HARRIS SCARFE LTD (IN LIQ)

[2007] SASC 209

SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Application)

Re: HARRIS SCARFE LTD (IN LIQ)

[2007] SASC 209

Judgment of The Honourable Justice Debelle

7 June 2007

CORPORATIONS - WINDING UP - LIQUIDATORS

Companies - winding up - liquidators' application for approval to enter into litigation funding agreement.

Corporations Act 2001 (Cth) 477(2A), s 477(2B), s 588M; Evidence Act 1929 s 69A, referred to.
Corporation Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 10; re Chase corporation (Australia) Equities Pty Ltd (1990) 8 ACLC 1118; re Feastys Family Restaurants Pty Ltd (in liq) (1996) 14 ACLC 1058; re JN Taylor holdings Ltd (in liq) [2007] SASC 193; re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83, applied.

RE: HARRIS SCARFE LTD (IN LIQ)
[2007] SASC 209

Civil

1. DEBELLE J. This is an application by liquidators for approval pursuant to s 477(2B) of the Corporations Act 2001 (Cth) to enter into a litigation funding agreement.

2. On 3 April 2001 Michael Joseph Dwyer and Lindsay Philip Maxsted were appointed administrators of Harris Scarfe Holdings Ltd as well as of other companies in the Harris Scarfe group.  On 3 January 2002 a resolution for the voluntary winding up of Harris Scarfe Holdings Ltd as well as the other companies in the Harris Scarfe group was carried at a meeting of creditors.  The creditors also resolved to appoint Messrs Dwyer and Maxsted joint and several liquidators of Harris Scarfe Holdings Ltd and the other companies in the Harris Scarfe group. 

3. Mr Maxsted resigned as liquidator on 11 November 2004.  By order of a Master of this court made on 21 January 2005, Mr Dwyer was removed as liquidator and Samuel Charles Davies and Colin MacIntosh Nicol were appointed liquidators in his stead.  Messrs Davies and Nicol have continued as liquidators and have proceeded with the administration of the winding up.

4. The liquidators decided that it was prudent for an order of the court to be made winding up the companies.  On 26 March 2007 Gray J made an order winding up Harris Scarfe Holdings Ltd, Harris Scarfe Ltd, Harris Scarfe Wholesale Pty Ltd and D-Store Ltd as well as seven other companies in the Harris Scarfe group.  I will hereafter refer to Harris Scarfe Holdings Ltd, Harris Scarfe Ltd, Harris Scarfe Wholesale Pty Ltd and D-Store Ltd as "the Harris Scarfe companies". 

5. On 30 March 2007 the liquidators commenced proceedings against the former directors of the Harris Scarfe companies claiming damages pursuant to s 588M of the Corporations Act for losses incurred by trading as insolvent companies. The liquidators also propose to conduct examinations of the former directors pursuant to Part 5.9 of the Corporations Act. 

6. The liquidators have negotiated a litigation funding agreement. They seek leave to enter into that agreement. The liquidators require the approval of the court because the agreement will continue in operation for more than three months: s 477(2B) of the Corporations Act. 

7. At this stage there is a Committee of Inspection of Harris Scarfe Limited. At a meeting on 9 May 2007 the Committee approved the liquidators entering into the litigation funding agreement. The approval of the Committee is sufficient authority for the liquidators of Harris Scarfe Ltd to enter into this agreement: see s 477(2B). However, a Committee of Inspection does not at present exist for either Harris Scarfe Holdings Ltd, Harris Scarfe Wholesale Pty Ltd or D-Store Ltd. In the absence of the existence of a Committee of Inspection of those companies to approve the agreement, the liquidators require the approval of the court.

8. In reJN Taylor Holdings Ltd (in liq) [2007] SASC 193 at [32] and [33] I set out the relevant principles to be applied when liquidators seek approval pursuant to s 477(2A) and s 477(2B) of the Corporations Act. I have regard to those principles without repeating them. It is sufficient to note that the purpose of s 477(2B) is to restrict liquidators from entering into a long term commitment which may not be conducive to an expeditious and beneficial administration: Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109 at 117. The court will consider whether the compromise is in the interests of those concerned in the winding up and will pay due heed to the commercial judgment of the liquidator: reSpedley Securities Ltd (in liq) (1992) 9 ACSR 83 and re Chase Corporation (Australia) Equities Pty Ltd (1990) 8 ACLC 1118. As a general rule the court 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: re Spedley Securities Ltd (in liq).  In addition, I note that in re Feastys Family Restaurants Pty Ltd (in liq) (1996) 14 ACLC 1058 Young J approved a litigation funding agreement pursuant to s 477(2B).

9. The litigation funding agreement is beneficial to the creditors of the Harris Scarfe companies.  It will enable the prosecution of proceedings which would not be possible without the agreement.  The Harris Scarfe companies are not exposed to any risk different from the risks to which they would be exposed if they had not been funded.  It is proper to grant  approval for the liquidators to enter into the agreement.

10. The litigation funding agreement is a confidential commercial agreement. It is proper, therefore, that it remain confidential and to that end there will be an order that it be placed in a sealed envelope which shall not be opened except by order of a judge of this court. The court has inherent power to make such an order and to the extent necessary may also make the order pursuant to s 69A of the Evidence Act1929: see JN Taylor Holdings (in liq) at [6] to [24].

11. For these reasons there will be orders as follows:

    1.That the following companies and the liquidators of each be authorised to enter into the litigation funding agreement with ALF No. 4 Pty Ltd, ACN 107 773 286 being the document marked ‘A’ and initialled by the Honourable Justice Debelle:

    1.1    Harris Scarfe Holdings Ltd (Receivers and Managers Appointed) (In Liquidation) (ACN 009 476 073);

    1.2    Harris Scarfe Wholesale Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (ACN 061 092 359); and

    1.3    D-store Ltd (Receivers and Managers Appointed) (In Liquidation) (ACN 088 231 789).

    2That the document marked 'A' referred to in paragraph 1 of this order be placed in a sealed envelope which shall not be opened except by order of a judge of this court.