In the matter of Barokes Pty Ltd (in liq)

[2022] VSC 642

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S ECI 2021 02423

DAIWA CAN COMPANY	Plaintiff
v
JAMES KOUTSOUKOS AND DAVID COYNE AS JOINT AND SEVERAL LIQUIDATORS OF BAROKES PTY LTD (IN LIQUIDATION) (ACN 079 714 579) & ANOR	Defendants

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JUDGE:	ATTIWILL J
WHERE HELD:	Melbourne
DATES OF HEARING:	22 and 25 October 2021
DATE OF JUDGMENT:	26 October 2022
CASE MAY BE CITED AS:	In the matter of Barokes Pty Ltd (in liq)
MEDIUM NEUTRAL CITATION:	[2022] VSC 642

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CORPORATIONS – Application to bring proceedings on behalf of company in liquidation against the liquidators – Derivative action – Inherent jurisdiction – Relevant criteria – Where leave opposed by liquidator – Where solid foundation for claims against liquidators – Where tangible benefit for creditors – Where circumstances favour the exercise of discretion to grant leave – Leave granted upon undertakings and conditions – El-Saafin v Franek (No 4) [2020] VSC 389, Carpenter v Pioneer Park Pty Ltd (2008) 71 NSWLR 577 applied.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr N M Bender with Ms R A McEwan	YPOL Lawyers
For the Defendants	Mr H N G Austin QC with Mr J Kohn	Macpherson Kelley

HIS HONOUR:

INTRODUCTION

1. There have been a number of proceedings in this Court concerning the business of the third defendant (Barokes). Barokes is in liquidation. In this proceeding, the plaintiff (Daiwa) seeks an order that it be granted leave to bring proceedings in the name of Barokes against the liquidators of Barokes, the first and second defendants (the liquidators). Alternatively, Daiwa seeks leave (if required) to bring proceedings for an order pursuant to section 90-15 of the Insolvency Practice Schedule[1] that the liquidators compensate Barokes.

   [1]In Daiwa’s amended originating motion, the term ‘Insolvency Practice Schedule’ refers to sections 90-10, 90-15 and 90-20 of Schedule 2 to the Corporations Act 2001 (Cth).

1. Daiwa relies upon a proposed statement of claim that pleads claims by Barokes against the liquidators.[2] The claims concern alleged actions and omissions of the liquidators during their sale of the business and assets of Barokes in 2019.

   [2]Daiwa provided a number of versions of the proposed statement of claim. Daiwa relied upon a final version provided to the Court and the parties on 23 October 2021. It is described in the Joint Tender List as ‘Further Draft statement of claim dated 23 October 2021’. The document itself is titled ‘Statement of Claim’, is not dated but shows red and black mark-ups to other versions.

1. For the reasons I am about to give (Reasons), I will grant Daiwa leave to bring proceedings in the name of Barokes, substantially in the form of the proposed statement of claim (excluding those claims identified in these Reasons), upon certain undertakings and conditions I identify later in these Reasons.[3]

   [3]Reasons, [193]-[195].

PARTIES’ MATERIAL

1. By an amended originating motion filed 13 August 2021, Daiwa sought the following relief:

Upon the undertaking of the Plaintiff, given by its legal representatives, to indemnify, following final determination of the proceedings as defined in Prayer 1, the second defendant[4], from any liability for costs ordered against it in the Proceedings:

[4]Daiwa clarified that the reference to ‘second defendant’ is a typographical error and should be a reference to the ‘third defendant’: Transcript of Proceedings, In the matter of Barokes Pty Ltd (in liq) (Supreme Court of Victoria, S ECI 2021 02423, Attiwill J, 22 October 2021) 4.30-5.1 (Mr Bender) (‘Transcript of Proceedings 22 October 2021’).

1.An order pursuant to the inherent jurisdiction of the Court granting leave to the Plaintiff to bring proceedings in the name of the Second Third Defendant against the First and Second Defendants (Proceedings).

2.An order granting leave to the Plaintiff to file, on behalf of the Second Third Defendant, a statement of claim substantially in the form set out at pages 1 to 28 of Exhibit TRP1 of the affidavit of Timothy Randolph Price sworn on 9 July 2021 (Statement of Claim) within seven days of the date of these orders.

3.The Sstatement of Cclaim filed in accordance with Order 2 above be made returnable in the Corporations List for directions on a date convenient to the Court.

4.An order that the Plaintiff’s costs of this application be costs in the cause of the Proceedings.

4A.In the alternative to orders to 1 to 4 above:

(a)an order pursuant to section 90-15 of the Insolvency Practice Schedule that the First and Second Defendants compensate the Third Defendant for the loss suffered by the Third Defendant by reason of the First and Second Defendants’ breaches to the duties they owe to it as pleaded in the Statement of Claim in an amount to be determined by the Court;

(b)in the further alternative, an order pursuant to section 90-10 of the Insolvency Practice Schedule that the Court inquire into the liquidation of the Third Defendant for the purpose of determining the extent of the liability of the First and Second Defendants to compensate the Third Defendant in respect of the matters pleaded in the Statement of Claim and such other matters as the Court deems fit; and

(c)an order that the costs of and associated with the Plaintiff’s claim for the relief claimed in prayer 4A be paid by the First and Second Defendants personally without indemnity from the assets of the Third Defendant.

1. At the commencement of the hearing, Daiwa informed the Court that it did not seek the relief in paragraph 4A(b) of its amended originating process.[5]

   [5]Transcript of Proceedings 22 October 2021 (n 4) 8.12-15 (Mr Bender).

1. The parties tendered documents in a joint court book (CB).[6] It includes the following affidavits:[7]

   [6]The CB is described in a joint tender list dated 24 October 2021. It includes documents identified by Tab numbers. Not all documents from the original tender list are included in the joint tender list dated 24 October 2021 as the parties did not tender all of the documents from the tender list, this includes documents that are exhibits to some of the affidavits. Each of these documents also has page numbers in the bottom right corner. The CB also includes documents not identified by tab numbers, being the further draft statement of claim, documents from Daiwa’s Supplementary Tender Bundle (identified by pages 1 to 28) and the Second Coyne affidavit.

   [7]The affidavits have been marked up by the parties to identify the pages of the CB which relate to the exhibits insofar as those exhibits were relied upon. The parties adopted the course of separately tendering the affidavits to the exhibits and did not tender all of the exhibits. See Transcript of Proceedings 22 October 2021 (n 4) 3.20-23 (Mr Bender). See also Transcript of Proceedings, In the matter of Barokes Pty Ltd (in liq) (Supreme Court of Victoria, S ECI 2021 02423, Attiwill J, 25 October 2021) 5.14-5.30 (His Honour and Mr Bender) (‘Transcript of Proceedings 25 October 2021’).

(a)affidavit of Mr Timothy Randolph Price, solicitor for Daiwa, sworn 9 July 2021 (Price affidavit);[8]

(b)affidavit of Mr Yoshitaka Ikeda, managing director of Daiwa, affirmed 1 September 2021 (Ikeda affidavit);[9]

(c)affidavit of Mr Shinji Aoki, Japanese lawyer, affirmed 1 September 2021 (Aoki affidavit);[10]

(d)affidavit of Ms Nandi (Landy) Jiang, Chinese lawyer, affirmed 2 September 2021 (Jiang affidavit);[11]

(e)affidavits of Ms Megan Louise Shimoji, Japanese to English translator, affirmed 2 September 2021 and 4 October 2021;[12]

(f)affidavit of Mr Seigo Mabuchi, Japanese to/from English translator, affirmed 1 September 2021;[13]

(g)affidavits of Mr David Coyne, second defendant and liquidator of Barokes, sworn 30 September 2021 (First Coyne affidavit)[14] and 20 October 2021 (Second Coyne affidavit).[15]

[8]CB, Tab 7.

[9]CB, Tab 8.

[10]CB, Tab 9.

[11]CB, Tab 10. See also Exhibit ‘NJ1’ to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021, at CB, Tab 118.

[12]CB, Tabs 11 and 13.

[13]CB, Tab 12.

[14]The parties accepted that it has an obvious error in paragraph 39(a) as the word ‘excluding’ should be ‘including’, see the document at CB, Tab 64. See also Transcript of Proceedings 25 October 2021 (n 7) 54.26-55.1 (Mr Austin QC).

[15]Second Coyne affidavit. Paragraph 7 has an obvious error as the word ‘excluding’ should be ‘including’, see the document at CB, Tab 64. See also Transcript of Proceedings 25 October 2021 (n 7) 54.26-55.1 (Mr Austin QC).

1. The parties relied upon written submissions[16] and counsel for the parties made submissions at the hearing.

   [16]Daiwa’s submissions filed 8 October 2021 (‘Daiwa’s submissions’), CB, Tab 3. At the commencement of the hearing, Daiwa withdrew paragraphs 44-48 and 80: Transcript of Proceedings 22 October 2021 (n 4) 10.11-10.12 (Mr Bender). Liquidators’ submissions filed 15 October 2021 (‘Liquidators’ submissions’), CB, Tab 4. The liquidators withdrew paragraph 39, see Transcript of Proceedings 25 October 2021 (n 7) 33.16-33.20 (Mr Austin QC).

BACKGROUND

Parties and other relevant entities and persons

Daiwa

1. Daiwa is a Japanese company.[17] It operates a business of manufacturing and distributing cans. Daiwa acquired a majority shareholding in Barokes by execution of a share purchase agreement on 13 September 2012.[18] It acquired 60.05% of the shares in Barokes.[19] As a result, Barokes’ minority interests were, and are currently, held by Knights Quest Pty Ltd (Knights Quest) and SMS Management Pty Ltd (SMS Management) (collectively Barokes Minority Shareholders).[20] The sole director of Knights Quest is Mr Gregory Stokes. The sole director of SMS Management is Mr Steve Barics.

   [17]Price affidavit: CB, Tab 7, [7].

   [18]Ibid [15]. This agreement is dated and expressed to commence on 27 August 2012, see CB, Tab 20.

   [19]CB, Tab 20, 153.

   [20]Price affidavit: CB, Tab 7, [8]. See also First Coyne affidavit: CB, Tab 14, [9].

1. In the period from September 2012 to May 2014, Daiwa lent monies to Barokes pursuant to various loan agreements.[21] On 23 April 2019, the liquidators sent a letter to Daiwa advising that its proof of debt dated 25 January 2019 against Barokes in the sum of $10,828,854.22 was admitted in full.[22]

   [21]Price affidavit: CB, Tab 7, [17]-[23]:

   [22]Ibid [71]; CB, Tab 79.

Mr Coyne and Mr Koutsoukos

1. The liquidators were appointed as joint and several liquidators of Barokes on 20 September 2018. As a result of a stay of orders of their appointment, their appointment came into effect on 19 December 2018. Mr Koutsoukos resigned his appointment as joint and several liquidator of Barokes effective as at 23 November 2020.[23]

   [23]First Coyne affidavit: CB, Tab 14, [5].

