Carter (liquidator), in the matter of Australian Vocational Learning Institute Pty Ltd (in liq) (No 3)

[2024] FCA 708

FEDERAL COURT OF AUSTRALIA

Carter (liquidator), in the matter of Australian Vocational Learning Institute Pty Ltd (in liq) (No 3) [2024] FCA 708

File number(s):

NSD 1384 of 2019

Judgment of:

HALLEY J

Date of judgment:

28 June 2024

Catchwords:

CORPORATIONS – application by liquidator of company for approval under s 477(2B) of the Corporations Act 2001 (Cth) to enter into a variation to a funding agreement on behalf of company in liquidation – factors relevant to the Court’s assessment of an application under s 477(2B) – application granted

PRACTICE AND PROCEDURE – application by liquidator for suppression order under s 37AF and s 37AG of the Federal Court of Australia Act 1976 (Cth) – whether order is necessary to prevent prejudice to the proper administration of justice – legitimate scope of suppression orders – orders made in less extensive terms than sought by liquidator

Legislation:

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

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

Cases cited:

Carter, in the matter of Australian Vocational Learning Institute Pty Ltd (in liq) [2019] FCA 1638

Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2011) 281 ALR 38; [2011] FCAFC 89

Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher and Barnet (2015) 89 NSWLR 110; [2015] NSWCA 85

Robinson, in the matter of Reed Constructions Australia Pty Ltd (in liq) [2017] FCA 594

Re ACN 076 673 875 Ltd (rec and mgr apptd) (in liq) (2002) 42 ACSR 296; [2002] NSWSC 578

Re AP & PJ King Pty Ltd (in liq) [2006] NSWSC 315

Division:

General Division

Registry:

New South Wales

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Number of paragraphs:

25

Date of hearing:

28 June 2024

Counsel for the Plaintiffs:

Mr T Smartt

Solicitor for the Plaintiffs:

Clayton Utz

ORDERS

NSD 1384 of 2019

IN THE MATTER OF AUSTRALIAN VOCATIONAL LEARNING INSTITUTE PTY LTD (IN LIQUIDATION)

AUSTRALIAN VOCATIONAL LEARNING INSTITUTE PTY LTD (IN LIQUIDATION)

First Plaintiff

MOIRA KATHLEEN CARTER

Second Plaintiff

ORDER MADE BY:	HALLEY J
DATE OF ORDER:	28 JUNE 2024

THE COURT ORDERS THAT:

1.Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), the second plaintiff be granted approval to enter into a variation to the funding agreement dated 25 May 2020 on behalf of the first plaintiff with the Commonwealth of Australia, acting through the Department of Employment and Workplace Relations in, or substantially in, the form exhibited to the affidavit of Moira Kathleen Carter sworn on 1 May 2024.

2.Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) (FCA Act), until further order of the Court, the following information in the following documents is to be kept confidential and not published or otherwise disclosed to any person other than the plaintiffs, the legal representatives retained by the plaintiffs (including the plaintiffs’ solicitors and barristers and any support staff of those solicitors and barristers), and the Court (and any Court staff or any other person assisting the Court), on the grounds that this order is necessary to prevent prejudice to the proper administration of justice under s 37AG of the FCA Act:

(a)in the affidavit of Moira Kathleen Carter sworn on 1 May 2024:

(i)in paragraph 13, all the words after “all necessary steps”;

(ii)in paragraph 15(a):

A.the words appearing in clause 2 and clause 2.2 of the quotation;

B.the figures in the table under the column “Maximum”

C.the words in the table in Item 5 under the column “Costs component”.

(iii)in paragraph 16(b)(ii), all the words after “supports”;

(iv)in paragraph 16(d)(i), the words between “all necessary steps” and “and to make this application”;

(v)in paragraph 16(d)(ii), the words between “the costs associated with” and “and to make this application”, and the figure after the word “at”;

(vi)in paragraph 18, in the second sentence, all the words after “it will”;

(vii)in paragraph 20, in the second sentence, the words between “the Second Variation agreement and” and “remain confidential”;

(b)in Exhibit MC-3 to the affidavit of Moira Kathleen Carter sworn on 1 May 2024:

(i)in the document behind Tab 2:

A.in paragraph 35, all the words after “pursue claims against”;

B.the whole of the quotation in paragraph 40(a);

(ii)in the document behind Tab 3, the whole of the document other than the orders of Justice Gleeson made on 21 May 2020 (being the first 3 pages of Tab 3);

