Elderslie Finance Corporation Ltd v NewPage Pty Ltd (No 6)
[2007] FCA 1030
•8 June 2007
FEDERAL COURT OF AUSTRALIA
Elderslie Finance Corporation Limited v Newpage Pty Ltd (No 6)
[2007] FCA 1030CORPORATIONS – Approval of compromise on application by liquidator under s 477(2A) of the Corporations Act 2001 (Cth) – Necessity of liquidator’s obtaining Court’s approval and jurisdiction of Court to grant approval – meaning of expression “ a debt to the company” in s 477(2A) – whether order should be made that compromise remain confidential.
Held: (1) claim based on voidable transaction was not “a debt to the company” but claim of a loan by the company was; (2) a suppression order in relation to terms of compromise should be made.WORDS AND PHRASES – “debt”, “a debt to the company”.
Corporations Act 2001 (Cth) s 477(2A)
Federal Court of Australia Act 1976 (Cth) s 50Dean-Willcocks v ATTT Investments Pty Ltd (1999) 17 ACLC 1310 cited
Foyster v Foyster Holdings Pty Ltd (in liq) [2003] NSWSC 925 cited
HIH Insurance Ltd and Related Matters [2004] NSWSC 5 cited
McGrath re HIH Insurance Ltd [2005] NSWSC 731 cited
Nambucca Investments Pty Ltd v Snoco Ltd [1999] NSWSC 211 cited
QBE Workers Compensation (NSW) Ltd v GJ Formwork Pty Ltd (2006) 56 ACSR 687 cited
Re Gate Gourmet Australia Pty Ltd (in liq) (2005) 23 ACLC 834 cited
Re GB Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674 cited
Re JN Taylor Holdings Ltd (in liq) [2007] SASC 193 followed
Re Luxtrend Pty Ltd (in liq) [1997] 2 Qd R 86 followed
Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 cited
Re Tietyens Investments Pty Ltd (in liq) (Receiver and Manager appointed) (1999) 31 ACSR 1 followed
Re United Medical Protection; Application of Lombe Ltd (as prov liq) (2003) 46 ACSR 98 citedSpalla v St George Motor Finance Ltd (No 7) [2006] FCA 1177 cited
State Bank of NSW v Turner Corporation Ltd (1994) 14 ACSR 480 citedELDERSLIE FINANCE CORPORATION LIMITED (ACN 008 678 233) AND ANOR v NEWPAGE PTY LTD (ACN 087 645 216) (RECEIVER AND MANAGER APPOINTED) (IN LIQUIDATION)
NSD 4 OF 2007
LINDGREN J
8 JUNE 2007
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 4 OF 2007
BETWEEN:
ELDERSLIE FINANCE CORPORATION LIMITED
(ACN 008 678 233)
First PlaintiffPETER ALEXIS GEORGE
Second PlaintiffAND:
NEWPAGE PTY LTD (ACN 087 645 216)
(RECEIVER AND MANAGER APPOINTED)
(IN LIQUIDATION)
Defendant/First ApplicantBARRY KENNETH HAMILTON IN HIS CAPACITY AS OFFICIAL LIQUIDATOR OF NEWPAGE PTY LTD
(ACN 087 645 216) (RECEIVER AND MANAGER APPOINTED) (IN LIQUIDATION)
Second ApplicantCASINO BUSTERS INTERNATIONAL PTY LTD
(ACN 108 453 809)
First RespondentROUMALD CHARLES PARSONS
Second RespondentMARTIN YONG HENG YII
Third Respondent
JUDGE:
LINDGREN J
DATE OF ORDER:
8 JUNE 2007
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The first and second applicants have leave to file in Court the interlocutory process of 8 June 2007 and the affidavit of the second applicant sworn 8 June 2007.
