ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited, application by Walker (No. 12)
[2012] FCA 1141
•17 August 2012
FEDERAL COURT OF AUSTRALIA
ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited, application by Walker (No. 12) [2012] FCA 1141
Citation: ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited, application by Walker (No. 12) [2012] FCA 1141 Parties: PETER WALKER AND GREGORY MOLONEY IN THEIR CAPACITY AS THE LIQUIDATORS OF ABC LEARNING CENTRES LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664 (NOW KNOWN AS ZYX LEARNING CENTRES LIMITED) AND THE COMPANIES LISTED IN SCHEDULE 1 and ABC LEARNING CENTRES LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664 (NOW KNOWN AS ZYX LEARNING CENTRES LIMITED) AND THE COMPANIES LISTED IN SCHEDULE 1
PETER WALKER AND GREGORY MOLONEY IN THEIR CAPACITY AS THE LIQUIDATORS OF ABC LEARNING CENTRES LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664 (NOW KNOWN AS ZYX LEARNING CENTRES LIMITED) AND THE COMPANIES LISTED IN SCHEDULE 1
File number: NSD 1846 of 2008 Judge: EMMETT J Date of judgment: 17 August 2012 Legislation: Corporations Act 2001 (Cth) ss 477, 479, 588FF, 588FJ
Federal Court of Australia Act 1976 (Cth) s 50Date of hearing: 17 August 2012 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 21 Counsel for the plaintiffs: J Baird Solicitor for the plaintiffs: Addisons
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1846 of 2008
IN THE MATTER OF ABC LEARNING CENTRES LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664 (NOW KNOWN AS ZYX LEARNING CENTRES LIMITED) AND THE COMPANIES LISTED IN SCHEDULE 1
PETER WALKER AND GREGORY MOLONEY IN THEIR CAPACITY AS THE LIQUIDATORS OF ABC LEARNING CENTRES LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664 (NOW KNOWN AS ZYX LEARNING CENTRES LIMITED) AND THE COMPANIES LISTED IN SCHEDULE 1
First PlaintiffsABC LEARNING CENTRES LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664 (NOW KNOWN AS ZYX LEARNING CENTRES LIMITED) AND THE COMPANIES LISTED IN SCHEDULE 1
Second Plaintiffs
JUDGE:
EMMETT J
DATE OF ORDER:
17 AUGUST 2012
WHERE MADE:
SYDNEY
THE COURT DIRECTS THAT:
1.Pursuant to s 479 of the Corporations Act 2001 (Cth) (the Act), the first plaintiffs are justified in entering the funding agreement with IMF (Australia) Ltd (IMF) in relation to proposed proceedings in the form set out in Confidential Exhibit GMM8 to the affidavit of Gregory Michael Moloney sworn on 4 July 2012 and filed in this proceeding (Funding Agreement).
2.The first plaintiffs are justified in complying with the terms of the Funding Agreement.
THE COURT ORDERS THAT:
3.The Confidential Exhibits GMM8 and GMM9 to the affidavit of Gregory Michael Moloney swon on 4 July 2012 and the Confidential Exhibit GMM11 to the affidavit of Gregory Michael Moloney swon on 14 August 2012 be kept in the Court file in this proceeding in a sealed envelope marked ‘Confidential – Not to be opened by any person without further order of a Judge of this Court and giving the first plaintiffs, care of their solicitors Addisons, at least 48 hours prior notice of any application seeking an order, or alternatively the exhibit returned”’.
4.Pursuant to s 477(2B) of the Act, the first plaintiffs may entered into:
4.1The Funding Agreement; and
4.2The legal costs agreement with Addisons in relation to proposed proceedings in the form set out in Confidential Exhibit GMM9 to the affidavit of Gregory Michael Moloney sworn on 4 July 2012 and filed in this proceeding (Legal Costs Agreement).
