Barilla & Barilla (No 7)
[2023] FedCFamC1F 1021
•30 November 2023
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Barilla & Barilla (No 7) [2023] FedCFamC1F 1021
File number(s): CAC 1604 of 2018 Judgment of: GILL J Date of judgment: 30 November 2023 Catchwords: FAMILY LAW – PROPERTY – where the liquidator seeks approval of debt settlement compromise under s 477 Corporations Act 2001 – where some creditors opposed the compromise – approval granted
FAMILY LAW – PROPERTY – application by the liquidator for direction under s 90-15 Schedule 2 – Insolvency Practice Schedule (Corporations) 2016 – application approved – costs of liquidator included in costs of winding up companyLegislation: Corporations Act 2001 (Cth)
Family Law Act 1975 (Cth)
Insolvency Practice Schedule (Corporations) 2016 (Cth)
Cases cited: Elderslie Finance Corp Ltd v Newpage Pty Ltd (No 6) (2007) 160 FCR 434
Krejci, in the matter of Union Standard International Group Pty Ltd (No 8) [2023] FCA 1054
Re GVE Hampton Pty Ltd (In Liqu) [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: 37 Date of hearing: 22 November 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 (LIQUIDATOR FOR B PTY LTD)
Intervener
ORDER MADE BY:
GILL J
DATE OF ORDER:
30 NOVEMBER 2023
Amended pursuant to rule 10.13 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) on 8 December 2023
THE COURT ORDERS THAT:
1.Pursuant to section 477(2A) of the Corporations Act 2001, the Liquidator of B Pty Ltd (In Liquidation) ACN … (“the Company”), as an Intervening Party in these proceedings, is authorised to compromise debts due to the Company by Mr Barilla, Ms Barilla and as against the property otherwise known as C Street, Suburb D, NSW, (“the Suburb D Property”), those debts being greater than $100,000, on such commercial terms as he sees fit.
2.Pursuant to section 477(2B) of the Corporations Act 2001, the Liquidator of B Pty Ltd (In Liquidation) ACN … (“the Company”), as an Intervening Party in these proceedings, is authorised to enter into a Deed of Settlement and Release with any or all of Mr Barilla, Ms Barilla and the Suburb D Property on such terms as he sees fit.
3.Pursuant to section 90-15 of Schedule 2 to the Corporations Act 2001, the Liquidator of B Pty Ltd (In Liquidation) ACN (“the Company”), as an Intervening Party in these proceedings, is justified in settling his claims against Mr Barilla, Ms Barilla and the Suburb D Property.
4.Pursuant to section 90-15 of Schedule 2 of the Corporations Act 2001, the proper costs and expenses of the Liquidator of B Pty Ltd (In Liquidation) ACN (“the Company”), as an Intervening Party in these proceedings, be considered costs of the winding up and paid out of the assets of the Company.
5.The Wife shall pay to the Intervening Party the all-inclusive sum of $170,000 ("the Settlement Sum") in full satisfaction of the Intervening Party’s claims against the Husband and the Wife and the Suburb D Property, including for the repayment of the Loans.
6.The Wife hereby grants a charge to the Intervening Party over the Suburb D property as security for payment of the Settlement Sum and will do all things necessary within 14 days of these orders being made to execute a deed of charge reflecting this interest in favour of the liquidator.
7.That within 42 days of the date of the final determination of these proceedings (whether by orders after final hearing, consent orders between the Husband and Wife or otherwise (“Final Orders”) ("the Due Date"), and provided such Final Orders are not stayed for any reason, the Wife shall pay to the Intervening Party the Settlement Sum.
