Under the Insolvency Law Reform Act 2016 (Cth), liquidators are also obliged to send initial reports to creditors within tight timeframes and potentially in circumstances where they may have limited contact details for creditors. Fortunately for liquidators, the Federal Court has recently indicated that the Court may assist liquidators by giving directions providing for the exchange of personal information and retrospectively validating the use of electronic communications with creditors. These issues were not previously directly addressed in any reported judgments.

Maddocks acted for the liquidators of one of the companies in liquidation, AGM Markets Pty Ltd (in Liquidation).

What happened

AGM was one of three companies who, though unrelated, had a “complex and intertwined” relationship offering over-the-counter derivative products to retail investors. This interrelationship resulted in a substantial overlap of investor information (including private information) being held by each company.

A related Federal Court judgment sets out in detail the companies’ activities and concerns raised by ASIC that they had engaged in, amongst other things, misleading and deceptive conduct and unconscionable conduct in dealings with investors. For present purposes it is sufficient to note that separate liquidators were appointed to the three companies.

Application of the APP

The liquidators agreed that an information sharing protocol was necessary to facilitate the sharing of investor information and to allow the liquidators to assess investors’ entitlements to funds held in company bank accounts. However, as all the companies had an annual turnover of over $3 million, they were bound by the APP in respect of “personal information”. The liquidators wanted to be in a position to share investors’ financial records, but in view of the application of the APP, sought directions from the Court.

The Court accepted that without being able to share investors’ “personal information”, the liquidators would have incomplete information and there would have been significant delays in resolving investors’ claims. Although the companies had shared information prior to their liquidation, the relevant agreements were terminated and did not assist.

In the circumstances, the Court was willing to make orders pursuant to ss 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations) (IPSC) allowing the liquidators to exchange the “personal information” for the purposes of the winding up of the companies and confirming that the exchange was authorised for the purposes of the APP. Orders in these circumstances do not appear to have been made previously and are an example of the wide ranging orders that can be made using ss 90-15 and 90-20 of the IPSC.

Electronic Notices

Under section 600G(3) of the Corporations Act 2001 (Cth) (Act), liquidators are permitted to give certain notices and reports to creditors via email, provided that the creditors first nominate to receive these communications via an email address. The practical difficulty that frequently arises is that creditors cannot agree to receive notices by email if they cannot be contacted, and notices sent by email prior to any notification may be viewed as irregular.

Due to the web based nature of the businesses previously conducted by the companies, email addresses were the principal method by which the companies contacted investors. This meant the liquidators had little choice but to send Notices and Reports to Creditors (including in respect of the approval of their remuneration) via email without investors first nominating to receive notices by email. The liquidators were unable to identify the postal address of a significant number of investors, and the additional cost to identify postal details for investors and then facilitate a mail out was significant.

The Court exercised its powers pursuant to ss 90-15 and 90-20 of the IPSC to validate any resolutions of creditors (including resolutions approving remuneration) notwithstanding that the liquidators’ notices were sent by email. The Court’s orders are consistent with section 1322 of the Act, which provides that a procedural irregularity in the giving of notice of a meeting of creditors does not invalidate the meeting unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice. However, by seeking orders, the liquidators avoided any uncertainty.

The Court also made orders allowing for all future notices to be sent electronically. Similar orders have become commonplace in voluntary administration, but in previous reported judgments liquidators have been unable to persuade courts that they have the power to make such orders. Again, this is a further example of the wide powers now available in ss 90-15 and 90-20 of the IPSC.