5.Pursuant to s 479 and s 556 of the Act, the first plaintiffs’ costs and expenses of the application be costs and expenses of the liquidation of the second plaintiffs.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1846 of 2008
IN THE MATTER OF ABC LEARNING CENTRES LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664 (NOW KNOWN AS ZYX LEARNING CENTRES LIMITED) AND THE COMPANIES LISTED IN SCHEDULE 1
PETER WALKER AND GREGORY MOLONEY IN THEIR CAPACITY AS THE LIQUIDATORS OF ABC LEARNING CENTRES LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664 (NOW KNOWN AS ZYX LEARNING CENTRES LIMITED) AND THE COMPANIES LISTED IN SCHEDULE 1
First PlaintiffsABC LEARNING CENTRES LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664 (NOW KNOWN AS ZYX LEARNING CENTRES LIMITED) AND THE COMPANIES LISTED IN SCHEDULE 1
Second Plaintiffs
JUDGE:
EMMETT J
DATE:
17 AUGUST 2012
PLACE:
SYDNEY
REASONS FOR JUDGMENT
I have before me an interlocutory process seeking orders under s 477 and s 479 of the Corporations Act 2001 (Cth) (the Act). The applicants are the liquidators of a number of companies that made up a group generally described as the ABC Group of Companies. Section 477(1) of the Act sets out the powers of the liquidator of a company.
Section 477(2) sets out further powers that are subject to other provisions of s 477 itself. Under s 477(2), a liquidator of a company may bring or defend any legal proceeding in the name and on behalf of the company and appoint a solicitor to assist him or her in his or her duties. The liquidator may also do all such other things as are necessary for winding up the affairs of the company and distributing its property. However, under s 477(2B), except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company’s behalf if the term of the agreement may end, or obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance, more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.
Section 479 provides that the liquidator must, in the administration of the property of the company and in the distribution of the property among its creditors, have regard to any directions given by resolution of the creditors or contributories at any general meeting or by the committee of inspection. Section 479(2) authorises the liquidator to convene general meetings of the creditors or contributories for the purpose of ascertaining their wishes. Section 479(3) provides that the liquidator may apply to the Court for directions in relation to any particular matter arising under the winding-up. Under s 479(4), the liquidator must use his or her own discretion in the management of affairs and property of the company and the distribution of its property.
The applicants in the interlocutory process, Messrs Peter Walker and Gregory Moloney (the Administrators), were appointed joint and several administrators of the companies in the ABC Group of Companies on 6 November 2008. On 2 June 2010, they were appointed joint liquidators (the Liquidators) of the companies in the ABC Group by creditors’ resolution. On 5 April 2012, the Court ordered that the ABC Group of Companies be wound up in insolvency pursuant to s 459A of the Act. However, the day to day control of the business affairs and property of each of the ABC Group of Companies is in the hands of receivers, Messrs Christopher Honey, John Cronin, and Murray Smith (the Receivers), who were appointed by a syndicate of banks who provided financial accommodation to the ABC Group of Companies.
The syndicate of banks provided funding, in December 2007, through a syndicated facility agreement. In June 2008, the facility was renegotiated, amended, and restated. Certain of the ABC Group of Companies granted security by way of fixed and floating charges to the banking syndicate in respect of that amended and restated facility. From time to time, the Receivers have released funds to meet certain costs and expenses incurred by the Administrators and Liquidators. The Australian Securities and Investments Commission (the Commission) also reimbursed the Administrators for assistance that they and their legal advisors provided to the Commission in relation to an application that was made by the Commission to the Federal Court.
On previous occasions, the Administrators secured funding from IMF (Australia) Limited (IMF). A funding agreement was entered into on 19 February 2009 between the Administrators and IMF, to provide funding for the preparation of a preliminary report on solvency of the ABC Group of Companies as at 25 June 2008. A further funding agreement was entered into between the Administrators and IMF on 22 October 2009, to fund the conduct of public examinations in relation to the examinable affairs of the ABC Group of Companies. The Administrators used the funds provided by IMF to conduct public examinations of various examinees in December 2009, March 2010, and April 2010. On the application of the Administrators, the Court issued orders for the production of documents, which were used by the Administrators in the course of their investigations and in the conduct of the public examinations in 2009 and 2010.
