In the matter of A.C.N. 004 410 833 Limited (formerly Arrium Limited) (In Liquidation)

[2021] NSWSC 799

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of A.C.N. 004 410 833 Limited (formerly Arrium Limited) (In Liquidation) [2021] NSWSC 799

Hearing dates:

18 June 2021

Date of orders:

18 June 2021

Decision date:

01 July 2021

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Orders previously made as sought by liquidators.

Catchwords:

CORPORATIONS – Winding up – Question arising during winding up – Application by liquidators to Court for direction – Application by liquidators for approval of entry into deed of settlement.

Legislation Cited:

- Corporations Act 2001 (Cth), ss 477(2A), 477(2B), 588G, 1317S, 1318

- Court Suppression and Non-Publication Orders Act 2010 (NSW)

Cases Cited:

-Boné, in the matter of ACN 002 864 002 Pty Ltd (in liq) formerly known as Petrolink Pty Ltd v Smith [2015] FCA 870

-Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in Liquidation) v Battaglia [2020] NSWSC 1617

- Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as liquidator of the Bell Group Ltd (in liq) (2013) 97 ACSR 117; [2013] WASC 409

- Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2019] NSWSC 495

- Re HIH Insurance Ltd [2004] NSWSC 5

- Re McDermott and Potts [2019] VSCA 23

- Re Mustang Marine Australia Services Pty Ltd (in liq) [2015] NSWSC 2152

- Re Octaviar Administration Pty Ltd (in liq) [2017] NSWC 1556

- Re One.Tel Limited (2014) 99 ACSR 247; [2014] NSWSC 457

- Re Plutus Payroll Australia Pty Ltd (in liq) [2020] NSWSC 1438

- Re Rubix Investments Group Pty Ltd (in liq) [2018] NSWSC 1184

Category:

Procedural rulings

Parties:

A.C.N. 004 410 83 Limited (formerly Arrium Limited) (in liquidation) & Ors (Plaintiffs)
Jeremy Charles Roy Maycock & Ors (Defendants)

Representation:

Counsel:
P Crutchfield QC/D Snyder (Fourth, Fifth and Seventh Plaintiffs)

Solicitors:
Arnold Bloch Leibler (Fourth, Fifth and Seventh Plaintiffs)

File Number(s):

2019/209100 (010)

Judgment

1. By Interlocutory Process dated 24 May 2021, the Liquidators of A.C.N. 004 410 833 Ltd (formerly Arrium Ltd) (in liq) (“Liquidators”) seek orders under ss 477(2A) and 477(2B) of the Corporations Act 2001 (Cth) approving, nunc pro tunc, their entry into a deed of settlement (“Settlement Deed”) in respect of certain proceedings against the former directors of Arrium and certain associated companies (“Insolvent Trading Proceedings”). They also seek an order under s 90-15 of the Insolvency Practice Schedule (Corporations) (“IPSC”) that they are justified in giving effect to the Settlement Deed and seek certain orders under the Court Suppression and Non-Publication Orders Act 2010 (NSW) (“Suppression Act”) which were addressed in the course of the hearing. I made the orders sought by the Liquidators at the conclusion of the hearing. These are my reasons for doing so.

Affidavit evidence

2. The Liquidators rely on an affidavit dated 24 May 2021 of Mr Martin Madden, who is one of the Liquidators. Mr Madden refers to the commencement of the Insolvent Trading Proceedings in July 2019, in which the Liquidators alleged contraventions of s 588G of the Corporations Act between 29 December 2015 and 16 February 2016 and to a Cross-Claim brought by the Defendants against a law firm in those proceedings. Mr Madden notes that the trial of the Insolvent Trading Proceedings commenced on 1 March 2021 before Ball J and was heard concurrently with other proceedings brought by lenders to the Arrium Group or their assignees against persons associated with Arrium. Mr Madden also notes that, on 10 May 2021, the Plaintiffs and the Defendants to the Insolvent Trading Proceedings executed the Settlement Deed to resolve their claims in those proceedings, although that Settlement Deed did not resolve the Cross-Claim filed against the law firm in those proceedings. On 11 May 2021, Ball J adjourned the Insolvent Trading Proceedings and they will, subject to this application, commence again on 9 August 2021.

