Ball, in the matter of ACN 605 650 182 Pty Ltd (in liq)

Case [2022] FCA 2

FEDERAL COURT OF AUSTRALIA

Ball, in the matter of ACN 605 650 182 Pty Ltd (in liq) [2022] FCA 2

File number: NSD 573 of 2020
Judgment of: CHEESEMAN J
Date of judgment: 7 January 2022
Catchwords:

CORPORATIONS – application by liquidator for approval of entry into a funding agreement and costs agreement pursuant to section 477(2B) of the Corporations Act 2001 (Cth) – where agreements are sought to be entered into for the purpose of funding and prosecuting potential claims available to the companies in liquidation – where the expiry of the limitation period to bring such claims is imminent – where the liquidations are otherwise without sufficient funds to pursue the potential claims – where present indication is that any proceedings will be vigorously opposed including by potential strike out application – whether entry into the agreements is in the interests of the administrations – Held: application successful.

PRACTICE AND PROCEDURE – confidentiality orders sought in respect of evidence supporting the application – where that evidence comprises the funding agreement and costs agreement – where the liquidator deposes to the potential risk that defendants to any future proceedings may obtain a strategic advantage if the terms of the agreements were disclosed – Held: confidentiality orders made.
Legislation:

Corporations Act 2001 (Cth), s 477(2B)

Federal Court of Australia Act 1976 (Cth), s 37AF

Cases cited:

ASE16 v Australian Securities and Investments Commission [2016] FCA 321

Australian Competition and Consumer Commission v Origin Energy Electricity Ltd [2015] FCA 278

Australian Competition and Consumer Commission v Valve Corporation (No 5) [2016] FCA 741

Chief Executive Officer of Australian Transaction Reports and Analysis Centre v TAB Limited (No 4) [2017] FCA 1532

Clark v Digital Wallet Pty Ltd [2020] FCA 877

Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651

Hurst, in the matter of Liquor National Pty Ltd (in liq) [2019] FCA 1581

In the matter of One.Tel Limited [2014] NSWSC 457; (2014) 99 ACSR 247

Lindholm (liquidator), in the matter of Aviation 3030 Pty Ltd (in liq) [2021] FCA 1244

Pascoe, re Matrix Group Ltd (in liq) [2011] FCA 1117

Re CIC Insurance Ltd [2001] NSWSC 438; (2001) 38 ACSR 181

Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257

Re Opel Networks Pty Ltd [2013] NSWSC 1245

Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375
Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 38
Date of hearing: 7 January 2022
Counsel for the Plaintiff: Mr D Robertson
Solicitor for the Plaintiff: Stacks Law Firm

ORDERS

NSD 573 of 2020

IN THE MATTER OF ACN 605 650 182 PTY LTD (IN LIQUIDATION) ACN 605 650 182 (FORMERLY KNOWN AS “ABC BOOKKEEPING PTY LTD”) AND ACN 605 522 281 PTY LTD (IN LIQUIDATION) ACN 605 522 281 (FORMERLY KNOWN AS “TWA ACCOUNTANTS PTY LTD”)

MITCHELL WARREN BALL AS LIQUIDATOR OF ACN 605 650 182 PTY LTD…

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Details
AGLC
Ball, in the matter of ACN 605 650 182 Pty Ltd (in liq) [2022] FCA 2
Case
[2022] FCA 2
Decision Date

CaseChat Overview and Summary

In the case of Ball, in the matter of ACN 605 650 182 Pty Ltd (in liq), the court was required to consider an application by the liquidator, Mitchell Warren Ball, to enter into a funding agreement and a costs agreement for the purpose of funding and prosecuting potential claims available to the companies in liquidation. The companies, ABC and TWA, were placed into liquidation, and the liquidator sought to enter into agreements to fund and prosecute potential claims before the limitation period expired. The liquidator argued that the agreements were in the interests of the administrations and that disclosure of the terms of the agreements could prejudice the proper administration of justice.

The court was required to decide whether the liquidator's application to enter into the funding and costs agreements was appropriate under section 477(2B) of the Corporations Act 2001 (Cth). The court also had to determine whether confidentiality orders should be made in respect of the evidence supporting the application.

