The winding up or voluntary administration of a company inevitably calls for a large number of judgments and decisions to be made by the appointed insolvency practitioner. Just as inevitably many of the decisions will prove to be contentious and as a result opposed or criticised by one or more of the stakeholders.
Making difficult decisions is part and parcel of an insolvency practitioner’s life and practitioners must become inured to the often vociferous and sometimes unreasonable criticism which can flow from those affected. Generally speaking a competent insolvency practitioner will ensure that his or her decision process is fully documented and transparent.
The Corporations Act does confer on creditors and other stakeholders affected by a decision of an insolvency practitioner the right to ask the Court to review that decision. Perhaps surprisingly the incidence of applications to review a liquidator or administrators actions is not large. In the past it was believed that the Courts were likely to be more open to reviewing the actions of an Official Liquidator rather than a Registered Liquidator, on the basis that an Official Liquidator is an Officer of the Court. Hopefully that distinction no longer applies in practice, as in the vast majority of cases the tasks of an Official Liquidator and the tasks of a Registered Liquidator are identical, the only real distinction being the process which gave rise to their appointments.
The Corporations Act also provides Liquidators and Voluntary Administrators the right to ask the Court for assistance in making a decision, or dealing with complex questions (see sections 447D and 479(3)).This process is referred to as asking the Court for “Directions”.
But in what circumstances should an insolvency practitioner seek Directions from the Court and what is the practical effect of obtaining such Directions? Perhaps the best analysis of this question is to look at the circumstances where a Court is unlikely to give Directions.
As a general rule the Court will be reluctant to give Directions in circumstances where the practitioner, exercising his or her normal skill and judgment, should be able to reach a decision without the assistance of the Court. For example the Court will not normally get involved in making decisions of a commercial nature and will not assist practitioners in exercising a discretion that properly belongs to the practitioner. In other words the Court is not going to do the insolvency practitioners job for him or her.
As Direction hearings are almost always heard ex parte the Court is very unlikely to provide assistance where such assistance would create a binding Order or determination on a third party. Similarly a range of Court decisions has made clear that a Directions hearing is the wrong forum to seek to determine contested issues of fact. Such matters should be dealt with at a full hearing.
On the other hand a Directions hearing may well be the appropriate way to determine how, or if, the practitioners intended actions are affected by case or statute law, in circumstances where the answer is not clear. But Directions hearings cannot used to support decisions already actioned. Further, the Court is often willing to assist a practitioner to reach decisions regarding complex issues where the interest of competing classes of creditors need to be considered, and where the efficient administration of the liquidation or voluntary administration is enhanced as a result of the Directions.
There is no law which clearly states that by asking for and obtaining Direction from the Court an insolvency practitioner is beyond criticism and indemnified from blame or loss in any given circumstance.
However, provided all relevant material is placed before the Court, and provided the circumstances do not change a practitioner will obtain a high, or even a very high, assurance that he or she has acted appropriately if he or she acts in accordance with Directions given.