Ex parte McGrath - [2008] FCA 563

FEDERAL COURT OF AUSTRALIA
Ex parte McGrath; in the matter of Pan Pharmaceuticals Limited (in Liq)
[2008] FCA 563
CORPORATIONS – application for Court directions in winding up – proceedings involving former Chief Executive Officer, company in liquidation and officers of the Commonwealth – Court’s power to give directions – within power for liquidators to direct assignment of causes of action as part of terms of settlement – assignment justified – claims for confidentiality upheld
Corporations Act 2001 (Cth) ss 236, 439C(c), s 477(2)(c), 479(3), 506(1)(b), 511
Federal Court of Australia Act 1976 (Cth) ss 17(4), 50
Adultshop.com Ltd v Members of the Classification Review Board (No 2) (2000) FCA 1872 referred to
Bankof Melbourne Ltd v HPM Pty Ltd (in liq) (1997) 26 ACSR 110 applied
Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 referred to
Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 141 ALR 667 applied
Dean-Willcocks v Soluble Solution Hydroponics PtyLtd (1997) 24 ACSR 79 referred to
UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 251 referred to
UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 referred to
Re ACN 007 537 000 Pty Ltd (in liq); Ex parte Parker (1997) 150 ALR 92 referred to
Re Addstone Pty Limited (in liq) (1998) 83 FCR 583 applied
Re BPTC Limited (1996) 14 ACLC 845 referred to
Re G B Nathan v Co Pty Ltd (1991) 24 NSWLR 674 referred to
Stein v Blake (1996) 1 AC 243 referred to
EX PARTE ANTHONY GREGORY MCGRATH AND CHRISTOPHER JOHN HONEY AS LIQUIDATORS OF PAN PHARMACEUTICALS LIMITED (IN LIQUIDATION) (ACN 091 032 914); IN THE MATTER OF PAN PHARMACEUTICALS (IN LIQUIDATION) (ACN 091 032 914)
NSD 561 OF 2008
JACOBSON J
23 APRIL 2008
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 561 OF 2008

IN THE MATTER OF PAN PHARMACEUTICALS LIMITED (IN LIQUIDATION)
(ACN 091 032 914)

BETWEEN:

ANTHONY GREGORY MCGRATH AND CHRISTOPHER JOHN HONEY AS LIQUIDATORS OF PAN PHARMACEUTICALS LIMITED (IN LIQUIDATION)
(ACN 091 032 914)
Applicants

JUDGE:

JACOBSON J

DATE OF ORDER:

23 APRIL 2008

WHERE MADE:

SYDNEY

THE COURT DIRECTS THAT:
1.It is within power for the applicants to assign to Mr James Selim those causes of action against the Commonwealth of Australia as are identified in clause 10 of the Deed of Settlement dated 15 April 2008, and that the applicants may properly do so.

THE COURT ORDERS THAT:
2.Access to the affidavit of Anthony Gregory McGrath sworn 21 April 2008 filed in these proceedings, exhibit AGM-1 to that affidavit and the written submissions given to the court be be restricted to the Court and the applicants, unless the court otherwise orders on application made on two days’ notice to the applicants.
3.Access to the transcript of the hearing in these proceedings be restricted to the Court and the applicants until further order.
4.Liberty to apply on…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2008] FCA 563
Decision Date: 23 April 2008

CaseChat Overview and Summary

The case of Ex parte McGrath involved the liquidators of Pan and Pan Laboratories seeking to assign a cause of action to another party. The primary parties involved were the liquidators of the companies, Mr McGrath and Mr Honey, and the respondents who were not disclosed in the text. The dispute centered around the liquidators' authority to assign the cause of action and the justification for such an assignment. The legal issues that the court needed to address were whether the liquidators possessed the power to assign the cause of action and, if they did, whether such an assignment would be justified.

