David Mark Hodgson as joint and several liquidators of Diploma Construction (WA) Pty Ltd (in Liquidation) (Receivers & Managers Appointed) ACN 113 950 100 v Wield Holdings Pty Ltd [No 3]
[2024] WASC 213
•11 JUNE 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: DAVID MARK HODGSON as joint and several liquidators of DIPLOMA CONSTRUCTION (WA) PTY LTD (IN LIQUIDATION) (RECEIVERS & MANAGERS APPOINTED) ACN 113 950 100 -v- WIELD HOLDINGS PTY LTD [No 3] [2024] WASC 213
CORAM: HILL J
HEARD: 7 JUNE 2024
DELIVERED : 7 JUNE 2024
PUBLISHED : 11 JUNE 2024
FILE NO/S: COR 218 of 2019
(COR 113 of 2021 (Consolidated by orders of 1 September 2021)
BETWEEN: DAVID MARK HODGSON as joint and several liquidators of DIPLOMA CONSTRUCTION (WA) PTY LTD (IN LIQUIDATION) (RECEIVERS & MANAGERS APPOINTED) ACN 113 950 100
First named First Plaintiff
ANDREW STEWART REED HEWITT as joint and several liquidators of DIPLOMA CONSTRUCTION (WA) PTY LTD (IN LIQUIDATION) (RECEIVERS & MANAGERS APPOINTED) ACN 113 950 100
Second named First Plaintiff
DIPLOMA CONSTRUCTION (WA) PTY LTD (IN LIQUIDATION) (RECEIVERS & MANAGERS APPOINTED) ACN 113 950 100
Second Plaintiff
AND
WIELD HOLDINGS PTY LTD
Ninth Defendant
IV CORP (AUST) PTY LTD
Tenth Defendant
NICOLA DOMENICO DI LATTE
Eleventh Defendant
CARLA MARIA DI LATTE
Twelfth Defendant
ARB PROPERTIES PTY LTD
Thirteenth Defendant
NATALINA FILOMENA DE FELICE
Fourteenth Defendant
MARIO DE FELICE
Fifteenth Defendant
SWANHILL ENTERPRISES PTY LTD
Sixteenth Defendant
(BY ORIGINAL ACTION)
Catchwords:
Corporations law - Winding up - Application by liquidators for approval of compromises of debt - Application by liquidator for order approving entry into settlement deed - Turns on own facts
Corporations law - Winding up - Application by liquidator that liquidator may act on settlement deed as though it was entered into with prior approval of court - Turns on own facts
Legislation:
Corporations Act 2001 (Cth) s 477(2A), s 477(2B), s 1322(4), sch 2 s 90–15
Corporations Act 2001 (Cth) reg 54.02
Result:
Application granted
Category: B
Representation:
Counsel:
| First named First Plaintiff | : | W C J Zappia |
| Second named First Plaintiff | : | W C J Zappia |
| Second Plaintiff | : | W C J Zappia |
| Ninth Defendant | : | D E Swain |
| Tenth Defendant | : | D E Swain |
| Eleventh Defendant | : | D E Swain |
| Twelfth Defendant | : | D E Swain |
| Thirteenth Defendant | : | D E Swain |
| Fourteenth Defendant | : | D E Swain |
| Fifteenth Defendant | : | D E Swain |
| Sixteenth Defendant | : | D E Swain |
Solicitors:
| First named First Plaintiff | : | Norton Rose Fulbright Australia |
| Second named First Plaintiff | : | Norton Rose Fulbright Australia |
| Second Plaintiff | : | Norton Rose Fulbright Australia |
| Ninth Defendant | : | Bennett |
| Tenth Defendant | : | Bennett |
| Eleventh Defendant | : | Bennett |
| Twelfth Defendant | : | Bennett |
| Thirteenth Defendant | : | Bennett |
| Fourteenth Defendant | : | Bennett |
| Fifteenth Defendant | : | Bennett |
| Sixteenth Defendant | : | Bennett |
Cases referred to in decision:
ASIC v Forestview Nominees Pty Ltd [2007] FCA 1985; (2007) 164 FCR 237
Elderslie Finance Corp Ltd v Newpage Pty Ltd (No 6) [2007] FCA 1030; (2007) 160 FCR 423
Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324; (2000) 35 ACSR 167
McLean v Elvapine Aberglasslyn Road Pty Ltd [2008] NSWSC 484
Re Bell Group Ltd (in liq); ex parte Woodings [2013] WASC 409
Re Emu Brewery Developments Pty Ltd (in liq) [2009] FCA 1212
Re HIH Insurance Ltd [2004] NSWSC 5
Re McDermott and Potts [2019] VSCA 23
Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83
Re United Medical Protection Ltd [2003] NSWSC 237; (2001) 46 ACSR 98
Vickers, Re York Street Mezzanine Pty Ltd (in liq) [2011] FCA 1028; (2011) 196 FCR 479
HILL J:
By interlocutory process dated 27 May 2024, the plaintiffs, as liquidators of Diploma Construction (WA) Pty Ltd (in liquidation) (DCWA) apply for approval of the settlement of various claims and proceedings relating to what was previously the Diploma group. The approval is sought under s 477(2A) and s 477(2B) of the Corporations Act 2001 (Cth) (Act).