(iii)the whole of the document behind Tab 7;

(iv)in the document behind Tab 8, the words after “to take steps to” and before “(3) agrees to fund”;

(c)in the written submissions prepared by the plaintiffs’ counsel in support of the plaintiffs’ interlocutory application dated 2 May 2024 entitled “Plaintiffs’ Confidential Submissions”:

(i)in paragraph 10, the words after “Liquidator” in the first sentence, to the end of that sentence;

(ii)in paragraph 10(a), the words between “Liquidator” and “and to make the present application”;

(iii)in paragraph 11(b), the words after “and supports”;

(iv)in paragraph 11(d)(i), the words after “including taking”;

(v)in paragraph 11(d)(ii), the words between “costs associated with” and “and to make” and the figure at the end of the sentence;

(vi)in paragraph 13, in the second sentence, the words between “it would” and “Carter Affidavit”; and

(vii)in paragraph 21, all the words after “Second Variation Agreement and”.

3.The plaintiffs’ costs of this application be costs in the liquidation of the first plaintiff.

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

REASONS FOR JUDGMENT
(REVISED FROM THE TRANSCRIPT)

HALLEY J:

A.       INTRODUCTION

1. By an interlocutory application dated 2 May 2024 (application), the plaintiffs, Australian Vocational Learning Institute Pty Limited (in liquidation) (Company), and Moira Kathleen Carter (Liquidator), seek orders pursuant to s 477(2B) of the Corporations Act 2001 (Cth) (CorporationsAct) for approval for the Liquidator to enter into a variation to a funding agreement, and pursuant to s 37AF and s 37AG of the Federal Court of Australia Act 1976 (Cth) (FCA Act), for suppression orders over various documents relied upon for the purposes of obtaining that order. 

2. The plaintiffs rely on an affidavit of Moira Kathleen Carter sworn on 1 May 2024 in support of the application.

   B.       BACKGROUND

3. On 19 June 2018, the Liquidator was appointed by the Australian Securities and Investments Commission as a liquidator of the Company to fill the vacancy following the retirement of the former liquidator. 

4. On 21 May 2020, the Court made orders granting approval to the Company and the Liquidator to enter into a funding agreement with the Department of Employment and Workplace Relations (Department) to facilitate recovery action to be brought against a number of defendants (Funding Agreement). 

5. Under the Funding Agreement, the Department provides funding to the plaintiffs to undertake work within the agreed scope of work.

6. On 1 June 2020, the plaintiffs commenced proceedings in this Court against five respondents.

7. On 4 August 2023, after the parties in the proceedings had engaged in settlement negotiations, the Court made orders by consent between the plaintiffs and two of the respondents. 

8. The Department now wishes to fund the Liquidator to pursue further matters. To facilitate that desire, the Department and the Liquidator have agreed in principle to a second variation agreement to the funding agreement (Second Variation Agreement).

9. By way of summary, the Second Variation Agreement seeks to vary the Funding Agreement to (a) expand the scope of works to authorise the Liquidator to take further action to recover funds for the liquidation and to make the present application to facilitate her to do so, and (b) fix maximum costs of various categories of expenditure at specified rates.

10. The Liquidator has given evidence that, in her opinion, it is in the Company’s interest to accept funding from the Department on the terms of the Second Variation Agreement given (a) the largest creditor in the winding up of the company is the Department, (b) the Department is on notice of the present application and has confirmed that it wishes to enter into the Second Variation Agreement, (c) the terms on which the funding is available from the Department are better than would likely be available from a commercial funder, and (d) the Second Variation Agreement does not include any amendments to the Funding Agreement that would materially prejudice the unsecured creditors of the Company.

11. Further, the Liquidator has given evidence that she does not consider it practical or cost effective to convene and hold a meeting of creditors to obtain approval for the Second Variation Agreement, and she has not notified the creditors generally in circumstances where (a) the single largest creditor in the winding up is the proposed funder, (b) the funder charges no premium, and (c) the balance of creditors are either state government bodies owed modest amounts, or entities in liquidation. 

12. The Liquidator has also confirmed that she is not aware of any creditor whose interests would be adversely affected by the Second Variation Agreement, and she is satisfied that the Second Variation Agreement would not cause oppression to any creditor. 

    C.       RELEVANT PRINCIPLES

13. Section 477(2B) of the Corporations Act provides:

    (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. 

