Legal fees and disbursements are inevitably incurred by involved parties, either to prosecute or to defend, when a company in liquidation goes into proceedings against a defendant. Usually, liquidators would only obtain the services of solicitors and barristers when the case carries a high probability of success, hence their costs would be covered via the winning of the case.
It is mostly the case that the orders are given to the unsuccessful party to pay up to the successful party once a judgement regarding the proceedings is determined. But in some situations, even though the orders are made, the unsuccessful party might not be able to afford the payment. This is frequently the case for liquidators when they are brought to court and become the unsuccessful party, since company in liquidation are often without funds.
To avoid from not being paid after winning a case, a defendant could consider seeking an order for the party commencing proceedings to provide security for costs. This is mainly to ensure that any unsuccessful proceedings would not disadvantage the defendant.
However, please note that providing security for costs by a liquidator is not always needed when bringing proceedings against a defendant. A number of factors may be considered by the court when determining whether to order security for costs. Relevant factors affecting liquidators would consider the following:
- The chances of success or merits of the proceedings that the liquidator brought up
- If the proceedings are genuine
- The financial standings of the administration, if lack of funds, is it attributable to the defendant
- The reasons behind the proceedings and how it is conducted
- If an order for security would result in stifling the liquidator’s claim
- If the case is of public concern
- The total costs of the proceedings
- The proportion of the security sought compared to the issues’ importance and complexity
- When is the application for security submitted
This year, in a case between Golden Mile Property Investments Pty Ltd (in liquidation) and Cudgegong Australia Pty Ltd [2014] NSWCA 224, it was decided by the Supreme Court of New South Wales – Court of Appeals to go against an order for security of costs to be paid by the liquidator. The decision made was influenced by:
- Golden Mile’s proceedings stability and genuineness
- Golden Mile’s ability to provide security for costs was closely linked by the actions of Cudgegong Australia
- The hampering of the litigation due to the security of costs
From this case, we could see that unique facts or each proceeding are indeed explored by the court when it exercises its discretion to decide on an order for security for costs. Generally, an application for security of costs against a liquidator that has no funds, or very limited funds, would not be successful.