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Accordingly, the fruits of the section 214 action were not capable of assignment
under the power conferred on the liquidator. 244
In contrast, the Australian Federal Court in Re Motivator Pty Ltd (rec and mgr
apptd) (in liq) v Sims 245 concluded that a liquidator is empowered to enter into an
arrangement with an insurer for an action against directors in which the insurer
agreed to finance the proceedings in consideration of full reimbursement of the costs
and a further 12% of the net recoveries, should the liquidator succeed. The court
regarded the arrangement as one of the exceptions to champerty. 246
Another source of funding which a liquidator can opt for, is to seek indemnities from
creditors before commencing an action which any prudent liquidator would have
resort to, prior to taking action under section 214. The court in Re Exchange Travel
(Holdings) Ltd (in liq) (No 3), Katz and Others v McNally and others 247 did not
regard the arrangement in which a major creditor agreed to finance the cost of
proceedings as champertous. The reason for this was because it did not involve the
fruits of litigation being carried on by the liquidator being sold to a party who had no
interest in the litigation. Instead, it concerned a major creditor who was vitally
interested in the proceedings and the arrangement was allowed.
244 The decision was upheld by the Court of Appeal in Re Oasis Merchandising Services Ltd (in liq),
Ward v Aitken and Others [1997] 1 BCLC 689.
245 (1995) 19 ACSR 440.
246 One of the exceptions to the champerty rule is that the trustee in bankruptcy may lawfully assign
any of the trustee‘s bare causes[?causes] of action on terms that the trustee receive a share of the
proceeds of the litigation. The judge draws the same analogy to the liquidator‘s power in
Corporations Law s477(2)(c): ―A share in the fruits if an action belonging to an insolvent
company is ‗the property of the company‘ for the purpose of section 477(2)(c ) Corporations Law,
that section authorises the liquidator to make an arrangement to pay a percentage of such
recoveries in return for assistance in running the action, because the section empowers the
liquidator not only to sell but to otherwise dispose of in any manner any part of the company‘s
property‖- Re Motivator Pty Ltd (rec and mgr apptd) (in liq) v Sims(1995) 19 ACSR 440 at 451.
247 [1997] 2 BCLC 579 at 588.
366