In substance, the plaintiffs seek:
(a)orders for retrospective approval of the entry into a deed of settlement, which was executed by the relevant parties on or about 23 May 2024 (Deed); and
(b)various ancillary orders, including directions that they can act on the Deed as if it had been entered into with the court's prior approval.
In support of the application, the plaintiffs filed four affidavits: two affidavits of David Mark Hodgson filed 27 May 2024 (one confidential and one open), a second confidential affidavit of Mr Hodgson filed 6 June 2024, and an affidavit of Nicholas Robert White, a solicitor employed by the plaintiffs' solicitors, confirming the application had been served on the Australian Securities and Investments Commission. The plaintiffs also filed an outline of submissions on 6 June 2024.
In this case, I am satisfied it is appropriate to proceed in a manner that preserves the confidentiality of Mr Hodgson's two confidential affidavits, which include copies of both the Deed and the litigation funding agreement, as well as the basis for the opinions he expresses in the affidavits.
Factual background
The plaintiffs are the court-appointed liquidators of DCWA, having been appointed by order of the Federal Court on 6 September 2017.
The plaintiffs have commenced four sets of proceedings in this court being:
(a)these proceedings (COR 218 of 2019), which were commenced on 14 November 2019;
(b)CIV 3166 of 2019, which was commenced on 20 December 2019;
(c)COR 86 of 2020, which was commenced on 6 July 2020; and
(d)COR 113 of 2021, which was commenced on 2 July 2021 and subsequently consolidated with these proceedings.
Collectively, these proceedings involve claims against eight separate defendants. Four different types of claims are raised in the proceedings namely:
(a)unreasonable director-related transactions;
(b)uncommercial transactions;
(c)insolvent trading; and
(d)breach of duties by the relevant office holders, including Mr Nick di Latte. These include claims of breaches of statutory, equitable and fiduciary duties.
The claims against a number of other defendants contend these defendants knowingly received benefits from and/or knowingly assisted Mr Di Latte's breaches of duty.
In the proceedings, the plaintiffs contend that DCWA was insolvent between 1 January 2015 and 22 December 2016. It is uncontroversial that expert evidence would be required to prove this allegation.
The defendants deny they have any liability to the plaintiffs. Relevantly, the defendants deny DCWA was insolvent at the time the relevant transactions were entered into or at all, that Mr Di Latte breached any duties, and that any other party had knowledge, or knowingly received any benefit from any breach of duties by Mr Di Latte. In addition, the defendants contend that a number of claims raised by the plaintiffs are statute barred.
Very large numbers of documents have been produced by the parties on discovery (including in excess of 75,000 documents by the plaintiffs alone). Provisional dates of 12 weeks were allocated by the court for the trial of these proceedings.
Since the commencement of the proceedings, three mediation conferences have occurred. The first was a court mediation in March 2022. The second and third mediations were private mediations before Mr Wayne Martin AC KC held in October 2023 and December 2023. Negotiations continued after the last of these mediation conferences. On or around 23 May 2024, the parties executed the Deed.
The Deed includes an express obligation for the parties to keep the terms of the Deed confidential. A condition precedent for the operation of the Deed is the plaintiffs obtaining court approval for entry into the Deed. Until this occurs, no obligations are imposed on any party under the terms of the Deed.
Orders sought
The plaintiffs are seeking retrospective approval to enter into the Deed pursuant to s 477(2A) (in so far as some of these companies are compromising a debt in an amount greater than $100,000)[1] and s 477(2B) (in so far as some of the companies are assuming obligations under the Deed that may continue for more than three months).