Barokes

1. Barokes is an Australian company that previously produced and sold wine-in-a-can products globally.[24] Barokes held, or was the applicant for, patents referred to as “Vinsafe” in approximately 17 countries, which included a Japanese patent JP3668240 (Japanese Patent) and a Chinese patent ZL02823823.0 (Chinese Patent).[25]

   [24]Ibid [7].

   [25]Ibid [7]; Price affidavit: CB, Tab 7, [9].

1. The secretary of Barokes is, and has been since 25 September 2017, Mr Stokes. He has also been a director since 25 September 2017. Mr Barics has also been a director since 25 September 2017.  As a result of Daiwa’s acquisition of a majority shareholding in Barokes, two directors associated with Daiwa were appointed as directors of Barokes on 13 September 2012, including Mr Ikeda.

Mr and Mrs Stokes

1. On 27 August 2012, Barokes entered into an agreement with Mr Stokes to employ him as managing director for a three-year term commencing on 13 September 2012 (Mr Stokes’ agreement).[26] It provided for a salary of $475,000 gross per annum (inclusive of superannuation). Mr Price gave evidence that the agreement expired on 26 August 2015 and Daiwa did not consent to its extension.[27]

   [26]Price affidavit: CB, Tab 7, [24]; CB, Tab 22.

   [27]Price affidavit: CB, Tab 7, [26].

1. On 8 March 2013, Barokes entered into an agreement with Mrs Irene Stokes to employ her as the Sales and Marketing Director.[28]  Mr Price gave evidence that Daiwa did not authorise any increase in the annual salary payable to Mrs Stokes pursuant to the agreement.[29]

   [28]Ibid [27]; CB, Tab 28.

   [29]Price affidavit: CB, Tab 7, [28].

Greire Pty Ltd

1. The directors of Greire Pty Ltd (Greire) are Mr and Mrs Stokes. They were appointed on 22 October 2008.

Intelligent Packaging Pty Ltd

1. The sole director of Intelligent Packaging Pty Ltd (Intelligent Packaging) is Mrs Stokes. She was appointed on 1 September 2020. She was also a director in the period 26 August 2014 to 24 July 2019. Mr Stokes and Mr Barics were also directors in the period 26 August 2014 to 1 September 2020. On about 30 May 2019, Barokes, the liquidators and Intelligent Packaging entered into an agreement titled ‘Sale of Business & Assets Agreement’.[30]

   [30]First Coyne affidavit: CB, Tab 14, [61]. See also CB, Tab 82.

Barokes patent proceedings

1. Barokes has been involved in a number of intellectual property legal proceedings around the world.[31] This includes proceedings in Japan and China.

   [31]First Coyne affidavit: CB, Tab 14, [16].

Japan

1. On 3 August 2015, Barokes commenced a patent infringement proceeding in relation to the Japanese Patent in the Tokyo District Court in Japan against Daiwa and others (Japanese Infringement proceedings).[32] Barokes stated the following matters, inter alia, in its claim:

(a)the ‘Object of the Claim’, inter alia, as follows: ‘The Defendants must jointly and severally pay the Plaintiff the amount of JPY 80,000,000 and, until that (amount) is paid, money at the rate of 5% per year from the day after the day of service of the complaint related to this (amount JPY 80,000,000).‘[33]

(b)‘Thus, the profit obtained by the Defendants from the sale of the Defendant Products during the abovementioned period was not less than JPY 570,000,000’;[34]

(c)‘The Plaintiff also seeks, from the Defendants jointly and severally, as part of the JPY 570,000,000 in damages in torts for the Patent Infringement, payment of the amount of JPY 80,000,000 and the delay damages related to this at the rate of 5% per year from the day after the day of service of the complaint’.[35]

[32]Price affidavit: CB, Tab 7, [34]; Aoki affidavit: CB, Tab 9, [11]; First Coyne affidavit: CB, Tab 14, [17(b)]. See also Notice to Admit: CB, Tab 5, [2]-[3]; Notice of Dispute: CB, Tab 6, [2]-[3].

[33]Extracts from exhibit ‘MLS2’ to the affidavit of Megan Louise Shimoji affirmed 4 October 2021: CB, Tab 34, 359 [6].

[34]Ibid 379 [6].

[35]Ibid 379 [7].

1. Mr Aoki gave evidence that the maximum quantum sought by Barokes in the Japanese Infringement proceedings was JPY 80 million.[36]

   [36]Aoki affidavit: CB, Tab 9, [12.1].

1. Mr Price gave evidence that Mr Stokes caused Barokes to do this without the authority of the Board of Barokes or other valid authority.[37]

   [37]Price affidavit: CB, Tab 7, [34].

1. On 6 April 2016, Daiwa commenced proceedings against Barokes in the Japanese Patent Office seeking to invalidate the Japanese Patent (Japanese Invalidity proceedings). [38]

   [38]Aoki affidavit: CB, Tab 9, [13]; First Coyne affidavit: CB, Tab 14, [17(c)]. See also Notice to Admit: CB, Tab 5, [3]-[4] and Notice of Dispute: CB, Tab 6, [3]-[4].

1. On 1 March 2018, the Japanese Patent Office declared the Japanese Patent invalid.[39]

   [39]Aoki affidavit: CB, Tab 9, [14]; First Coyne affidavit: CB, Tab 14, [17(d)].

1. On 20 April 2018, the Tokyo District Court dismissed the Japanese Infringement proceeding.[40]

   [40]Aoki affidavit: CB, Tab 9, [15]; First Coyne affidavit: CB, Tab 14, [17(e)].

1. On 2 May 2018, Barokes applied to the Intellectual Property High Court of Japan to appeal the decision of the Tokyo District Court.[41]

   [41]Aoki affidavit: CB, Tab 9, [16]. The date of ‘2019’ referred to in the First Coyne affidavit: CB, Tab 14, [17(g)] appears to be incorrect and should be a reference to ‘2018’.

1. On 21 June 2018, Barokes applied to the Intellectual Property High Court of Japan to appeal the decision of the Japanese Patent Office.[42]

   [42]Aoki affidavit: CB, Tab 9, [17].

1. On 29 August 2019, the Intellectual Property High Court of Japan dismissed the appeals.[43]

   [43]Ibid [19]-[20]; First Coyne affidavit: CB, Tab 14, [17(h)]. See also Notice to Admit: CB, Tab 5, [8]-[9]; Notice of Dispute: CB, Tab 6, [8]-[9].

1. Barokes appealed to the Supreme Court of Japan against the decision of the Intellectual Property High Court of Japan related to the decision of the Japanese Patent Office.[44] At that stage, Barokes did not appeal the decision of the Intellectual Property High Court of Japan related to the decision of the Tokyo District Court.[45] Mr Aoki gave evidence that the last date Barokes was able to appeal the decision of the Intellectual Property High Court of Japan related to the decision of the Tokyo District Court was 16 October 2019.[46]

   [44]Aoki affidavit: CB, Tab 9, [21]; First Coyne affidavit: CB, Tab 14, [17(i)].

   [45]Aoki affidavit: CB, Tab 9, [24]. See also Notice to Admit: CB, Tab 5, [14]; Notice of Dispute: CB, Tab 6, [14].

   [46]Aoki affidavit: CB, Tab 9, [24].

1. On 6 October 2020, the Supreme Court of Japan dismissed the appeal.[47] Mr Aoki gave evidence that the decision of the Supreme Court of Japan is final.[48]

   [47]Ibid [22]; First Coyne affidavit: CB, Tab 14, [17(j)].

   [48]Aoki affidavit: CB, Tab 9, [23].

China

1. On 7 July 2015, Barokes commenced patent infringement proceedings in the Chengdu Intellectual Property Office against parties engaged in the distribution of beverages in China (Chinese Infringement proceedings).[49] Mr Price gave evidence that Mr Stokes caused Barokes to do this without the authority of the Board of Barokes or other valid authority.[50]

   [49]Price affidavit: CB, Tab 7, [30]. See also Exhibit ‘NJ1’ to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.3]; First Coyne affidavit: CB, Tab 14, [19(h)].

   [50]Price affidavit: CB, Tab 7, [30].

1. Mr Price gave evidence:[51]

31.I am informed by Shinya Tago, a solicitor for Daiwa Can in Japan, and verily believe that:

31.1The defendants in the Chinese Infringement Proceedings included Seven-Eleven (Chengdu) Co Ltd, a subsidiary of the Seven&I Group, and Beijing Biaixi Foodstuffs Marketing Co. Ltd (BIX) being companies incorporated in China.

31.2Seven-Eleven (Chengdu) Co Ltd was, at the time the Chinese Infringement Proceedings were commenced, and at all relevant times, a major distributor and retailer of Daiwa Can group products in China.

31.3BIX was, at the time the Chinese Infringement Proceedings were commenced, and at all relevant times, a major trading partner of Daiwa Can group products in China.

[51]Ibid [31].

1. Ms Jiang gave evidence that the Chengdu Intellectual Property Office ‘is not empowered to order compensation unless the infringer agrees to compensate the patentee by way of a mediated agreement.’[52]

   [52]Exhibit ‘NJ1’ to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.24].

1. On 24 July 2015, Beijing Biaixi Food Marketing Co Ltd (BIX) commenced proceedings against Barokes in the State Intellectual Property Office of China seeking an examination of the Chinese Patent[53] and then filed a petition in the State Intellectual Property Office of China to suspend the examination on the basis that the Chinese patent was invalid (Chinese Invalidity proceedings).[54]

   [53]Price affidavit: CB, Tab 7, [32]; First Coyne affidavit: CB, Tab 14, [19(b)].

   [54]Price affidavit: CB, Tab 7, [33].

1. On 4 August 2015, the Chengdu Intellectual Property Office suspended the proceeding pending the outcome of the decision of the State Intellectual Property Office of China.[55]

   [55]Ibid [35].

1. On 4 December 2015, the  State Intellectual Property Office of China decided that the Chinese Patent was invalid.[56] Barokes appealed the decision to the Beijing Intellectual Property Rights Court.[57]

   [56]Price affidavit: CB, Tab 7, [39]; Exhibit ‘NJ1’ to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.4]; First Coyne affidavit: CB, Tab 14, [19(c)].

   [57]First Coyne affidavit: CB, Tab 14, [19(d)].

1. On 25 October 2018, the Beijing Intellectual Property Rights Court upheld the decision of the State Intellectual Property Office of China.[58] Barokes appealed the decision to Beijing Higher People’s Court.[59]

   [58]Price affidavit: CB, Tab 7, [44]; Exhibit ‘NJ1’ to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.5]; First Coyne affidavit: CB, Tab 14, [19(e)].

   [59]First Coyne affidavit: CB, Tab 14, [19(f)]. Mr Coyne refers to the Beijing High Court while Ms Jiang refers to the Beijing Higher People’s Court.