2. The interlocutory application be heard ex parte.
3. The interlocutory application be heard instanter.
4.Approve the entry by the second applicant into the Deed of Settlement and Release inter alia between the applicants on the one hand and inter alia the first and second respondents on the other, a copy of which is Confidential Exhibit 1 to the affidavit of the second applicant sworn 8 June 2007, and approve the second applicant’s compromising a debt of the first and second respondents to the first applicant accordingly.
5.The Freezing Order made against the first and second respondents on 25 January 2007 be discharged.
6. Under s 50 of the Federal Court of Australia Act 1976 (Cth)
a.the transcript of today’s proceeding and Confidential Exhibit 1 to the affidavit of the second applicant sworn 8 June 2007 be not published without leave of the Court; and
b.Confidential Exhibit 1 to the affidavit of the second applicant sworn 8 June 2007 be placed in an envelope and sealed, the envelope not to be opened without leave of the Court.
7. These orders be entered expeditiously.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 4 OF 2007
BETWEEN:
ELDERSLIE FINANCE CORPORATION LIMITED
(ACN 008 678 233)
First PlaintiffPETER ALEXIS GEORGE
Second PlaintiffAND:
NEWPAGE PTY LIMITED (ACN 087 645 216)
(RECEIVER AND MANAGER APPOINTED)
(IN LIQUIDATION)
Defendant/First ApplicantBARRY KENNETH HAMILTON IN HIS CAPACITY AS OFFICIAL LIQUIDATOR OF NEWPAGE PTY LTD
(ACN 087 645 216) (RECEIVER AND MANAGER APPOINTED) (IN LIQUIDATION)
Second ApplicantCASINO BUSTERS INTERNATIONAL PTY LTD
(ACN 108 453 809)
First RespondentROUMALD CHARLES PARSONS
Second RespondentMARTIN YONG HENG YII
Third Respondent
JUDGE:
LINDGREN J
DATE:
9 JULY 2007
PLACE:
SYDNEY
REASONS FOR JUDGMENT (No 6)
(approval of compromise)
INTRODUCTION
The following reasons are my reasons for making orders on 8 June 2007. By those orders I approved the entry by the second applicant (Mr Hamilton) in his capacity as Official Liquidator of the first applicant (Newpage) into a Deed of Settlement and Release (the Deed) between them on the one hand and the first respondent, Casino Busters International Pty Ltd (CBI), and the second respondent (Mr Parsons), the sole director of CBI, on the other hand, and approving Mr Hamilton’s compromising a debt of CBI and Mr Parsons to Newpage accordingly. There were other parties to the Deed with whom I am not presently concerned.
Mr Hamilton applied for the approval by an interlocutory process that was filed in Court on 8 June 2007, the date of the making of the orders. Consequential upon the approval, I discharged a freezing order that had been made against CBI. As well, I made a “confidentiality” order under s 50 of the Federal Court of Australia Act 1976 (Cth), to which I will refer below.
BACKGROUND
Several judgments have been previously delivered in this proceeding, including mine of 4 April 2007 (Elderslie Finance Corporation Limited v Newpage Pty Ltd (No 4) [2007] FCA 500). I refer to the accounts of the background facts given in all of those judgments, in particular, the one just mentioned.
Section 477(2A) of the Corporations Act 2001 (Cth) (the Act) provides, relevantly, that except with the approval of the Court, a liquidator of a company must not compromise “a debt to the company” if the amount claimed by the company is more than, relevantly, $20,000.
As recounted in earlier reasons for judgment, on 1 June 2006 Newpage paid $610,000 to CBI. On 22 September 2006 Newpage made a second payment of $1,527,000 to CBI. The payments were made to CBI for itself or on behalf of Mr Parsons. The amounts were deposited into CBI’s bank account. The third respondent (Mr Yii), the sole director of Newpage, caused the payments to be made.
The conflicting accounts given by Mr Parsons and Mr Yii of the circumstances surrounding the making of the two payments and subsequent events were outlined in my reasons for judgment of 4 April 2007 referred to above. The uncertainty as to what the true facts were has been a problem for Mr Hamilton in the discharge of his duties as liquidator of Newpage.
