In the decision of Park, Re Queensland Nickel Pty Ltd (in liq) (Statutory Interest)[1], Justice Downes held that liquidators must make a ‘conscious’ effort to determine who may be entitled to a company’s assets for debts to qualify for interest under section 563B of the Corporations Act 2001(Cth) (Act).

The decision marks the first precedent in the construction of section 563B of the Act and its requirements for interest to be payable.

Background

Queensland Nickel Pty Ltd went into administration which later converted to liquidation.

Two different types of liquidators were appointed. A creditor’s meeting resulted in General Purpose Liqudiators (GPLs) being appointed, and the Court later appointed Special Purpose Liquidators (SPLs).

The SPLs were appointed in an attempt, through application by the Commonwealth, to recover approximately $70 million it advanced under the Fair Entitlements Guarantee Scheme.

The administrators of Queensland Nickel Pty Ltd provided the GPLs with proofs of debt, which were then given by the GPLs to the SPLs.

The SPLs pursued multiple proceedings claiming Queensland Nickel Pty Ltd had liability to pay creditors, which were consolidated into one proceeding in 2018. A settlement deed was entered into in 2019 in which the SPLs would discontinue the consolidated proceeding, including an indemnity claim. In exchange. Queensland Nickel Pty Ltd would pay a sum of approximately $68.5 million to the Commonwealth (in response to its Fair Entitlements Guarantee Scheme recovery claim), and Queensland Nickel Pty Ltd would pay its creditors. Queensland Nickel Pty Ltd paid its creditors in accordance with the settlement deed.

Key Issue

Creditors asserted that they were entitled to interest in addition to the payments they received from Queensland Nickel Pty Ltd in accordance with the settlement deed.

The SPLs commenced proceedings in the Federal Court, in which section 563B of the Act was identified by Justice Downes as the ‘central issue’ to the case.

Section 563B(1) of the Act outlines that where liquidators pay an amount in respect of an ‘admitted debt or claim, there is also payable to the debtor or claimant… interest’.

Her Honour emphasised it is established case law that s 563B expressly outlines the circumstances in which interest may be paid, citing McGrath v Sturesteps (2011) 81 NSWLR 690.

The question was were the debts of Queensland Nickel Pty Ltd ‘admitted’ by the SPLs?

Court Findings

It was uncontested by the parties and affirmed by Justice Downes, that ‘admission’ referred to admission by a liquidator within part 5.6, division 6 of the Act and the Corporations Regulations 2001 (Cth) (Regulations).

Her Honour noted that the Act and the Regulations do not, in actuality, impose obligations on liquidators when deciding to admit proofs of debt.

However, Justice Downes determined ‘there must still be conscious engagement by the liquidator with that task.’

Her Honour emphasised the cruciality of liquidators recognising, investigating, rejecting and/or admitting proofs of debt as both ‘critical’ and ‘essential’ functions.

Justice Downes found that the SPLs failed to make a ‘conscious determination’ of who could participate in the distribution of assets, and suggested that the necessary adjudication did not occur at all. This was supported in evidence given by one of the SPLs, who when asked about whether it was his responsibility to adjudicate on proofs of debt, responded with: “That’s not part of my role. That’d be the role of the general liquidator”.

Justice Downes found that the SPLs did not admit the proofs of debt for the creditors under section 563B of the Act. Therefore, Her Honour determined that Queensland Nickel Pty Ltd did not have to pay interest to creditors in accordance with s 563B of The Act.

Key Takeaways

The entitlement to interest for a debt or claim under section 563B of the Act will only arise where the debt or claim has been ‘admitted’.
To determine proofs of debt, liquidators must consciously determine who may be entitled to a company’s assets.
Creditors and liquidators should be aware that if a debt or claim against a company is compensated prior to a liquidator determining proof of debt, the right to a creditor’s interest may be lost.

If you would like to discuss this article or any financial issues you are having, please contact:

Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au

Chris Downes
Law Clerk
E: cdownes@sladen.com.au

[1] [2024] FCA 1300