1. On 17 December 2020, the Beijing Higher People’s Court dismissed the appeal and upheld the decision  of the Beijing Intellectual Property Rights Court.[60] Ms Jiang gave evidence that:

(a)the decision could not be appealed but that Barokes could have applied for a re-trial in a higher court;[61]

(b)the deadline for any such application for re-trial ‘should highly likely have expired by end of July 2021’.[62]

[60]Exhibit ‘NJ1’ to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.6]; First Coyne affidavit: CB, Tab 14, [19(g)]. See also Notice to Admit: CB, Tab 5, [18]; Notice of Dispute: CB, Tab 6, [18].

[61]Exhibit ‘NJ1’ to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.12]-[7.13].

[62]Ibid [7.15].

1. On 20 January 2021, the Chengdu Intellectual Property Office dismissed the proceeding.[63] Ms Jiang gave evidence that it did so as the Chinese Patent had been invalidated.[64] Barokes did not appeal the decision of the Chengdu Intellectual Property Office.[65] Ms Jiang gave evidence that, absent such an appeal, ‘there is no remedy available’.[66]

   [63]First Coyne affidavit: CB, Tab 14, [19(i)].

   [64]Exhibit ‘NJ1’ to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.8].

   [65]Notice to Admit: CB, Tab 5, [22]-[23]; Notice of Dispute: CB, Tab 6, [22]-[23].

   [66]Exhibit ‘NJ1’ to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.21].

Australian proceedings

1. On 8 April 2015, Knights Quest commenced proceeding S CI 2015 01529 against Barokes and Daiwa in which it sought an order that it be granted leave to bring a proceeding in the name of Barokes against Daiwa.[67]  The proposed claims concerned, inter alia, alleged representations made by Daiwa.[68] On 30 October 2015, Efthim AsJ, dismissed the proceeding.[69]

   [67]Knights Quest Pty Ltd v BarokesPty Ltd [2015] VSC 601: CB, Tab 38, [1].

   [68]Ibid [9].

   [69]Ibid [82].

1. On 15 March 2016, the Barokes Minority Shareholders commenced proceeding S ECI 2016 00060 against Barokes and Daiwa in which they sought leave, nunc pro tunc, to prosecute the Japanese Infringement proceedings in the name of Barokes (Barokes Minority Shareholder derivative proceeding).[70] On 10 June 2016, Sifris J made orders in the Barokes Minority Shareholder derivative proceeding, granting leave, nunc pro tunc, to the Barokes Minority Shareholders to prosecute the Japanese proceedings in the name of the Barokes upon the giving of a number of undertakings.[71] This included an undertaking by Knights Quest, SMS Management, Mr Stokes and Mr Baric, subject to further order, to fund the prosecution of the Japanese proceedings in the name of Barokes.

   [70]Daiwa Can Company v Barokes Pty Ltd [2016] VSC 296: CB, Tab 39, [1]-[2].

   [71]Orders made by The Honourable Justice Sifris on 10 June 2016: CB, Tab 40.

1. On 24 August 2015, Daiwa commenced proceeding S ECI 2015 000307 against Barokes in which it sought to wind up Barokes on the just and equitable ground in s 461(1)(k) of the Corporations Act2001 (Cth) (‘Corporations Act’) (Daiwa proceeding).[72]

   [72]First Coyne affidavit: CB, Tab 14, [10]. See also Knights Quest Pty Ltd v Daiwa Can Company and Anor [2018] VSC 426: CB, Tab 41, [7].

1. On 26 August 2015, the Barokes Minority Shareholders commenced proceeding S ECI 2015 00309 against Barokes and Daiwa in which they alleged oppression by Daiwa (Barokes Minority Shareholder oppression proceeding). The Barokes Minority Shareholders sought, among other relief, an order under s 233(1)(d) of the Corporations Act that Daiwa be required to purchase their shares in Barokes and for leave for Mr Stokes to commence and continue with proceedings in the name of Barokes, including the Japanese Infringement proceedings and the proceedings commenced by BIX against Barokes in the State Intellectual Property Office of China.[73]

   [73]First Coyne affidavit: CB, Tab 14, [11]. See also Knights Quest Pty Ltd v Daiwa Can Company and Anor [2018] VSC 426: CB, Tab 41, [8].

1. Sifris J heard the Barokes Minority Shareholder derivative proceeding, the Daiwa proceeding and the Barokes Minority Shareholder oppression proceeding together. On 3 August 2018, Sifris J published reasons.[74] On 20 September 2018, Sifris J made orders in the Daiwa proceeding that Barokes be wound up and that Mr Koutsoukos and Mr Coyne be appointed as joint and several liquidators of Barokes.[75] Sifris J dismissed the Barokes Minority Shareholder oppression proceeding and the Barokes Minority Shareholder derivative proceeding.[76]  On 21 September 2021, Sifris J published further reasons in the Daiwa proceeding, the Barokes Minority Shareholder derivative proceeding and the Barokes Minority Shareholder oppression proceeding.[77]

   [74]Knights Quest Pty Ltd v Daiwa Can Company and Anor [2018] VSC 426: CB, Tab 41. See also Knights Quest Pty Ltd v Daiwa Can Company (No 2) [2018] VSC 551.

   [75]Orders made by The Honourable Justice Sifris on 20 September 2018: CB, Tab 42, 509.

   [76]Ibid 512, 514.

   [77]Knights Quest Pty Ltd v Daiwa Can Company (No 2) [2018] VSC 551.

1. The Barokes Minority Shareholders sought leave to appeal the orders made by Sifris J in the Daiwa proceeding and the Barokes Minority Shareholder oppression proceeding.[78]  On 28 November 2018, the Court of Appeal further stayed the orders made by Sifris J in the Daiwa proceeding.[79]

   [78]See Knights Quest Pty Ltd v Daiwa Can Company (2018) 133 ACSR 374 [1] (Beach, Kyrou and Hargrave JJA).

   [79]Orders made by the Court of Appeal on 28 November 2018: CB, Tab 43.

1. On 19 December 2018, the Court of Appeal granted the application for leave to appeal and dismissed the appeal.[80]

   [80]Orders made by the Court of Appeal on 19 December 2018: CB, Tab 44.

Liquidation of Barokes

1. From 19 December 2018, being the effective appointment date of the liquidators, the liquidators traded the business of Barokes until they sold its business and assets.[81]

   [81]First Coyne affidavit: CB, Tab 14, [21].

1. As at 19 December 2018:

(a)the Japanese Patent had been declared invalid and the Japanese Infringement proceedings had been dismissed and Barokes' appeals with respect to these matters were pending;[82]

(b)the Chinese Patent had been declared invalid and Barokes’ appeal with respect to the this matter was pending and the Chinese Infringement proceedings had been suspended.[83]

[82]Ibid [30].

[83]See First Coyne affidavit: CB, Tab 14, [30].

1. In the period 20 December 2018 to 31 January 2019:

(a)Mrs Stokes submitted a claim to the liquidators in relation to her employment at Barokes.[84] The claim, inter alia, set out the following:

[84]Price affidavit: CB, Tab 7, [52.1]; Claim of Employee Form: CB, Tab 45, 520-526.

(i)her position as ‘sales and marketing director’;

(ii)a claim from 2015 to 21 December 2018 in the total of $269,257.75 based upon a monthly salary of $17,241.17;

(b)Mr Stokes submitted a claim to the liquidators in relation to his employment at Barokes.[85] The claim, inter alia, set out the following:

(iii)his position as ‘chairman, managing director, CEO’;

(iv)a claim from 1 November 2015 to 14 October 2018 in the total sum of $993,188.55 based upon the Stokes agreement, including monthly payments of $39,583.34, set out in invoices in the name of Greire to Barokes.

[85]Price affidavit: CB, Tab 7, [52.2].

1. On 11 January 2019, the liquidators sent their first report to creditors.[86] The report noted, inter alia:

(a)‘We have commenced an urgent assessment of the financial position of the Company and confirm that we are continuing to trade the Company’s business with a view to undertake a sale campaign of the business and assets.’[87] (emphasis in original)

(b)‘the Company is currently party to various proceedings in Australian and International jurisdictions (namely, Japan and China) with respect to its registered Intellectual Property (“IP”) patents. We have sought legal advice regarding the legal proceedings, licencing agreements and IP on how to proceed.’[88]

(c) ‘The following matters remain to be undertaken before completion of the winding up of the Company:’ ‘…Assessing and attending to ongoing litigation with respect to the Company’s IP’.[89]

[86]Letter from the liquidators to ‘the creditor as addressed’ dated 11 January 2019: CB, Tab 47, 580. See also First Coyne affidavit: CB, Tab 14, [22]-[23].

[87]Letter from the liquidators to ‘the creditor as addressed’ dated 11 January 2019: CB, Tab 47, 582. See also First Coyne affidavit: CB, Tab 14, [23].

[88]Letter from the liquidators to ‘the creditor as addressed’ dated 11 January 2019: CB, Tab 47, 583. See also First Coyne affidavit: CB, Tab 14, [23].

[89]Letter from the liquidators to ‘the creditor as addressed’ dated 11 January 2019: CB, Tab 47, 584. See also First Coyne affidavit: CB, Tab 14, [23].

1. On about 16 January 2019, Greire submitted a proof of debt to the liquidators in the total sum of $1,555,859.20.[90] It was constituted by the following:

(a)$920,842: this does not appear to be further explained in the proof of debt. It appears to concern the same subject of the proof of debt submitted by Mr Stokes that I have referred to earlier in these Reasons;[91]

(b)$135,017.20: described as ‘Japan Litigation Expenses paid by Greire Pty Ltd under litigation funding agreement with Barokes Pty Ltd’.[92] This was also supported by a loan agreement dated 30 June 2015 between Barokes and Greire[93] and invoices from a Japanese lawyer addressed to ‘Knightsquest Pty Ltd’ in the period 2016 to 2018.[94]

(c)$100,000: supported by, inter alia, a letter from Barokes to Knights Quest dated 11 June 2014 which stated, in part: ‘This letter is to certify that Barokes Pty Ltd received the loan funds of $100,000 on 11^th June 2014 from Knights Quest Pty Ltd which were credited to the Barokes account…’.[95]

[90]Price affidavit: CB, Tab 7, [53]; Formal Proof of Debt or Claim: CB, Tab 48, 615.

[91]Formal Proof of Debt or Claim: CB, Tab 48, 615. See also Reasons, [9].

[92]CB, Tab 48, 623.

[93]CB, Tab 48, 617-622.

[94]CB, Tab 48, 624-644.

[95]CB, Tab 48, 647.

1. On about 25 January 2019, Daiwa submitted a proof of debt to the liquidators in the sum of $10,828,854.22 with respect to a loan between Barokes and Daiwa.[96]

   [96]Price affidavit: CB, Tab 7, [54]; Formal Proof of Debt or Claim: CB, Tab 49, 649.

