Mine Or Yours? Court Clarifies Regulatory Burden Where Liquidators And Receivers Concurrently Appointed - Insolvency/Bankruptcy

This week's TGIF looks at a decision of the Federal Court called in the matter of CuDeco Limited where liquidators sought directions and declarations as to their responsibility and liability for certain assets.

Key takeaways

Where Receivers and Managers are appointed to the assets of a company which is also under the control of a Liquidator, the Liquidator will not be liable for liabilities associated with the assets or decisions relating to those assets.
While a Liquidator is entitled to seek guidance from the Court, they should not necessarily expect the Court to make all directions or declarations sought.
When commencing a proceeding, an applicant should ensure that they take all reasonable steps to put all interested parties on notice of their application. The Court expressed concern about the lack of a Contradictor in this case but was satisfied that all reasonable steps had been taken by the liquidators to inform interested parties.

Background

CuDeco Limited (CuDeco) owns and operates the Rocklands open cut copper mine near Mt Isa, Queensland. The mine's operations incorporate substantial infrastructure, including a processing plant and tailings dam. Given the nature of its operations CuDeco was exposed to environmental management risks and liabilities under state-based legislation. That legislation provides for potential environmental rehabilitation costs and any related civil and criminal liability to be paid personally by company officers.

On 1 July 2019, Kelly-Anne Trenfield, Ian Francis and Michael Ryan were appointed as receivers and managers (Receivers) of CuDeco. On 5 July 2019, Matthew Joiner and Jeremy Nipps were appointed as joint liquidators (Liquidators) of CuDeco. The receivers and managers are appointed to all of CuDeco's assets and undertakings by a secured creditor.

Nature of the Liquidators' application

The Liquidators sought directions and declarations under section 90-15 of Schedule 2 to the Corporations Act 2001 (Cth) (Insolvency Practice Schedule (Corporations)) as to their responsibility and liability for certain assets of CuDeco.

The Liquidators approached the Court with a view to seeking clarification on the scope of CuDeco's activities for which they could be liable under the state-based environmental legislation.

The Liquidators' position was that, given the appointment of the Receivers, the Liquidators should not be liable for the regulatory burden associated with operating the mining assets in circumstances where they had no control or decision-making power in relation to those assets.

The Liquidators' approach to the Court was informed by the potential for them to be personally liable under the state-based environmental legislation.

Further, the Liquidators considered that the appointment of the Receivers and the fact that the Receivers had become responsible for the operations of CuDeco's business, meant that the Liquidators' role and responsibility within the business was very limited.

The Liquidators had issued disclaimers under the Corporations Act but sought further confirmation that they were not liable under the state based environmental legislation.

What did the Court decide?

The Court noted that directions would not ordinarily be made in relation to commercial or business decisions of the administration of a company but would make declarations in relation to legal issues or issues relating to an issue of ‘power, propriety or reasonableness'.

In the absence of a contradictor, the Court assumed that the Receivers had been validly appointed and that the security under which they had been appointed was similarly valid.

The Court also observed that:

the Receivers' appointment was general and caused them to be in control of all of the assets of CuDeco;
the Receivers themselves had not challenged the breadth of their control over the assets of the CuDeco;
the Receivers had taken steps to comply with relevant environmental obligations; and
the failure of the responsible government departments to appear in response to the application weighed against the Court inferring any substantive opposition to the application by those departments.

The Court accepted the submissions of the Liquidators and made directions and declarations sought by the Liquidators in a form that, broadly speaking, provided the Liquidators the comfort they were seeking.

In summary, the Court declared at all material times CuDeco Limited's interest in each of the Mining Leases, Exploration Permit and Environmental Authorities is and has been subject to the control of the Receivers to the exclusion of the Liquidators and ordered that the Liquidators were justified in proceeding on that basis

The Court separately expressed concern about the lack of a contradictor / intervenor in this case as neither the responsible government departments nor ASIC sought to be heard in relation to the application, despite having been served with the application and supporting materials.

Comment

The Court's decision highlights that Liquidators may seek directions from the Court where they consider it necessary to resolve a legal issue relating to or arising under their appointment and their rights under statutes that are relevant to the businesses to which they have been appointed.

In doing so, an appointee should ensure that they are aware of the ambit of their responsibility under their appointment and of other parties that may potentially be affected by the directions sought and ensure those other potentially affected parties are allowed an opportunity to respond to the application.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.