Ford Kinter & Associates Pty Ltd, in the matter of Reliance Franchise Partners Pty Ltd (in liq) v Reliance Franchise Partners Pty Ltd (in liq) (No 2)

This Federal Court decision is about insolvency recoveries and creditor priority. It is not a franchising law case, even though the insolvent company was called Reliance Franchise Partners Pty Ltd. The real issue was whether an unsecured creditor that funded the liquidators should be paid ahead of other unsecured creditors under s 564 of the Corporations Act.

Ford Kinter had sold its client book to Reliance on instalment terms, was left unpaid for part of the price, obtained judgment, and then saw Reliance go into liquidation. The liquidators identified possible recoveries but needed money to investigate and pursue them. Ford Kinter provided that funding. The funded work ultimately led to a settlement payment of $6,237,475.55 into the liquidation.

Ford Kinter then asked the Court to alter the usual order of distribution so that, after any remaining s 556(1) claims, its admitted debt of $1,552,289.56 would be paid before other unsecured creditors. The Court granted that order.

The commercial dispute began with a business sale. Ford Kinter operated a general insurance brokerage business and in 2013 sold its client book to Reliance. The deed provided for the price to be paid in three instalments. Reliance paid the first instalment but not the second and third. Ford Kinter sued and succeeded completely. The County Court ordered Reliance to pay the unpaid amount, interest and costs, and the Court of Appeal later dismissed Reliance's appeal with costs.

That judgment still did not produce payment. Ford Kinter moved to wind up Reliance. Before the winding up application was determined, Reliance's director appointed voluntary administrators. The Supreme Court of Victoria then wound up Reliance and appointed liquidators.

The legal issue was whether the Court should exercise its power under s 564 of the Corporations Act to alter the usual order of distribution in Reliance's liquidation. Ordinarily, after higher-ranking claims are dealt with, unsecured creditors share pari passu. Section 564 allows the Court to make a different order where property has been recovered, protected or preserved because certain creditors paid money or gave an indemnity for litigation or related expenses.

So the question was not whether Ford Kinter was a creditor. That was already established. The question was whether Ford Kinter's funding brought the case within s 564 and, if so, whether it was just to give Ford Kinter an advantage over other unsecured creditors in light of the risk it had assumed.

Anderson J held that the Court's jurisdiction under s 564 was enlivened. Ford Kinter's funding under the original funding agreement and the later variation, together with the recoveries under the settlement deed, met the requirements of s 564(a). That meant the Court had power to consider altering the distribution of the liquidation property.

The harder question was whether the discretion should be exercised in Ford Kinter's favour. The Court said yes. A central reason was the level of risk Ford Kinter had taken. The initial $50,000 was advanced before there was any guarantee of recovery and without legal advice confirming a strong claim. Later, even after counsel's advice was obtained, the advice only said there were "properly arguable claims" and was subject to a material qualification about when Reliance became insolvent.

Ford Kinter still advanced significant further funds and provided security for costs.

This case is useful for businesses that become unsecured creditors after a customer, buyer or group company collapses. It shows that creditor funding can be commercially powerful where there is a realistic recovery path but no money in the liquidation to pursue it.

If the liquidator identifies possible claims against related parties, recipients of company funds or others involved in pre-liquidation transactions, the real question may become who is willing to fund the work needed to turn that possibility into an actual recovery.

But the case should not be read too broadly. It does not mean every creditor who contributes money will get priority. The Court's power under s 564 is discretionary and fact-sensitive.

Ford Kinter succeeded because several factors lined up strongly in its favour: it was effectively the only plausible unrelated funding creditor, it funded the process before any recovery was assured, the funded action recovered the full amount sought, there likely would have been no recovery without its funding, and the practical prejudice to other unsecured creditors was limited.

Several documents and steps were important to the outcome. First, the original sale deed created the deferred payment obligation that later became the judgment debt. Second, the County Court judgment and the failed appeal established Ford Kinter's status as a substantial creditor. Third, the liquidators' reports identified the suspected disbursements to the parent company and the need for public examinations.

Those reports helped explain why funding was needed and why Ford Kinter was the only realistic source of it.

Fourth, the funding agreement and the deed of variation were central. They showed what work Ford Kinter agreed to fund, how the funding purpose expanded over time, and that the arrangement contemplated a possible later application under s 564. Fifth, the public examinations and counsel's advice showed that the liquidators' recovery strategy developed through investigation rather than appearing fully formed from the start. That supported the Court's view that Ford Kinter took real risk at an early stage.

Creditors often ask whether funding a liquidator is simply another form of debt recovery. This case shows it is more than that. It is a strategic insolvency step that may improve your position, but it also exposes you to real risk. You may fund investigations, examinations or litigation and still recover nothing. The Court will not reward funding for its own sake. It will look at whether the funding actually enabled a recovery and whether giving you priority is just in the circumstances.

Another common question is whether a commercial litigation funder could do the same job. The evidence in this case was that third-party funders often seek commissions in the range of 25 to 30 per cent of recoveries, may impose funding caps, and may not fund all parts of a dispute, including defensive proceedings. That evidence helped explain why Ford Kinter's funding was suitable here.

But each liquidation is different, and businesses should compare the likely economics and control issues before deciding how a claim should be funded.

The judgment was delivered on 20 February 2025 and the reasons were published on 28 February 2025. The application was brought in the Federal Court of Australia and ultimately proceeded unopposed. The Court made the orders sought by Ford Kinter at the hearing and later published reasons explaining why.

For readers using this case as guidance, the key status point is that it is a first instance Federal Court decision applying established principles under s 564 to a particular set of facts. It is a useful authority on creditor-funded liquidator recoveries, but it does not create a universal rule that funding creditors always rank ahead of other unsecured creditors.

This page is based on the Federal Court of Australia decision in Ford Kinter & Associates Pty Ltd, in the matter of Reliance Franchise Partners Pty Ltd (in liq) v Reliance Franchise Partners Pty Ltd (in liq) (No 2) [2025] FCA 139. The reasons identify the statutory issue, the factual background, the funding arrangements, the settlement recovery and the factors the Court considered relevant to the exercise of discretion under s 564.

The decision should be read as an insolvency priority case. The names of the parties may suggest a franchising dispute, but the Court's reasoning is about liquidation recoveries, creditor funding and distribution priorities. The result turned on the specific facts, including Ford Kinter's role as the only plausible funding creditor, the substantial risk it assumed, the full recovery achieved in the funded proceeding, and the limited practical impact on the rest of the unsecured creditor pool.