Sale of the business and assets of Barokes

1. On about 29 January 2019, the liquidators commenced a sale campaign by advertising the sale of Barokes’ business and assets and seeking expressions of interest by 5pm on 11 February 2019.[97] The liquidators received 11 expressions of interest, of which nine parties executed confidentiality agreements and paid the $10,000 deposit (Interested Parties).[98] This included Daiwa.

   [97]First Coyne affidavit: CB, Tab 14, [24]. See also a copy of the advertisement at CB, Tab 54, 695.

   [98]First Coyne affidavit: CB, Tab 14, [25].

1. On about 18 February 2019, the liquidators issued a ‘Business Information Memorandum’ (Business Information Memorandum) to the Interested Parties.[99] The Business Information Memorandum, contained, inter alia, the following details:[100]

(a)       Section 2 stated, inter alia:[101]

The Liquidators reserve the right to evaluate any offers, to reject any or all offers submitted and to deal with any one party to the exclusion of  or not to or cease to deal with a party without giving reasons or prior notice to that interested party. The Liquidators will not be liable to compensate the interested party or any intending acquirer for any costs or expenses incurred in reviewing, investigating or analysing any information in relation to the Company’s business and assets, in making an offer or otherwise.

(b)      Section 3 stated, inter alia:[102]

We have determined that it is in the interests of the Company’s creditors and stakeholders that the Company’s business and assets be offered for sale on a going concern basis. As such, it is the Liquidators’ intention to continue to operate the business in the short term while the business and assets are marketed and a purchaser sought.

[99]Ibid [26]. See also Business Information Memorandum: CB, Tab 54, 691-709.

[100]Business Information Memorandum: CB, Tab 54, 691-709. See also First Coyne affidavit: CB, Tab 14, [27] which sets out parts of the Business Information Memorandum.

[101]Business Information Memorandum: CB, Tab 54, 696.

[102]Ibid 698.

(c)Section 7.3 titled ‘Intellectual Property – Patents’ (part of section 7 titled ‘Assets Offered for Sale’) described the patents for sale by reference to information in a data room. This information was not in evidence.

(d)Section 7.4 titled ‘Legal Proceedings’ described the legal proceedings concerning the challenges to Barokes’ intellectual property rights, including with respect to Japan and China, as follows:[103]

[103]Ibid 704-705.

7.4.1 Japan

The Company had registered patents in Japan.

In 2014/2015, the Company issued proceedings against various entities for infringement of those patents.

The patents were subsequently held to be invalid by the Tokyo patent office and the infringement claims are held in abeyance.

An appeal against the invalidation of the patents is being heard in the relevant Court in Japan and a decision is expected by mid 2019.

Should the appeal be successful, then it is likely that the infringement proceedings can be re-commenced.

7.4.2 China

The patents in China have experienced similar issues to those described above (Japan).

We are awaiting further advice with respect to the status of these proceedings.

(e)Section 7.4 also stated:[104]

[104]Ibid 705 (emphasis added).

Prospective purchasers of the Business and Assets of the Company are asked to make their own enquiries to verify the information above. Please contact the Liquidators for further details.

We note that any current or future claims the Company is entitled to make with respect to infringements of its patents are specifically excluded from the sale contemplated by this IM.

The Liquidators reserve the Company’s rights with respect to all current and future claims which arise up to the date of the Sale of its Business and Assets and assignment of IP rights..

(f)Section 9 titled ‘Employees’ set out, inter alia, the following estimate of the entitlements owed to employees:[105]

[105]Ibid 708.

Entitlement Category	Staff $	Directors $	Total $
Annual leave	90,246.69	21,150.26	111,396.95
Long Service Leave	65,649.60	33,118.15	98,767.74
Sick/Personal Leave	459.21	981.2	1,440.41
Total	156,355.49	55,249.61	211,605.11

(g)Section 11 titled ‘Offers’ stated:[106]

[106]Ibid 708-709 (emphasis added).

Please find a template for a non-binding indicative offer located in the data room (“G-1”).

Closure date for the submission of indicative offers is no later than Friday, 8 March 2019 at 4.00pm (AEST).

The Liquidators will only consider offers submitted in the template format.

Contracts should be signed in a timely manner and, in any event, no more than 30 days from acceptance of an indicative offer subject to any extension of time granted by the Liquidators. If no such extension of time is granted by the Liquidators, the refundable deposit and any further monies paid by an offeror to the Liquidators will not be refunded.

(h)Section 12 titled ‘Reservation’ stated:[107]

The Liquidators reserve the right to deal with offers as they see fit and not necessarily accept the highest offer or any offer received.

The Liquidators reserve the right to alter the sale process, including the assets offered for sale and the timeframes/deadlines.

[107]Ibid 709 (emphasis added).

1. Mr Coyne gave evidence that a decision was made to exclude the infringement claims from the sale to preserve the value of claims arising from intellectual property rights.[108]

   [108]First Coyne affidavit: CB, Tab 14, [28].

1. On 1 March 2019, Daiwa’s solicitors sent an email to the liquidators in which they sought an extension to 22 March 2019 to make an indicative offer and, inter alia, stated:[109]

4.Whilst the above qualification to the assets is not entirely clear, it seems possible that the proposal is that prospective purchasers are being asked to make an offer to purchase intellectual property (such as patents) but that it is contemplated that such purchaser will not own or control any proceedings concerning the validity of those patents or any benefit from any claims for infringement (if validity is otherwise established).

5.Without accepting that it is possible to detach rights attaching to patents in the manner which appears to be contemplated (that is a matter of point which our client will investigate as part of its due diligence), we request you clarify your position on this issue and indicate whether, notwithstanding the qualification (if we have interpreted it correctly above) you are prepared to entertain offers which involve the purchase of all of the intellectual property and all rights, interests and claims attaching to it?

6.Can you also please explain and outline the legal mechanism by which you contemplate retaining rights in respect of the patents.

[109]Price affidavit: CB, Tab 7, [58]; Email from YPOL, solicitors for Daiwa, to the liquidators dated 1 March 2019: CB, Tab 55, 710-711 (emphasis added).

1. On 4 March 2019, the liquidators informed Daiwa that they had extended the deadline to the Interested Parties for indicative offers to 4pm on 15 March 2019.[110]

   [110]Price affidavit: CB, Tab 7, [59]; Letter from the liquidators to YPOL, solicitors for Daiwa, dated 4 March 2019: CB, Tab 56, 712-713.

1. On 6 March 2019, the liquidators responded to queries made by Daiwa’s solicitors on 1 March 2019 and stated, inter alia:[111]

   [111]First Coyne affidavit: CB, Tab 14, [31]; Email from Mr Koutsoukos to YPOL, solicitors for Daiwa, dated 6 March 2019: CB, Tab 57, 714 (emphasis added).

Below is a table indicating the jurisdictions and the types of legal proceedings currently on foot:

Country	Proceedings
Japan	Infringement Claims
Japan	Patent Protection Proceedings
China	Infringement Claims
China	Patent Protection Proceedings
Korea	Patent Protection Proceedings
Australia	Patent Protection Proceedings
Germany	Negligence Claims
Various	Pending Patent Registrations and Potential Infringement Claims

As per the Information Memorandum, the Company retains all rights with respect to the Infringement Claims. As the infringements arise before the sale date, it’s only right that the Company should receive the benefit of such. The Company will also retain all rights with respect to any infringement claims that may still arise before the day of sale. In these countries the Patent Protection Proceedings are integral to the Infringement claims. Therefore, the Liquidators would only consider a sale of both the Infringement Claim and the Patent Protection Proceedings in the relevant jurisdictions.

The Liquidators may consider offers to purchase the Infringement Claims from Barokes.

1. On 7 March 2019, Mr Ikeda, Mr Yamaguchi and Mr Kuriyama, of Daiwa, stamped their seals on a document prepared by Mr Ikeda that set out the terms on his authority to cause offers to made to the liquidators by Daiwa for the assets of Barokes.[112] At the time, Mr Ikeda was the Director in charge of the Sales & Marketing Centre, Sales Control and Sales & Product Development Department at Daiwa.[113] From 1 April 2019 to 25 June 2020 he held the position of Director in General Affairs and Resources at Daiwa.[114]  The document recorded, inter alia, the following under the heading ‘Re Participation in the Bidding’:[115]

   [112]Ikeda affidavit: CB, Tab 8, [11]-[13]. The document is at CB, Tab 58, 718. A translated version of the document is at CB, Tab 59, 719-721.

   [113]Ikeda affidavit: CB, Tab 8, [6].

   [114]Ibid.

   [115]CB, Tab 59, 720.

3 Re Participation in the Bidding

(Closing date 15 March, assuming DD done mainly focusing on checking the content of trading agreements)

(1)It will take time to check the export actuals to 30 countries around the world, we will bid up to a Max of the JPY 1.1 billion (AUD $10,828,854.22) loan as we initially envisaged, on the premise that we can continue selling to Nishuhan, which accounts for at least 80% of sales, and maintain relationships with the bottlers, can manufacturers as well as the raw material wine suppliers, and that our company will be definitely recognized as a creditor and that the majority (around 90%) of the bid price will be returned to our company.

(2)We want to convey the conditions listed in (1) above to the liquidator and enter into coordination and negotiations with a specific liquidator

Issues:Need to check the tax aspects and flow of money

1. Mr Coyne gave evidence that a meeting took place between the liquidators, representatives from Daiwa and Daiwa’s legal representatives on 13 March 2019 and during this meeting Mr Coyne said that the liquidators were open to selling the rights attached to the Japanese Infringement proceedings and the Japanese Invalidity proceedings.[116]

   [116]First Coyne affidavit: CB, Tab 14, [32].

1. The liquidators received non-binding indicative offers from five of the Interested Parties in response to the Business Information Memorandum.[117] Mr Coyne gave evidence that the liquidators decided, on a commercial basis, not to pursue two of the Interested Parties and refunded their deposits.[118] He also gave evidence that the liquidators focused on pursuing and improving the offers made by the remaining Interested Parties, being Daiwa, Ball Corporation Inc (Ball Corporation) and Intelligent Packaging.[119]

   [117]Ibid [29].

   [118]Ibid.

   [119]Ibid.

1. On 15 March 2019, Daiwa’s solicitors sent an email to the liquidators attaching a non-binding indicative offer (Daiwa’s First Offer).[120] Daiwa’s First Offer set out ‘key terms’, including the following:[121]

   [120]Ibid [33]; Daiwa’s First Offer: CB, Tab 60.

   [121]Daiwa’s First Offer: CB, Tab 60, 725.