Subsequently, the Liquidators secured funding from IMF to conduct further public examinations. The Court approved the entry into of a funding agreement with IMF on 13 May 2011 and the funding agreement was entered into on 1 June 2011. With the funds provided by IMF pursuant to that agreement, the Liquidators conducted further public examinations of various examinees in June 2011, July 2011, and June 2012. The Court made further orders for production of documents, which were used by the Liquidators and their legal representatives in the course of their investigations and the conduct of those further public examinations.
One of the purposes for which the Liquidators conducted public examinations and obtained documents was to investigate potential claims against the banking syndicate in respect of voidable transactions under s 588FF(1) of the Act. Following the public examinations, the Liquidators decided that they would not make an application under s 588FF(1) for an order against the banking syndicate, or any of them.
However, as a result of the ongoing investigations that the Administrators and Liquidators have conducted, they have formed the view that it is appropriate to commence proceedings against the banking syndicate and the Receivers seeking the recovery of certain amounts under s 588FJ of the Act. In such a proceeding, the Liquidators would seek declarations that certain floating charges granted by the ABC Group of Companies to the banking syndicate, during the six months ending on the relation-back day, are void as against the liquidators. They would also seek orders requiring the banking syndicate and the Receivers to repay to the liquidators, or to the ABC Group of Companies, amounts paid to the banking syndicate or realised by the Receivers under the floating charges. However, the Liquidators do not have funds to enable them to conduct such proceedings, which they expect will be complex, lengthy, and hard-fought by the banking syndicate. It is therefore necessary for them to obtain further funding from a third party.
When the ABC Group of Companies went into creditors’ voluntary liquidation on 2 June 2010, a committee of inspection was created for each of A.B.C. Learning Centres Limited (ABC) and A.B.C. Developmental Learning Centres Pty Limited. No other company in the ABC Group of Companies has a committee of inspection. The Liquidators convened meetings of those committees of inspection for 4 July 2012, and provided those members of the committees of inspection who do not represent the banking syndicate with a copy of a draft funding agreement between IMF and the liquidators for the funding of the proceedings that I have just described and associated work, and a copy of a proposed cost agreement between the Liquidators and Addisons, the solicitors who are acting for them. I have seen the documents and have received an application by the Liquidators that the documents remain confidential. I propose to make an order under s 50 of the Federal Court of Australia Act 1976 (Cth). They contain information that is confidential to the Liquidators, the disclosure of which could be harmful. On 2 July 2012, the Liquidators provided a copy of the draft funding agreement and the legal costs agreement, with certain redactions, to the members of the committees of inspection who represent the banking syndicate.
At the meetings of the committees of inspection held on 4 July 2012, they resolved that the Liquidators be authorised to enter into the funding agreement and to retain Addisons, pursuant to the legal costs agreement. It is clear that the obligations of the parties to those agreements may be discharged by performance, and that the term of the agreements may end more than three months after they are entered into. Hence, it will be necessary for the Liquidators to have the approval of the committees of inspection, or of a resolution of the creditors, or of the Court.
I shall summarise the main provisions of the funding agreement. First, funding is to be provided to the Liquidators for the purposes of funding the proceedings that I have described. Second, the Liquidators and the ABC Group of Companies will pay to IMF from any Resolution Sum, as defined, on resolution of the proceeding, as defined, amounts in the order of priority as set out in the agreement. Third, the Liquidators are to keep IMF fully informed of all matters concerning the proposed proceedings.
In that regard, the agreement provides that IMF will be provided with access to documents in relation to the proposed proceedings. However, IMF acknowledges and agrees that the Liquidators are under a duty to use any documents that are produced to the Court, or obtained by them as a result of or during the course of the proceedings, for the purposes of the proceedings and the liquidation of the company, and for no other purpose. In order to comply with the Liquidators’ implied undertaking to the Court, unless permitted by order of the Court or by consent of the producing party, the Liquidators agree not to provide to IMF a copy of any document obtained in the proceedings by way of discovery, subpoena, or other coercive power of the Court. However, the Liquidators agree to make such an application to the Court, at IMF’s cost, for IMF to be permitted access to the documents as IMF reasonably requests.