The court found that the liquidator had demonstrated that the agreements were in the interests of the administrations and that the terms of the agreements were reasonable, commercial and typical of the funding market. The court noted that the liquidator had control of the conduct and potential settlement of the proposed proceedings and that the funder would not have any influence over the proceedings. The court also found that confidentiality orders were necessary to prevent prejudice to the proper administration of justice.

The court made orders approving the liquidator's entry into the funding and costs agreements, and also made confidentiality orders in respect of discrete parts of the evidence supporting the application. The court noted that the liquidator had deposed to the potential risk that defendants to any future proceedings may obtain a strategic advantage if the terms of the agreements were disclosed. The court found that the confidentiality orders were necessary to prevent prejudice to the proper administration of justice.

Orders

Orders of the court

1. Pursuant to s 477(2B) of the Corporations Act 2001 (Cth) the Plaintiff’s entry into the litigation funding agreement with Premium Litigation Funding Pty Limited ACN 616 167 581 in the form of Confidential Exhibit A, both in his own capacity and as liquidator of ACN 605 650 182 Pty Ltd (In Liquidation) ACN 605 650 182 (formerly known as “ABC Bookkeeping Pty Ltd & Liquidion Bookkeeping Pty Ltd”) (ABC) and ACN 605 522 281 Pty Ltd (In Liquidation) ACN 605 522 281 (formerly known as “TWA Accountants Pty Ltd”) (TWA) be approved.

2. Pursuant to s 477(2B) of the Act the Plaintiff’s entry into the costs agreement with ACN 128 544 267 Pty Limited trading as Stacks Law Firm in the form exhibited to the Confidential Affidavit of Mitchell Warren Ball affirmed on 22 December 2021 both in his own capacity and as liquidator of ABC and TWA be approved.

3. Order 1 of the orders made on 26 June 2020 and 23 December 2021 be vacated.

4. Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice as provided in s 37AG(1)(a), the following documents be suppressed and not published to any person other than the Plaintiff and his legal advisers until the conclusion of the liquidation of ABC and TWA or until further order of the Court, whichever is the earlier:

(a) the Second Affidavit of Mitchell Warren Ball of 21 May 2020 which is marked confidential and exhibit MB-2;

(b) paragraph 56(e)(ii) of the Third Affidavit of Mitchell Warren Ball of 22 December 2021 and pages 34 - 50 of exhibit MB-3;

(c) paragraphs 13(a), 15(a), 17 and 18 of the Fourth Affidavit of Mitchell Warren Ball of 5 January 2022 and pages 1 to 12 of exhibit MB-4, being a draft funding agreement; and

(d) the draft funding agreement comprising Confidential Exhibit A on the interlocutory application determined on 7 January 2022.

5. Costs of and incidental to this interlocutory process be costs in the winding up of ABC and TWA.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