No.	Term	Detail
6.	Patent claims	This offer includes the acquisition of all the rights attaching to all patent infringement and patent protection claims, causes of action, rights to sue, rights to seek relief of any kind and rights to receive all of the fruits of any such claim in all jurisdictions worldwide involving the Vendor and/or their subsidiaries which have arisen on or before the date of this Offer or may arise after the date of this Offer (for the avoidance of doubt, including, but not limited to, Barokes Limited).
7.	Purchase price	The Purchaser’s offer for the Vendor’s Business and Assets is AUD$10,828,854.22, to be paid in instalments and subject to a set off against the debt owed to Daiwa Can Company, as agreed in writing between the Parties.
9.	Offer Details and Conditions	The conditions attached to the offer by the Purchaser which must be satisfied by the Vendor before execution of an Agreement are as follows: (a) the Liquidator’s proofs of debt for priority creditors (including the Liquidator’s costs, legal fees and employee arrangements) is an amount no more than $1,000,000; (b) the Liquidator’s proofs of debt for unsecured creditors is an amount no more than AUD$1,000,000 (excluding all unsecured debt owed by the Vendor to Daiwa Can Company); (c) Daiwa Can Company’s unsecured debt owed by the Vendor is proofed by the Liquidator to be approximately AUD$10,828.854.22; …

1. On 18 March 2019, the liquidators issued their second report to creditors.[122] The report recorded:

   [122]First Coyne affidavit: CB, Tab 14, [34]; Report to Creditors dated 18 March 2019: CB, Tab 61.

(a)related party creditors were estimated by the liquidators at $12,392,089;[123]

(b)related party creditors were constituted by, in part: 

(i)$10,828,854 claimed by Daiwa.[124] The liquidators stated that they have sought legal advice in relation to Daiwa’s claim and that ‘our preliminary view is that the monies paid by Daiwa to the Company are loans that rank as an unsecured creditor in the Liquidation.’;[125]

(ii)$920,842 and $152,864 claimed by Greire. The report described the sum of $920,842 as ‘Deferred Wages’ and stated, in part, ‘We are investigating the relationship between Greg Stokes, Greire and the Company to determine the nature and quantum of this claim as it does not appear that Greire has a contractual relationship with the Company.’[126]  The report described the sum of $152,864 as ‘Japanese Litigation funding’ and stated, in part: ‘On 7 June 2016, Justice Sifris granted leave for the Australian shareholders to pursue Daiwa Can Company with the costs to be paid by the Australian shareholders (KQ and SMS Management Pty Ltd) by way of undertaking to indemnify the Company and held the Company “harmless against costs”.’[127] Section 2.2.5 of the report titled ‘Related Party Creditors’ then concluded ‘We are reviewing and seeking legal advice with respect to the ESA and the Orders relating to the litigation funding. We are also preparing a letter to Mr Stokes requesting further information regarding the above.’;[128]

(iii)$100,000 claimed by Knights Quest. The report stated, in part: ‘We have been provided with a proof of debt and supporting documentation with respect to a loan of $100,000 from KQ to the Company for working capital, pursuant to an agreement of the shareholders. We are yet to identify the amount being deposited into the Company bank account and will request KQ for further details.’;[129]

(iv)$389,528 in Excluded Employee entitlements, being claims of related parties (i.e. directors and their relatives) in excess of certain amounts, thereby ranking as unsecured claims and included in ‘related party creditors’.[130] This was stated to be based upon ‘employee claim forms received and the Company’s books and records’.[131]

[123]Report to Creditors dated 18 March 2019: CB, Tab 61, 750 [2].

[124]Ibid 754 [2.2.5].

[125]Ibid.

[126]Ibid 753.

[127]Ibid.

[128]Ibid 754.

[129]Ibid.

[130]Ibid 752 [2.2.2], 754 [2.2.5].

[131]Ibid 752 [2.2.2].

1. On 19 March 2019, the liquidators’ solicitors sent an email to Daiwa’s solicitors attaching a letter to them also dated 19 March 2019, which stated, in part:[132]

We note the following queries which correspond to the item numbers set out in the NBIO:

Item 6 (Patent Claims): Please advise the amount that is being offered by Daiwa to purchase the patent infringement claims.  We note that the Barokes Information Memorandum (IM) has segregated the patent infringement claims from the rest of Barokes’ assets.  Notwithstanding this, the Liquidators also advised during the meeting on 13 March 2019 that they would entertain offers with respect to the patent infringement claims.  It now appears from the NBIO that Daiwa wishes to purchase the patent infringement claims and yet no value or offer has been ascribed to them.  Please clarify and advise.

…

Item 7 (Purchase Price): The NBIO notes that payment of the purchase price will be made in instalments.  Please advise the proposed schedule for instalment payments and the security that will be provided with respect to such payments.

Item 9 (Offer Details and Conditions):

- The Liquidators cannot accept any offer that caps the claims of either priority creditors or unsecured creditors, as described under paragraphs (a) and (b).

[132]First Coyne affidavit: CB, Tab 14, [35]; CB, Tab 62, 779-780.

1. On 25 March 2019, Daiwa’s solicitors sent a letter to the liquidators’ solicitors to clarify and provide further information in relation to Daiwa’s First Offer (25 March 2019 Letter). Daiwa’s solicitors stated, inter alia:[133]

   [133]25 March 2019 Letter: CB, Tab 63.

Patent Claims

2.Specifically, in relation to the patent infringement claims, it is our client’s view that it would be commercially unattractive to acquire the patents held by Barokes Pty Ltd (In Liquidation) (ACN 079 714 579) (Barokes) without, to the extent that can be legally achieved, acquiring the rights to all claims. We are of the view that it would be very difficult to separate the patents from the rights to the patent infringement claims and the patent defensive claims and in doing so could potentially dilute the value of the patents. This is partly because, among other reasons, a counter claim for patent invalidity usually follows a claim for patent infringement and the proceedings are often held together. To the extent that can be legally achieved, acquiring control of both sets of proceedings is integral to maintaining the value of the patents.

3. In addition, should Daiwa acquire the patents without the corresponding rights to the patent infringement claims, the patent infringement claims could be settled on commercial terms, which could possibly include provision of a licence or other rights of use to exploit the patents. This in itself could give rise to a derogation of the value of the patents.

4. For these reasons, our clients offer does not seek to separate a value between the patent assets and the patent infringement claims. It is our client’s view that it would be commercially unattractive to purchase patent assets that could be potentially devalued by a third party in proceedings. Accordingly, with respect to the patents that are offered as part of the sale, the offer is to acquire the patents and all claims in connection with the patents.

Purchase Price

5. The total consideration offered by Daiwa for all the assets and the claims is for an aggregate purchase price of AUD$10,828,854.22.

6. In relation to a set-off of the purchase price, we do not envisage that the purchase price would be a reduced straight set off against the purchase price offered by Daiwa. Any set-off would only occur after all legally required and adjudicated procedures by the Liquidator have occurred.

7. We understand accordingly that Daiwa’s debt would need to be adjudicated and proved before any set-off arrangement could occur. We also understand that any payment to Daiwa would need to be considered with and against all other proved priority and unsecured creditors.

…

9. However, we are open to an alternate approach to set-off and envisage further details of such set out in the full form agreement.

…

Offer Details and Conditions

12. Please note that our client’s offer does not seek to cap the amount owed by Barokes to priority creditors and unsecured creditors or to curtail the Liquidator’s legal obligations. The offer contains conditions precedent that are to either be satisfied following the adjudication of all debts by the Liquidator or agreed to be waived in writing by the parties. This leaves open the possibility that if the amounts adjudicated by the Liquidator for the priority and unsecured creditors are higher than the amounts specified in the conditions precedent, the parties could waive this requirement. The commercial reason behind the inclusion of these conditions precedent is due to Daiwa requiring internal approvals for the offer and for any subsequent increase in cash payment to priority and unsecured creditors before any set-off occurs.

13. To alleviate any concerns, we envisage that the full form agreement could, in the event that the amount adjudicated by the Liquidator for the priority and unsecured creditors increases above that specified in the conditions precedent, contain a clause to effect that Daiwa will use their best endeavours and act in good faith to either waive these conditions precedent or accept an increase if the values adjudicated to be owing to priority or unsecured creditors increases by a commercially acceptable amount.

14. Alternatively, and subject to agreement by the Liquidators’, given that the Report to Creditors dated 18 March 2019 provides that trade creditors are projected to be $914,867, we are instructed that Daiwa propose that the amounts specified in the conditions precedent (being Item 9 paragraphs (a) and (b) in relation to the Liquidators’ proofs of debt for priority creditors and unsecured creditors unrelated to Daiwa) are in the alternate to be in aggregate no more than $2,000,000.

…

16. We acknowledge that Daiwa’s debts have not been formally adjudicated and request that this is undertaken as soon as possible. We will separately send through the required form.

1. On 28 March 2019, Mrs Stokes sent an email to the liquidators attaching a non-binding joint offer from Intelligent Packaging and Ball Corporation of $2,500,000 (Joint Venture’s First Offer).[134]

   [134]Second Coyne affidavit, [6]; Exhibit ‘DJC-2’ to the Second Coyne affidavit.

1. Mr Coyne gave evidence that:[135]

   [135]First Coyne affidavit: CB, Tab 14, [38]-[39].

38.      At or around this time, the Liquidators formed the view that:

(a)Barokes’ claims in respect of the Japanese Infringement Proceeding and the Japanese Invalidation Proceeding were contingent claims, as they were subject to appeal proceedings in Japan; and

(b)it would be difficult to quantify any claim for loss of profit and damages arising from the Japanese Infringement Proceeding or estimate the costs associated with pursuing the same.

39.Notwithstanding the matters set out at paragraphs 37 and 38 above, the Liquidators requested that both Daiwa, and Ball Corporation and Intelligent Packaging make alternative offers so that their respective offers could be compared more accurately.

1. On 2 April 2019, the liquidators’ solicitors sent a letter to Intelligent Packaging and Ball Corporation[136] stating that, inter alia, the Joint Venture’s First Offer would be more attractive if it was amended and resubmitted on certain terms, including:[137]

(a)it included the purchase of rights to the various infringement claims available to Barokes;

(b)Intelligent Packaging and Ball Corporation assumed liability for any amounts owed with respect to the claims of Mr Stokes or Greire;

(c)terms of payment of the Purchase Price be 10% payable on the signing of a contract of sale and the full balance payable at settlement to alleviate any risk to the liquidators.

[136]CB, Tab 64, 786-787.

[137]Letter from Macpherson Kelley, solicitors for the liquidators, to Intelligent Packaging and Ball Corporation dated 2 April 2019: CB, Tab 64, 786-787.

1. The liquidators’ solicitors also stated in this letter that any amended offer would, if accepted by the liquidators, form a legally binding agreement subject to only the parties finalising an asset purchase agreement consistent with the amended offer.[138]

   [138]Ibid 787.

1. Mr Coyne gave evidence that the letter of 2 April 2019 requested an alternative offer ‘excluding the infringement claims’.[139]  The letter, in fact, requested the opposite. That is, it requested them to be included. This is clear from the terms of the letter itself. The liquidators accepted, at the commencement of the hearing, that this evidence was erroneous.[140]

   [139]First Coyne affidavit: CB, Tab 14, [39(a)].