Mr Hamilton has been pursuing Mr Parsons, CBI and Mr Yii for recovery of the total sum of $2,137,000.
The Deed recited that Mr Hamilton and Newpage had filed draft Points of Claim against CBI, Mr Parsons and Mr Yii in this proceeding. In fact, a copy of that document (Points of Claim) had been handed up in Court on 26 March 2007. A copy of the Points of Claim was annexed to the Deed. The Deed also recited that Mr Hamilton desired to make further claims against Mr Parsons in the proceeding, including but not limited to claims for “involvement and/or assistance in breach of fiduciary duty and claims for misleading and deceptive conduct”.
The Points of Claim asserted (in paras 8 and 11) that there was “no consideration, or no proper consideration,” for the making of the payments of $610,000 and $1,527,000. According to para 17 of the Points of Claim, the payments were voidable under s 588FE of the Act by reason of the fact that each was an “unreasonable director-related transaction” of Newpage. An “unreasonable director-related transaction” is defined in s 588FDA of the Act. During the course of hearings of other applications in this proceeding, counsel for Mr Hamilton and Newpage had also referred to the payments as having been uncommercial transactions within s 588FB of the Act.
Whichever class or classes of voidable transactions the payments were said to have constituted, Mr Hamilton intended to seek an order under s 588FF of the Act that CBI and Mr Parsons pay the sum of $2,137,000 to Newpage. It appeared from the Points of Claim that the basis on which the two payments were said to be voidable transactions is that they were made with “no consideration, or no proper consideration”.
The Deed was expressed in wide terms. It provided that Mr Parsons would pay a certain amount to the applicants, would make himself available to give evidence for Mr Hamilton and Newpage on the hearing of the proceeding, swear affidavits, and generally assist Mr Hamilton in connection with the examinable affairs of Newpage and with the claims being made against Mr Yii. For their part, Mr Hamilton and Newpage released Mr Parsons, CBI and another company associated with Mr Parsons, in wide ranging terms, from all claims of any kind arising out of or in connection with the proceeding.
The Deed stated that it was to be of no force or effect until approval of Mr Hamilton’s entry into the Deed was obtained pursuant to s 477(2A) of the Act.
Mr Hamilton’s affidavit in support of his application under s 477(2A) stated that having regard to the nature of the claims against CBI and Mr Parsons, their limited financial capacity and the assistance that Mr Parsons was likely to be able to give him, the settlement “[was] beneficial and [was] in the interests of the creditors of [Newpage] to accept”. In addition, Mr Hamilton had obtained advice from Mr J T Johnson of counsel, a barrister of not less than seven years’ standing, recommending the compromise.
Mr Hamilton gave oral evidence elaborating on these reasons. He referred to the high cost of litigating the claim against Mr Parsons and CBI and to the searches he had conducted as to their assets. He said that Newpage’s major creditor is the present first plaintiff, Elderslie Finance Corporation Limited (Elderslie), to which $3 million plus interest is owed. Elderslie supports the compromise. Mr Hamilton is aware of two other persons who apparently claim to be creditors of Newpage, at least one of whom is associated with Mr Yii. Perhaps both of them are. Mr Hamilton has not yet been in a position to assess those claims. The amounts of them, in aggregate, appear to be of the order of one half of the debt owed to Elderslie.
I was of the view that the Court should approve of Mr Hamilton’s entering into the Deed if the Court had power to grant that approval.
CONSIDERATION
Two issues arose on the hearing. The first was whether the claim that Mr Hamilton was pursuing against CBI and Mr Parsons was one of a “debt” to Newpage for the purposes of s 477(2A). The Court’s power under that subsection to approve Mr Hamilton’s compromising the claim depended upon a positive answer being given to this question. The second issue related to a “confidentiality order” sought by Mr Hamilton.
