Ex Parte - [2023] WASC 129

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   EX PARTE RICHARD TUCKER & JOHN BUMBACK in their capacity as joint and several liquidators of GOLD VALLEY IRON PTY LTD (IN LIQUIDATION) (ACN 631 265 739) [2023] WASC 129
CORAM:   HILL J
HEARD:   11 JANUARY 2023; WRITTEN SUBMISSIONS 17 JANUARY 2023
DELIVERED          :   27 JANUARY 2023
PUBLISHED           :   24 APRIL 2023
FILE NO/S:   COR 226 of 2022
MATTER:   IN THE MATTER OF GOLD VALLEY IRON PTY LTD (IN LIQUIDATION) (ACN 631 265 739)
EX PARTE

RICHARD TUCKER & JOHN BUMBACK as joint and several liquidators of GOLD VALLEY IRON PTY LTD (IN LIQUIDATION)
Plaintiffs

Catchwords:

Corporations - External administration - Application for approval of the compromise of debts - Application for approval for entry into agreements - Application by liquidators for directions that liquidators would be justified and acting properly in entering into and performing agreements - Turns on own facts

Corporations - Application for approval of liquidators' remuneration - Prima facie case that remuneration reasonable - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 477(2A), s 477(2B), sch 2 s 90-15, sch 2 s 60-10

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiffs

N J Draper

Solicitors:

Plaintiffs

Mendelawitz Morton Commercial Lawyers

Cases referred to in decision:

ASIC v Forestview Nominees Pty Ltd [2007] FCA 1985; (2007) 164 FCR 237
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; (2013) 97 ACSR 117
Re Bell Group Ltd (In Liq); Ex Parte Woodings [2020] WASC 121
Re Emu Brewery Developments Pty Ltd (in liq) [2009] FCA 1212
Re Great Southern Managers Australia Ltd (in liq); Ex Parte Jones, Weaver and Stewart (in their capacity as liquidators of Great Southern Managers Australia Ltd (in liq)) [2014] WASC 312
Re HIH Insurance Ltd [2004] NSWSC 5
Re McDermott and Potts [2019] VSCA 23
Re Red Lancer Pty Ltd (in Liq); Ex parte Bumbak [2019] WASC 450
Re Sakr Nominees Pty Ltd [2017] NSWSC 668
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 originating process dated 20 December 2022, the plaintiffs, as joint and several liquidators of Gold Valley Iron Pty Ltd (Gold Valley Iron), applied for approval to compromise certain debts identified as owing to Gold Valley Iron, to settle potential claims against certain parties, and to approve the entry into various agreements. The plaintiffs also sought approval of their remuneration under s 60-10 of the Corporations Act 2001 (Cth), sch 2 (Insolvency Practice Schedule).
In substance, the plaintiffs seek:
(a)orders approving the compromise of certain debts and settling claims Gold Valley Iron may have against its former director and his related parties;
(b)orders nunc pro tunc for approval to enter into various agreements and directions that the plaintiffs would be acting properly and would be justified in entering into and performing these agreements; and
(c)orders approving the plaintiffs' remuneration for the period 24 April 2020 to 28 April 2022 in the amount of $800,000.
In support of the application, the plaintiffs rely on two affidavits sworn by Mr Tucker filed 20 December 2022 (one of which is confidential) as well as an affidavit of Mr Draper, the solicitor for the plaintiffs, filed 10 January 2023.
The matter came on for hearing before me on 11 January 2023. At that time, I raised a number of matters with counsel for the plaintiffs. Counsel accepted the originating process was required to be amended before orders could be made and that clarification or further evidence may be required on the application for approval of the plaintiffs' remuneration. On this basis, the plaintiff's application for remuneration was adjourned for 14 days and the application for directions was adjourned sine die, with the application to be determined on the papers.
On 17 January 2023, the plaintiffs filed an amended originating process and an amended minute of proposed orders, and confirmed the plaintiffs did not seek any additional remuneration beyond 22 April 2022. On 27 January 2023, I made orders approving the plaintiffs' remuneration and making the orders and directions sought (subject to certain amendments which I set out below) and indicated I would subsequently publish my reasons for decision. These are those reasons.