3. Mr Madden also set out the history of the external administration of the Arrium Group, the debts of that Group at the point that voluntary administrators were appointed, the positions in respect of guarantees and deeds of cross-guarantee within the Arrium Group, the entry into deeds of company arrangement by the Arrium Group companies and steps which have been taken to realise certain assets of the Arrium Group and to distribute proceeds to financier creditors of the Arrium Group. Mr Madden also addressed information which had been provided to the Arrium Creditors Committee in respect of the conduct of the Insolvent Trading Proceedings, the manner in which costs of the Insolvent Trading Proceedings had been funded and the proposed distribution of the proceeds of or settlement of the Insolvent Trading Proceedings.

4. By a second confidential affidavit dated 24 May 2021, as to which the Liquidators sought and obtained orders under the Suppression Act, Mr Madden addressed the terms of the proposed settlement, the return on the proposed settlement to creditors under deeds of cross-guarantee, the initial legal advice that the Liquidators had obtained from Counsel in respect of the entry into the proposed settlement and more detailed legal advice which they had since obtained in respect of entry into the Settlement Deed. Mr Madden there set out his views as to the proposed settlement, and, for the reasons he there indicated, concluded that the settlement represented a fair and commercially reasonable compromise of the issues in the Insolvent Trading Proceedings and was in the interests of the relevant creditors of Arrium and associated entities. As would be expected, Mr Madden there had regard to the risks involved in the continuing conduct of the Insolvent Trading Proceedings, the amount that was potentially recoverable in the proceedings, the possibility that the Defendants would succeed in an application for relief from liability under s 1317S or s 1318 of the Corporations Act, the possibility of adverse costs orders if the Plaintiffs were unsuccessful in the Insolvent Trading Proceedings, the costs likely to be incurred in any appeals against a first instance decision in the Insolvent Trading Proceeding, the terms and outcome of the entry into the Settlement Deed and the impact of the proposed settlement on the length of the liquidation. I do not set out Mr Madden’s reasoning at length, given the orders made under the Suppression Act in respect of his confidential affidavit, but I have had regard to that reasoning.

5. Mr Madden also exhibited the proposed Settlement Deed to his exhibit, and exhibited a confidential joint opinion of Counsel which addressed the factual background to the Insolvent Trading Proceedings, the prospects of establishing liability, the range of potential outcomes in respect of quantum and the key features of the proposed settlement and expressed Counsel’s view as to the reasonableness of the proposed settlement. Again, I do not set out Counsel’s reasoning in detail, given the suppression orders which have been made. I do note that that opinion was, on its face, comprehensive and thoughtful in its analysis.

6. By a further affidavit dated 16 June 2021, Mr Madden addressed the position as to disclosure of the proposed Settlement Deed to members of the Arrium Creditors Committee, other than representatives of the Plaintiffs in the other proceedings being heard together with the Insolvent Trading Proceedings. At the date of the hearing of this application, four members of that Creditors Committee had requested and been provided, on a confidentiality basis, copies of the Settlement Deed and three of those Committee members had advised their support for the settlement, with the fourth not opposing the settlement. The solicitors acting for the plaintiffs in the Anchorage Proceedings, which are bring heard together with the Insolvent Trading Proceedings, have also requested a copy of the Settlement Deed and Mr Madden’s confidential affidavit, and Mr Madden noted that the Liquidators had sought but been unable to obtain the Defendants’ consent to disclosure of the Settlement Deed to the Plaintiffs in those proceedings. The Liquidators placed the relevant correspondence before the Court in respect of this application.

