided one of the requirements in s.579E(1)(b) is satisfied, the Court then has a discretion as to whether to make the pooling order. In the Atlas case each company in the group was a related body corporate.
The discretion is subject to an overarching threshold requirement that it is “just and equitable” for the court to make a pooling order (s.579E(12)) and that the order does not cause a material disadvantage to an objecting unsecured creditor (s.579E(10)).
Section 579E(12) specifies criteria that ought to be taken into account in the exercise of the discretion which includes for example the extent to which the companies were involved in the operations of other companies in the group. In the Atlas case, the Group carried on business without distinguishing between the different entities, with shared property, staff and capital in the business. The voluntary administration and subsequent liquidation of the companies was caused by intercompany indebtedness and the interoperation of the companies. There was a sale of assets by the companies and the liquidators could not clearly identify the owner of the assets sold. A pooling order would permit a distribution of sale proceeds across the whole of the Group’s unsecured creditors.
In the Atlas case, Justice Osborne was satisfied that no material disadvantage would be suffered by an unsecured creditor based on the evidence presented that there was no fair way to distribute the sale proceeds, a pooling order would enable significant cost savings in conducting multiple administrations, and no unsecured creditor had come forward after being put on notice of the application pursuant to s.579J of the Act.
The Liquidators in the Atlas case also sought, and were granted relief, under s.579G(1)(d) of the Act and ss 90-15 and 65-45 of the Insolvency Practice Schedule (Corporations) from requirements to establish and operate bank accounts for each company, or to lodge separate annual returns. A similar direction was made in the last case heard in relation to s.579E in 2021: Blakeley v Ausmart Services Pty Ltd (in liq), in the matter of Ausmart Services Pty Ltd (in liq).
The pooling provision in s.579E is a useful tool for a liquidator of multiple companies (that satisfy the requirements of s.579E(1)(b)) to be able to treat the liquidation as one administration in order to:
The relief obtained in the Atlas case was according to Justice Osborne “necessary to enable the liquidators the best possible chance to distribute the proceeds of asset sales for the benefit of creditors, without incurring costs of maintaining separate liquidations including, in particular, the arbitrary allocation of the sale proceeds between the defendants.”
Robert Hinton, Partner
Louise Schmid, Special Counsel