1. Was the claim one of a debt to Newpage?
Section 477(1) of the Act provides that subject to s 477, a liquidator of a company may:
(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.
Section 477(2A) provides:
(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.
Plainly, the power to compromise described in s 477(1)(d) is a wide one. It relates to many classes of liability and potential liability. Subject to two exceptions, a liquidator is not required to obtain the approval of anyone before compromising claims of the many classes referred to in s 477(1)(d). One exception is the case of “a debt to the company” of more than a certain monetary amount: subs (2A). The other exception may be described as a compromise the agreement for which may end, or provides for obligations that may be performed, more than three months after the agreement is entered into: subs (2B). The Court lacks power to grant “approval” except in those two cases.
Mr Hamilton and Mr Parsons and CBI (Mr Parsons and CBI appeared with leave on the hearing of Mr Hamilton’s application) argued for an expansive construction of the expression “a debt to the company”. Various submissions were made. It was suggested that a claim based on any of the voidable transaction provisions was a claim of “a debt to the company”. It was put that any claim that, if successful, would result in a judgment debt in favour of the company was a claim of “a debt to the company”. It was also contended that the legal nature of the claim that had in fact been made was irrelevant, and that all that mattered was the terms of the compromise. It seems that, according to this contention, it would suffice that a proposed compromise referred to a release of “all debts to the company” without any consideration of the question whether any claim that had in fact been made could possibly be classified as “a debt to the company”.
I did not accept these submissions. The terms of ss 477(1)(d) and 477(2A) plainly indicate that, generally speaking, a liquidator’s power of comprise is not to be constrained by the necessity of obtaining approval from the Court, a committee of inspection (if any), or the creditors. If the expression “a debt to the company” in subs (2A) is construed in such a manner that it covers most of the ground of para (d) of subs (1), the Parliament’s intention is frustrated. The issue assumes particular importance because the construction of the expression goes not only to the necessity for the liquidator to obtain approval, but also to the power of the Court to grant it.
As Barrett J observed in HIH Insurance Ltd and Related Matters [2004] NSWSC 5 (HIH) at [12], it appears that in some cases a strict approach has not been taken to the jurisdictional question posed by the expression “a debt to the company”. In some cases, Judges have granted approval under s 477(2A) without discussion of the jurisdictional question. It can be just as important to decide that a compromised claim is not one of a debt to the company as to decide that it is. In Spalla v St George Motor Finance Ltd (No 7) [2006] FCA 1177, for example, a challenge was made to a compromise entered into by a liquidator on the ground that approval under s 477(2A) had not been obtained, and Kenny J had no hesitation in holding that the submission failed because it was “based on a misunderstanding as to what constitutes a ‘debt’ under the relevant section” (at [143]).
The history of the requirement that certain compromises by liquidators be approved by the Court, by the committee of inspection or by a resolution of the creditors was referred to by Moynihan J in Re Luxtrend Pty Ltd (in liq) [1997] 2 Qd R 86 (Luxtrend) at 87. The position under the 1961-62 cooperative régime and under the 1981 cooperative “Code” scheme, as well as under the Corporations Law in its original form in 1991, made the liquidator’s power of compromise generally subject to a requirement of the approval of creditors or of the court, subject to an exception in the case of a debt of not more than a certain monetary limit: see ss 236(1)(d) and 236(2)(i) of the Companies Act 1961 (NSW) (in which the monetary figure was ₤300), ss 377(1)(d) and 377(2)(j) of the Companies Code (in which the monetary limit was $20,000), and ss 477(1)(d) and 477(2)(j) of the Corporations Law in their original form (where, again, the monetary limit was $20,000, and compromises of debts to the company being calls and liabilities for calls also required approval regardless of the amount). That is to say, the position was structurally the converse of the present one.