8.That in the event that the Wife is unable to pay the Settlement Sum by the Due Date, the Wife shall do all acts and things and sign all documents necessary to effect the completion of a sale of the real property contained in Certificate of Title … being Lot … in Deposited Plan … and known as C Street, Suburb D in the state of New South Wales ("the Suburb D Property") within 3 months of the Due Date ("the Second Due Date") on such terms as Ordered by the Court ("the Sale"):
9.That in the event that the Settlement Sum has not been paid by the Second Due Date, upon the settlement of the Sale, the Intervening Party will be paid, in addition to the Settlement Sum, interest on the Settlement Sum or the amount outstanding from time to time at the rate prescribed by the Family Law Rules to be calculated from the Second Due Date to the date of payment.
10.Following the sale pursuant to Order
128, the Wife shall do all things necessary to irrevocably instruct any person engaged to effect the sale ("the Conveyancer”) to cause proceeds of the sale of the Suburb D Property to be distributed in the following order and priority:(a)Firstly, to pay all costs, commissions and expenses of the Sale;
(b)Secondly, to pay the usual rates adjustments;
(c)Thirdly, to pay the costs of the repairs necessary to obtain a Building Information Certificate for the Suburb D Property;
(d)Fourthly, to pay to the Intervening Party the Settlement Sum together with any interest that has accrued pursuant to Order 9; and
(e)Finally, the net proceeds to be held in the conveyancer's trust account and then paid to the Husband and Wife in such proportions as Ordered by this Court.
11.That pending the sale of the Suburb D Property, the following applies:
(a)Apart from the charge in Order
106 above, neither party will mortgage, encumber or otherwise offer the Suburb D Property for security;(b)The Wife have sole occupation of the Suburb D Property, and upon her vacating she and the Husband are restrained from resuming occupation of the Suburb D Property.
12.Order 1 of the Orders dated 11 May 2023 is discharged.
13.The Applicant Wife is restrained from making an application for the Intervening Party to pay her costs in these proceedings.
14.The Intervening Party is restrained from making an application for the Wife to pay his costs in these proceedings and/or in the Public Examination.
15.The Intervening Party is granted leave to refer to these Proceedings to the extent necessary to report to creditors the resolution of these proceedings and to meet any other statutory obligations he may have.
16.That all Applications by the Intervening Party in these proceedings are withdrawn and dismissed without any order as to costs.
17.That within 14 days of the date of these Orders, the Intervening Party do all things necessary, at his own expense, to:
(a)Provide access for the solicitors for the Wife (as a notional creditor in the winding up of the Company), to copies of all records received by the Intervening Party in his role as Liquidator of the Company;
(b)Provide to the solicitors for the Wife a copy of all notices to creditors not previously provided to the Wife.
(c) Obtain Orders in the Federal Court of Australia discharging the Wife from further compliance with the summons issued to her on 26 June 2023 such that the Wife would no longer be subject to the Public Examination.
18.Documents made confidential under Orders dated 22 November 2023 be returned to the Intervening Party following the conclusion of the appeal period for these orders.
19.The Intervening Party is discharged as a party to proceedings, other than for the purposes of enforcement.
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
Introduction
The parties to this matter are Ms Barilla, the applicant wife, Mr Barilla, the respondent husband, and Mr Marriott the Intervening Party, who is the liquidator for the corporate trustee of the parties’ family trust (“the liquidator”), B Pty Ltd.
These proceedings concern an application by the liquidator for approval to enter into a compromise of claims made by him for B Pty Ltd against the husband and wife and in relation to an item of real estate at Suburb D. Insofar as they relate to claims in debt the approvals are sought pursuant to s 477 of the Corporations Act. Insofar as they relate to equitable and statutory claims, although approval is not necessary, it is sought pursuant to s 90-15 of the Insolvency Practice Schedule (“IPS”).
The application is made pursuant to a direction that provided that the liquidator serve the creditors with material placing them on notice of these proceedings, in order to give the creditors the opportunity to be heard. In response, one creditor, Ms M, wrote to the court, one appeared (Mr F), along with the wife (also a creditor) and the husband (who claimed that he is also a creditor).
Ms M opposed the compromise, as did the husband and Mr F.
