Barilla & Barilla (No 4)

[2023] FedCFamC1F 822

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA

(DIVISION 1)

Barilla & Barilla (No 4) [2023] FedCFamC1F 822

File number(s):

CAC 1604 of 2018

Judgment of:

GILL J

Date of judgment:

27 September 2023

Catchwords:

FAMILY LAW – CORPORATIONS – liquidator a party to proceedings – liquidator seeking approval under sections 477(2A) and 477(2B) of the Corporations Act 2001 of a compromise of the debt claim in respect of the wife that would release the husband and wife from further claims – notice to be given to creditors of proposed compromise and application for approval

Legislation:

Corporations Act 2001 (Cth) - ss 477(2A) and 477(2B)

Cases cited:

Elderslie Finance Corp Ltd v Newpage Pty Ltd (No 6) (2007) 160 FCR 434

Re GVE Hampton Pty Ltd (In Liq) [2022] VSC 539

Re McDermott and Potts (in their capacities as joint and several liquidators of Lonnex Pty Ltd (in liq)) (ACN 097 786 751) [2019] VSCA 23

Re One Tel (2014) 99 ACSR 247

Division:

Division 1 First Instance

Number of paragraphs:

18

Date of hearing:

6 September 2023

Place:

Canberra

Solicitor for the Applicant:

Ms Fox, Farrar Gesini Dunn

Solicitor for the Respondent:

Litigant in Person

Counsel for the Intervener:

Mr Blank

Solicitor for the Intervener:

Parker Coles Curtis

ORDERS

CAC 1604 of 2018

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)

BETWEEN:

MS BARILLA

Applicant

AND:

MR BARILLA

Respondent

MR MARRIOTT AS LIQUIDATOR OF B PTY LTD (IN LIQUIDATION)

Intervener

ORDER MADE BY:	GILL J
DATE OF ORDER:	27 SEPTEMBER 2023

THE COURT ORDERS THAT:

1.Within fourteen days the liquidator shall serve upon the creditors of B Pty Ltd:

(a)These orders and reasons;

(b)A document setting out the terms of the proposed compromise with the wife.

2.The liquidator shall file an affidavit containing evidence sufficient to establish compliance with Order 1.

3.In the event that a creditor wishes to be heard in relation to the approval of the compromise then such creditor shall appear on 22 November 2023 at 10 am.

4.The further hearing of the application for approval and associated application is adjourned for hearing to 22 November 2023 at 10 am.

5.In the event that the liquidator has prepared the material that the liquidator seeks to rely upon in respect of the approval application, the liquidator is at liberty to seek confidentiality orders in relation to such at the further hearing of the matter.

Note:   The form of the order is subject to the entry in the Court’s records.

Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).

Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.

IT IS NOTED that publication of this judgment by this Court under a pseudonym has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

REASONS FOR JUDGMENT

GILL J

1. This application in a proceeding brought by the liquidator concerns, in substance, his seeking of the approval of the court for a compromise with the wife as a debtor to B Pty Ltd (In Liq).  This, he says, would end the relief sought by him as liquidator in relation to the husband and wife and in relation to the major asset of the relationship, a property held in the name of the wife.  This would have the corresponding effect of ending the need for the liquidator to engage with the proceedings before this court.

2. The key current aspect of the liquidator’s application was as to the process by which approval would be obtained.  He proposes that this would be without notice to the creditors, and without identification of the terms of the settlement to the husband.  Accordingly, at present, the terms of the proposed settlement are not before the court.

3. The wife supported the liquidator’s application.  The husband opposed it.

4. While the application also dealt with an extension to the timeline within which the liquidator was to identify the relief that he pursues against the husband and wife, prior to the relevant deadline the liquidator complied with the direction, rendering this aspect of the application in a proceeding no longer necessary.