Approval under s 477(2A) of the Corporations Act

7. Section 477(2A) of the Corporations Act provides that, except with the approval of the Court or committee of inspection, or a resolution of creditors, a liquidator of a company must not compromise a debt to the company if the amount claimed is more than $100,000 (as currently prescribed under reg. 5.4.02). Mr Crutchfield, with whom Mr Snyder appears for Arrium, rightly recognises that s 477(2A) of the Act applies to debts in the strict sense and there is a question as to whether a claim for compensation for insolvent trading under s 588M of the Act constitutes a “debt” within the meaning of that provision. He draws attention to the observations of Brereton J in Re Mustang Marine Australia Services Pty Ltd (in liq) [2015] NSWSC 2152 at [5] that:

“There is a question as to whether a claim of this kind is in respect of a debt, such as to fall within s 477(2A). Observations made by Foster J in Engineered Thermal Systems Pty Ltd v Salmon [2012] FCA 1159 (at [31]-[32]) provide some reason for thinking that there may be a debt involved. In any event, as Barrett J (as his Honour then was) has said in cases such as Re HIH Insurance Limited [2004] NSWSC 5 (at [12]) and QBE Workers Compensation (NSW) Limited v G J Formwork Pty Ltd (2006) 56 ACSR 687; [2006] NSWSC 98 (at [4]-[5]), where there is room for argument about whether a claim involves a debt within s 477(2A), the Court should err on the side of treating the claim as a debt rather than declining to grant approval on the ground of lack of jurisdiction. As Lindgren J suggested in Elderslie Finance Corporation Limited v Newpage Pty Ltd (No 6) [2007] FCA 1030; (2007) 160 FCR 423 (at [27], [34]), the advice can be qualified in terms "to the extent that approval may be required."

8. I accept that the Court has jurisdiction to make the order sought under s 477(2A) of the Act where it is arguable that a liability to pay compensation for insolvent trading under s 588M of the Act constitutes a “debt” within the meaning of the section. It is therefore not necessary to address Mr Crutchfield’s further submission that, where a settlement deed provides for a release of “all claims”, and that release extends to the release of any debts, this may be sufficient to satisfy the jurisdictional requirements under s 477(2A): Re One.Tel Limited (2014) 99 ACSR 247; [2014] NSWSC 457 at [64].

9. In determining whether to grant approval under s 477(2A) of the Act, the Court will have regard to the creditors’ interest and the public interest, and will generally grant such approval if the liquidator has taken legal advice as to the compromise and there is no indication of any lack of good faith, error of law, or principal, or substantial reason to doubt the prudence of the compromise: Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as liquidator of the Bell Group Ltd (in liq) (2013) 97 ACSR 117; [2013] WASC 409. Mr Crutchfield points out that the principles that govern the grant of approval under each of s 477(2A) and s 477(2B) of the Act are fundamentally the same, although the focus of the Court’s inquiry differs between the provisions: Re One.Tel Limited above at [26]; Boné, in the matter of ACN 002 864 002 Pty Ltd (in liq) formerly known as Petrolink Pty Ltd v Smith [2015] FCA 870 at [22]. He submits that the Court’s central concern with respect to approval under s 477(2A) is to ensure that the interests and wishes of those affected by the compromise of an asset that would otherwise fall for distribution in the liquidation (chiefly, creditors) are accounted for, and the Court’s assessment must be made in light of the purposes for which liquidators’ powers exist, including the interests of creditors and the proper realisation of the assets of the company: Re One.Tel Limited above at [28]; Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in Liquidation) v Battaglia [2020] NSWSC 1617 at [18].

10. The proposed settlement is supported by detailed advice of experienced Counsel, who have had the advantage of conducting the trial, in respect of the prospects of and settlement of the proceedings. The Liquidators have engaged in a rational assessment of the prospects of the Insolvent Trading Proceedings and have exposed the terms of settlement to several members of the creditors committee which do not have other interests in other proceedings, the majority of which support the settlement and none of which oppose it. It seems to me that the Liquidators’ analysis of the issues in respect of the legal risks of the proceedings is neither ill‐advised nor irrational. The amount of the recovery is substantial, although significantly less than the amount claimed. For these reasons, I made the order that was sought under s 477(2A) of the Act. The authorities make clear that such an order can be made nunc pro tunc.

