Ford Kinter & Associates Pty Ltd, in the matter of Reliance Franchise Partners Pty Ltd (in liq) v Reliance Franchise Partners Pty Ltd (in liq)

This Federal Court decision is a procedural insolvency case arising out of the liquidation of Reliance Franchise Partners Pty Ltd. Ford Kinter, a creditor, had funded the liquidators’ investigations, public examinations and recovery litigation. It then brought a Federal Court proceeding seeking priority in the distribution of Reliance’s assets under s 564 of the Corporations Act 2001 (Cth).

Five related-party creditors asked the Federal Court to transfer that proceeding to the Supreme Court of Victoria, where a separate remuneration proceeding concerning the liquidators was already on foot. Anderson J refused the transfer application. The court’s focus was not on whether Ford Kinter should ultimately receive priority, but on whether the two proceedings overlapped enough that the interests of justice required them to be heard together. The court held that the overlap of relevant issues was low and dismissed the transfer application with costs.

The dispute began with a business sale, not with a franchise law point. Ford Kinter had operated a general insurance brokerage business. In October 2013, it sold its client book to Reliance under a deed requiring payment in three instalments. Reliance paid the first instalment but refused to pay the second and third. Ford Kinter sued in the County Court of Victoria and obtained judgment in February 2018 for the unpaid amount, interest and costs. Reliance’s appeal failed.

Ford Kinter then moved to wind up Reliance. Reliance appointed voluntary administrators, but the Supreme Court of Victoria later ordered that the company be wound up and appointed liquidators. Once appointed, the liquidators reviewed the company’s books and records and formed the view that further investigations were needed into the circumstances in which Reliance’s business had been sold. They also considered that Reliance had no assets available to fund those investigations.

The liquidators’ reports to creditors identified possible claims and said public examinations should be undertaken. The August 2018 report recorded that Ford Kinter was likely to be the only unrelated creditor able to fund further investigations and examinations. It also noted that any funding agreement would require creditor or court approval, and that court approval would likely be needed because related-party creditors were unlikely to approve funding for investigations into them.

Ford Kinter decided that funding the liquidators was its only realistic chance of recovering any of the debt owed to it. It entered into funding arrangements with the liquidators. First, it advanced $50,000 under a funding agreement dated 5 February 2019. That money funded public examinations conducted over several rounds between November 2019 and March 2021.

In February 2021, counsel advised the liquidators that Reliance had properly arguable claims against Fopar, including a claim to recover payments totalling $6,237,475.55. The liquidators and Reliance then commenced Federal Court proceedings against Fopar. Ford Kinter decided to fund that litigation as well, and the funding agreement was varied in April 2021. When Fopar sought security for costs, Ford Kinter also provided the agreed amount of $35,000.

The litigation and related proof of debt disputes eventually led to a settlement deed in August 2022 between the liquidators, Reliance, Fopar and VHG. Under that deed, Fopar would pay $6,237,475.55 into the liquidation, the Federal Court proceedings would be dismissed, and the liquidators would admit the proofs of debt lodged by Fopar and VHG. The Federal Court later authorised the liquidators to enter into that settlement deed. According to this judgment, the funds available for distribution to creditors after payment of liquidation expenses were those paid by Fopar under the settlement.

Ford Kinter ultimately provided $240,000 in funding to the liquidators, plus the $35,000 security for costs. One of the liquidators gave evidence that, without that funding, he did not consider there would have been any recovery for the benefit of Reliance’s creditors. That evidence explains the commercial basis for Ford Kinter’s later claim to priority under s 564.

At the same time, a different dispute was developing in the Supreme Court of Victoria. The liquidators commenced a remuneration proceeding in February 2023 seeking approval of their remuneration. In May 2023, the interested parties applied in that proceeding for review of certain legal expenses and disbursements. Ford Kinter was not a party to that remuneration proceeding. In December 2023, the liquidators admitted Ford Kinter’s debt at $1,552,289.56, including the judgment debt and taxed costs. In January 2024, Ford Kinter commenced the present Federal Court proceeding seeking payment of that debt in priority to other unsecured creditors. The related-party creditors then sought to transfer that proceeding to the Supreme Court.

The issue before Anderson J was narrow but important. The court was not deciding whether Ford Kinter should receive priority under s 564. That substantive question remained for another day. The immediate issue was whether the Federal Court proceeding should be transferred to the Supreme Court of Victoria under the Corporations Act transfer provisions, including s 1337H.

The interested parties argued that transfer was appropriate because the Supreme Court was already dealing with the liquidators’ remuneration and with an application to review certain legal expenses and disbursements. They said there was overlap between the proceedings and a risk of inconsistent findings if the matters stayed in different courts.

