WRITTEN BY Katie Innes
What are Court ordered inquiries into liquidator conduct?
Courts have a range of powers in relation to liquidators, including the power to order an inquiry into the external administration of a company and thus, the conduct of liquidators under sections 90-5 to 90-20 of Schedule 2 to the Corporations Act 2001 (Cth), previously, section 536 of the Corporations Act 2001.
These provisions give Courts the ability to make such orders either on its own initiative or in response to an application made by ‘a person with a financial interest in the external administration of the company, an officer of the company, a creditor or ASIC’. The Court also has a broad power to ‘make such orders as it thinks fit in relation to the external administration of a company’, including an order that a person cease to be the external administrator of the company or an order requiring a person to repay to the company remuneration paid to the person in the course of external administration.
When will a court order an inquiry into the conduct of liquidators?
Courts may order an inquiry into the external administration of a company either on their own initiative or on application by creditors. In both cases, Courts have full discretion as to whether or not to order an inquiry or not.
Courts are likely to order an inquiry if:
When Courts are considering whether or not to exercise their discretion to conduct an inquiry, it may take into consideration the following factors:
To put this into context, we will look at a recent case: Australian Securities and Investments Commission v Wily & Hurst  NSWSC 521
In 2016, ASIC made an application to the New South Wales Supreme Court pursuant to the then section 536 of the Corporations Act 2001, seeking an order for an inquiry into the conduct of two liquidators during their involvement in the liquidation of a number of companies linked to Crystal Carwash chain. ASIC alleged that the liquidators were potentially liable for a range of breaches, including failing to disclose potential conflicts of interest, failing to disclose to ASIC suspected shadow directorships and failing to disclose potential conflicts of interest, particularly as many of the liquidated companies in question shared common directors and registered addresses.
In May 2019, the NSW Supreme Court dismissed ASIC’s application with costs. Justice Brereton was not satisfied that there was a “well-based suspicion” indicating a need for further investigation into the liquidators’ conduct, more specifically:
There are two main things to take away from this case.
First, ASIC’s application and involvement in this case demonstrates its increasing willingness to actively investigate and pursue allegations against liquidators.
Second, this case illustrates the Court’s reluctance to make orders granting an inquiry into the conduct of liquidators unless there is a ‘well-based suspicion’ warranting a further investigation, which involves a “positive feeling of actual apprehension or mistrust, as distinct from mere wondering”. Thus, allegations against liquidators must be substantial enough to justify the exercise of the Court’s discretion on this matter. That being said, Courts have shown their willingness to intervene where liquidators are proven to have fallen short of their duties so as to cause or threaten to cause substantial injustice in some way.
Written by Katie Innes with the assistance of Maxine Viertmann.
 Australian Securities and Investments Commission v Wily & Hurst  NSWSC 521 .
 Ibid .
 S 533 of the Corporations Act 2001 (Cth) requires a liquidator of a company to make certain disclosures to ASIC regarding certain offences that may have occurred prior to the liquidation by officers of the company or others.
 Ibid .