[1] Corporations Regulations 2001 (Cth) reg 5.4.02.
Orders are also sought under s 1322(4)(a) and s 1322(4)(d) of the Act to extend the time for making the application to the court for approval to enter into the Deed. The plaintiffs also seek orders pursuant to s 90‑15(1) of sch 2 to the Act that they may act on the Deed as though it had been entered into with the prior approval of the court.
Legal principles
A liquidator is granted broad powers under s 477 of the Act. Section 477(2A) and s 477(2B) of the Act are a fetter on this broad power. Once these provisions are enlivened, as they are in this case, a liquidator cannot enter into a compromise without the approval of the court, the committee of inspection or a resolution of creditors.[2]
[2] Elderslie Finance Corp Ltd v Newpage Pty Ltd (No 6) [2007] FCA 1030; (2007) 160 FCR 423 [26].
Although s 477(2A) and s 477(2B) deal with different aspects of a liquidator's power, similar considerations apply under each provision.[3] The statutory provisions ensure that there is oversight of the liquidator's actions.[4] In considering an application under s 477(2B), there is a particular focus on ensuring the winding-up proceeds as expeditiously as circumstances allow.[5]
[3] Re United Medical Protection Ltd [2003] NSWSC 237; (2001) 46 ACSR 98 [6].
[4] Re HIH Insurance Ltd [2004] NSWSC 5 [15].
[5] Re HIH Insurance Ltd [15].
In considering whether to grant the approval sought by the liquidator, the usual approach taken by the court is that:[6]
[T]the court pays regard to the commercial judgment of the liquidator. That is not to say that it rubber stamps whatever is put forward by the liquidator but the court is necessarily confined in attempting to second guess the liquidator in the exercise of his powers, and generally will not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct. (citations omitted)
[6] Re Spedley Securities Ltd(in liq) (1992) 9 ACSR 83, 85 (Giles J); cited with approval in numerous authorities including in Re McDermott and Potts [2019] VSCA 23 [72].
In controlling the liquidator's exercise of the power to enter into a compromise, the court 'looks to the interests of creditors' and asks whether the compromise is in their interests.[7] Where the major creditors have had an opportunity to consider the proposed compromise and do not oppose it, or support it, this will be a highly influential factor. This is because creditors, if properly informed, are in the best position to judge what is in their own commercial interests.[8]
[7] Re Spedley Securities Ltd, 85; Re McDermott and Potts [69].
[8] Re McDermott and Potts [93].
Other considerations that are relevant to the application include:
(a)whether the compromise is for the proper realisation of the company's assets and will assist the winding up;[9]
(b)the delay and uncertainty that is inherent in any alternative options;[10] and
(c)whether the settlement is the result of extensive and detailed negotiations.[11]
[9] Re HIH Insurance Ltd [15].
[10] Re Emu Brewery Developments Pty Ltd (in liq) [2009] FCA 1212 [19].
[11] Vickers, Re York Street Mezzanine Pty Ltd (in liq) [2011] FCA 1028; (2011) 196 FCR 479 [34].
In dealing with the application, due regard must be paid to the commercial judgment of the liquidator and any legal advice received in relation to the deed of settlement. This is because the approval sought from the court is for permission by the liquidator to exercise his or her independent commercial judgment, and not an endorsement of the proposal.[12] That said, there must be a plausible evidentiary basis for the commercial judgment of the liquidator.[13]
[12] Re United Medical Protection Ltd [7].
[13] McLean v Elvapine Aberglasslyn Road Pty Ltd [2008] NSWSC 484 [6], [10].
Approval for entry into any settlement or compromise should normally be obtained prior to entry into the deed or agreement. However, there is no doubt that the court has power to give approval that operates from the date of entry into the agreement.[14]
[14] Re Bell Group Ltd (in liq); ex parte Woodings [2013] WASC 409 [34] and the authorities cited therein.
There is some divergence of opinion as to the precise basis as to how retrospective approval ought to be effected.[15] More recently, the approach of the court, where satisfied it is appropriate to give the approval, is to:[16]
(a)extend the time for making the application for approval, if and to the extent it is required, pursuant to s 1322(4)(d) of the Act;
(b)grant retrospective approval to enter into the compromise;
(c)declare that the relevant compromise is not invalid by reason of it having been entered into without prior approval of the court, pursuant to s 1322(4)(a) of the Act; and
(d)give an ancillary direction that the liquidator may act on the agreement as though it had been entered into with the prior approval of the court, pursuant to s 90-15 of sch 2 of the Act.
