Generate Group Pty Ltd v Harris

Case [2023] FCA 605

FEDERAL COURT OF AUSTRALIA

Generate Group Pty Ltd v Harris [2023] FCA 605   

File numbers: NSD 1124 of 2022
NSD 196 of 2023
Judgment of: STEWART J
Date of judgment: 8 June 2023
Catchwords:

CORPORATIONS – where liquidator purported to assign choses in action pursuant to a heads of agreement and deed of assignment – where court approval required under s 477(2B) of the Corporations Act 2001 (Cth) – where assignee commenced proceedings before court approval sought or granted – principles governing retrospective approval – interests of creditors and the proper administration of companies in liquidation

PRACTICE AND PROCEDURE – summary dismissal –whether assignment without court approval effective as regards third parties – whether proceedings commenced before approval a nullity – effect of granting approval nunc pro tunc

Legislation:

Corporations Act 2001 (Cth) ss 477(2)(d), 477(2B), 506(1)(b), 506(1A)(a), 1322(4)(a)

Federal Court (Corporations) Rules 2000 (Cth) r 2.13(1)

Federal Court Rules 2011 (Cth) rr 16.53, 16.54
Cases cited:

BHP Coal Pty Ltd v Construction, Forestry, Mining and Energy Union [2014] FCAFC 138; 226 FCR 240

Brisbane South Regional Health Authority v Taylor [1996] HCA 25; 186 CLR 541

Byers v Overton Investments Pty Ltd [2001] FCA 760; 109 FCR 554

Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109

Deigan v Fussell [2019] NSWCA 299

Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324; 35 ACSR 167

Federal Commissioner of Taxation v Kassem [2012] FCAFC 124; 205 FCR 156

Hall v Poolman [2009] NSWCA 64; 75 NSWLR 99

Hamilton, in the matter of ACN 101 634 146 Pty Ltd (in liq) [2014] FCA 687

Hayes, in the matter of Dingham Constructions Pty Ltd (in liq) [2018] FCA 2053

HIH Casualty [2002] NSWSC 1036

Hundy (liquidator), in the matter of 3 Property Group 13 Pty Ltd (in liq) [2022] FCA 1216

In the matter of Golden Sands Hospitality Pty Ltd (in liq) (No 2) [2017] NSWSC 450

In the matter of Kevin Jacobsen Pty Ltd (in liq) [2016] NSWSC 538

In the matter of Octaviar Ltd (in liq) [2015] NSWSC 1621; 110 ACSR 72

In the matter of One.Tel Ltd [2014] NSWSC 457; 99 ACSR 247

Lord Corporation Pty Ltd v Green (1991) 22 NSWLR 532

Martin Bruce Jones as liquidator of Forge Group Ltd (recs and mgrs. apptd) (in liq) v Sun Engineering (Qld) Pty Ltd [2017] WASC 195

Re Ambient Rail Pty Ltd (in liq); Ex parte Tonks [2019] FCA 1556

Read, in the matter of Forestview Nominees Pty Ltd [2007] FCA 1985; 164 FCR 237

Rolfe v Investec Bank (Aust) Ltd [2014] VSCA 38

Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375

Stone v ACE-IRM Insurance Broking Pty Ltd [2003] QCA 218; [2004] 1 Qd R 173

Williams v Spautz [1992] HCA 34; 174 CLR 509
Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 79
Date of hearing:

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Details
AGLC
Generate Group Pty Ltd v Harris [2023] FCA 605
Case
[2023] FCA 605
Decision Date

CaseChat Overview and Summary

In the Federal Court of Australia, the case of Generate Group Pty Ltd v Harris involved a dispute regarding the assignment of choses in action by a liquidator without prior court approval, as required by section 477(2B) of the Corporations Act 2001 (Cth). The liquidator had executed a heads of agreement and a deed of assignment, and the assignee subsequently commenced proceedings before seeking or obtaining court approval. The court was tasked with determining the principles governing retrospective approval and the implications for the interests of creditors and the proper administration of companies in liquidation. Additionally, the court considered whether the assignment without court approval was effective as regards third parties and whether the proceedings commenced before approval were a nullity, as well as the effect of granting approval nunc pro tunc.

The legal issues before the court included whether the liquidator's delay in seeking approval warranted a refusal of retrospective approval and whether the assignee's proceedings were an abuse of process. The court analysed the terms of the assignment and the requirement for approval under section 477(2B), concluding that Generate’s ability to institute the proceeding depended on these factors. The court found no evidence of abuse of process and held that the liquidator’s delay, though modest, did not preclude retrospective approval. The court relied on precedents that supported the granting of retrospective approval where the liquidator’s actions, while perhaps criticised, did not involve dishonesty.

The court ruled that the summary dismissal applications must fail and granted retrospective approval to the liquidator for the heads of agreement and deed of assignment. The court dismissed the interlocutory applications by the defendants and ordered that Sandra Drew and Secom Technology Pty Ltd be joined as defendants in Generate’s proceeding. The court also reserved costs and directed the parties to arrange a further case management hearing to address costs. The decision underscored that the jurisdiction under section 477(2B) is aimed at promoting the interests of the liquidation and creditors, not at disciplining liquidators for delays in seeking approval.