   Approval

5. Substantively the liquidator seeks the court’s approval of the compromise pursuant to ss 477(2A) and 477(2B) of the Corporations Act 2001. Those provisions are in the following terms:

   (2A)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 compromise a debt to the company if the amount claimed by the company is more than:

   (a)if an amount greater than $20,000 is prescribed--the prescribed amount; or

   (b)otherwise--$20,000.

   (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 (for example, but without limitation, a lease or an agreement under which a security interest arises or is created) if:

   (a)without limiting paragraph (b), the term of the agreement may end; or

   (b)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.

6. Presumably the need for approval arises as, despite the breadth of the liquidator’s powers as conferred by s 477 of the Corporations Act, the debt which is the subject of the proposed compromise with the wife exceeds the amount specified at s 477(2A), and the time within which compliance would take place for the payment of the compromise exceeds three months.

7. While s 477(2A) also permits the liquidator to obtain approval from the creditors, the liquidator seeks to avoid the delays and burden associated with obtaining such.

   Procedure in relation to approval

8. As noted above, the key matter to be resolved at present is not the approval itself, but rather the process by which the application for approval is to be determined.  In particular, the issue is whether the terms will be disclosed to the husband and the creditors, and whether the creditors will be placed on notice of the application for approval.

9. This aspect of the application did not feature in the application filed by the liquidator on 30 August 2023, which expressed the seeking of an approval on an indeterminate basis, that is for the liquidator to receive an undisclosed amount from the wife, and to release the husband and wife on terms in his discretion.

10. The liquidator further sought to have material relied upon by him, such as legal advice, dealt with confidentially by the court, and not released to the husband nor to the creditors.

    Consideration

11. Prior to considering the confidentiality issue it is appropriate to consider the notice to creditors issue.

12. Each of the provisions is in place to ensure that the court (or creditors) exercise some oversight over a limited aspect of the exercise of the broad powers conferred upon a liquidator pursuant to s 477. The authorities provided in argument by the liquidator, in particular, Re GVE Hampton Pty Ltd (In Liq) [2022] VSC 539 in which Connock J provided a helpful survey of authorities, emphasised that the role of the court in giving or withholding approval was not the second guessing of the exercise of commercial judgment by the liquidator, or the assessment of the commercial desirability of the transaction. Rather, it is to ensure “that the interests and wishes of those affected by a compromise, chiefly the creditors, are a major consideration in making such a compromise.”[1]  It does not involve a close consideration of the commercial merits of the transaction, largely entrusting the merits to the liquidator, and will generally give approval absent lack of good faith, error in law or principle, or real or substantial ground for doubting the reasonableness of the liquidator’s view.[2]

    [1] Elderslie Finance Corp Ltd v Newpage Pty Ltd (No 6) (2007) 160 FCR 434, [18]-[28] (Lindgren J).

    [2] Re One Tel (2014) 99 ACSR 247, [29] (Brereton J).

13. However, in so doing, and in ensuring the consideration of the creditors, the attitudes, wishes and interests of the creditors are important considerations.[3]

    [3] Re McDermott and Potts (in their capacities as joint and several liquidators of Lonnex Pty Ltd (in liq)) (ACN 097 786 751) [2019] VSCA 23, [73], [74] and [83] (Whelan AP, McLeish and Hargrave JJA).

14. This points to the need to place the creditors on notice of the proposed compromise and its terms, prior to the court considering approval.

15. Accordingly, in the absence of a cogent reason being articulated to not place the creditors on notice, and prior to consideration as to whether advices and the like to the liquidator should be the subject of a confidentiality order, the liquidator will be required to put the creditors on notice of the proposed compromise and of this application.

    Conclusion

16. Orders will be made to give the creditors notice of this application, notice of the terms of the proposed settlement, and of the ability of the creditors, should any wish to be heard in relation to the approval, to be so heard.

17. The liquidator will further be required to provide evidence of the provision of such to the creditors.

18. Following this step consideration will be given to any confidentiality orders pursued by the liquidator in relation to material to be relied upon in support of the approval.

I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Gill.

Associate:

Dated:       27 September 2023