For the reasons that follow, having read and considered the evidence advanced by the liquidator and with regard to principles relevant to the Court’s approach to applications under s 477(2B) of the Act, I am satisfied that it is appropriate to make orders under s 477(2B) of the Act. I am also satisfied that it is appropriate to make confidentiality orders over discrete parts of the evidence on the grounds that it is necessary to prevent prejudice to the proper administration of justice.BACKGROUND ABC and TWA were each placed into liquidation by a resolution of members pursuant to s 491(1) of the Act on 19 July 2016 and 25 May 2017 respectively. ABC carried on a business providing administrative and / or bookkeeping services. TWA carried on a business providing accounting services. TWA was originally set up for a business that Wayne Fraser, a registered tax agent and accountant, intended to operate with two other accountants. ABC was established for Tamar Fraser, Mr Fraser’s wife, to provide administrative and bookkeeping services. Both companies appear to have ceased their operations prior to the liquidator’s appointment. Company searches for ABC and TWA obtained by the liquidator are in evidence and demonstrate that:(1)ABC was incorporated on 5 May 2015. Maddy George became a director of ABC on 20 November 2015 and holds all of the issued shares in ABC. Ms Fraser was a director of ABC for one day, being the date of its incorporation. (2)TWA was incorporated on 28 April 2015. Mr Fraser was a director from the date of TWA’s incorporation until 2 September 2015 and subsequently for one day on 1 January 2016. Melville John Toms became a director of TWA on 21 April 2017. Mr Toms holds all of the issued shares in TWA. These proceedings were commenced by originating process filed on 21 May 2020 seeking, amongst other things, the issue of summonses for the examination of various individuals including the Frasers and an extension of the time to make any application pursuant to s 588FF(1) of the Act in relation to claims ABC or TWA may have against any party. The Australian Securities and Investment Commission (ASIC) agreed to fund the costs of the examinations and, following Court approval being obtained on 18 June 2020, the liquidator retained Stacks Law Firm to prepare the application and to conduct examinations. The purpose of the examinations was to determine the strength of any voidable transactions claims that may be available in respect of ABC and TWA. Public examinations were conducted during the course of 2021. Stacks Law Firm, on behalf of the liquidator, also obtained production of documents from various individuals and companies in the period from May 2020 to March 2021. The liquidator deposes to the fact that he has been a registered liquidator since 2005 and otherwise has over 20 years’ experience in corporate insolvency and restructuring. He gives evidence of his experience in dealing with and negotiating agreements with litigation funders in his capacity as a liquidator.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

It is well established that commercial sensitivity can be an appropriate basis for making a suppression or non-publication order: Clark v Digital Wallet Pty Ltd [2020] FCA 877 at [21] – [22] (Abraham J); see also Australian Competition and Consumer Commission v Origin Energy Electricity Ltd [2015] FCA 278 at [148] (Katzmann J); ASE16 v Australian Securities and Investments Commission [2016] FCA 321; (2016) 112 ACSR 36 at 61 [81] and 63 [93] (Markovic J). CONSIDERATION Section 477(2B) Approval Both agreements fall within the ambit of s 477(2B) of the Act given that the term of the agreements may end or obligations of a party to the agreements may be discharged by performance more than three months after the agreements are entered into. For this reason, in the circumstances of the present case, approval under s 477(2B) is necessary. The object of the approval process under s 477(2B) is to ensure that the contractual terms of the proposed agreement do not give rise to an error of law or reason to suspect lack of good faith or other impropriety on the part of the liquidator of the company: Pascoe, re Matrix Group Ltd (in liq) [2011] FCA 1117 at [7] (Jacobson J) citing Leigh; Re AP and PJ King Pty Ltd (in liq) [2006] NSWSC 315 at [23] (Austin J). In considering whether approval ought to be granted, the Court does not simply “rubber stamp” whatever the liquidator puts forward: Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375 (Gordon J) at [26], cited by Gleeson J in Hird (Liquidator), in the matter of Allmine Group Limited (in liq) [2018] FCA 781 at [32]. However, it is important to note that the role of the Court does not involve exhaustively or closely considering the commercial merits or otherwise of the proposed agreement: Re CIC Insurance Ltd [2001] NSWSC 438; (2001) 38 ACSR 181 at 183 [9] (Barrett J). The liquidator has made the commercial judgment that entry into the funding agreement is in the interests of creditors of ABC and TWA and addressed in his evidence why that is so by reference to the funding agreement in its amended form. The funding agreement is such that control of the conduct and potential settlement of the proposed proceedings lies with the liquidator and not the funder. The liquidator’s view, based on his experience, is that the terms of the funding agreement are “typical, reasonable and competitive”. The liquidator specifically deposes to the fact that based on his experience and his awareness of current premiums in the funding market, the proposed premium in the funding agreement is reasonable, commercial and in the interests of creditors. The liquidator draws further comfort in this regard from the fact that the funding agreement is addressed to the particular circumstances at hand where the indication is that the proposed proceedings will be strongly defended and may require the funder to provide security for costs and to fund defence of a foreshadowed strike out application at an early stage of the proceedings. Further, that there is presently no prospect of a return to creditors, and that the prospects of a return will improve significantly if the proposed claims are litigated and that that will only be possible if entry into the funding agreement is approved.