Orders

Orders of the court

1. Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), the plaintiffs be authorised nunc pro tunc to enter into:

(a) the heads of agreement dated 5 December 2022, a copy of which is at tab 5 of exhibit MT-1 to the affidavit of Mali Agnes Kainona Thaggard affirmed on 28 February 2023; and

(b) the deed of assignment dated 9 December 2022, a copy of which is at tab 6 of exhibit MT-1 to the affidavit of Mali Agnes Kainona Thaggard affirmed on 28 February 2023.

2. The costs be reserved.

3. The plaintiffs and interested parties jointly arrange a listing, with a listing in NSD1124/2022, for hearing submissions on costs.

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

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

I am not satisfied that that amounts to any form of abuse of process within the authorities. Generate’s ability to have successfully instituted the proceeding must depend on the terms of the assignment, the construction of the requirement for approval in s 477(2B) and the terms of the approval that is granted. There is no manner in which Generate has used the commencement of the proceeding to obtain some advantage for which it was not designed or a collateral advantage beyond what the law offers within the meaning of Williams v Spautz [1992] HCA 34; 174 CLR 509 at 523 as relied on by Mr Docker.Conclusion on summary dismissal For those reasons, the summary dismissal applications must fail.Disposition In the result, in the liquidator’s proceeding (NSD196/2023) there should be orders that pursuant to s 477(2B) of the Corporations Act the plaintiffs be authorised nunc pro tunc to enter into:(1)the heads of agreement dated 5 December 2022, a copy of which is at tab 5 of exhibit MT-1 to the affidavit of Mali Agnes Kainona Thaggard affirmed on 28 February 2023; and(2)the deed of assignment dated 9 December 2022, a copy of which is at tab 6 of exhibit MT-1 to the affidavit of Mali Agnes Kainona Thaggard affirmed on 28 February 2023. In Generate’s proceeding (NSD1124/2022) there should be orders that:(1)the interlocutory application by the third, fourth and sixth defendants lodged for filing on 17 March 2023 be dismissed;(2)the interlocutory application by the first, second and fifth defendants lodged for filing on 29 March 2023 be dismissed;(3)within seven days, Sandra Drew and Secom Technology Pty Ltd ACN 161 035 276 be joined as the seventh and eighth defendants respectively, and that Generate file and serve an amended originating process giving effect to that joinder and a statement of claim. The parties should liaise with my Chambers with a view to arranging a time for further case management, at which time I will hear the parties briefly on costs.

Ratio Decidendi

Legal Principle Established

In In the matter of Kevin Jacobsen Pty Ltd (in liq) [2016] NSWSC 538 at [74], Black J explained that the jurisdiction under s 477(2B) is directed to promoting the interests of the liquidation and the creditors, not the exercise of disciplinary functions over liquidators who delay in seeking approvals under the section. Thus, even if a liquidator’s failure to seek approval prior to an assignment were open to criticism, it does not follow that creditors should be deprived of the potential benefit of the assignment which is otherwise in their interests.Consideration On the face of it, the case for approval is straight-forward. The delay by the liquidator in seeking approval is modest and it has been explained. Even if one were to take the view that she should have moved more quickly to bring the application once the terms of the assignment had been agreed, the delay is still modest. It would appear to be clearly to the benefit of the liquidation for approval to be given and there is no obvious reason why it should not be given. Although the finalisation of the liquidation will be delayed while the outcome of Generate’s proceeding is awaited to see whether the further $55,000 will be paid, that will not create any particular prejudice because there is little else going on in the liquidation. Against that apparently obvious position, Mr Docker makes a number of submissions which address, in particular, why approval should not be granted retrospectively. First, Mr Docker points to the wording of s 477(2B) that a liquidator “must not” enter into the type of agreement in question and submits that that means approval should be sought in advance and that the basis for retrospective approval is very limited. It is of course correct that approval should be sought in advance, but there is ample authority in support of a court being able to give, and giving, retrospective approval. In addition to the authorities cited above, the authorities cited by Mr Docker also support that proposition. For example, in Hayes, in the matter of Dingham Constructions Pty Ltd (in liq) [2018] FCA 2053 at [31], Markovic J reasoned that the liquidator’s inaction was not a result of dishonesty and was not sufficient in itself to prevent the Court’s exercise of its powers to give the relevant agreements retrospective approval. Her Honour referred to Hamilton, in the matter of ACN 101 634 146 Pty Ltd (in liq) [2014] FCA 687 at [7] where Kerr J reasoned that although the liquidator’s conduct might be the subject of legitimate criticism, it displayed no dishonesty and had been explained. It was therefore not something that the Court considered should prevent the exercise of the power to give retrospective approval. The same can be said of the present case. Secondly, Mr Docker submits that although the interests of creditors is the “controlling consideration” when prospective approval is sought, in the case of retrospective approval the interests of third parties might also be affected such that the interests of creditors is not the controlling consideration. He submits that it is the prejudice to other people that must also be considered when retrospective approval is sought.