Approval under s 477(2B) of the Corporations Act

11. Under s 477(2B) of the Corporations Act, except with the approval of the Court or committee of inspection, or a resolution of creditors, a liquidator of a company must not enter into an agreement on the company’s behalf if the term of the agreement may end, or obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance, more than three months after the agreement is entered into, even if the term may end, or the obligation may be discharged, within those three months. The purpose of this section is to ensure that the Court exercises some oversight of the liquidator’s actions and, in effect, confers, or completes the necessary powers on a liquidator to enter an agreement under which obligations will extend for a term of more than three months, only where it can be seen that the case for exercise of that power in the particular circumstances has been sufficiently shown: Re HIH Insurance Ltd [2004] NSWSC 5 at [15]. As Mr Crutchfield points, the primary consideration in respect of s 477(2B) is the impact of the agreement on the duration of the liquidation and whether, in all the circumstances, the agreement is in the interests of the liquidation: Re McDermott and Potts [2019] VSCA 23 at [92(7)]; Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in Liquidation) v Battaglia above at [24].

12. I recognise that the Settlement Deed contains provisions which might not be finally performed for a period of more than three months after entry into the Settlement Deed and that requires that an order under s 477(2B) be sought by the Liquidators. Mr Crutchfield submits and I accept that the proposed settlement is unlikely to extend the length of the liquidations of the Arrium companies, and that continuing with the litigation (and potential appeals) may well take considerably longer than the timeframes for steps under the Settlement Deed. I was also satisfied, having regard to the terms of the proposed Settlement Deed and Counsel’s opinion that it should properly be approved by a court under s 477(2B) of the Act. As I noted above, the authorities make clear that such approval can be granted nunc pro tunc.

Advice under s 90-15 of the IPSC

13. A liquidator has standing to seek such orders as the Court sees fit in relation to the external administration of a company, including an order determining any question arising in the external administration, under ss 90-15 and 90-20 of the IPSC. In Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2019] NSWSC 495 at [2], I observed that:

“The power to give directions under s 90-15 is at least as wide, and likely wider than, the Court’s power which previously existed under former ss 479 and 511 of the Corporations Act 2001 (Cth), and the Court has had regard to similar principles in exercising that power: Walley; Re Poles and Underground Pty Ltd (admins apptd) [2017] FCA 486 at [41]; Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [7]ff. The Court’s power to give such directions is intended to facilitate the performance of a liquidator’s functions and should be interpreted widely to give effect to that intention, and the Court may give such advice or such a direction where it is advantageous to the liquidation to do so: Re Octaviar Administration Pty Ltd (in liq) above at [9].”

14. Mr Crutchfield submits, and I accept, that the Court may grant directions in respect of settlement of litigation where there is an element of potential controversy in respect of the compromise; where a settlement has a substantial element of compromise about it; or where it involves not only the exercise of a commercial judgment by the liquidator, but also the exercise of a legal judgment involving the assessment of merits of the settlement against the prospects of success in the proceeding: Re One.Tel Limited above at [49]; Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [6]; Re Courtenay House Capital Trading Group Pty Ltd (in liq) above. Mr Crutchfield rightly also recognises that a closer examination of the liquidator’s decision including his or her reasons and the process by which the decision has been reached is required to give that direction under s 90-15 of the IPSC, than to make orders under ss 477(2A) and 477(2B) of the Act, since such a direction effectively exonerates the liquidator from any personal liability arising from the matter the subject of the direction: Re Rubix Investments Group Pty Ltd (in liq) [2018] NSWSC 1184 at [33].

