“We Will Protect Them Unless You Can Prove Them Guilty”

In a recent decision, the Supreme Court of Victoria shed light on the concept of the “Leave Principle”. This principle applies to the need to seek leave of the Court before filing suits against Court appointed liquidators.

In Armitage v Gainsborough Properties Pty Ltd & Anor, Justice Almond discussed the scope and ambit of “Leave principle” under the common law.

Facts:

In Armitage, Chairmakers Pty Ltd (Chairmakers) and Colorclad Pty Ltd (Colorclad) were two related companies. The Court appointed a Liquidator to both companies.

While making a sale of the companies’ assets the liquidator sold a plant and forklift (property) which he considered as property owned by the companies.

Subsequently, Armitage (plaintiff) claimed to be the owner of the property sold by the liquidator.

Armitage sought leave of the Court to file proceedings against the liquidator on the grounds of conversion or negligence.

Key points:

1. Application for the leave of the Court to commence proceedings was dismissed at first instance.
2. The application was filled after expiry of the relevant limitation period.

Decision:

Justice Almond opined that it is essential to seek prior leave of the Court for suing Court appointed liquidators.

The requested leave was refused by on the following grounds:

1. Delay in filling the application for leave of the Court;
2. It had been 6 years since the liquidation took place;
3. The plaintiff was not able to prove sufficient cause of action or prospects of success if the suit was to be tried by the Court.

Lesson:

This case highlights the importance of procuring leave before initiating legal action against a Court appointed liquidator. Further it must be noted that while deciding to grant leave of Court, the Court will look into factors like the existence of a reasonable cause of action and that the value of the procedure of winding up is not lost.