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Friday 18 July 2014

14-167MR ASICs appeal upheld in Walton liquidators independence case

ASIC today notes the Full Court of the Federal Court of Australia’s decision in its case seeking the removal and replacement of the liquidators of the Walton Construction group on the grounds of a perceived lack of independence.

ASIC appealed the court’s decision at first instance earlier this year where the court rejected ASIC’s application to remove the liquidators. The Full Court today upheld ASIC’s appeal.

The decision means new liquidators will replace Messrs Stirling Horne, Glenn Franklin and Jason Stone of the firm, PKF Lawler (formerly Lawler Draper Dillon).

In its unanimous decision, the Full Court held that a reasonable fair-minded observer might reasonably apprehend that, because of the liquidators’ prior referral relationship with the Mawson Group, who had influenced their appointment as liquidators of the companies, and the liquidator’s interest in not jeopardising their future income, they might not discharge their duties with independence and impartiality. The court noted that it was unfortunate that the liquidators did not recognise the conflict of interest at the time it was first raised.

ASIC Commissioner John Price said, ‘We considered the circumstances warranted ASIC’s intervention and the public expected it. As fiduciaries, insolvency practitioners must be, and must be seen to be, independent and impartial. It is critical that creditors, and the wider public, have absolute confidence in liquidators acting, and being seen to act, independently and in the creditors’ interests.’

The court ordered that the parties confer and by 22 July 2014 provide the court with proposed orders pursuant to which new liquidators will be appointed.

Background

In carrying out their functions and duties, the liquidators of the Walton Construction group are required to investigate prior transactions involving entities connected with Mawson Group, the adviser which referred the companies to PKF Lawler (formerly Lawler Draper Dillon). ASIC argued that those transactions and the referral relationship were not sufficiently disclosed to creditors at the appropriate time and that a perceived lack of independence existed (refer: 13-362MR).

The court rejected ASIC’s application in February 2014 (refer: 14-029MR). ASIC filed an appeal later that month.

The Walton Construction group collapsed in October 2013 owing about $69 million to unsecured creditors. ASIC’s review into the group’s collapse, and its administration, is continuing.

Editor's note:

In accordance with the Orders of the Full Court of the Federal Court, on Thursday 24 July 2014, ASIC and Messrs Franklin, Horne and Stone, filed proposed final orders with the Court, including regarding suggested replacement liquidators. ASIC proposed that Michael McCann, Graham Killer and Andrew Hewitt of Grant Thornton be appointed as liquidators over Walton Construction Pty Ltd (in Liquidation) and Walton Construction (Qld) Pty Ltd (in Liquidation) (collectively, the Walton Group of Companies), following the Full Court's Orders that Messrs Franklin, Horne and Stone be removed as liquidators of the Walton Group of Companies.

On 29 July 2014, the Full Court of the Federal Court made the following orders:

  • ASIC's appeal in the matter be allowed and the orders made by the trial judge on 13 February 2014 be set aside.
  • Messrs Franklin, Horne and Stone be removed as liquidators of the Walton Group of Companies.
  • Michael McCann, Graham Killer and Andrew Hewitt of Grant Thornton be appointed as liquidators of the Walton Group of Companies.
  • Messrs Franklin, Horne and Stone transfer all books and records of the Walton Group of Companies to the new liquidators, Messrs McCann, Killer and Hewitt, forthwith.
  • Messrs Franklin, Horne and Stone pay $23,188 to ASIC on account of ASIC's costs of the proceeding before the trial judge.
  • Messrs Franklin, Horne and Stone bear their own costs and the costs they will pay to ASIC themselves, and will not be indemnified or paid out of the property of the Walton Group of Companies with respect to those costs.
  • If Messrs Franklin, Horne and Stone make an application to a court for approval of their remuneration in relation to their appointment as voluntary administrators and liquidators of the Walton Group of Companies, they will give ASIC at least 10 business days' notice of any such application.
Last updated: 18/07/2014 12:00