The relevant circumstances of the compromise are set out in a report to creditors sent by the liquidator prior to the hearing. That report indicated:
(a)Priority unsecured (employee) creditors
(i)Unpaid wages $105,735.23
(ii)Unpaid superannuation $229,540.00
(iii)Total $335,275.23
(b)Ordinary unrelated unsecured creditors (including the ATO and trade creditors) at $230,0232.50
(c)Related party creditors $44,510.50
Total liabilities were therefore $609,809.23.
Against those liabilities the liquidator asserted claims against the husband of $422,306.57, the wife of $370,611.41 and in relation to the Suburb D property of $157,434.42, although he noted that portions of these overlapped.
The liquidator identifies that these claims arose from a combination of debt, equitable and statutory causes of action.
The proposed compromise is that the wife will pay a sum of $170,000, payment of which will be secured against the Suburb D property, which will result in the wife, husband and the Suburb D property thereafter being free from claims.
The effect of this compromise was identified by the liquidator to be, after the payment of the costs of the liquidation, a payment to the priority creditors of three cents in the dollar.
Section 477 Approval
The liquidator seeks approvals pursuant to s 477 of the Corporations Act2001 which is in the following terms:
(1)Subject to this section, a liquidator of a company may:
(a) carry on the business of the company so far as is, in the opinion of the liquidator, required for the beneficial disposal or winding up of that business; and
(b) subject to the provisions of section 556, pay any class of creditors in full; and
(c) make any compromise or arrangement with creditors or persons claiming to be creditors or having or alleging that they have any claim (present or future, certain or contingent, ascertained or sounding only in damages) against the company or whereby the company may be rendered liable; and
(d) compromise any calls, liabilities to calls, debts, liabilities capable of resulting in debts and any claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting or supposed to subsist between the company and a contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the property or the winding up of the company, on such terms as are agreed, and take any security for the discharge of, and give a complete discharge in respect of, any such call, debt, liability or claim.
(2)Subject to this section, a liquidator of a company may:
(a) bring or defend any legal proceeding in the name and on behalf of the company; and
(b) appoint a solicitor to assist him or her in his or her duties; and
(c) sell or otherwise dispose of, in any manner, all or any part of the property of the company; and
(ca) exercise the Court’s powers under subsection 483(3) (except paragraph 483(3)(b)) in relation to calls on contributories; and
(d) do all acts and execute in the name and on behalf of the company all deeds, receipts and other documents and for that purpose use when necessary a seal of the company; and
(e) subject to the Bankruptcy Act 1966, prove in the bankruptcy of any contributory or debtor of the company or under any deed executed under that Act; and
(f) draw, accept, make and indorse any bill of exchange or promissory note in the name and on behalf of the company; and
(g) obtain credit, whether on the security of the property of the company or otherwise; and
(h) take out letters of administration of the estate of a deceased contributory or debtor, and do any other act necessary for obtaining payment of any money due from a contributory or debtor, or his or her estate, that cannot be conveniently done in the name of the company; and
(k) appoint an agent to do any business that the liquidator is unable to do, or that it is unreasonable to expect the liquidator to do, in person; and
(m) do all such other things as are necessary for winding up the affairs of the company and distributing its property.
(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.
(2C) Subsection (2B) does not apply to an agreement if the costs and expenses of the company under the agreement are to be paid out of money paid to the liquidator:
(a) by ASIC on behalf of the Commonwealth; and
(b) for the purpose of paying the costs and expenses.
(3) A liquidator of a company is entitled to inspect at any reasonable time any books of the company and a person who refuses or fails to allow the liquidator to inspect such books at such a time is guilty of an offence.
(5) For the purpose of enabling the liquidator to take out letters of administration or recover money as mentioned in paragraph (2)(h), the money due is taken to be due to the liquidator.
(6) Subject to this Part, 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.
(7) This section does not apply to calls on shares in a no liability company.
The approval is sought pursuant to s 477(2A) due to the quantum, and pursuant to s 477(2B) due to the time that the performance of the agreement will take.
