Case: Australia and New Zealand Banking Group Ltd v TJF EBC Pty Ltd (2006) 224 ALR 490
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). It is clear from the liquidator's letter of 2 June 2006 and cl 9 of the Indemnity Agreement of 6 February 2007 that the indemnity was to be provided by the Deputy Commissioner on the footing that where an amount was recovered or received by the liquidator arising out of the processes sought to be undertaken through the use of the indemnity, the liquidator would apply to the Court for an order that the indemnifying creditor would receive priority for the amount of the indemnity. That position was also an element of the proposal in relation to the further indemnity. Having regard to the expectations reflected in the liquidator's letter of 2 June 2006, it seems that the parties proceeded on the basis that property (an amount) recovered by reason of the various processes would significantly exceed the costs of recovery and would thus be productive of a fund of money from which distributions would be made in part reduction of the Deputy Commissioner's debt, after redemption of the indemnity amount. Part reduction of the debts of the trade creditors of $27,071.34 in the aggregate, may have been unlikely. In any event, redemption of the amount of the indemnity was to be a priority. The debt to the Deputy Commissioner was revised on 5 June 2007 to $128,927.61. In the result, the settlement funds fall well short of meeting the costs and expenses of recovery. The authorities ( Australia and New Zealand Banking Group Ltd v TJF EBC Pty Ltd (supra); Household Financial Services Pty Ltd v Chase Medical Centre Pty Ltd (1995) 18 ACSR 294; State Bank of New South Wales v Brown (2001) 38 ACSR 715) demonstrate that in exercising the discretion consideration needs to be given to the risk run by the indemnifying creditor in providing the indemnity; the value of the property recovered or the sum recovered; the failure of other creditors to participate in providing an indemnity; the proportions between the debt due to the indemnifying creditor and other debts; the public interest in encouraging creditors to provide indemnities so as to enable a liquidator to pursue remedies which would result in recovery of the property of the company; and all other relevant circumstances.