Background Facts

The plaintiffs were appointed joint and several administrators of Gold Valley Iron on 25 February 2020 at the first meeting of creditors,[1] replacing the voluntary administrators, who had been appointed on 17 February 2020 by Gold Valley Iron's first registered secured creditor.[2]
[1] Confidential affidavit of Richard Scott Tucker filed 20 December 2022 [4].
[2] Confidential affidavit of Richard Scott Tucker filed 20 December 2022 [3].
On 19 March 2020, at the second meeting of creditors, it was resolved that Gold Valley Iron be wound up and the plaintiffs were appointed joint and several liquidators.[3]
[3] Confidential affidavit of Richard Scott Tucker filed 20 December 2022 [5].
After being appointed as liquidators, the plaintiffs investigated the affairs of Gold Valley Iron. From these investigations, the plaintiffs believed that Gold Valley Iron may have:
(a)potential claims against its director and against Gold Valley Iron's parent company, Gold Valley Iron and Manganese Pty Ltd, for insolvent trading;
(b)potential claims against 16 entities related to the director (described in Table B of the orders as the Yuzheng Director Parties); and
(c)claims against various entities for amounts that had been lent by Gold Valley Iron to these entities (described in Table A of the orders as the LGSR Entities).[4]
[4] Confidential affidavit of Richard Scott Tucker filed 20 December 2022 [17].
On 16 February 2022, the plaintiffs, Xie, the LSGR Entities and the Yuzheng Director Parties entered into several agreements for the purpose of settling these claims being a deed of settlement and release (as varied by a deed of variation) (DOSR), a specific security agreement (SSA), and an Escrow Agreement. The agreements are conditional upon orders being obtained from the Committee of Inspection (COI) or the court pursuant to s 477(2A) and s 477(2B) of the Corporations Act 2001 (Cth) (Act).
On 24 May 2022, the plaintiffs convened a meeting of the COI. The plaintiffs recommended that the COI approve the compromise of the claims and debts, entry into the DOSR and the other agreements, as well as the proposed remuneration of the plaintiffs. Each of these resolutions was declared lost at the meeting.[5]
[5] Confidential affidavit of Richard Scott Tucker filed 20 December 2022 [34] - [36].
Following this meeting, between June 2022 and October 2022, the plaintiffs were approached by a potential funder and approached a number of litigation funders and creditors to fund the potential claims that had been identified by the plaintiffs.
In September and October 2022, the plaintiffs met with various law firms to discuss the potential litigation strategy to pursue these claims. The plaintiffs received various memorandums from these law firms.[6]
[6] Confidential affidavit of Richard Scott Tucker filed 20 December 2022 [51] - [52].
On 3 November 2022, the plaintiff sent non-disclosure agreements to potential funding parties but was unable to obtain funding to pursue the potential claims. On 7 December 2022, the plaintiff provided non-disclosure agreements to various parties. None of these parties elected to fund the proceedings.
On 13 December 2022, the plaintiffs informed the potential funders that they had received no commitments to provide litigation funding and that they would now seek the court's approval of the DOSR and agreements with the former director and related parties.[7]

Plaintiffs' remuneration

[7] Affidavit of Nathan John Draper filed 10 January 2023 'NJD-1'.

Following their appointment, the plaintiffs sought approval from creditors to indemnify them for the costs and expenses of future work over the period 19 March 2020 to the completion of the liquidation.[8] As result of the meeting, the creditors approved the remuneration for $402,500.00 (excl. GST) for the liquidation of Gold Valley Iron.[9]
[8] Affidavit of Richard Scott Tucker filed 20 December 2022 [8].
[9] Affidavit of Richard Scott Tucker filed 20 December 2022 'RST-1', p 8.
On 10 May 2022, the plaintiffs provided a further Remuneration Report to the COI which sought approval for payment of further remuneration of $800,000 for the period 24 April 2020 to 28 April 2022.[10]
[10] Affidavit of Richard Scott Tucker filed 20 December 2022 'RST-1'.
At the meeting of the COI on 24 May 2022, the plaintiffs proposed that the COI approve their remuneration in the sum of $800,000. Prior to the resolution being voted on, Mr Tucker advised the COI that if the liquidators' remuneration was not approved, the plaintiffs would consider making an application to the court for the approval of their remuneration. The resolution was then put to the COI who did not approve the resolution.[11]
[11] Confidential affidavit of Richard Scott Tucker filed 20 December 2022 'RST-7', p 286.

