Liquidators unsuccessfully challenge the ref’s call

Jahani (liquidator) v Alfabs Mining Equipment Pty Ltd, in the matter of Delta Coal Mining Pty Ltd (in liq) (No 3) [2021] FCA 1195 (7 October 2021)

Stewart J decides, over the objection of the liquidators, to adopt a referee’s report that determined the date when a group of companies became insolvent.

This case serves a reminder of the tests for determining insolvency.

A group of four companies provided labour and equipment hire to mine owners. The joint and several liquidators of those companies commenced preference claims against several respondents.

An issue in the proceedings was the date on which the group of companies became insolvent. This question was referred to a referee, who was a chartered accountant and partner of McGrathNicol. The referee determined the date of insolvency as 31 January 2017. But the liquidators, in an earlier report, concluded that the companies were insolvent, two months earlier, from 1 December 2016.

Under s 54A(3) of the Federal Court of Australia Act, a court may deal with a referee’s report “as it thinks fit”, including by adopting the report in whole or in part, varying it, rejecting it or making any other order that the court thinks fit.

The liquidators submitted that referee erred in the report and that the report ought to be remitted to the referee to correct the errors. The respondents argued for the adoption of the report.

Stewart J identified the relevant principles, including that only some error of principle, absence of jurisdiction or patent misapprehension of evidence would justify the rejection of a referee’s report. A court will not reconsider factual findings where material before the referee would entitle them to make such findings.

The liquidators contended that the main error in the referee’s report was that the referee assumed that overdue trade debts could be treated as imminently convertible to cash, such that all overdue receivables were treated as liquid assets.

But the referee explained in her report that she had included such assets as liquid, because in the absence of evidence that the debts were not recoverable, it was reasonable to assume that the receipt of cash for overdue payments was imminent.

His Honour recited several authorities, including that of Sandell v Porter (1966) 115 CLR 666, in which Barwick CJ in the High Court, explained that a debtor’s funds are not limited to their cash resources immediately available, but rather extend to monies which they can procure by realisation by sale, mortgage or pledge of their assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor.

His Honour said at [44] that these authorities demonstrated that “just what period for the realisation of assets, including getting in payment of due and overdue debts, is reasonable in a particular case is a question of fact.”

His Honour found no error in the referee’s approach, and found ample basis for it, given that she had before her liquidators’ reports which analysed the debtors.

In deciding to adopt the referee’s report, his Honour either rejected or dismissed the significance of other errors identified by the liquidators.

His Honour said that the liquidators should pay the costs of the respondents who had argued to adopt the report.