It was s 73 of the Corporate Law Reform Act 1992 (Cth) (No 210, 1992) that amended s 477 of the Corporations Law by omitting the general requirement of approval. An exposure draft of the Bill for that Act and an Explanatory Paper were released early in 1992. The Explanatory Paper stated (at [931]) that the proposed amendments implemented a recommendation of the Harmer Report (Australian Law Reform Commission Report 45: General Insolvency Inquiry (1988)). The Harmer Report had recommended (at [608]–[610]) that the powers of a liquidator generally be exercisable without the need for approval of creditors or the court, subject to exceptions in the cases of the power to compromise debts above a prescribed amount, and the power to enter into long term commitments. The expansion of the liquidator’s powers to act without approval was recommended on the basis of the competence and qualifications of persons who act in the capacity of liquidator.
The Harmer Report’s recommendations were reflected in the omission of the general requirement of approval from subs (1) and the insertion of a requirement of approval in new subss (2A) (debts to the company of more than any prescribed amount exceeding $20,000, and if none was prescribed, $20,000), and (2B) (agreements that may end or be performed beyond three months after they are entered into).
The meaning of the word “debt” can be affected by its context. There is a line of authority to the effect that the expression “a debt to the company” in s 477(2A) bears its familiar meaning of a sum of money that is either immediately payable, or that, by reason of an existing obligation, will become payable in the future (debitum in praesenti, solvendum in futuro): Luxtrend [1997] 2 Qd R 86; Re Tietyens Investments Pty Ltd (in liq) (Receiver and Manager appointed) (1999) 31 ACSR 1 (Tietyens) at [92]–[94]; and see Austin R P and Ramsay I M, Ford’s Principles of Corporations Law (13th ed, LexisNexis Butterworths, 2007) at [28-260] p1412. Accordingly, claims by liquidators to recover amounts paid away by the company under voidable transactions have been held to lie outside the predecessor provision of s 477(2A), namely, s 477(2A) of the Corporations Law: Luxtrend [1997] 2 Qd R 86; Nambucca Investments Pty Ltd v Snoco Ltd [1999] NSWSC 211 at [2]. In Tietyens 31 ACSR 1 a claim of equitable damages based on accessorial liability for breaches of trust, the primary cause of action being a claim based on Barnes v Addy (1874) 9 Ch App 244, was similarly held not to be a claim of a debt to the company.
The voidable transactions claim pleaded in the Points of Claim is not a claim of a debt to Newpage. There is no present liability under such a claim – a liability would come into existence only if and when the Court made an order under s 588FF if Mr Hamilton applied for the order and proved that the payments constituted a voidable transaction.
In HIH [2004] NSWSC 5 at [12] and QBE Workers Compensation (NSW) Ltd v GJ Formwork Pty Ltd (2006) 56 ACSR 687 (QBE) at [4]-[5], Barrett J said that where there is room for argument about whether a claim is one of a debt to the company, the court should err on the side of treating the claim as a debt rather than decline to grant approval under s 477(2A). His Honour pointed out that the opening words of s 477(1) have the effect of making the power to compromise contained in para (d) of that subsection subject to subss (2A) and (2B). It follows that if it transpired that a claim was, indeed, one of “a debt to the company” within subs (2A), a compromise of it without approval of the Court, of the committee of inspection or of a resolution of the creditors, would lie outside the power of the liquidator.
With respect, I agree with the approach suggested by his Honour, and would add that in my view s 477(2A) applies where the claimed debt to the company of more than $20,000 is one of several, perhaps many, claims that are all the subject of a single comprehensive compromise. A Judge is rightly reluctant to turn away, on the ground of lack of jurisdiction, a liquidator who comes to the Court seeking approval under s 477(2A), if there is a possibility that in consequence the proposed compromise will be entered into in contravention of the prohibition contained in that subsection. A particular difficulty is that a liquidator and the Court are called upon to classify a claim as being of a debt or non-debt kind in unfavourable circumstances. It is in the interests of creditors that the liquidator compromise a claim early and without the expensive factual and legal investigation that resolution of the debt/non-debt question may demand. This dictates the position in which the Court is also placed when dealing with the liquidator’s ex parte application.
