Recent Guidance on the Practicalities of Mothership Proceedings

Insolvency: 03 June 2021

New case management directions provide guidance for insolvency practitioners and solicitors to resolve mother proceedings in the most time and cost efficient manner as possible.

Last year, we wrote an article about The Benefits of Boarding the Mothership which involve a plaintiff, generally a liquidator, issuing a single proceeding in respect of multiple claims against multiple defendants, such as unfair preference claims.

At the time of writing that article, there was limited case law as to how mother proceedings operate in a practical sense. Helpfully, a recent decision of Acting Master Strk in the Supreme Court of Western Australia in Matthew David Woods as joint and several liquidator of Brierty Ltd (in liq) v B&J Catalano Pty Ltd [2021] WASC 90 (Brierty Ltd) has shed some light on the practicalities of mother proceedings.

The Case

In the Brierty Ltd matter, the plaintiffs were joint and several liquidators of a construction company and brought a joint proceeding against 12 defendants seeking to void payments made by the company to the defendants as insolvent transactions, alleging that each impugned transaction provided an unfair preference, priority or advantage over other creditors.

While there were (as there always are) factual differences between the 12 claims, at issue was one common question - the insolvency of the company at the time of the impugned transactions.

As the claims were not in respect of or arising out of the same transaction(s), leave of the court was required to join multiple parties to the one proceeding which was subsequently granted.

Issue

The question to be determined by Acting Master Strk was the appropriate case management directions as to how the proceeding should progress. In short, there were two competing positions put forward by the parties:

1. The liquidator sought orders for all parties to file and serve pleadings and particulars relating to each unfair preference claim, which eight of the defendants either consented to (three of which proposed slightly different timetables) or did not oppose; and to the contrary
2. The remaining defendants opposed the liquidators preferred directions and submitted that it was appropriate for the liquidators to 'nail their colours to the mast' as to the date of insolvency at this early stage by filing any report as to the solvency of the company upon which the liquidators intend to rely in the proceeding. It was submitted that this was appropriate because the question of when the company became insolvent was a threshold question for all defendants.

Further, the remaining defendants also proposed that instead of pleadings and particulars being filed, instead mediation should immediately follow the production of any expert report as to the date of solvency, allowing settlement to be explored before the costs of pleadings were incurred.

Decision

In weighing the balance of the submissions made on behalf of the parties, Acting Master Strk made case management orders that:

1. The liquidators were to file and serve a statement of claim;
2. Each of the 12 separate claims were listed for mediation following the service of the statement of claim;
3. One registrar will conduct all mediations and was to be charged with making tailored directions for each mediation; and
4. The abovementioned tailored directions were to include production of a confidential position paper articulating all defences intended to be pleaded and evidentiary foundation for the same (essentially defence pleadings and particulars).

Such orders were made as they appeared to Acting Master Strk to be the most likely to achieve successful mediated outcomes at an early stage of the proceeding.

Further, requiring each party to provide a position paper articulating all defences was designed to limit the risk of duplication of work by the defendants, as the analysis required to prepare a mediation position paper is the analysis required to plead a defence.

Takeaways

The case management directions adopted in the Brierty Ltd case study provide guidance for insolvency practitioners and solicitors to efficiently resolve mother proceedings in the most time and cost efficient manner as possible.

Further the case:

1. Reinforces that the Courts are willing to give leave to liquidators to bring mother proceedings in the insolvency practice area;
2. In bringing mother proceedings, it is important that both the plaintiff and defendant plead their cases in sufficient detail prior to mediation; and
3. Determining the date of insolvency, although important, is not a determinative preliminary step for bringing a mother proceeding.

Aitken Partners' Insolvency team is here to assist insolvency practitioners in assessing the merits of unfair preference claims, the best mechanism to maximise the returns from litigation and how to efficiently bring an action in the form of a mother proceeding.

If you need legal assistance with any aspect of an unfair preference claim or mother proceedings, please contact the following members of our insolvency team:

• Alex Nicol
• Paolo Tatti
• Michael O'Brien
• Phillip Fox
• Nicole Jee
• Sam Merrylees
• Amanda Robinson