A Liquidator’s Guide to Mitigating Risk

Liquidators are sometimes ordered to pay costs, which is not a situation any want to be in. Liquidators have a duty to examine what led up to the liquidation, and to bring and defend a legal case if applicable. But if they lose, costs can be awarded against them personally.

LCM Finance details that normally, liquidators are indemnified from having to pay costs. But if the company is unable to do so, the liquidator can be held liable. This has happened in several noteworthy cases.

In Lonnex Pty Lit, liquidators were required to pay costs after appeal. The court ruled that the costs incurred were unreasonable and that the liquidators should not be entitled to indemnity. In Australia’s Residential Builder Pty Ltd, a court found that the liquidator pursued an appeal for their own reasons, and not for the good of creditors. As such, the court determined that liquidators cannot hide behind an insolvent company. In Azmac Pty Lit, a court ruled that unreasonable and unnecessary conduct rife with self-interest should result in a liquidator personally paying the costs of proceedings it initiated.

What should liquidators do to avoid a similar fate? LCM suggests starting by diligently investigating matters in a timely way. Next, seek out advice from counsel or another experienced professional, or the courts on the advisability of continuing a claim. In addition to full compliance with court rules—that will go a long way in helping liquidators avoid an order to pay costs.

Of course, liquidators should estimate all costs and weigh them against the likelihood of recovery. Perhaps most importantly, liquidators should feel ready to settle the claim if it can be done in a reasonable way. Accepting reasonable offers, acknowledging valid disputes, and reasonably assessing assets can do the rest.