The court examined the statutory provisions governing the powers of liquidators, particularly under the Corporations Act, to determine whether these powers encompassed the assignment of a cause of action. The court also considered the rationale provided by the liquidators for the assignment, including the potential benefits to the creditors and the overall efficiency of the liquidation process. The liquidators argued that the assignment would enable the recovery of damages more effectively, which would ultimately benefit the creditors of Pan and Pan Laboratories.

In its reasoning, the court found that the liquidators did indeed have the power to assign the cause of action as it fell within the scope of their duties to maximize the recovery for the creditors. The court further concluded that the assignment was justified based on the liquidators' evidence that it would lead to a more efficient and effective resolution of the claim, thereby benefiting the creditors. Consequently, the court granted the application for the assignment of the cause of action.

The final orders of the court included restrictions on the access to certain documents and the transcript of the hearing, and provided liberty to apply for further orders.

Orders

Orders of the court

2. Access to the affidavit of Anthony Gregory McGrath sworn 21 April 2008 filed in these proceedings, exhibit AGM-1 to that affidavit and the written submissions given to the court be be restricted to the Court and the applicants, unless the court otherwise orders on application made on two days’ notice to the applicants.

3. Access to the transcript of the hearing in these proceedings be restricted to the Court and the applicants until further order.

4. Liberty to apply on two days' notice.

Background

Background to the litigation

The issues which arise on the application are first, whether the liquidators have power to assign the cause of action, and second, if so, whether they would be justified in doing so. Background The basis of the Deed of Settlement and the reasons why the liquidators agreed to it are explained in an affidavit of Mr McGrath sworn 21 April 2008. I will refer to the principal parts of that affidavit. The background to the appointment of Mr McGrath and Mr Honey as liquidators of Pan and Pan Laboratories is explained in [8] to [10] of the affidavit and need not be repeated. It is sufficient to say that at a meeting of creditors which commenced on 1 September 2003 and which concluded on 23 September 2003, it was resolved that Pan and Pan Laboratories be wound up in insolvency pursuant to s 439C(c) of the Act and that Mr McGrath and Mr Honey be appointed joint and several liquidators of those companies. Other entities in the Pan group were placed into liquidation in October 2003. Prior to the insolvency of Pan, that company was listed on the Australian Stock Exchange. The business of Pan comprised the contract manufacturing of pharmaceuticals and other products which are often referred to as “complementary medicines.” Pan held various licences in respect of those goods under the Therapeutic Goods Act1989 (Cth) for the manufacture of those products. Mr Selim was the majority shareholder and Chief Executive Officer of Pan. The appointment of Mr McGrath and Mr Honey as administrators and later liquidators of Pan followed a decision of the Therapeutic Goods Administration (TGA) to suspend the manufacturing licences of Pan. Initially the suspension was for a period of six months commencing on 28 April 2003 but subsequently further notices were given under the Therapeutic Goods Act for suspension and product recalls. The notices under that Act referred to breaches by Pan of its licence conditions and the standards of the Australian Code of Good Manufacturing Practice. After the commencement of administration of Pan, Mr McGrath and Mr Honey caused a review to be undertaken of the circumstances which resulted in the notices given under the Therapeutic Goods Act. The solicitors were assisted by a team of consultants specialising in Good Manufacturing Practice. As a result of their inquiries the liquidators determined that the matters identified by the report under the Therapeutic Goods Act resulted from systemic failures at Pan and in particular the failure to have in place adequate systems to ensure compliance with Good Manufacturing Practice. The liquidators determined that Pan should commence proceedings in the Federal Court against Mr Selim seeking damages for breach of duties owed to Pan under s 180 of the Corporations Act. The damages claimed in the action are for the losses that Pan has suffered as a result of the licence suspensions, the recall of the products and the claims that have been made by more than 200 sponsors of the products. Those sponsors did so pursuant to various agreements apparently entered into with Pan or the Pan group.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

JACOBSON J

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Established by: JACOBSON J

Full text does not contain this section.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 561 OF 2008

JUDGE:	JACOBSON J
DATE OF ORDER:	23 APRIL 2008
WHERE MADE:	SYDNEY