Ford Kinter resisted transfer. The judgment records that Ford Kinter was not a party to the remuneration proceeding. That mattered in practical terms. One proceeding was about whether a creditor that funded investigations and recovery action should rank ahead of other unsecured creditors in a distribution. The other was about approval and review of the liquidators’ remuneration and some expenses. Although both proceedings arose from the same liquidation, they were not the same dispute.

The catchwords make the court’s reasoning direction clear. The court considered the factors relevant to transfer, assessed the claimed overlap, and concluded that the overlap of relevant issues was low. On that basis, the court held that transfer was not in the interests of justice.

The Federal Court dismissed the transfer application. The formal orders made on 6 August 2024 state that the interlocutory process filed by the interested parties on 26 March 2024 was dismissed, and that the interested parties were to pay Ford Kinter’s costs of and incidental to that application.

The catchwords summarise the core reasoning. The interested parties had submitted that the proceeding should be transferred primarily because of overlap of issues and the risk of inconsistent findings. The court considered the factors relevant to transfer and held that the overlap of relevant issues was low. It therefore concluded that it was not in the interests of justice to transfer the proceeding.

That means Ford Kinter’s s 564 proceeding stayed in the Federal Court. It does not mean Ford Kinter won its priority claim. The judgment is procedural only. The substantive question, whether Ford Kinter should in fact be paid in priority to other unsecured creditors because it funded the liquidators’ work, was not decided in this case.

The decision is also useful because it rejects any assumption that all disputes connected with one liquidation should automatically be consolidated in one court. The court accepted that the same liquidation can generate different proceedings with different legal questions, and that low factual or legal overlap may justify keeping them separate.

If your business is a creditor of an insolvent company, this case shows the commercial logic behind funding a liquidator. Sometimes the estate has no money to investigate transactions, conduct examinations or bring recovery proceedings. A creditor may decide that funding those steps is the only realistic way to create a pool for distribution. Here, the liquidator’s evidence was that there may have been no recovery for creditors without Ford Kinter’s funding.

But the case also shows that funding creates legal complexity. A creditor who funds the process may later seek priority in the distribution under s 564. Other creditors, especially related-party creditors whose claims may dilute the available pool, may resist that outcome. Those disputes can sit alongside separate fights about the liquidator’s remuneration, legal expenses, proofs of debt or settlement approvals. They are connected commercially, but they are not necessarily the same legal controversy.

For business owners, the practical message is to treat liquidator funding as a serious commercial project. Keep clear records of every payment, the purpose of the funding, any variation to the arrangement, and any court approval obtained. Be ready to show how the funding contributed to the recovery. If you later seek priority, that causal story may matter.

This case is also a reminder not to overstate procedural convenience. A party may argue that everything should be heard in one court because it all comes from the same liquidation. This judgment shows that the court will look more closely at the actual issues. If one proceeding is about creditor ranking and another is about remuneration review, the overlap may be too limited to justify transfer.

Businesses operating through related entities should also note the background. The liquidators’ investigations, the public examinations, the proof of debt disputes and the settlement all involved related-party dealings. If your group structure includes intercompany loans, guarantees, asset transfers or payments between related entities, those arrangements may become central in an insolvency and may affect both recoveries and distributions.

The judgment was delivered by Anderson J on 6 August 2024 in the Federal Court of Australia. The orders dismissed the transfer application and awarded Ford Kinter its costs of that interlocutory application. The substantive s 564 proceeding remained on foot in the Federal Court after this decision.

For readers following the matter, the important status point is that this case is not a final answer on creditor priority. It is a procedural ruling about forum. Any broader conclusion about whether a funding creditor will actually rank ahead of other unsecured creditors would need to come from a later substantive decision or other final resolution of the s 564 claim.

Can a creditor fund a liquidator and then ask for priority? Yes, that is what Ford Kinter sought to do here under s 564. But this judgment does not decide whether the claim succeeds on the merits.

Does a related Supreme Court proceeding mean the Federal Court case must be transferred? No. The court held that transfer was not justified here because the overlap of relevant issues was low.

Was Ford Kinter involved in the remuneration proceeding? No. The judgment states that Ford Kinter was not a party to the Supreme Court remuneration proceeding.

What recovery fund was at stake? The judgment states that the funds available for distribution after payment of liquidation expenses were those paid by Fopar under the 2022 settlement deed, being $6,237,475.55.

What should a business document if it funds insolvency action? At a minimum, the funding agreement, any variation, the purpose of each payment, any security for costs provided, and any court approval or creditor approval connected with the arrangement.