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Federal Court reminds liquidator that reasonable grounds are required before issuing a demand

Parker, in the matter of Worldwide Specialty Property Services Pty Limited (in liq) v Worldwide Specialty Property Services Pty Limited (in liq) [2017] FCA 687

LIQUIDATOR SEEKING AN EXTENSION OF TIME for making an application under s 588FF(1) Corporations Act copped criticism for serving demands without conducting investigations. The application was made ex parte.

Justice Lee emphasised the importance of a liquidator serving a demand only once the appropriate grounds have been established at [68]:

‘A liquidator holds an important statutory office. It is a matter of concern that any liquidator would make demands of third parties for the recovery of monies when the liquidator did not have, at the time the demand was made, a proper basis for making that demand. Notwithstanding that Mr Parker was motivated by the laudable motive of seeking to maximise the recovery of monies for creditors, this is insufficient to justify demands being made in the hope that a third party will effectively accept the demand as a ‘fair cop’. If this is a common practice then, in my view, it should be deprecated. A demand should only be made by a liquidator if the liquidator believes, on reasonable grounds, that there is a proper legal and factual basis to make such a demand.’

Although obiter, this case should serve as judicial warning to liquidators to exercise caution before issuing demands to debtors. One might be better served to rephrase the demand more as a show cause notice of sorts.

To access the full judgment, follow this link – http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2017/2017fca0687

Key Words

  • Application for extension of time
  • Statutory demand
  • Reasonable grounds
  • Proper legal and factual basis
  • Liquidator
  • S 588FF Corporations Act 2001 (Cth)
By |November 28th, 2017|Categories: Uncategorized|0 Comments