Key points

• Court approval is required where a liquidator enters into an agreement as the company’s agent or representative.
• Court approval is not required where a liquidator enters into an agreement in their own name or for the purpose of obtaining advice about their duties or the conduct of the winding up.
• The determination of whether Court approval is required can only be made on a case-by-case basis.

Section 477(2B) of the Corporations Act 2001 requires a liquidator to obtain approval from:

(a) a Court; 

(b) the Committee of Inspection; or

(c) a resolution of the Creditors,

to enter into an agreement on the company’s behalf if the agreement will last more than 3 months.

In Kitay v Frigger [No 2] [2024] WASC 113 the Court was asked to determine whether the liquidator was obliged to obtain the Court’s approval to enter into three costs agreements and various retainers with one law firm and one costs agreement and various retainers with another law firm.

The Court held in Kitay that section 477(2B):

(a) does not impose that obligation on a liquidator when entering into agreements in their own name; and

(b) impose that obligation on a liquidator when entering into agreements as an agent or representative of the company or in the company’s name.

The Court held in Kitay that the liquidator was:

(a) not required to seek approval to enter into two of the above referred costs agreements and various retainers because they were in his own name and for him to obtain advice and related to his conduct of the liquidation; and

(b) required to seek approval to enter into two of the above referred costs agreements and various retainers because they were in his and/or the company’s name and related to the company’s obligations.

The Court granted leave retrospectively for the liquidator to enter into the cost agreements and retainers to which it held section 477(2B) applied.

What’s changed?

The decision in Kitay provides further guidance about an aspect of the law that the Court considered, from its review of previous court decisions, was often potentially misapplied.

The decision in Kitay highlights that approval under section 477(2B) is needed for agreements that in practice were previously often considered to be “immune” from that requirement.

The impact / what the reader needs to know or do

It is important, in light of Kitay, to consider whether any existing agreements by liquidators require retrospective approval under section 477(2B) of the Act and if so, for the liquidator to make the appropriate application to obtain the required approval. This will avoid any such agreements being a nullity which could in turn lead to actions being set aside and claims being made against liquidators personally, particularly in the case of costs agreements.

Liquidators also need to be aware, as discussed in Kitay, that oral agreements are also caught by section 477(2B) and that the value of agreements is of no consequence under that section.

Dentons recognises the value question could be a matter of each liquidator’s appetite for personal risk. In that regard, Dentons notes that the protection offered to liquidators by section 556 of the Act will not apply to agreements that require approval under section 447(2B) where that approval has not been granted.

Next steps

Dentons is available to consider and advise about any agreement a liquidator has entered into or is considering entering, whether on behalf of liquidators or other parties and advise about any need for retrospective or prospective approval under section 477(2B) of the Corporations Act. Where approval is required, we can advise about and conduct that process.