14. It is well established that the Court does not concern itself with the commercial desirability of the transaction in an application for approval pursuant to s 477(2B) of the Corporations Act. As Bathurst CJ stated in Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher and Barnet (2015) 89 NSWLR 110; [2015] NSWCA 85 at [125]:

    Further, it is not generally the function of the court, in granting approval under s 477(2B) of the Act, to review a liquidator’s commercial judgment or to second guess its decision. The court will generally not interfere unless there seems to be some lack of good faith, some error of law or principle, or a real or substantial ground for doubting the prudence of the liquidator’s conduct. However, as was pointed out in each of the cases cited, the court does not act as a mere rubber stamp and will confer the power only when it’s satisfied that a case for its exercise, in the particular circumstances, has been shown.

    (Footnotes omitted.)

15. More particularly, in Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2011) 281 ALR 38; [2011] FCAFC 89, the Full Court at [24] (Emmett, Nicholas and Robertson JJ) endorsed the following comprehensive list of factors that have been identified by Austin J in Leigh Re AP & PJ King Pty Ltd (in liq) [2006] NSWSC 315 at [25] and Re ACN 076 673 875 Ltd (rec and mgr apptd) (in liq) (2002) 42 ACSR 296; [2002] NSWSC 578 at [17]-[34] as relevant to the Court’s assessment of a proposed litigation funding agreement, which included:

    •the prospects of success;

    •the interests of creditors other than the proposed defendant;

    •possible oppression;

    •the nature and complexity of the cause of action;

    •the extent to which the liquidator had canvassed other funding options;

    •the level of the funder’s premium;

    •consultation with creditors; and

    •the risks involved in the claim.

    See also Robinson, in the matter of Reed Constructions Australia Pty Ltd (in liq) [2017] FCA 594 at [37] (Gleeson J).

    D.       CONSIDERATION

16. The approval of the Court is required because the Second Variation Agreement anticipates that there will be requirements that will have to be met by the Department more than three months after the agreement is entered into. 

17. I am satisfied in the present circumstances that it is appropriate that the Court grant approval under s 477(2B) of the Corporations Act for the plaintiffs to enter into the Second Variation Agreement, because (a) the Second Variation Agreement is directed at the recovery of money for the benefit of creditors, (b) the Department has agreed to pay the costs of pursuing a recovery up to the maximum set out in the Second Variation Agreement, (c) the Liquidator is an experienced liquidator, who has given evidence that she is satisfied that it is in the Company’s interests to accept funding from the Department on the terms of the Second Variation Agreement, and has provided an explanation for that opinion, and (d) the Liquidator has given sworn evidence that she is not aware of any creditor whose interests would be adversely affected by the Second Variation Agreement.

18. On the material provided to me today, I am not aware of any reason that would tell against approval of the Liquidator entering into the Second Variation Agreement on behalf of the Company. 

19. For the foregoing reasons, I am satisfied that the Court should therefore grant approval under s 477(2B) of the Corporations Act for the Liquidator to enter into the Second Variation Agreement on behalf of the Company.

    E.       SUPPRESSION ORDER

20. The Liquidator also seeks a suppression order today, pursuant to s 37AG(1)(a) of the FCA Act.

21. Section 37AG(1)(a) of the FCA Act gives the Court the power to make a suppression order, on the ground that the order is necessary to prevent prejudice to the proper administration of justice.

22. The suppression of the terms on which a liquidator has obtained funding are matters that generally give rise to a need for suppression orders in order to ensure that liquidators’ proposed investigations and proceedings are not prejudiced to the detriment of creditors. Orders have often been made pursuant to s 37AF and s 37AG of the FCA Act to ensure that such prejudice does not arise, and/or specifically to prevent prejudice that might otherwise arise, to the proper administration of justice: see in particular Carter, in the matter of Australian Vocational Learning Institute Pty Ltd (in liq) [2019] FCA 1638 at [27]-[28] (Gleeson J).

23. The suppression orders initially sought by the Liquidator were very broadly framed and included all of the written submissions of the Liquidator.

24. I am satisfied that suppression orders should be made in order to prevent prejudice to the proper administration of justice, but not to the extent sought by the Liquidator. Suppression orders should, to the extent reasonably practicable, and consistently with the principle of open justice, only be made over those parts of documents that are necessary to prevent prejudice to the proper administration of justice.

    F.        DISPOSITION

25. In those circumstances, orders substantially in the form of the orders sought by the plaintiffs are to be made.

I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.

Associate:

Dated:       2 July 2024