15. Mr Crutchfield submits, and I accept, that the direction sought here does not relate only to matters of commercial judgment, as to which the Court would be reluctant to give a direction, since the proposed settlement involves a substantial element of compromise and an assessment of the merits of the settlement against the prospects of success in a lengthy proceeding involving complex legal issues. There appears to be at least the potential for controversy, where several creditors have interests as Plaintiffs in the other proceedings being heard together with the Insolvent Trading Proceedings. I have also had regard to a possibly uncommon term of the settlement, identified by Mr Crutchfield, which I do not set out given the suppression orders that have been made. Mr Crutchfield submits, and I accept, that the Liquidators have followed a proper process in deciding to settle the Insolvent Trading Proceedings, by taking advice from Counsel at the time of the settlement proposal and in detail prior to entry into the Settlement Deed. I recognise that both Counsel and the Liquidators have had regard to the evidence and arguments that have emerged in the course of the Insolvent Trading Proceedings and I have referred above to the comprehensive advice given by Counsel and the Liquidators’ identification and analysis of the issues relevant to determining whether to settle the proceedings.

16. I accept that the proposed settlement brings certainty, as compared to the uncertainty arising from complex issues raised in the proceedings; the amount of the settlement shows no obvious error in reasoning, having regard to the prospects of and risks attached to the proceedings; and there is little risk of default in the payment of the settlement sum. The proposed settlement will generate returns, after the costs of the proceedings, to creditors of the Arrium companies, although the recovery in cents in the dollar is modest since very large amounts were owed to the creditors at the date of administration. I have referred above to the view of members of the Creditors Committee other than those associated with the Plaintiffs in the proceedings heard together with the Insolvent Trading Proceedings. Mr Crutchfield also rightly points out that the proposed settlement avoids further costs being incurred in the Insolvent Trading Proceedings, particularly as regards any appeals, and also avoids liability in respect of pre-existing adverse costs orders or potential adverse costs orders, and the costs exposure in respect of the Insolvent Trading Proceedings would be substantial given their length and complexity. He also submits, and I accept, that the proposed settlement has occurred after lengthy proceedings and has been negotiated between commercially astute and informed parties. I was satisfied that I should make the direction sought by the Liquidators for these reasons.

14. For completeness, I have had regard to, but need not further address, the correspondence in which the Plaintiffs in one of the other proceedings sought access to the Settlement Deed. They did not appear at the hearing of this application to press that request or oppose this application.

Suppression orders

18. Mr Crutchfield submits, and I accept, that suppression orders may be made under the Court Suppression and Non-Publication Orders Act in respect of confidential material filed in support of a liquidator’s application for court approval of a settlement, and the rationale for such orders is that the administration of justice, including the just and efficient winding up of a company, requires that proper compromises be facilitated rather than obstructed. In Re Plutus Payroll Australia Pty Ltd (in liq) [2020] NSWSC 1438 at [17], I observed, albeit in a somewhat different context, that:

“The Court has power to make a suppression and non-publication order under s 7(b) of the Court Suppression and Non-Publication Orders Act 2010 upon the basis set out in s 8(1)(a) of the Act, namely that such an order is necessary to prevent prejudice to the proper administration of justice so as to preclude publication or other disclosure of the affidavit. … such prejudice would arise if a liquidator was unable to approach the Court in an application of this kind, so as to seek such an extension, without his or her disclosure of the state of his or her investigation, prejudicing the future conduct of that investigation or consequential proceedings. For that reason, I am satisfied that the administration of justice, by way of access to justice, is promoted by making an order that will avoid such adverse consequences, by preventing access to and publication of such information. …”

19. I accept that such orders are plainly warranted here in respect of Mr Madden’s confidential affidavit, where that affidavit and Counsels’ opinion have necessarily addressed matters which are commercially confidential and properly the subject of claims for legal professional privilege. The order that was sought and made is consistent with that made in Re Plutus Payroll Australia Pty Ltd (in liq) above. It was not necessary to extend it to confidential exhibits tendered in the proceedings which will be returned in the ordinary course.

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Decision last updated: 04 July 2021