NEWS & INSIGHTS

SPOTLIGHT ON LAW: CONFLICT RULES IN GROUP APPOINTMENTS

Court provides clarification on conflict rules in group appointments involving litigation Krejci (Liq) v Pannella, Richmond Lifts Pty Ltd (In Liq) (No 3) [2025] FCA 1114

When is a conflict more than hypothetical?

A recent Federal Court Judgement (the Richmond Lifts Case) considered circumstances where the liquidators and receivers of defendant companies were also liquidators of plaintiff companies, and this constitutes a real conflict of interest where the practitioners were on both sides of the Court record…

Conflict in Appointments

One of the regular issues facing practitioners is the question of conflict between group entities and whether that creates a conflict of interest.

In two of our recent articles, we have considered issues associated with conflict and appointments:

SPOTLIGHT ON SAFE HARBOUR: HAVING YOUR CAKE AND EATING IT TOO

With the rise in safe harbour awareness and appointments, there is an increase in Insolvency Practitioners (IP) as Appropriate Qualified Entities (AQE’s), acting directly or indirectly (under privilege through lawyers, who are also acting as AQE’s), in a financial advisory capacity to the directors and/or the company, and subsequently consenting to act as voluntary administrators.

SPOTLIGHT ON LAW: CASE COMMENTARY - SAFE HARBOUR TO LIQUIDATOR

A recent Administrative Review Tribunal of Australia case considered the implications of a Safe Harbour Advisor taking an Appointment as Liquidator and whether he should be “publicly admonished or reprimanded” for his conduct. Wexted reviews the case and findings.

As we made clear in each of those articles, we cannot see a scenario where an IP acting as an Appropriately Qualified Entity providing advice to Directors pursuant to Section 588GA, can subsequently be appointed as a liquidator.

This further case considers a different scenario, being an application to set aside the appointment of provisional liquidators and receivers who had been appointed by the court to protect and preserve the position of various entities in the Richmond Lifts group of entities, on conflict-of-interest grounds where they were also receivers of a defendant entity.

Background

We note in summary:

Certain of the plaintiffs were the provisional liquidators of certain entities, Marginata and Reliance, having been appointed by order of the Court on 19 February 2025.
Those plaintiffs commenced proceedings alleging that the defendant companies were involved in an elaborate tax evasion scheme. The proceedings were complex with many different parties and many different claims.
The same Liquidators were, on an interim basis pursuant to s 1323(3) of Act appointed receivers of a particular defendant, Capital Financial Advisory, formerly known as Accolade. Accolade was alleged to be a participant in the tax evasion scheme.
All the relevant plaintiff and defendant companies were under the control of the same liquidators/ receivers
Certain other defendant entities alleged that the presence of the Liquidators on both sides of the proceeding created an obvious conflict and they should be replaced.
The Liquidators submitted (a) the conflict was largely hypothetical and could be managed by giving the director of the relevant defendants the right to defend the claims, and (b) the application failed to account for the involvement of all the relevant defendant entities in a fraudulent scheme masterminded by the director.

The Decision is available here Krejci (liquidator) v Panella, in the matter of Richmond Lifts Pty Ltd (in liq) (No 3) [2025] FCA 1114.

Decision

The Court determined the Liquidators should be replaced as provisional liquidators of Marginata and Reliance and should be replaced as receivers of Accolade and other entities. It was found that

There was an efficiency in having a common set of appointees across the entities. However, the plaintiffs’ submissions overlooked the need to prove the claims that had been brought by the plaintiffs.
Acting on both sides of the record in the proceeding, the plaintiff liquidators were in a real and obvious position of conflict.

46 There is an obvious conflict between the position of the Liquidators, in their role controlling the Relevant Plaintiffs who are making claims for knowing involvement in breaches of directors’ duties against Marginata and Reliance, and their role as provisional liquidators controlling (inter alia) Marginata and Reliance in defending those claims. For example, the Liquidators acting on one side of the record might formulate a contention as to the liability of Marginata and Reliance which the Liquidators, acting in their other role, might be expected to find uncommonly persuasive, given that it is their own contention.

47 A further potential issue is that the Liquidators, as provisional liquidators of Marginata and Reliance, have the right to take possession of the books and records of those companies, rather than being limited to accessing such documents as they would receive on discovery or other document production process as plaintiffs in the ordinary course. That would include any documents the subject of legal professional privilege where the holder of the privilege is Marginata or Reliance, because the Liquidators are standing in the shoes of Marginata and Reliance.

61 The Liquidators’ submissions emphasise the asset preservation aspect of the appointment of the present provisional liquidators, but somewhat overlook the structure of the proceedings and the need to prove the claims that have been brought. Mr Krejci describes his role as “primarily investigatory in nature”

His honour considered Liquidators’ proposal for the director of the defendants to defend the claim would result in the proceeding becoming a series of “interminable disputes” between the parties, including the activity of the Liquidators and who (the director or the Liquidators) had carriage of those relevant issues.
A further potential consideration for the Court was the ability of the plaintiff Liquidators to take possession of the books and records of the defendant entities, thus potentially circumventing traditional procedural processes like discovery.

Group appointments are not common and ensure efficiency. As such, "hypothetical" or "potential" conflict will generally still not preclude an external administrator’s appointment over multiple entities within a group.
But a real conflict should be carefully considered on a group appointment where Court proceedings would result in a Practitioner being appointed to entities on both sides of the Court record.

As such, Practitioners need to be mindful of the existence of conflict of interest in cases of litigation between the entities. This case highlights that, in cases where the matter is on the Court record, that will give rise to a real and obvious conflict of interest, and that the appointment of a Special Purpose Liquidator might not be regarded as a sufficient remedy.

To avoid duplication and unnecessary time/costs later down the line, if a conflict is real and obvious from the outset consider if an appointment across two firms should be considered.