- within Antitrust/Competition Law topic(s)
This week’s TGIF considers the recent decision of the New South Wales Court of Appeal in Ample Skill Ltd v Reidy [2025] NSWCA 32, in which rule 75-250 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (the Insolvency Rules) was construed by an appellate court for the first time.
Key takeaways
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The requirement of “good faith” in rule 75-250 of the Insolvency Practice Rules (Corporations) 2016 (Cth) does not require an external administrator’s opinion to be objectively reasonable. An external administrator must act honestly, genuinely and with informed consideration of the relevant matters in decision making.
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Creditors who wish to challenge an external administrator’s refusal to follow a direction should act promptly or consider issuing a new direction before commencing further litigation.
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Parties should carefully consider the practical utility of the relief sought in winding up proceedings. Courts may be reluctant to hear and determine matters in winding up proceedings which are purely academic.
Background
On 9 December 2024, the creditors of Balamara Resources Ltd (In Liquidation) (the Creditors) directed the joint and several liquidators (the Liquidators) to convene a creditors' meeting (the Direction). The purpose of the meeting was to consider a resolution to remove the Liquidators and appoint other persons in their place.
The Liquidators formed the opinion, in good faith, that the Direction was unreasonable within the meaning of section 75-15(2) of the Insolvency Practice Schedule (Corporations) 2016 (Cth) (the Insolvency Schedule) and rule 75-250 of the Insolvency Rules. The Liquidators, therefore, declined the Direction.
The Liquidators sought a judicial direction confirming they were justified in declining to convene the creditors meeting. Five months later, the Creditors filed a competing application seeking an order that the Liquidators be directed to convene the creditors meeting. The Liquidators’ and Creditors’ applications were jointly heard. On 13 June 2025, the Court determined the Liquidators were justified in not convening the creditors meeting and refused the Creditors’ application. The Creditors appealed the decision. The appeal was heard on 27 November 2025 and the Court of Appeal’s decision was handed down on 18 March 2026.
Interlocutory judgment
Justice Black held the Liquidators’ requirement to act in good faith under the Insolvency Schedule and the Insolvency Rules did not mean that the Liquidators had to have a reasonable basis for their opinion. Justice Black determined that the Liquidators needed to:
- honestly hold the opinion;
- inform themselves of relevant matters; and
- make a genuine attempt to assess the weight of those matters.
Justice Black was satisfied, on the evidence, that the Liquidators had met each of the above requirements. Justice Black noted the parties agreed that the question as to whether the Liquidators acted in good faith in refusing the Direction was to be assessed as at 9 December 2024 (being the date of the Direction), not the date of the hearing.
The Appeal
The Creditors sought leave to appeal on 20 grounds. The two primary questions for the Court of Appeal were whether:
- leave to appeal should be granted; and
- the requirement in rule 75-250 of the Insolvency Rules that liquidators “[act] in good faith” meant the Liquidators’ opinions had to be objectively reasonable.
Leave not granted
The three judges unanimously refused to grant leave to appeal given the practical utility caused by the passage of time. This is because the creditors sought a direction for the Liquidators to convene a creditors meeting by reference to the factual circumstances 15 months earlier.
Objective reasonableness
The judges considered and determined that the requirement in rule 75-250 of the Insolvency Rules that liquidators “[act] in good faith” did not mean that the Liquidators’ opinions had to be objectively reasonable.
The Court considered the relevant inquiry when assessing whether an external administrator acted in good faith under rule 75-250 is to ask whether the external administrator’s decision-making process was honest, genuine and considered relevant matters. The question is not whether the Court would have reached the same conclusion as the external administrator.
The Court dismissed the Creditors’ argument that a narrow reading of ‘good faith’ provides a mechanism for liquidators to frustrate creditors seeking their removal. The Court observed the good faith requirement is itself a protection as it prevents an administrator from arbitrarily refusing a direction. Further, creditors are not left without recourse as they retain the ability to apply to the courts under section 90-15 of the Insolvency Schedule for a direction that a meeting be convened (as the Creditors did in this case). However, both the primary judge and the Court of Appeal concluded, where the Liquidators’ decision has been properly reached, that is a sufficient basis for the Court to decline to direct the convening of a meeting under section 90-15.
Other arguments
The Creditors also argued the Liquidators had asked themselves the wrong question by focusing on the consequences of their removal, rather than the consequences of convening the creditors meeting. The Court rejected this distinction and did not accept that the Liquidators could not have regard to the resolution if passed, when weighing up the prejudice to creditors and overall delay in convening the creditors meeting.
Comment
External administrators can take comfort that a Court will not consider objective reasonableness when assessing whether the external administrator has acted in good faith under rule 75-250. When considering a creditor(s) direction, external administrators should ensure that they honestly form the requisite opinion and make a genuine attempt to inform themselves of relevant matters when making a decision.
The judgment also serves as a useful reminder to creditors that any challenge to an external administrator’s refusal to follow a direction should be brought promptly. A delay in challenging the refusal could mean the relief sought lacks any practical utility when the underlying circumstances have progressed. In those circumstances, courts will be reluctant to decide a matter where the consequences are purely theoretical. Before bringing proceedings, creditors should consider alternative viable options including issuing a fresh direction.
Originally published 10 April 2026.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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