[15] Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324; (2000) 35 ACSR 167 [10]; cf ASIC v Forestview Nominees Pty Ltd [2007] FCA 1985; (2007) 164 FCR 237 [40] - [41].
[16] Vickers, Re; York Street Mezzanine Pty Ltd (in liq) [38]; Re Bell Group Ltd (in liq); ex parte Woodings [35].
Disposition
Given that a significant part of the evidence that I have considered for the purposes of this application is confidential, I am somewhat constrained in the reasons I can give for the decision I made.
In considering the application, I have taken into account the evidence in the non-confidential and confidential affidavits of Mr Hodgson concerning the complexity of the proceedings which are the subject of the compromise, the likely length of time that it may take to resolve these matters if the settlement does not proceed, including the likely length of trial, the process by which settlement was reached and the terms of the Deed. Each of these matters are relevant to the court's consideration of whether the plaintiffs are acting in good faith in entering into the Deed and whether there is any error or other ground which may call the liquidators' decision into question.
A notable aspect of the evidence is that there will be no return to creditors from the settlement and that Mr Hodgson does not consider it likely that there will be a different outcome if the matter were to proceed to a 12-week trial and judgment. That is, the only beneficiaries of the settlement (and, in fact, any trial of this matter) are the plaintiffs' legal practitioners and litigation funder. This is (to express it mildly) deeply unsatisfactory. As I raised with counsel at the hearing, the effect of the funding agreement is that there appears to be no incentive for the litigation funder to monitor and closely review the costs that are incurred to ensure these costs are reasonable and proportional. In fact, the litigation funder has an interest in these costs being as high as possible.
As a consequence of the terms of the funding agreement, notwithstanding the fact that four sets of proceedings were commenced and have been ongoing for almost five years, creditors will not receive any benefit from the commencement and running of these proceedings. It is likely that they would have been better off had the proceedings not been commenced as the liquidations would almost certainly have concluded by now. In addition, the scarce public resources of the court would not have been required to be devoted to these matters.
Notwithstanding these observations, I accept that on the evidence before me, the plaintiffs are acting in good faith in entering into the Deed and that there is no error or any ground on which the decision of the liquidator can be questioned. This is because, as was noted by counsel for the plaintiffs, the terms of the funding agreement were not before me for consideration or approval; approval for entry into this agreement was obtained previously. In considering whether there is any error in the decision of the liquidator, this has to proceed on the basis that the funding agreement is binding on him.
In reaching this decision, I have taken into account the following key factors.
First, the settlement which is contained in the Deed is the culmination of a number of attempts over almost two years to resolve the issues between the parties. During the negotiation of the Deed, each of the relevant parties were independently represented.
Second, the settlement will provide certainty, avoid further legal costs being incurred and enable the completion of the winding up of the Diploma group to occur sooner than would otherwise be the case if the proceedings are not resolved and they proceed to trial.
Third, the plaintiffs have sought and obtained legal advice as to the proposed resolution which they have had regard to in forming the view the settlement is appropriate.
Fourth, Mr Hodgson has explained the commercial rationale for the proposed settlement, set out the considerations that were taken into account and the reasons for the decision to enter into the Deed.
Fifth, on the basis of the matters set out in Mr Hodgson's second confidential affidavit, I am satisfied that the plaintiffs have properly considered the position of creditors of the Diploma group and, where appropriate, have spoken to the secured creditors. Mr Hodgson's second confidential affidavit sets out the basis for his opinion that he does not consider that creditors will be better off if the proceedings continue to trial.
Given this conclusion, I also consider that it is appropriate that approval to enter into the Deed be granted retrospectively. This is primarily because the Deed is conditional on court approval.
Conclusion and Orders
For these reasons, I consider it is appropriate to make the orders sought by the plaintiffs with one exception.
The plaintiffs sought an order that the costs of the application be costs in the winding up. Given the observations that I have made in respect of the plaintiffs' costs, I did not and do not consider any order should be made as to the costs of the application. In my view, the appropriate costs order was that there be no order as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JN
Associate to the Honourable Justice Hill
11 JUNE 2024
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