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Court grants permission to investigate company despite limited expected returns – Insolvency/Bankruptcy

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This week’s TGIF considers Krejci, in the matter
of Union Standard International Group Pty Limited (in liq) (No
[2022] FCA 890, in which the Federal Court gave liquidators
approval to conduct extensive and expensive public examinations
despite there being limited expected return to creditors, in part
to try and uncover the truth behind $585 million that cannot be
accounted for in the company’s dealings.

Key takeaways

  • The court may permit liquidators to incur extensive further
    costs in investigating the affairs of the company in appropriate

  • The consent of creditors, or at least, the absence of objection
    to further investigation incurring costs is a material factor in
    the exercise of the court’s discretion.

  • Where liquidators are able to convince the court that there are
    substantial gaps in the information provided or there is evidence
    of impropriety, the court may be more easily persuaded to permit
    the liquidator to incur further costs to investigate possible
    claims available to the company.

What happened?

Union Standard International Group Pty Limited (In liq)
(USIG) held an Australian Financial
Services Licence and operated a financial services business which
included giving advice on, and facilitating trading in, derivatives
and foreign exchange contracts. USIG entered liquidation and,
during the course of their investigations into the company, the
Liquidators uncovered two keys issues:

  • USIG’s financial records were unreliable in that they
    recorded its liabilities to certain classes of clients only
    partially or not at all; and

  • $585 million is unaccounted for in the company’s

The application

In this application, the Liquidators approached the Court
pursuant to section 90-15(1) of Schedule 2 – Insolvency Practice
Rules (Corporations) 2016 (IPS) to the
Corporations Act 2001 (Cth), to confirm that they are
justified in paying their remuneration in connection with the
proposed public examinations out of the funds of USIG.

The court’s power in IPS section 90-15(1) is a broad one:
‘The Court may make such orders as it thinks fit in relation to
the external administration of a company’. The section contains
a non-exhaustive list of options available to the court including
to make an order relating to costs of an action taken by a
liquidator or remuneration paid to the liquidator.

The Liquidators’ application was unopposed.

Result and reasoning

In the circumstances, her Honour determined it was appropriate
for the Court to make orders which would permit the Liquidators to
conduct the public examinations and recover their costs against the
assets of USIG.

This decision was based on several factors including that:

  • the present return to creditors was described as de

  • there have been a substantial number of formal proofs of

  • the Liquidators have made numerous applications to the Court
    and are still of the view that their investigations are being
    hampered by actions of related companies and persons;

  • initial investigations have revealed serious questions about
    the workings of the company and its dealings with related and third

  • creditors have been notified of the proposed examinations, and
    none have objected; and

  • the committee of inspection, formed of various classes of
    creditor representatives, expressed support for the proposed
    examinations and their expeditious conduct.

While the examinations as proposed by the liquidators are
extensive and expected to cost in excess of $1 million (plus GST),
the Court was content that they were necessary to enable the
Liquidators to make further inquiries and obtain documents that may
ultimately lead to claims and recoveries being made. This was
determined to be in the best interests of creditors, particularly
in light of the complexity of the company’s dealings, the
obstructionism faced by the liquidators in the course of their
investigation and the open question of the unexplained $585 million
dollars that is unaccounted for in the dealings of the company.


This decision is another example of the breadth of a court’s
powers to manage the conduct of external administrations. Key
factors in the exercise of this power are the interests of
creditors as a whole, the absence of objection from creditors to
the proposed course of action and the considered approach taken by
liquidators in weighing up the benefit of incurring substantial
further costs in the interests of improving the return to

Parties acting in the role of external administrators or
liquidators should take comfort that the power of the court is
available to facilitate more creative or less obvious steps being
taken provided the risk profile is appropriate and the interest of
creditors is front of mind.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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