In a previous judgment in this matter, I identified the nature of approval in the following manner:
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 Liqu) [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]
However, in so doing, and in ensuring the consideration of the creditors, the attitudes, wishes and interests of the creditors are important considerations.[3]
[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).
[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).
While the wife, as a creditor, supported the compromise, as noted above, the husband (if he is a creditor), Ms M and Mr F opposed the compromise.
Ms M asserted that the liquidator is acting in his own interests and that it is unlikely that the creditors will receive payment absent the sale of the Suburb D property (presumably following successful action by the liquidator).
The husband gave no explanation of his opposition, noting that he had no legal representation, and pointed to the outcome proposed by the liquidator involving a payment of three cents in the dollar to the priority creditors and nil else. It should be noted that while the husband has asserted a requirement for legal advice, the listing gave sufficient notice for the husband to obtain such advice if he was going to.
Mr F raised issues of good faith, conflict of interest and the manner of handling of the matter by the liquidator asserting that the creditors should be given time to raise issues of the conduct of the matter. It was never apparent why the period of notice given to the creditors was not sufficient for this purpose. Mr F further complained that the liquidator was not properly appointed. However, his explanation of his complaints was rambling and tangential, giving no clarity to those matters, and, after due warning, resulted in directions curtailing his submissions.
The liquidator identified a number of matters that support the compromise. The liquidator estimates that his involvement in the litigation in pursuit of the claims against the husband and wife and property will incur a further $150,000 to $180,000 in costs, despite some cost saving being available by the tender of transcript of examinations already undertaken by him. Some uncertainty was also identified by the liquidator in relation to this costs estimate, noting that the examinations indicate that further investigation would need to be undertaken, adding to cost and also to the uncertainty of outcome that accompanies litigation.
The liquidator also identified that there is no apparent current source of funding for the litigation, and indicated that if litigation funding was secured it would come with an accompanying impost on whatever might be received from the litigation.
Further, in noting the uncertainty that accompanies litigation, the liquidator identified complexity in the litigation, difficulties arising from a failure on the part of the company to keep adequate records, and the need, in respect of certain causes of action to establish a particular level of knowledge.
To these matters the liquidator noted uncertainty as to whether, even if successful, the liquidator would also be successful in securing costs, with the wife noting that if not successful the liquidator faces the prospect of being liable for costs.
In support of his case, the liquidator relied upon a confidential affidavit and advice from counsel.
As may be expected, that advice set out the nature of claims available to pursue, along with the strengths and vulnerabilities of the claims. It may be taken that there are significant areas of vulnerability in the liquidator’s claims against the husband, wife and the Suburb D property, rendering litigation in respect of such highly uncertain in terms of outcome.
Despite the assertions made against the compromise, I am unable to conclude that the compromise is tainted by bad faith, legal error, or any real or substantial ground for doubting the reasonableness of the liquidator’s view in respect of such.
Under those circumstances approval subject to s 477(2A) of the Corporations Act 2001 should be given.
Further, although the compliance period also requires approval, the purpose of making such subject to approval is to ensure the appropriately expeditious conduct of the liquidation process. In this case the resolution by compromise, despite taking longer than 3 months, complies with such a requirement and appears to be the most expeditious way of progressing the resolution of the liquidation. Accordingly, approval should also be given pursuant to s 477(2B) of the Corporations Act 2001.
This leaves the question of the giving of directions pursuant to s 90-15 of the IPS, both as to the proposed settlement and the inclusion of the conduct of these proceedings in the costs of the liquidation. Section 90-15 is in the following terms:
Court may make orders
(1) The Court may make such orders as it thinks fit in relation to the external administration of a company.
Orders on own initiative or on application
(2) The Court may exercise the power under subsection (1):
(a) on its own initiative, during proceedings before the Court; or
(b) on application under section 90‑20.