Be all this as it may, as Barrett J acknowledged in HIH [2004] NSWSC 5, if the claim is “unquestionably” not a debt, the correct approach is to dismiss any application under s 477(2A) as unnecessary (at [12]).
According to the Points of Claim, the present claim is based exclusively on the voidable transaction provisions of the Act, as those provisions apply to two specific payments made by Newpage. The facts of the present case are very different from those that were before Barrett J in HIH and QBE.
In HIH and QBE, the liquidator also sought and obtained a direction under s 479(3) of the Act that he was justified in entering into the compromise (in HIH the approval sought and obtained was founded on s 477(2B), as well as on s 477(2A)).
Section 479(3) of the Act provides:
The liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up.
When recommending the removal of the necessity of approval of the exercise of a liquidator’s powers, the Harmer Report stated (at [610]) that the creditors would still have power to give directions to which a liquidator must have regard (the then s 379 of the Companies Code, and now s 479 of the Act), and that the actions of a liquidator could be reviewed by the courts (the then s 538 of the Companies Code, and now s 1321 of the Act). Section 379 of the Companies Code which the Report cited, like s 479 of the Act, also provided in subs (3) for a liquidator to apply to the Court for directions.
It must be remembered that there is a distinction between s 477(2A) and s 479(3): where the claim is of a debt to the company of more than $20,000, the liquidator lacks power to compromise the debt in the absence of “approval”, and s 479(3) does not empower the court to grant powers to a liquidator. The different role of directions under s 479(3) of providing guidance and protection to the liquidator appears from the judgments in Re GB Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 679-680; Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85 (Spedley); State Bank of New South Wales v Turner Corporation Ltd (1994) 14 ACSR 480 at 483.
In a doubtful case, the Court can “to the extent that approval may be required” grant approval under s 477(2A), and otherwise direct under s 479(3) that the liquidator is justified in entering into the compromise in question. If it were ever established that the claim was not a debt to the company, the direction under s 479(3) would still be protective of the liquidator.
Whether under s 477(2A) or s 479(3), the Court does not enter upon the commercial merits of the compromise. Rather, its concern is with such matters as “lack of good faith, some error in law or principle, or real and substantial ground for doubting the prudence of the liquidator’s conduct” (Spedley 9 ACSR 83 at 85-6 (a s 479(3) directions case)).
Cases in which a liquidator has applied under both s 477(2A) and s 479(3) include HIH [2004] NSWSC 5, QBE 56 ACSR 687, Re Gate Gourmet Australia Pty Ltd (in liq) (2005) 23 ACLC 834; Foyster v Foyster Holdings Pty Ltd (in liq) [2003] NSWSC 925, and Re United Medical Protection; Application of Lombe Ltd (as prov liq) (2003) 46 ACSR 98.
In Dean-Willcocks v ATTT Investments Pty Ltd (1999) 17 ACLC 1310, an application was made under s 477(2A) for the Court’s approval of an arrangement by which a secured creditor of the company would inject funds in exchange for a particular asset. There was no dispute about the monies owing. Young J held that the Court had no jurisdiction to grant approval under s 477(2A) because what was proposed was not a compromise of a debt, and that the proper course, if the liquidator wanted to pursue the matter, would be for him to seek directions under s 479(3). In Tietyens 31 ACSR 1, Weinberg J held that he lacked jurisdiction under s 477(2A) but gave directions under s 479(3).
For reasons that appear below, it is not necessary (and it is not desirable) that I attempt to define the concept of “a debt to the company” as that expression appears in s 477(2A). As indicated above, however, I respectfully agree with the line of authority to which I have referred to the effect that the expression does not embrace a liability that arises only after the liquidator has chosen to apply for an order under s 588FF of the Act and satisfied the court of the existence of the various elements of one or other of the classes of voidable transaction provided for in the Act, and the court has made an order under that section.
