Case: Jarbin Pty Ltd v Clutha Ltd (in liq) (2004) 208 ALR 242
Outcome: cited
Jarbin Pty Ltd v Clutha Ltd (in liq) (2004) 208 ALR 242, Campbell J concluded at [68] that s 564 operates as an exception to the prima facie equality of treatment of "all unsecured creditors within the respective classes which s 556 recognises". Barrett J in Australia and New Zealand Banking Group Ltd v TJF EBC Pty Ltd (2006) 224 ALR 490 accepted at [8] that as a matter of power the Court may under s 564 make an order that causes a creditor chosen for preferred treatment to rank ahead of "any one or more of the creditors having claims within the s 556(1) categories". That construction was said to follow firstly because s 556(1) is subject to Division 6 and thus subject to the power conferred on the Court by s 564 and secondly, because s 564 provides that a preferred creditor may be given an advantage " over others in consideration of the risk assumed". At [9], Barrett J said this: Section 564 contemplates that assisting or indemnifying creditors within its purview may be given "an advantage over others". The section does not say "all others" or "some others" or "any others". In referring to "others" generally, it contemplates, in my view, that the court may, by its order, give the assisting or indemnifying creditors "an advantage over" any one or more of the other creditors or all of them, with the result that the court may, as a matter of jurisdiction, cause the debts of the creditors in question to be placed on any of the rungs of the ladder of priority created by s 556(1) (and, within a particular rung, above, below or beside the creditors with claims that s 559 causes to rank equally inter se), above the topmost of those rungs or below the bottom rung (yet ahead of "all other unsecured debts and claims"). In short, s 564 is cast in terms giving the court a complete discretion regarding positioning of the whole or any part of the debts of the assisting or indemnifying creditors on the scale of priorities in the winding up and the opening words of s 556(1) cause any such positioning ordered by the court to have effect despite what would otherwise be the order of priority under s 556(1). Clearly, the exercise of the discretion under s 564 of the Corporations Act in such a way as to prefer an indemnifying creditor to that of the liquidator in payment of his claim for the expenses properly incurred in preserving, realising or getting in property of the company, would be very unusual. In Jarbin Pty Ltd v Clutha Ltd (in liq) (supra) an order was made for distribution of the settlement sum on the assumption that allowance would be made for the payment of recovery expenses of the liquidator and his advisers. The authorities do not reveal any examples of an advantage being conferred upon an indemnifying creditor in priority to the costs of recovery of the property. In the present circumstances, there are two factors which seem to me to be particularly important in weighing all the factors. First, the settlement sum was not brought about simply by reason of the provision of the indemnity. Plainly, the indemnity was catalytic. However, there is no doubt that the continuing recovery action by the liquidator and the solicitors for the liquidator during the second half of 2007 and 2008 completed the chemistry of that reaction, brought the negotiations to a head and resulted in a settlement agreement. No criticism can properly be levied against the Deputy Commissioner for failing to join in that settlement even though such a step might have been productive of an additional $15,000.00 elevating the settlement sum to $100,000.00. The Deputy Commissioner is charged with the important responsibility of protecting the taxation revenue of the Commonwealth by enforcing the taxation laws and properly exercising administrative discretions conferred upon him or her. The price the Deputy Commissioner was being asked to pay in joining in the settlement was the granting of a release and discharge of the relevant taxpayers. Plainly, that release would have been inappropriate simply as an exercise in facilitating a settlement of the liquidator's claims. The material shows that the proposed release was not based on any assessment by the Deputy Commissioner of the liability of the taxpayers in connection with their performance or otherwise of taxation obligations. The second factor is the apparent acceptance by the liquidator that the Deputy Commissioner would be entitled, in principle, to payment from the recovered monies of the amount of the indemnity. That "in principle" position may not have been informed by the possibility that the value of the recovered property or monies obtained in settlement would not exceed the costs of recovery steps or proceedings. Perhaps the liquidator assumed or alternatively the parties assumed that the present question brought before the Court would not arise in the way that it has. However, the liquidator's correspondence and the Indemnity Agreement seem to suggest that the indemnifying creditor was to be afforded priority in the recoupment of the indemnity from an amount recovered. Section 564 of the Corporations Act confers power to make such order as the Court deems just. Although an order conferring an advantage on the Deputy Commissioner to that of the liquidator in payment of recovery costs and expenses is unusual, it seems to me that the contribution of the three principal participants who have suffered a loss as a result of those contributions - in the case of the Deputy Commissioner, the provision of the indemnity in the amount of $30,000.00 and in the case of the liquidator and his advisers, the steps or activities undertaken by them in pursuing recovery action to a settlement conclusion ought, in principle, to be borne rateably.