The High Court has provided guidance in relation to when pooling orders are appropriate considering the requirements under section 579E(1) of the Corporations Act 2001 (Cth) (Act). In Morgan v McMillan Investment Holdings Pty Ltd [2024] HCA 33 (Morgan), the High Court had to consider whether a right to sue held by companies in liquidation could provide the required threshold for a pooling order under section 579E(1)(b)(iv).

Section 579E(1) of the Act allows the Court to make a “pooling order” in relation to a group of two or more companies that are being wound up, where it is just and equitable to do so, and any of the requirements under the legislation are met. The requirements are:
• each company is a related body corporate of the other(s) in the same group (section 579E(1)(b)(i));
• the companies are jointly liable for one or more debts or claims (section 579E(1)(b)(ii));
• the companies jointly own or operate particular property that is or was used, or for use, in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group (section 579E(1)(b)(iii)); or
• one or more companies in the group own particular property that is or was used, or for use by any or all of the companies in the group in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group (section 579E(1)(b)(iv)).

The aim of the pooling orders regime is to simplify the process of winding up a group of companies in liquidation. This ultimately should reduce the cost incurred by insolvency practitioners in untangling the affairs of a group of companies in liquidation and therefore increasing the returns for unsecured creditors by allowing the assets and liabilities of that group of companies to be pooled for the general benefit of the companies’ unsecured creditors. Each company subject to the pooling order will be jointly and severally liable for the debts of each other company in the group, and intercompany debts within the pooled group will be extinguished.

The High Court set out the principles relevant to interpreting the third and fourth gateway requirements under section 579E(1)(b)(iii-iv), namely:
• identify the particular property. Given the lack of a statutory definition for this phrase, a broad interpretation has been adopted meaning that it includes both tangible and intangible property and extends to all valuable rights and claims.
• there must be present or past use of the property in connection with a joint business, scheme or undertaking.
• there must be a connection between the identified use of the property and the joint operation of the companies.

Whilst the pooling order regime reflects a change of policy introduced by government to increase the returns available to creditors, it does not sit neatly with one of the basics of insolvency law which is that a company’s assets should only be divided among its specific creditors (as opposed to the liquidator being able to put all the pieces of pie held by a group of companies together to dish out slices to the creditors). Given a pooling order is a type of order which is only available to companies that are being wound up, liquidators must be cautious when relying on a connection between the particular property and the business carried on by companies in the group, especially if the business is no longer being carried on due to the liquidation. Morgan is a useful reminder of the factors that liquidators should consider when considering whether to seek pooling orders.