Legal Principles

Although s 477(2A) of the Act and s 477(2B) of the Act deal with different aspects of a liquidator's power, similar considerations apply under each provision.[12] These provisions ensure there is oversight of a liquidator's actions.[13] In considering an application under s 477(2B) of the Act, particular focus must be made to ensure the winding-up proceeds as expeditiously as circumstances allow.[14]
[12] Re United Medical Protection Ltd [2003] NSWSC 237; (2001) 46 ACSR 98 [6].
[13] Re HIH Insurance Ltd [2004] NSWSC 5 [15].
[14] 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:[15]
[T]he 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)
[15] Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83, 85 (Giles J); cited with approval in numerous authorities including recently 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. 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.[16]
[16] 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;[17]
(b)the delay and uncertainty that is inherent in any alternative options;[18] and
(c)whether the settlement is the result of extensive and detailed negotiations.[19]
[17] Re HIH Insurance Ltd [15].
[18] Re Emu Brewery Developments Pty Ltd (in liq) [2009] FCA 1212 [19].
[19] 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.[20] That said, there must be a plausible evidentiary basis for the commercial judgment of the liquidator.[21]
[20] Re United Medical Protection Ltd [7].
[21] 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.[22]
[22] Re Bell Group Ltd (in liq); Ex parte Woodings [2013] WASC 409; (2013) 97 ACSR 117[34] and the authorities cited therein.
There is some divergence of opinion as to the precise basis as to how retrospective approval ought be granted.[23] More recently, the approach of the court, where satisfied it is appropriate to give the approval, is to:[24]
(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 approval to enter into the compromise nunc pro tunc;
(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 the Insolvency Practice Schedule.
[23] 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].
[24] Vickers, Re; York Street Mezzanine Pty Ltd (in liq) [38]; Re Bell Group Ltd (in liq); Ex parte Woodings [35]; Re Bell Group Ltd (In Liq); Ex Parte Woodings [2020] WASC 121 [62].
It is not uncommon where a liquidator seeks the court's approval for entry into an agreement for the liquidator to also seek and obtain directions that the liquidator was justified in entering into the agreement.
In Re McDermott and Potts, the Victorian Court of Appeal summarised the principles that apply where a liquidator seeks directions. While, in that case, the court was considering an application under s 511 of the Act, which has since been repealed, it is generally accepted that the power under s 90-15 of the Insolvency Practice Schedule is at least as wide as that under s 511.[25] Before considering the principles, which govern applications such as the present one, the Victorian Court of Appeal stated:[26]
Courts recognise that they are generally unqualified and ill-equipped to make or approve of business and commercial decisions. Thus, courts are loath to interfere with the commercial judgment of liquidators on matters within their powers, and will not give directions to liquidators on such matters where no issue arises in relation to a legal matter or in relation to the propriety or reasonableness of the decision. (footnotes omitted)
[25] See for example Re Red Lancer Pty Ltd (in Liq); Ex parte Bumbak [2019] WASC 450 [43].
[26] Re McDermott and Potts [65].
After reviewing the authorities, the Victorian Court of Appeal summarised the principles which govern the application in the following terms.[27]
(a)The nature of the inquiry undertaken by the court when approval is sought under s 477(2B) is different from the nature of the inquiry the court undertakes under s 511 when a liquidator seeks directions in relation to such a compromise.
(b)On an application for directions, the court must be positively persuaded that the liquidator's decision to enter into the compromise is, in all the circumstances, a proper one. This necessarily involves a broad consideration of all the relevant circumstances. A direction will exonerate the liquidator.
(c)In contrast, the discrete consideration of an application under s 477(2B) involves a more circumscribed inquiry. The court reviews the liquidator's proposal, satisfying itself that there is no error of law or ground for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene. An order under s 477(2B) does not constitute an endorsement of the proposed compromise. An approval will not exonerate the liquidator.
(d)Given that the nature of the inquiry undertaken in relation to the directions application is broader than that under s 477(2B), it is usually convenient to deal with the directions application first, and often that consideration will substantially overtake any discrete consideration of the application under s 477(2B).
(e)The court always pays due regard to the commercial judgment of the liquidator, and, on both applications, the attitudes of creditors are also important.
(f)On both applications, but particularly the application for directions, it would ordinarily be expected that a liquidator would have obtained appropriate legal advice in relation to the proposed compromise, and the nature and content of that advice is a relevant consideration.
(g)While the focus of s 477(2B) is delay, the inquiry under s 477(2B) still requires consideration of the substance of the proposed compromise. If a related application for directions reveals either that the directions should, or should not, be given, discrete consideration of the application under s 477(2B) may be superfluous.
[27] Re McDermott and Potts [92].
The power of the court to give directions to a liquidator is not unfettered. In considering whether it is appropriate to make the directions sought, the court must have regard to the circumstances of the liquidator. As was noted by Pritchard J in Re Great Southern Managers Australia Ltd:[28]
[T]he court will be reluctant to give directions if only commercial considerations are involved, but special circumstances may warrant directions being given. Those special circumstances may include where the liquidator is operating in an acrimonious environment in the liquidation, and the liquidator's proposed decision risks being subjected to criticism by a particular creditor or creditors as being unreasonable or made in bad faith, or where there is a degree of personal risk of litigation attached to the liquidator that could negatively affect the winding up process. It will suffice if such an attack is in prospect. In other words, a s 511 direction may be given to protect the liquidator in circumstances where the compromise could otherwise negatively affect the winding up process. From that perspective, it can be said that the direction would be just and beneficial to advancing the liquidation process as a whole. (footnotes omitted)
[28] Re Great Southern Managers Australia Ltd (in liq); Ex Parte Jones, Weaver and Stewart (in their capacity as liquidators of Great Southern Managers Australia Ltd (in liq)) [2014] WASC 312 [61].
Subject to the liquidator making full and fair disclosure of the material facts, the effect of a direction is to protect the liquidator from claims that they have acted unreasonably, inappropriately, or in breach of their duties; it does not determine rights and liabilities that arise out of the proposed transaction.[29]
[29] Re Great Southern Managers Australia Ltd [57] - [58].
In considering whether in its discretion to give a direction that the liquidator is justified in entering into the proposed compromise or settlement, the focus of the court is on whether giving the direction will be advantageous in the winding up of the company. This involves a broad consideration of matters including the nature of the proposed course of action about which direction is sought, the circumstances relevant to the proposed course of action, the reasons for and consequences of the proposed course of action, and, where the cases involve a determination of a legal issue, the principles relevant to the determination of that issue.[30]
[30] Re McDermott and Potts [85] - [90], [92].