Notwithstanding the terms of the Points of Claim, counsel who appeared from time to time for Mr Hamilton and Newpage had in fact referred to the claim against Mr Parsons and CBI on several occasions as one of “debt”. He did so, for example, at an earlier hearing on 25 January 2007 of an application for a freezing order.
In the event, Mr Baird, the solicitor who appeared for Mr Hamilton on the present hearing, filed Amended Points of Claim which pleaded three “pre-winding up” causes of action:
1.a liability of Mr Parsons or CBI or both of them to account for and pay to Newpage the sums of $610,000 and $1,537,000 as monies had and received;
2.a liability of CBI or Mr Parsons or both of them to Newpage on the basis that the two payments were loans repayable on demand;
3.a liability of Mr Parsons by reason of his having assisted Mr Yii with knowledge that Mr Yii was breaching his duty as a director of Newpage with the result that Mr Parsons is liable in equity to compensate Newpage for its loss and damage.
On any reckoning, the second claim is a claim of a “debt to the company” within s 477(2A), and a compromise of it necessitates the Court’s approval. I accept that the allegation of a loan is made in good faith and represents one construction that might be placed on the dealings between Mr Parsons and Mr Yii referred to in my judgment of 4 April 2007 (see [3] above).
It was appropriate that the compromise expressed in the proposed Deed be approved, notwithstanding that it was expressed as an “all claims” compromise rather than as a compromise of only the claims that have been made in respect of the two payments of $610,000 and $1,527,000.
2. Confidentiality
The second issue raised on the hearing concerned Mr Hamilton’s request that the Court make an order preserving the confidentiality of the terms of the compromise. Section 50 of the Federal Court of Australia Act 1976 (Cth) provides that the Court may make an order forbidding or restricting the publication of particular evidence, as appears to the Court to be necessary in order to prevent prejudice to the administration of justice.
Applications by liquidators for confidentiality orders in respect of compromises for which they have sought Court approval have been considered in McGrath re HIH Insurance Ltd [2005] NSWSC 731 and Re JN Taylor Holdings Ltd (in liq) [2007] SASC 193. The administration of justice, including the just and efficient winding up of a company, requires that proper compromises be facilitated rather than obstructed. Apart from the requirement of leave, Mr Hamilton would have been entitled to bargain for and reach agreement upon a confidentiality régime in respect of the compromise that he has reached with Mr Parsons and CBI. He and they would have been entitled, in particular, to preserve their negotiations and agreement against disclosure to Mr Yii.
The evidence shows that without prejudice meetings have been held between the legal representatives of the parties. It would discourage the negotiation of compromises if liquidators knew that all their negotiations and compromise agreements were to be made public, a fortiori in a case such as the present one in which there is an ongoing claim by the liquidator and the company in liquidation to recover from another party.
While I was of the view that an order preserving the confidentiality of the Deed should be made, this says nothing as to whether Mr Yii will or will not be entitled to gain access to the Deed later, for example, in relation to the quantification of the amount of any recovery from him. Mr Yii may raise other issues which will require disclosure of the Deed or of parts of it, whether generally or on a restricted basis.
For the above reasons I ordered that the transcript of the hearing and the Deed not be published without leave of the Court, and that that Deed be placed in an envelope that was to be sealed and not opened without leave of the Court.
I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate:
Dated: 9 July 2007
Solicitor for the Applicants: Mr J Baird of Kemp Strang Counsel for the First and Second Respondents: Mr A W Street SC and
Mr G D WendlerSolicitor for the First and Second Respondents: Van Houten Law Date of Hearing: 8 June 2007 Date of Judgment: 8 June 2007 Date of Publication of Reasons: 9 July 2007
23
11
0