Some liabilities may be enforceable but not provable 5 min read
In Forex Capital Trading Pty Ltd (in liq) v Invesus Group Ltd [2025] NSWCA 64, the New South Wales Court of Appeal has confirmed that a parent company agreement under a letter of comfort to pay 'debts … incurred' by its subsidiary does not apply to proofs of debt admitted in liquidation.
In this Insight, we look at the decision and what can be learned from it.
Key takeaways
- The court's decision is a useful reminder that the amount for which a proof of debt is admitted by a liquidator does not always correlate with the amount for which a company is liable—eg there are some liabilities that may be enforceable against the company but not provable in the liquidation.
- It also highlights the importance of precise drafting. While letters of comfort will not always provide a legally enforceable obligation, liquidators should keenly examine their content before making a decision.
Background
Forex Capital Trading Pty Ltd (FXCT) operated a business providing a platform for the sale of derivatives and foreign currency exchange products. Invesus Group Limited (IGL) was its ultimate parent company. During the course of a proceeding brought by the Australian Securities and Investment Commission against FXCT, IGL executed a letter of comfort in favour of FXCT and its directors. The letter of comfort applied regarding 'any debts, including judgment debts, incurred by FXCT ... prior to or after the date of this letter in respect of FXCT’s customers'. In the aftermath of that proceeding, in which FXCT had agreed to a penalty of $20 million, it was voluntarily wound up. FXCT’s liquidators admitted proofs of debt submitted by former customers in the amount of $43,645,127.26, under a process approved by the Federal Court. The FXCT liquidators then commenced a proceeding against IGL for breach of the letter of comfort, to recover the amount owed to former customers.
The decisions
Supreme Court
At first instance, the primary judge determined that IGL was not liable under the terms of the letter of comfort to former customers for debts admitted by FXCT's liquidators. The court found that when a liquidator admits a proof of debt, the liquidator 'is not creating a new liability of the company in substitution for an existing liability'. It explained that the liquidators' admissions could not meet the definition of 'debts' under the letter of comfort, as the admission of a proof of debt could not alter the company's underlying liabilities, and could not bind IGL.
Court of Appeal
On appeal, Justice Mitchelmore, with whom Justices Kirk and Adamson agreed, upheld the primary judge's decision that the admissions of proofs of debt by the liquidator did not create a claim under the letter of comfort. Her Honour noted that a liquidator's role under the Corporations Act 2001 (Cth) is to preside over the statutory scheme by which assets are distributed. By virtue of the winding up, creditors obtain a right to participate in the distribution but the process of administration of assets is not one by which rights against the company itself are obtained or enforced.
In coming to this decision, Justice Mitchelmore explained that:
- The liquidator's admission of proofs of debt of former customers did not affect the independent existence of those claims.
- There was nothing in the letter of comfort that suggested IGL accepted it would be bound by the liquidator's determination of claims by former customers.
Useful points
Again, the decision is a strong reminder that the amount for which a liquidator admits a proof of debt does not always correspond with the amount for which a company is liable, and also that precise drafting is crucial.
If you wish to discuss anything raised in this Insight, please do not hesitate to contact one of our experts.