The most significant aspect of the proposed funding agreement is the proportion of recovery payable to IMF. Mr Gregory Moloney, one of the Liquidators, has had approximately 29 years’ experience in insolvency matters, and has been a registered liquidator for approximately 23 years. He has expressed his opinion that it is usual for a litigation funder to require a payment in the order of 15 to 35 per cent of the proceeds of any recovery, depending on the stage at which the litigation settles or concludes, plus repayment of expenses.
The proportion of any recovery to be paid to IMF depends upon whether the amount is received within a stated period from entry into the agreement. The proportion is higher if the sum is received after the expiration of that period. The proportion of recovery payable to IMF is at the higher end of the scale to which Mr Moloney refers. Mr Moloney considers that the commercial terms of the funding agreement are reasonable in light of the very significant funding that IMF has already provided to the Administrators and Liquidators under the previous funding agreements, and of the fact that IMF is taking the risk in funding the proceeding against some 10 defendants, who may or may not be separately represented. The outcome of the proceeding is by no means certain.
The claims that the Liquidators propose to make in the contemplated proceeding is for recovery of sums of approximately $244 million plus interest. If the proceeding is successful, funds recovered would be available for distribution to priority creditors and then unsecured creditors, after payment to IMF of its entitlements under the proposed funding agreement and the Liquidators’ costs. The proposed funding agreement contains a condition precedent that the Liquidators obtain the approval of the committees of inspection and of the Court. As I have said, the committees of inspection have approved the proposed funding agreement. The Liquidators now seek the Court’s approval under s 477(2B). They also seek a direction under s 479 that they would be justified in complying with the terms of the funding agreement.
The question of whether the Liquidators should enter into agreements, such as the proposed funding agreement and the legal costs agreement, are for them to make, exercising their commercial judgment. It is not for the Court to give them advice as to whether they should or should not enter into such arrangements. However, if they are of the view that the arrangements are in the interests of the winding-up of the companies, it is within their power to make the arrangements.
There is nothing in the terms of the agreements that would appear to impede the performance of the obligations that the Liquidators propose to undertake. They would therefore be justified in performing the obligations, on the assumption that they have, in the exercise of their judgment, concluded that the agreements should be entered into. The Liquidators consider that entry into the proposed funding agreement is necessary to enable them to conduct the proposed proceeding. It is unlikely that the assets of the ABC Group of Companies will realise sufficient funds for any creditors, other than the banking syndicate, to receive a dividend. Only if the Liquidators are successful in any proposed proceeding would there be any return available to the unsecured creditors. The Liquidators therefore consider that is in the best interests of the ABC Group of Companies and its creditors that the proposed funding agreement and legal costs agreement be entered into, and that the Liquidators perform their obligations under those agreements.
In reaching their conclusion that it was appropriate to commence proceedings against the banking syndicate and the Receivers, the Liquidators relied on written opinions obtained from counsel concerning the proposed claims. The Liquidators have provided to the Court extracts of those opinions. The opinions are given by eminent counsel and the Liquidators have given appropriate consideration to the opinions. In the light of the opinions expressed, they have formed the view that is appropriate to commence the proposed proceeding.
The amounts that the Liquidators hope to recover include four separate amounts, which are the subject of the opinions to which I have referred, as follows:
·first, a sum of $143,662,487 received from the sale of 60 per cent of the interests of the ABC Group of Companies, and the business and assets owned and conducted by them, in the United States;
·second, the sum of $12,785,227 received from the sale of the UK Vouchers Business, owned and conducted by the ABC Group of Companies;
·third, a sum of $18,624,237 received from the Australian Taxation Office in respect of a tax refund for the year ended 30 June 2008; and
·fourth, a sum of $69,447,966 received from the Australian Taxation Office in respect of tax refunds for the years ended 30 June 2005, 2006, and 2007.
As I have indicated, the total of those amounts is $244,519,918. In the light of the material to which I have referred and the material that I have considered in the draft funding agreement, the legal costs agreement, and the written opinions of counsel, I consider that it is appropriate to accede to the Liquidators’ application. The opinions of counsel should also be the subject of a confidentiality order under s 50 of the Federal Court of Australia Act1976 (Cth).
I certify that the preceding twenty one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate:
Dated: 31 October 2012
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