In relation to the application for approval of the liquidators' remuneration, pursuant to s 60–10(1)(c) of the Insolvency Practice Schedule, the court has power to make a determination about the remuneration that the liquidators are entitled to receive for necessary work properly performed by them as liquidators of the company. Section 60–12 of the Insolvency Practice Schedule provides that, in making that determination, the court must have regard to whether the remuneration is reasonable, taking into account any or all of the matters set out in s 60–12(a) - (m).
The principles concerning applications for approval of remuneration incurred by insolvency practitioners are well established. While these principles were established when previous statutory provisions of the Act applied, the matters contained in s 60–12 of the Insolvency Practice Schedule are materially the same as the matters that were set out in s 449E(4) of the Act (which has now been repealed). Accordingly, it is accepted that the authorities that dealt with the now repealed provisions concerning court approval of a liquidator's remuneration remain relevant.
These principles were summarised by Black J in Re Sakr Nominees Pty Ltd in the following terms:[31]
[T]he Court will generally need to be provided with an account in itemised form, setting out at least the details of the work done; the persons who did the work; the time taken to perform the work; the remuneration claimed; and, to the extent relevant, the expenses incurred by the liquidator.
Proportionality is an important matter in considering the question of whether remuneration is reasonable, and the 'value' of a liquidator's work can include the benefit of resolving the position of creditors and beneficiaries, the benefit to the community of not permitting assets to remain unproductively in the hands of a defunct company for a long period; and can include work that was required to be done, although it did not result in a return to creditors.
[31] Re Sakr Nominees Pty Ltd [2017] NSWSC 668 [23].

