Navigating Professional Advisors to Liquidators and Court Approval: Kitay v Frigger (No. 2) [2024] WASC 113

Introduction

In a recent judgment, the Supreme Court of Western Australia addressed a critical question: When can liquidators engage professional advisors without court approval? The case of Kitay v Frigger (No. 2) [2024] WASC 113 provides valuable insights for both liquidators and legal practitioners. Let’s explore the key takeaways and implications.

Background

• On 6 May 2010, the Court ordered the winding up of Computer Accounting and Tax Pty Ltd (in liquidation) (CAT) and appointed Mr. Mervyn Kitay as the liquidator.

• Mr. Kitay found himself embroiled in various legal proceedings initiated by the defendants, Mrs. Angela Frigger and Mr. Hartmut Frigger, who were directors and members of CAT.

• In the course of defending these proceedings and winding up CAT, Mr. Kitay entered into several costs agreements and retainers for legal services.

The Legal Framework

• Section 477 of the Corporations Act 2001 (Cth) (Corporations Act) grants liquidators specific powers, including the authority to bring or defend legal proceedings on behalf of the company.

• However, section 477(2B) imposes constraints on the liquidator’s powers concerning “long-term” contracts (those likely to exceed three months).

• For such long-term contracts, the liquidator must obtain court approval, approval from the committee of inspection, or a resolution of creditors.

The Key Issues

1. Capacity of Mr. Kitay:

   • The case hinged on whether Mr. Kitay entered into the agreements as an agent of CAT or on his own behalf.

   • Uncertainty surrounded the capacity in which he contracted.

2. Types of Agreements:

   • The Court differentiated between various long-term costs agreements and retainers.

   • Some agreements required court approval, while others did not.

The Court’s Decision

1. Agreements Requiring Court Approval:

   • Court approval was necessary for agreements where:

     • Mr. Kitay acted as an agent or representative of CAT.

     • CAT was a party to the agreement.

     • CAT would benefit from the services provided.

2. Agreements Not Requiring Court Approval:

   • Court approval was not needed for agreements related to:

     • Advice regarding the winding up or performance of the liquidator’s duties.

     • Matters where Mr. Kitay contracted independently.

Key Takeaways

1. Liquidators’ Caution:

   • Liquidators must carefully assess the nature of agreements they enter into.

   • Seek court approval when necessary to avoid legal pitfalls.

2. Balancing Interests:

   • The decision strikes a balance between efficiency (for liquidators) and protection (for creditors and stakeholders).

Practical Steps for Liquidators

1. Evaluate Agreements:

   • Determine whether an agreement falls within the “long-term” category.

   • Assess whether court approval is required.

2. Transparency and Documentation:

   • Clearly document the capacity in which the liquidator enters into agreements.

   • Maintain transparency with stakeholders.

Conclusion

The Kitay v Frigger (No. 2) decision clarifies the landscape for liquidators engaging professional advisors. While court approval is essential for certain agreements, liquidators can proceed confidently when providing advice related to their duties. Legal practitioners should stay informed and guide their clients accordingly.

Remember that this article provides general information and is not legal advice. Consult with qualified legal professionals for specific cases.

Disclaimer: This article is for informational purposes only and does not constitute legal advice.