   [140]Transcript of Proceedings 22 October 2021 (n 4) 7.6-7.8 (Mr Austin QC).

1. On 5 April 2019, Intelligent Packaging and Ball Corporation made a further non-binding offer (Joint Venture’s Second Offer).[141] In summary, it set out two options for the purchase price.

   [141]Joint Venture’s Second Offer: CB, Tab 65. See also First Coyne affidavit: CB, Tab 14, [37].  It is described as the ‘First Joint NBIO’, but it was in fact the second offer, see the Second Coyne affidavit.

1. ‘Option 1’, which included the ‘Barokes legal Claims (Japan and China)’[142] contained the following as purchase price:

(a)a cash component of the purchase price of $2,500,000;

(b)Intelligent Packaging and Ball assume liability for the amount owed with respect to Greire’s claim in the sum of $1,073,706;

(c)25% of damages received from claims would be paid to Barokes, including from the Japanese Infringement proceedings  (i.e. 25% of approximately $112,000,000 damages available as confirmed by KordaMentha) and the Chinese Infringement proceedings (i.e. 25% of approximately $2,800,000 to $5,600,000).

[142]Joint Venture’s Second Offer: CB, Tab 65, 795, ‘Schedule A – Assets’.

1. ‘Option 2’, which did not include the ‘Barokes legal Claims (Japan and China)’, contained the following as purchase price:

(a)a cash component of the purchase price of $2,500,000; and

(b)Intelligent Packaging and Ball assume liability for the amount owed with respect to Greire’s claim in the sum of $1,073,706.

1. On 10 April 2019, the liquidators solicitors sent an email to Daiwa’s solicitors in which they stated that they were seeking advice with respect to the matters ‘raised in Daiwa’s offer relating to patents and claims’ and in the meantime that they ‘would appreciate if Daiwa was also able to make an alternate offer excluding the infringement claims.’[143]

   [143]Price affidavit: CB, Tab 7, [65]. A copy of the email is at CB, Tab 66, 796.

1. On 12 April 2019, the liquidators’ solicitors sent an email to Daiwa’s solicitors asking for a timeframe for its alternate offer and noted that they ‘would like the sale to occur by no later than the first week in May. This means we would need to make a decision next week to allow time for contracts to be agreed and exchanged.’[144]  Further, on 16 April 2019, the liquidators solicitors sent an email to Daiwa’s solicitors in which they stated, inter alia: ‘Are you still tracking for today? I only ask as it is now becoming critical as far as our future trading is concerned. We need to shortly make decisions re production in May 2019 and we would like to be in a position this week to accept an offer for the purchaser to take over May orders/production.’[145]

   [144]Price affidavit, CB, Tab 7, [66]. A copy of the email is at CB, Tab 66, 797.

   [145]CB, Tab 70, 804.

1. On 16 April 2019, Daiwa’ solicitors sent an email to the liquidators attaching a non-binding indicative offer (Daiwa’s Second Offer).[146] Daiwa’s Second Offer offered the sum of $1,500,000 for the business and assets. It also contained an offer described as ‘Additional Consideration’ in the following terms:[147]

The Purchaser will also make an additional payment of not less than $500,000 and not more than $8,828,854, to be agreed between the parties and to the extent permitted by law that the Liquidator agrees, among other things, in good faith to sell to the Purchaser all other rights attaching to all patent infringement and patent protection claims, causes of action, rights to sue, rights to seek relief of any kind and rights to receive all of the fruits of any such claim in all jurisdictions worldwide involving the Vendor and/or their subsidiaries which have arisen on or before the date of this offer or may arise after the date of this offer (for the avoidance of doubt, including, but not limited to, Barokes Limited) (the Additional Consideration). The payment by the Purchaser of the Additional Consideration is also subject to the Liquidator providing notice of an interim dividend in respect of the unsecured creditors.

[146]First Coyne affidavit: CB, Tab 14, [41]; CB, Tab 70, 802-826.

[147]Daiwa’s Second Offer: CB, Tab 70, 807.

1. It also detailed a key term described as ‘Offer Details and Conditions’ as follows:[148]

The conditions attached to the offer by the Purchaser which must be satisfied by the Vendor before execution of an Agreement are as follows:

(a)the Vendor and the Liquidator must to the maximum extent permitted by law, consult in good faith with the Purchaser relating to the conduct of any proceedings in connection with any patent infringement claim or patent protection claim involving the Vendor and/or their subsidiaries;

(b)Without limiting the obligations in 8(a) above, the Vendor undertakes and warrants to rely only upon advice from appropriate legal advisors independent of any of the current shareholders (or any related person or party) in the conduct and pursuit of any claims in connection with the patents.  Such legal advisors will not include Seiwa Patent & Law; and

(c)the Purchaser confirming ownership in its due diligence enquiries and acquiring as part of the Agreement the ownership with all rights, title and interest in all patents listed in Schedule B.

[148]Ibid.

1. On 17 April 2019, Mrs Stokes sent two emails to the liquidators’ solicitors in which she stated, inter alia, that Intelligent Packaging and Ball Corporation would also assume liability for the following ‘employee entitlements’: Mrs Stokes in the sum of $269,257.75, Mr Stokes $72,398.55 and Mr Barics in the sum of $38,665.34 (Joint Venture’s Third offer).[149]

   [149]First Coyne affidavit: CB, Tab 14, [42]. The emails are set out at CB, Tab 71, 827.

1. Mr Coyne gave evidence that on 17 April 2019 the liquidators and Mr Rose, a solicitor for Daiwa, had a telephone conference and Mr Coyne told Mr Rose the following:[150]

(a)the Liquidators had made the decision to only sell Barokes’ business and assets as a going concern;

(b) the Liquidators will separately consider the sale or the settlement of the claims relating to the Japanese Infringement Proceeding and the Japanese Invalidation Proceeding;

(c) the Liquidators considered that the cash component of $1.5 million in the Second Daiwa NBIO was inferior to the Second Joint NBIO;

(d) the Liquidators’ decision as to the acceptance of any offer will largely be based on the ultimate return to creditors; and

(e) any revised offer will need to be received by close of business on 17 April 2019, as the Liquidators will be accepting an offer on 18 April 2019.

[150]First Coyne affidavit: CB, Tab 14, [43].

1. Mr Coyne gave evidence that the liquidators considered that 18 April 2019 was a suitable deadline for offers as:[151]

(a)the deadline for offers had previously been extended twice in March 2019;

(b)the Liquidators’ assessed that Barokes could face cashflow difficulties in fulfilling further orders by around the end of May 2019; and

(c)the Liquidators wanted to ensure the sale as a going concern.

[151]Ibid [44].

1. On 17 April 2019, Daiwa’ solicitors sent an email to the liquidators attaching a non-binding indicative offer (Daiwa’s Third Offer).[152] Daiwa’s Third Offer offered the sum of $6,500,000 comprising a cash payment of $1,500,000 and a waiver and release of an amount of $5,000,000 of the ‘Purchaser’s debt owing to the Vendor’.  It also retained the term titled ‘Offer Details and Conditions’ from Daiwa’s Second Offer.

   [152]Ibid [46]; Daiwa’s Third Offer: CB, Tab 72.

1. On 17 April 2019, Daiwa’s solicitors sent an email to the liquidators’ solicitors in which they noted that the term titled ‘Offer Details and Conditions’ in Daiwa’s Third Offer ‘will remain – which can of course be waived, if required, at the relevant time’.[153]

   [153]First Coyne affidavit: CB, Tab 14, [49]. A copy of the email is at CB, Tab 73, 849.

1. Mr Coyne gave evidence that the liquidators considered that Daiwa’s Third Offer was ‘to be an offer conditional on clause 8’.[154] On or about 17 April 2019, Mr Koutsoukos made a file note, which is set out below.[155] The file note sets out a detailed account of the sale process and the reasons for the liquidators’ decisions.

   [154]First Coyne affidavit: CB, Tab 14, [50].

   [155]Ibid [52]. A copy of Mr Koutsoukos’ file note is at CB, Tab 74.

FILE NOTE

RE: BAROKES PTY LIMITED (IN LIQUIDATION)

Sale of Business and Assets

•We commenced a campaign for the sale of the Company’s business and assets on 29 January 2019 by advertising in the Financial Review and Financial Times.

•We received 11 expressions of interest with 9 parties executing Confidentiality Agreements and paying a $10,000 deposit.

•We received 5 Indicative offers

•We determined it was not worthwhile to pursue two of the offers and their deposits were refunded.

•We have worked with 3 parties to improve offers.

•2 of the parties, Ball Corporation and Intelligent Packaging indicated a willingness to submit a JV offer and we facilitated same. We have received a JV offer from these parties. The JV offer was for consideration of $2.5m for the business and assets.

•Daiwa submitted an offer of $10.8m for the business and assets of the Company, including legal claims the Company may be entitled to pursue.

•During the process we have investigated the potential Claims available to the Company. We have determined that the Claims are contingent at this stage and subject to a successful appeal in the Japanese Court system. A successful outcome would re-enliven the Japanese and Chinese Infringement proceedings, however, quantification of any claim for loss of profits and damages is too difficult to determine at this stage. Furthermore, the costs associated with pursuing the claims are also difficult to estimate.

•Notwithstanding the above, so we could compare the JV and Daiwa offers more accurately, we invited the JV to submit and Alternate offer which included the Claims. The alternate JV offer did not increase consideration but rather provided an option to continue proceedings under a quasi Litigation Funding arrangement whereby the Company would receive a percentage return on any successful recovery.

•We have also considered the following issues:

oThe impact of the Liquidation on the going concern value of the business:

§To this extent, we note that the Licence Fee division of the business has declined as a result of the liquidation, most likely due to uncertainty.

§Potential Licencees have been reluctant to enter into new Licence Agreements with the Liquidators as we cannot guarantee future supply

§The Chinese distributor is eager to enter into a new distribution agreement which we cannot finalise due to inability to guarantee ongoing supply

§The motivation of staff and associated difficulties to continue to “sell” in distressed circumstances.

oThe ongoing costs associated with the Liquidators trading the business (4 months of trade)

oThe ongoing costs associated with the Liquidators delaying a sale and dealing with revised offers

•In its offer, Daiwa indicated that its view was that the claims must be sold with the patents for the patents to retain their value. For example, if the claims we separated, the party with the claims could impact the value of the patents by settling or not pursuing claims. We also sought advice from M&K’s patent/IP Partner who indicated that under Australian legislation any infringement claims can only be undertaken by the registered owner of the patents. We then sought advice from the Company’s Japanese lawyers acting with respect to the litigation in Japan (Seiwa Patent Attorneys). Seiwa’s advice was that in Japan, the Company will still be able to continue or make claims up to the date the Patents are assigned or transferred. In other words, there should be no effect on the ability to pursue claims if the patents are sold.