Examples of orders that may be made
(3) Without limiting subsection (1), those orders may include any one or more of the following:
(a) an order determining any question arising in the external administration of the company;
(b) an order that a person cease to be the external administrator of the company;
(c) an order that another registered liquidator be appointed as the external administrator of the company;
(d) an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company;
(e) an order in relation to any loss that the company has sustained because of a breach of duty by the external administrator;
(f) an order in relation to remuneration, including an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company.
Matters that may be taken into account
(4) Without limiting the matters which the Court may take into account when making orders, the Court may take into account:
(a) whether the liquidator has faithfully performed, or is faithfully performing, the liquidator’s duties; and
(b) whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and
(c) whether an action or failure to act by the liquidator is in compliance with an order of the Court; and
(d) whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and
(e) the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.
Costs orders
(5) Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include an order that:
(a) the external administrator or another person is personally liable for some or all of those costs; and
(b) the external administrator or another person is not entitled to be reimbursed by the company or its creditors in relation to some or all of those costs.
Orders to make good loss sustained because of a breach of duty
(6) Without limiting subsection (1), an order mentioned in paragraph (3)(e) in relation to a loss may include an order that:
(a) the external administrator is personally liable to make good some or all of the loss; and
(b) the external administrator is not entitled to be reimbursed by the company or creditors in relation to the amount made good.
Section does not limit Court’s powers
(7) This section does not limit the Court’s powers under any other provision of this Act, or under any other law.
The liquidator accepts that while directions under this provision are sought in respect of the compromise of the equitable and statutory claims, they are not a prerequisite to the liquidator compromising those non-debt claims in the manner in which approval pursuant to s 477 was required in respect of the compromise of the debt claims.
The principles are neatly set out by Cheeseman J in Krejci, in the matter of Union Standard International Group Pty Ltd (No 8) [2023] FCA 1054 as follows:
[23] In Union Standard (No 7), Jagot J identified the relevant principles as including the following (at [4]):
(1) it is appropriate that liquidators be able to seek the making of an order in the terms as currently sought in order to ensure that they are protected against claims that they have acted unreasonably or inappropriately or in breach of any duty in undertaking the proposed conduct … provided they make full and fair disclosure of all the relevant facts and circumstances to the Court: Re Ansett Australia Limited (No 3) [2002] FCA 90; (2002) 115 FCR 409 at [44] per Goldberg J;
(2) this principle is subject to the requirement that the order sought does not merely relate to the making of some business or commercial decision which is specifically a matter for the liquidators within the exercise of their discretion and without there being any particular legal issue raised for consideration or other circumstance relevant to the propriety or reasonableness of the decision: see in particular, Re Ansett at [65] per Goldberg J;
(3) as observed by Mansfield J in Re Addstone Pty Ltd (In Liq) [1997] FCA 1043; (1997) 25 ACSR 357 at 363, consistently with the observations above:
While the court is reluctant to give directions when purely commercial considerations are relevant to the liquidator’s decision… there will be circumstances where it is or may be appropriate to do so. One of those circumstances may be where the liquidator’s proposed decision is the subject of criticism by a particular creditor or creditors.
(4) to the same effect, Brereton J in Re One.Tel [2014] NSWSC 457; (2014) 99 ACSR 247 at [35] said that:
the court should not make a direction the effect of which is to exonerate the liquidator from personal liability in respect of a commercial judgment … unless it is satisfied that the liquidator’s decision is, in all the circumstances, a proper one.
(5) in Re KSK Holdings (Australia) Pty Ltd (In Liq) [2019] NSWSC 1463 at [18], Rees J made observations to the same effect, noting that it was not necessary that there in fact be a current attack on the proprietary or reasonableness of the liquidator’s decision for the Court to make such a direction, but the Court may choose to do so where there is the prospect of such an attack.
