Judicial Advice to Trustees and External Administrators of Corporations - the Halifax litigation and the significance of section 581 of the Corporations Act

Judicial Advice

Judicial Advice to Trustees and External Administrators of Corporations - the Halifax litigation and the significance of section 581 of the Corporations Act

Use of Courts in providing judicial advice in appropriate circumstances of external administration and trust arrangements provides an opportunity for orderly and principled distribution of deficient and mixed funds held by a corporate group. This is particularly so where the administration or arrangements include intermixed funds across national borders.
As noted above, the final judgments of the Federal Court (at first instance and on appeal) and, of the Court of Appeal of New Zealand and the High Court of New Zealand, are to be found in: Loo, in the matter of Halifax Investment Services Pty Ltd (in liquidation) v Quinlan (Liquidator) [2021] FCAFC 186; Kelly (Liquidator), in the matter of Halifax Investment Services Pty Ltd (in liquidation) v Loo [2021] FCA 531 (Markovic J); Choo Boon Loo v Philip Alexander Quinlan and Morgan John Kelly (as liquidators) and others [2021] NZCA 561; and, In the matter of Halifax New Zealand Limited (in liquidation), Morgan Kelly and Philip Quinlan [2021] NZHC1113.

The Halifax Litigation

The Halifax litigation involved, at first instance in Australia, applications by liquidators and/or trustees for directions pursuant to 90-15 of the Insolvency Practice Schedule (Corporations) being Schedule 2 to the Corporations Act (Cth) and/or section 63 and 81 of the Trustee Act 1925 (NSW). Analogous applications were made in the High Court of New Zealand pursuant to section 284 of the Companies Act 1993, section 66 of the Trustee Act 1956 (NZ) and Part 19 of the High Court Rules 2016. The subject matter of the directions was in relation to the distribution of funds held by Halifax Investment Services Pty Ltd and Halifax New Zealand Limited together with ancillary and related orders. The funds comprised a single deficient mixed fund. A more detailed outline of the facts of these cases and the decisions made are set out elsewhere on this web-site

On the surface, the liquidations of Halifax Investment Services Pty Ltd (in liquidation) (Halifax AU) and its subsidiary, Halifax New Zealand Ltd (in liquidation) (Halifax NZ) appeared to be no more than what could be described as typical insolvent administrations characterised by a deficiency of funds across a company and its overseas subsidiary which limited the returns to relevant stakeholders as well involving applications by liquidators for use of trust and comingled funds in performing statutory responsibilities. That, however, is where the typicality ended. The starting point was an application pursuant to section 581 of the Corporations Act.

Section 581 Corporations Act

Section 581(4) of the Act provides relevantly:

The Court may request a court of an external Territory, or of a country other than Australia, that has jurisdiction in external administration matters to act in aid of, and be auxiliary to, it in an external administration matter.

Section 580 defines “external administration matter” to mean a matter relating to, relevantly:  

(a) winding up, under [Chapter 5 of the Act], a company ...; or

(b) winding up, outside Australia, a body corporate ...; or

(c) the insolvency of a body corporate. ...

In dealing with the application that the Court issue a letter of request pursuant to section 581, Gleeson J held in Kelly, in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 5) [2019] FCA 1341, at [46]-[49] found that the power to issue a letter of request under s 581(4) of the Act relevantly arises where:

(1) There is a court of a country other than Australia that has jurisdiction in external administration matters.

(2) There is an external administration matter in relation to which a request may be made.

(3) The proposed request is to act in aid of, and be auxiliary to, the Court in an external administration matter.

In the circumstances, the Federal Court found that each of the three elements were satisfied. Importantly it was accepted that the language of acting “in aid of, and be auxiliary to” is broad language (at [55]) that extends to cooperation by the NZHC with the Federal Court in coordinating so far as possible the conduct and hearing of the application to the Federal Court and the proposed NZ application. This was so given that the applications overlapped.

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