Working smarter not harder: How liquidators can expedite the process for adjudicating and admitting claims when winding up a company

In a recent case involving a former financial services provider in liquidation, thousands of pending claims from former customers and a letter of comfort with a looming expiry date, the Liquidators appointed to wind up Forex Capital Trading Pty Limited successfully applied to the Federal Court of Australia for orders permitting them to conduct an expedited process for the adjudication and admission of claims.

Background

Forex Capital Trading Pty Limited (Forex) was a financial services provider that specialised in the trading of high risk financial products. In July 2020, following an investigation into its egregious business practices, ASIC commenced proceedings against Forex and the court ultimately determined that between 1 January 2017 and 1 January 2019, Forex engaged in a system of unconscionable conduct and/or a pattern of behaviour in contravention of section 12CB of the Australian Securities and Investments Commission Act 2001 (Cth).

Shortly after the ASIC proceedings, the Liquidators, who are the plaintiffs in this proceedings, were appointed to wind up Forex.

Pending claims

The Liquidators conducted a detailed investigation into the affairs of Forex and found that there were around 8,600 former customers who had legitimate claims for misleading and deceptive conduct and unconscionable conduct against Forex, based on a randomised representative sample of former customers (Selected Former Customers).

Some specific examples that gave rise to these claims include:

• a Forex representative encouraging a former customer to invest $50,000 and place trades, knowing that the former customer had no income and only had assets of $67,000;
• a Forex representative contacting a former customer, aged in his 80s, more than 200 times in an 11-month period, and encouraging him to trade, despite the fact that the company’s records made it plain that the former customer was ‘bad with technology’ and ‘struggles to understand’; and
• a Forex representative deterring a former customer from withdrawing their money, despite being advised the former customer required the money to pay their rent and that he was ‘waiting for money – selling van’.

Each of these customers lost thousands of dollars. The total value of all claims was estimated as being $69.5 million.

Letter of comfort

The Liquidators determined that Forex did not have sufficient assets to satisfy all of these pending claims. During ASIC’s previous investigations, however, Forex’s ultimate parent company, Invesus Group Ltd (Invesus) provided a letter of comfort to Forex requiring it to provide financial support to Forex to satisfy any debts it may have in respect of its former customers.

That letter of comfort would expire on 30 June 2022 and therefore any claim against Forex would need to have been made before that date.

Expedited adjudication and admission of claims

Practically, the Liquidators did not have time to adjudicate each of the 8,600 claims individually on their merits before the looming expiry date of the letter of comfort. So, the Liquidators sought orders from the court pursuant to s 90-15(1) of Schedule 2 (Insolvency Practice Schedule (Corporations)) to the Corporations Act (IPS) for an alternative, expedited adjudication process.

Section 90-15(1) of the IPS provides:

(1) The Court may make such orders as it thinks fit in relation to the external administration of a company

The expedited adjudication process the Liquidators proposed was to offer former customers the option to accept a 15% discount on the value of their claims, in exchange for exempting them from providing further detailed evidence as to each element of their alleged claims and establishing causation (Expedited Process).

Conclusion

The court made the orders sought by the Liquidators and held:

“The Expedited Process is a creative and efficient proposal, tailored to the particular circumstances which are faced by the former customers and the Liquidators, notably the pending 30 June 2022 deadline and the extraordinary costs that would be incurred if adjudication of claims proceeded in the usual way. The Liquidators also propose the discount on claims as a matter of fairness: in their view it provides a fair price for the ease of saving the former customers the need to collate evidence and formally prove their individual claims. On the evidence before me, it is apparent that considerable care and effort has been employed by the Liquidators in assessing the veracity of the Selected Former Customers’ claims, the former customers’ claims generally and the net losses. The orders sought are within the scope of the relief contemplated by s 90-15 and in my view it is open to the Liquidators to proceed in accordance with the Expedited Process. To do so is consistent with their obligations as liquidators.”

Key takeaway

This decision confirms the broad scope of s 90-15(1) of the IPS and the court’s power to make any order it thinks fit in relation to the external administration of a company. Where liquidators are against the clock and are facing a large number of claims in the winding up of a company, offering discounts on claims in exchange for foregoing the requirement to establish causation may be a viable solution in expediting the adjudication and admission of claims without the need to assess each claim individually.

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Authored by:

Guy Edgecombe, Partner