[24] In relation to the second principle identified by Jagot J, the “something more” than the making of a business or commercial decision that is generally required before a Court will give guidance in relation to such a decision may be that it involves a legal issue of substance or procedure, or an issue of power, propriety or reasonableness or where there is or is a prospect of an attack on the propriety or reasonableness of the liquidator’s decision: Re Ansett Australia Limited (No 3) [2002] FCA 90; 115 FCR 409 at [65]; Re KSK Holdings (Australia) Pty Ltd (in liquidation) [2019] NSWSC 1463 at [18] (Rees J).
[25] In exercising the discretion under s 90-15 of the IPS, a consideration for the court is that the effect of the direction, unlike an approval under s 477(2A) or (2B) of the Corporations Act, serves to exonerate the liquidator from personal liability, and therefore warrants a closer scrutiny than is required under s 477 of the Corporations Act. In giving a direction of the kind sought in the present proceeding, the court should be satisfied that the liquidator’s decision is, in all the circumstances, a proper one before issuing the direction sought: Re One.Tel Ltd and Ors [2014] NSWSC 457; 99 ACSR 247 at [35] (Brereton J).
In terms of potential attack on propriety, her Honour also observed in that case at [38] as follows:
Another factor that informs my conclusion that it is appropriate to make a direction substantially as sought, is that it is apparent that the Liquidators may be criticised at some later stage for having continued the proceedings in light of the likely de minimis dividend rate to individual creditors. In those circumstances, I am satisfied that it is appropriate for the Liquidators to have sought judicial guidance and that providing a direction as sought will be in the interests of the beneficiaries of the Statutory Trust as well as serving to exonerate the Liquidators from personal liability: Re KSK Holdings at [18] to [20].
Similar considerations emerge here, given the anticipated de minimus return to creditors.
Noting that the effects of the direction under 90-15 are broader than under s 477, in that the liquidator will be exonerated from personal liability in respect of the authorised action, closer scrutiny is required than for the s 477 approval.
A strong aspect of the liquidator’s argument in favour of approval was that the pursuit of litigation would be required to do better than a net result, after costs, of $170,000. In the absence of a costs order in favour of the liquidator, that would require an order in favour of the liquidator of between $320,000-$350,000, given the estimate of potential costs. It may be observed that there is some uncertainty in relation to the likelihood of costs. In other jurisdictions costs will typically follow the event, although as costs are usually awarded on a party-party basis even then there may be expected to be a shortfall. Under the Family Law Act, the starting point differs in that the default position is that each party bear their own costs. There is some uncertainty, that was not the subject of full argument, as to whether the liquidator’s joinder made him a party to proceedings under the Family Law Act and so caught by s 117 of that Act or not. This is a matter that adds to the uncertainty in respect of the costs if the liquidator is successful.
When these matters are coupled with the vulnerabilities identified by the liquidator, along with the lack of funding at present for the liquidation, the compromise may be seen as appropriate. Given that the issue relates to the propriety of the liquidator’s position, and that it involves legal issues of substance, and that it relates to a potentially controversial de minimus return to creditors, it is an appropriate case for a direction to be given approving the compromise.
The second aspect seeks directions:
That, pursuant to section 90-15 of Schedule 2 of the Corporations Act 2001, the costs and expenses of the Liquidator of [B Pty Ltd] (In Liquidation) ACN (“the Company”), as an Interested Party in these proceedings, be considered costs of the winding up and paid out of the assets of the Company.
Subject to the issue of quantification such a direction should also be given. Joinder to these proceedings was a necessary and proper step to secure the position of the creditors. Whether or not it has ultimately resulted in a return to creditors, the assets of the parties the subject of these proceedings providing the only source of substance from which a return to creditors may have been obtained.
Conclusion
Approvals will be given pursuant to s 477(2A) and (2B). Directions will be given pursuant to s 90-15 of the IPS, approving the compromise, and directing the at the costs of the litigation (subject to appropriate quantification) will be costs of the liquidation. Orders will be made to reflect the approved compromise.
I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Gill. Associate:
Dated: 30 November 2023
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