•We have also considered that any sale will likely involve a licence of the patents and rights instead of an immediate assignment to maintain the status quo. We do not believe the purchasers would have any issues with this approach given that it will likely take months to effect assignments in the various jurisdictions. A licence agreement would seem necessary as opposed to optional.

•We ultimately made the decision that we will only be dealing with the Company’s business and assets during this process. The potential claims are contingent and difficult to quantify, therefore it is very difficult to analyse and justify an appropriate commercial amount to accept or settle the claims at this stage as they are unliquidated. Furthermore, the liquidators cannot continue to trade the business indefinitely for the reasons set out above.

•We have advised both the JV parties and Daiwa of the above and that we will be making a decision with respect to accepting an offer by 18 April 2019 and we will endeavor to finalise the sale by mid-May 2019 to enable the new purchaser to take-over the May production run scheduled for late May.

•We advised both parties that they were welcome to improve their offers for our final consideration.

•On 17 April 2019, Irene Stokes on behalf of the JV confirmed that Option 2 in their revised offer dated 5 April 2019 should also include a withdrawal of claims of Greire P/L (circa $1m), Irene Stokes (circa $260k), Greg Stokes (Circa $72k) and Steve Barics (circa $38k). These withdrawals would be offered along with cash consideration of $2.5m ($500k from Ball Corp from its own cash reserves and $2m from investors of which we have sighted letters of intent confirming funds are immediately available).

•On 16 April 2019, Daiwa submitted a revised offer to purchase the business and assets of the Company for $1.5m. The offer also included a separate offer for the Claims for consideration ranging between $500,000 to $8.8m.

•On 17 April 2019, we held a teleconference with Daiwa’s lawyers and advised as follows:

oWe will only be selling the business and assets as a going concern at this time

oWe will consider the sale or settlement of claims separately

oThe offer of $1.5m is significantly inferior to the competing offer

oOur decision will largely be based upon the ultimate return to creditors, ie, cents in the dollar.

•Daiwa’s lawyers advised that they would seek instructions to improve the current offer. We advised that we will require any improved revised offer by close of business as we will be making a decision on 18 April 2019.

•We received an improved revised offer from Daiwa’s lawyers on 17 April 2019 as follows:

o$1.5m cash consideration

oWithdrawal of $5m of its proof of debt claim

•We sought clarification regarding clause 8 of their offer which related to Conditions surrounding the Claims. By email, their lawyers confirmed that “the conditions will remain – which can of course be waived, if required, at the relevant time.”

•It therefore appears that the Daiwa offer is conditional.

•We have set out the offers and likely returns to creditors in the attached table. The Daiwa Offer provides for a return to creditors of approx. 17.78 cents in the dollar. This is after reducing the Daiwa Claim by $5m and includes all other related party creditors in full.

•The JV offer provides for a return of 21.21 cents in the dollar.

•We have also considered the position under the Daiwa offer by excluding the Greire claim as we have been advised that Daiwa dispute this claim. If excluded, the return under the Daiwa offer is 20.04 cents in the dollar.

•Based on the above, the decision has been made to accept the JV offer.

1. Mr Coyne gave evidence that:[156]

53.At that time, no further offers were made on behalf of Daiwa or Ball Corporation and Intelligent Packaging following their making of the Third Daiwa NBIO or the Second Joint NBIO respectively.

54.On 18 April 2019, the Liquidators analysed the likely return to all of creditors if the Third Daiwa NBIO or the Second Joint NBIO were accepted. The Liquidators formed the view that the Second Joint NBIO would result in a greater likely return to unsecured creditors of 21.21 cents in the dollar compared to the likely return to creditors of 17.78 cents in the dollar likely generated by the Third Daiwa NBIO. As a result, the Liquidators formed the view that the Second Joint NBIO was more attractive than the Third Daiwa NBIO. This was due to the fact that the Second Joint NBIO was more financially beneficial to all of the unsecured creditors. In those circumstances, we decided that it would be a better commercial outcome to accept the Second Joint NBIO compared to the Third Daiwa NBIO.

[156]First Coyne affidavit: CB, Tab 14, [53]-[54].

1. The liquidators’ analysis is set out in a Table prepared by them.[157]

   [157]CB, Tab 75, 854.

1. On 18 April 2019, the liquidators informed Mr and Mrs Stokes that they are progressing with a sale to Intelligent Packaging and Ball Corporation in accordance with ‘Option 2’.[158] The liquidators also provided a marked up version of the Joint Venture’s Second Offer and stated ‘These amendments reflect some of the terms sent to us separately via email…’.[159] The mark-up included, inter alia:[160]

(a)amending ‘non-binding’ to ‘binding’;

(b)deleting matters concerning ‘Option 1’, including deleting the words ‘Barokes legal claims (Japan and China) – Option 1 offer’ from the ‘Schedule A – Assets’;

(c)deleting the total figure for the purchase price and adding the following to the purchase price: ‘plus stock’ and ‘plus assumption of other related party claims’;

(d)adding to the cash component of $2,500,000 ‘10% at exchange of contracts’.

[158]First Coyne affidavit: CB, Tab, 14, [55]. A copy of the email is at CB, Tab 76, 855-856.

[159]CB, Tab 76, 855-856 (emphasis added); Daiwa’s Supplementary Tender Bundle, 1-2.

[160]Daiwa’s Supplementary Tender Bundle, 3-10.

1. Not all of the marked-up amendments reflected the terms set out in the emails I have referred to earlier in these Reasons.[161] This included the following:[162]

(a)amending ‘non-binding’ to ‘binding’;

(b)adding the words ‘10% at exchange of contracts’ to the cash component of ‘Option 2’;

(c)adding the words ‘This offer is legal binding subject to finalisation of the Sale Agreement which will largely be on the terms of this NBIO’;

(d)Adding the words ‘Subject to discussion re: German negligence claim’ to Schedule A.

[161]Reasons, [76].

[162]Daiwa’s Supplementary Tender Bundle, 3-10.

1. On 19 April 2019, Mr Coyne told Mr Rose that the liquidators had decided to progress with another offer.[163] Later that day, Mr Rose sent an email to the liquidators attaching a non-binding indicative offer from Daiwa (Daiwa’s Fourth Offer).[164] Daiwa’s Fourth Offer offered the sum of $6,500,000 comprising a cash payment of $3,000,000 and a waiver and release of an amount of $3,500,000 of the ‘Purchaser’s debt owing to the Vendor’.  It did not contain the term titled ‘Offer Details and Conditions’ from Daiwa’s Second Offer and Daiwa’s Third Offer. It described the ‘Assets’ as ‘The Purchaser proposes to acquire all of those assets that the Purchaser considers are necessary for operating the business of the Vendor as outlined in Schedule A’.[165]

   [163]First Coyne affidavit: CB, Tab 14, [56].

   [164]Ibid; Daiwa’s Fourth Offer: CB, Tab 77.

   [165]Daiwa’s Fourth Offer: CB, Tab 77, 858.

1. Mr Coyne gave evidence:[166]

57.The Liquidators did not (and I considered, could not) reopen the negotiations to consider the Fourth Daiwa NBIO because the Liquidators had already accepted the Second Joint NBIO made by Intelligent Packaging and communicated the same on 18 April 2019 in the correspondence referred to in paragraph 5255 [sic] above.

58.The Liquidators considered that if they were to purport to accept the Fourth Daiwa NBIO having already agreed to accept the Second Joint NBIO, we and/or Barokes would be exposed to legal proceedings by Ball Corporation and Intelligent Packaging to enforce that agreement and the entire sale process would have been jeopardised.

[166]First Coyne affidavit: CB, Tab 14, [57]-[58].

1. On 19 April 2019, the liquidators sent an email to Daiwa’s solicitors informing them they were not prepared to reopen the negotiations at this stage.[167]

   [167]Ibid [56]; Price affidavit: CB, Tab 7, [70]. A copy of the email is at CB, Tab 78, 878.

1. On 23 April 2019, the liquidators’ solicitors sent an email to Mrs Stokes attaching the ‘Amended Binding Indicative Offer for execution’.[168]

   [168]Daiwa’s Supplementary Tender Bundle, 11-18.

1. On 23 April 2019, the liquidators sent a letter to Daiwa advising that its proof of debt dated 25 January 2019 against Barokes in the sum of $10,828,854.22 was admitted in full.[169]

   [169]Price affidavit: CB, Tab 7, [71]. A copy of the letter is at CB, Tab 79, 879.

1. On 24 April 2019, Mrs Stokes sent an email to the liquidators solicitors attaching the ‘Amended Binding Indicative Offer’ executed by Intelligent Packaging.[170]

   [170]Daiwa’s Supplementary Tender Bundle, 19-27.

1. On 3 May 2019, Ball Corporation sent an email to, among others, the liquidators’ solicitors in which it stated:[171]

I would like to clarify what Ball’s role is in this transaction. Given the circumstances, we believe the best way forward is for Ball and Intelligent Packaging to work out the details of the license agreement amongst ourselves and the payment details, and as such, Ball would not be party to any agreements that were submitted in the email below.

I have copied our internal legal counsel (Todd Mikesell) and external local legal counsel (Jonathan Corby) in case you would like further clarification on how we plan to move forward. Please note that we remain interested in moving forward and we believe we can work out the appropriate details with Intelligent Packaging in a timely manner.

[171]CB, Tab 80, 880.

1. On 9 May 2019, the liquidators sent a letter to Daiwa’s solicitors in which they responded to a number of queries, including about the sale process.[172]

   [172]Price affidavit: CB, Tab 7, [72]; CB, Tab 81, 883. The letter that it responded to, being a letter from Daiwa’s solicitors to the liquidator dated 2 May 2019, was not tendered.

1. On about 30 May 2019, the liquidators and Intelligent Packaging entered into an agreement titled ‘Sale of Business & Assets Agreement’.[173]

   [173]First Coyne affidavit: CB, Tab 14, [61]; CB, Tab 82, 886-972.

1. In the period 4 June 2019 to 10 December 2020, Daiwa’s solicitors and the liquidators’ solicitors exchanged correspondence with respect to the sales process.[174]

   [174]First Coyne affidavit: CB, Tab 14, [63].

[414]Proposed statement of claim, [119.5(a)], [119.6(a)].

[415]Transcript of Proceedings 25 October 2021 (n 7) 43.1-43.16 (Mr Austin QC).

[416]It is unclear whether this is $USD or $AUD.

1. In my opinion, there is a solid foundation for the claim that Daiwa would, but for the breaches, have acquired the assets of Barokes, including the claims in the Japanese Infringement proceedings, the Chinese Infringement proceedings and Chinese Invalidity proceedings for a consideration of $10,828,854.22 made up of a cash component of up to $3,000,000 with the balance to be set off against the debt owed by Barokes to Daiwa.[417] This is because:

   [417]Proposed statement of claim, [124].