Disposition

The details of much of the evidence that I have considered for the purposes of this application is confidential. For that reason, 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 of Mr Tucker in both his confidential and non-confidential affidavit, including the efforts that have been made by the plaintiffs to obtain litigation funding for the potential claims of Gold Valley Iron and the fact that, at the time of the hearing, these efforts had not been successful. I have also taken account of the terms of each of the proposed agreements, as well as the interests and wishes of the major creditors (including the secured creditor) of the companies as disclosed in relevant minutes of the COI.
These matters are relevant to the court's consideration of whether directions should be given, whether the plaintiffs are acting in good faith in entering into the agreements and whether there is any error or other ground which may call into question the decision of the liquidators. On the material before me, I do not consider there is any error or ground on which the liquidators' decision can be called into question. On the evidence before me, I am satisfied the plaintiffs are acting properly and are justified in entering into and performing the agreements the subject of the application.
In reaching this decision, I have taken into account the following matters.
First, despite the COI not approving the entry into the DOSR and the other agreements, none of the major creditors have offered to fund the proposed proceedings. The liquidators have made significant efforts to obtain litigation funding for these potential claims. Despite these efforts, the liquidators do not have funding to pursue these claims and there are insufficient funds for the liquidators to pursue these claims.
Second, I am satisfied on the basis of Mr Tucker's confidential affidavit that Mr Tucker has properly considered the strength of the potential claims, the likely defences and possible conduct of the litigation, as well as the potential outcomes for the creditors of Gold Valley Iron in considering whether or not to enter into the various agreements.
Third, I am satisfied that the proposed agreements will provide certainty to creditors, save further legal costs from being incurred and enable a distribution to creditors to occur at the earliest practicable time.
Fourth, Mr Tucker has explained the commercial rationale for the various agreements and the considerations taken into account in assessing the proposed settlement and the reasons for the decision of the liquidators to enter into these agreements.
In my view, it is appropriate to grant approval to enter into the DOSR, the SSA and the Escrow Agreement nunc pro tunc. Each of these agreements are conditional on the approval of this court.
I am also satisfied that, in this case, it is appropriate to give these directions to the plaintiffs. In forming the view that I should give a direction that the plaintiffs would be acting properly and are justified in entering into and performing the agreements, I have taken into account the following. First, I accept there is a risk that the liquidators' proposed decision may be subject to criticism from those creditors who voted against entry into these agreements at the COI meeting. Second, the matters that I have referred to above negate any finding of unreasonableness or bad faith and demonstrate that the plaintiffs have considered whether entry into these agreements is in the best interests of the creditors as a whole, consistent with their duty of exercising due skill, care and diligence as officers of Gold Valley Iron. Third, despite the major creditors being given notice of the application, no-one appeared to oppose the orders sought or to challenge the proprietary of the settlement.
In respect of the remuneration sought by the plaintiffs, the details of the remuneration sought are set out in the remuneration approval report dated 10 May 2022 (Report). The Report discloses that at a meeting of creditors on 19 March 2020, creditors approved prospective remuneration of $402,500 (ex GST) for the remainder of the liquidation of Gold Valley Iron. Mr Tucker explained in the Report that the time costs for undertaking the work had been materially more than anticipated and that they intended to write off a material portion of this additional time.
Mr Tucker confirmed that the fees were calculated on an hourly rates basis and that, in his view, the rates sought were reasonable given the work that was required to be done and the complexity of the tasks that were performed. His evidence, which I accept, was that these hourly rates are comparable to that charged by comparable firms for similar work.
The remuneration approval report summarises the tasks that were performed by the plaintiffs and their staff as well as the number of hours that each member of staff has worked. The report discloses that significantly more amounts of time were spent on this matter over and above the amount sought by the plaintiffs.
The evidence filed by the plaintiffs, in my view, is sufficient to establish a prima facie case that the plaintiffs are entitled to remuneration in the amount sought. I am also satisfied, on the evidence before me, that the work performed by the plaintiffs was reasonably necessary and that the work that was done after April 2020 was extended because of the complexities in identifying the potential claims against various parties associated with the directors, the strengths of those claims and whether funding could be obtained to pursue any of these claims.
I am also satisfied that both ASIC and the major creditors have been given notice of the application. No-one has sought to be heard in respect of the claim for remuneration or to object to it being approved.
In these circumstances, I am satisfied that it was appropriate to approve the remuneration sought by the plaintiffs.

Conclusion and Orders

For these reasons, I considered it was appropriate to make the orders sought by the plaintiffs, subject to amending the orders to reflect the matters set out in [24] of these reasons.
On this basis, on 27 January 2023, I made orders in the terms attached to these reasons.
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
24 APRIL 2023