(a)As I have already stated there is a solid foundation for the claim that Daiwa had a special interest in acquiring the rights associated with the Japanese Infringement proceedings and the Chinese Infringement proceedings in addition to the other assets of Barokes.

(b)Mr Ikeda gave evidence that he considered it commercially desirable for Daiwa to purchase the right to the Japanese Infringement proceedings as they were proceedings against Daiwa.[418]

(c)Mr Ikeda gave evidence that the Chinese Infringement proceedings were also of interest as it was his view that Barokes should not sue Daiwa’s retailers or customers.[419]

(d)Mr Ikeda gave evidence that it was his view that the sale of assets of Barokes to Daiwa should include Barokes’ rights to bring the Japanese Infringement proceedings and the Chinese Infringement proceedings and that had those rights been sold to Daiwa he expects that Daiwa would have caused the proceedings to come to an end.[420]

(e)Mr Ikeda also gave evidence that had the liquidators wanted to agree a sale of the assets, including the Japanese Infringement proceedings and the Chinese Infringement proceedings, that included a cash component and set-off component prior to the adjudication of any claims, he would have caused Daiwa to agree to a sale by which it paid $3,000,000 and agreed to release the balance of its debt (i.e. $7,828,854.22) ‘pursuant to the authority documented on 7 March 2019’.[421]

(f)The liquidators made submissions that Mr Ikeda’s evidence is inconsistent with the terms of the authority, including that Mr Ikeda’s authority was limited to a deal where 90% of the ‘consideration flowed back’.[422] The liquidators submitted that the evidence is ‘at best an incomplete picture’ and at worst ‘inconsistent and unpersuasive.’[423]  The liquidators also submitted that the terms of the authority are ‘different’ to what happens with Daiwa’s Third Offer and Daiwa’s Fourth Offer[424] and the authority document cannot be reconciled with Daiwa’s Fourth Offer.[425]

(g)There is a solid foundation for the claim that the authority document dated 7 March 2019 is not inconsistent with Mr Ikeda’s evidence. The authority does not expressly set out that Daiwa would agree to a sale by which it paid $3,000,000 and agreed to release the balance of its debt (i.e. $7,828,854.22), it does, however, refer to a ‘bid up to a Max of the JPY 1.1 billion (AUD $10,828,854.22) loan’. The matters, on the evidence before the Court, do not appear to have been treated by Daiwa as a condition or limitation on Mr Ikeda’s authority. There is no evidence of Daiwa making enquiries in relation to the matters set in paragraph 3(1) of the authority after the word ‘premise’ prior to making any of its offers. There is no evidence of Daiwa conveying these matters to the liquidators as set out in paragraph 3(2) of the authority. Daiwa also made offers, including Daiwa’s Fourth Offer.

[418]Ikeda affidavit: CB, Tab 8, [16].

[419]Ibid [18].

[420]Ibid [19].

[421]Ibid [22].

[422]Transcript of Proceedings 25 October 2021 (n 7) 39.2-39.7, 40.2-40.5 (Mr Austin QC).

[423]Ibid 40.21-40.25 (Mr Austin QC).

[424]Ibid 39.27-39.30 (Mr Austin QC).

[425]Ibid 81.21-81.22 (Mr Austin QC).

1. In my opinion, the evidence on this application establishes that Daiwa has a solid foundation for the claims that the liquidators’ breach of duty caused loss to Barokes in the amount of between $6,874,826.58 to $8,328,854.22 calculated as follows:[426]

   [426]Daiwa’s submissions: CB, Tab 3, [86].

(a)$10,828,854.22 (cash component of $3,000,000 and release of $7,828,854.22 in debt) that would have been paid by Daiwa. This is supported by the evidence of Mr Ikeda. In my opinion, there is a solid foundation for the claim that the release of debt should be taken into account. It constitutes part of the purchase price that is alleged would have been paid. The liquidators also accepted that this is quite a difficult question and neither party can be definitive about how one approaches loss and damage in this scenario[427] and did not suggest  ‘it is straightforward to analyse how one assesses the loss to a company in liquidation where it really is the vehicle for dealing with creditor claims’.[428]

(b)Less $2,500,000 (cash component paid by Intelligent Packaging under the sale of business and assets agreement).[429]

(c)Less the amount of any valid debt assumed by Intelligent Packaging (i.e. being not more than $1,454,027.64,[430] being the ‘Related Party Liabilities’ under the sale of business and assets agreement)[431]. There is a solid foundation for the claims that some of debts were not valid. For example:

(i)Greire ($1,073,706): This is the subject of pleas in the proposed statement of claim at [58] and [59]. This alleged debt concerned, in part, the sum of $920,842 as ‘deferred wages’ of Mr Stokes. There is a solid foundation for the claim that this debt was not valid as there is a solid foundation for the claim that Greire was not a party to Mr Stokes’ agreement and that it expired on 26 August 2015. I refer to my Reasons at [13] and [49].

(ii)Mrs Stokes ($269,257.75): This is the subject of pleas in the proposed statement of claim at [27]-[28] and [63]-[64]. There is a solid foundation for the claim that this alleged debt was not valid as there is a solid foundation for the claim that it exceeded the annual salary payable to Mrs Stokes (see CB, Tab 28, as alleged in the proposed statement of claim at [28]) and Daiwa had not authorised any increase in her salary. I refer to my Reasons at [14] and [47(a)].

[427]Transcript of Proceedings 25 October 2021 (n 7) 86.24-86.28 (Mr Austin QC).

[428]Ibid 88.5-88.12 (Mr Austin QC).

[429]CB, Tab 82, ‘Schedule 1 – Items’.

[430]This figure of assumed debt is slightly more than the amount set out in Daiwa’s submissions: CB, Tab 3, [85]-[86], which is based upon the amounts in the table at CB, Tab 75 of $920,842, $100,000 and $389,529 which total $1,410,371. See also Transcript of Proceedings 22 October 2021 (n 4) 82.9-82.14 (Mr Bender).

[431]CB, Tab 82, ‘Schedule 2 – Definitions’. The figure of $1,454,027.64 is calculated by summing the four amounts set out in the definition ‘Related Party Liabilities’ in Schedule 2.

1. Alternatively, if I am wrong that there is a solid foundation for the claim that the release of debt should be taken into account, there is a solid foundation for the claim that Barokes suffered a loss of $500,000 being the difference between $3,000,000 (cash component that Daiwa would have paid) and $2,500,000 (cash component paid by Intelligent Packaging under the sale of business and assets agreement). The liquidators submitted that this was the proper calculation of the alleged loss and that it is ‘not insignificant’.[432]

   [432]Transcript of Proceedings 25 October 2021 (n 7) 88.13-88.20 (Mr Austin QC).

Daiwa’s Fourth Offer

1. I am satisfied that there is a solid foundation for the claims in relation to Daiwa’s Fourth Offer in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and present a reasonable prospect of success.

1. I am satisfied there is a solid foundation for the claim that by not making any inquiry in relation to Daiwa’s Fourth Offer and not comparing it to the Joint Venture’s Third Offer, and by not accepting Daiwa’s Fourth Offer, the liquidators breached their duty by failing to act with due care and skill to an extent that was reasonable in all the circumstances as:

(a)I accept that the evidence before the Court establishes that:

(i)Daiwa was informed that any revised offer would need to be received by close of business on 17 April 2019 as the liquidators would be accepting an offer on 18 April 2019.

(ii)The liquidators considered 18 April 2019 was a ‘suitable deadline’ for further non-binding offers.[433] The liquidators considered that the business and assets had to be sold in the short term and that they wanted a purchaser to take over the business and assets.[434] The liquidators were operating the business as a going concern.

[433]First Coyne affidavit: CB, Tab 14, [44].

[434]CB, Tab 70, 804.

(b)I also accept that the liquidators had a duty to complete the administration of the assets within a reasonable time and not to protract the liquidation unduly.

(c)Daiwa’s Fourth Offer was made on 19 April 2019, being one day after the ‘deadline’ for further non-binding offers. As submitted by the liquidators, it was an ‘unconditional offer’.[435]

(d)The liquidators did not make any inquiry in relation to Daiwa’s Fourth Offer.

(e)The liquidators did not compare the Joint Venture’s Third Offer to Daiwa’s Fourth Offer prior to entering into a contract with Intelligent Packaging for the sale of Barokes’ assets.

(f)There is a solid foundation for the claim that contrary to the evidence of Mr Coyne,[436] the liquidators had not ‘accepted’ the Joint Venture’s Third Offer by 19 April 2019 and the Joint Venture had no basis to enforce any ‘agreement’ at that time. These are the matters relied upon by Mr Coyne, at least in part, as justifying the liquidators’ decision not to consider Daiwa’s Fourth Offer and reopen negotiations.[437]

(g)The evidence on this application establishes that on 18 April 2019 the liquidators sent an email to Mr Stokes to inform him that they were ‘progressing’ with a sale to the Joint Venture in accordance with ‘Option 2’ and attached a marked up a further version of the Joint Venture’s Second Offer[438]. This marked-up version included some new terms that had not been otherwise been the subject of offers by the Joint Venture.[439]  On 24 April 2019, Mrs Stokes sent an email to the liquidators solicitors attaching the ‘Amended Binding Indicative Offer’ executed by Intelligent Packaging.

(h)The Business Information Memorandum also expressly provided that the liquidators reserved the right to, inter alia, deal with any one party to the exclusion of others or not to or to cease to deal with a party without giving reasons or prior notice to that interested party.[440] The Business Information Memorandum also provided that the liquidators reserved their right to alter the timeframes and deadlines.[441] The Business Information Memorandum did not, contrary to the submission of the liquidators, provide, in effect, that once the liquidators proceed with a preferred bidder ‘that’s it. You proceed with your preferred bidder’.[442]

(i)There is a solid foundation for the claim that it would not have required much time or expense for the liquidators to have considered Daiwa’s Fourth Offer and compared it to the Joint Venture’s Third Offer and that this would not have unduly delayed the sale of the business and assets of Barokes.

(j)There is also a solid foundation for the claim that Daiwa’s Fourth Offer was materially superior to the Joint Venture’s Third Offer. Daiwa’s Fourth Offer included a cash component that was $500,000 more than the cash component of the Joint Venture’s Third Offer. The liquidators submitted that Daiwa’s Fourth Offer would have resulted in a return to unsecured creditors of 30.54 cents in the dollar (subject to costs) whereas the Joint Venture’s Third Offer would have resulted in a return of 21.21 cents in the dollar (subject to costs).[443]

[435]Transcript of Proceedings 25 October 2021 (n 7) 81.24-81.29 (Mr Austin QC).

[436]First Coyne affidavit: CB, Tab 14, [57]-[58].

[437]Ibid.

[438]Note that the Joint Venture’s Second Offer was amended by email correspondence, see Joint Venture’s Third Offer.

[439]See Reasons, [85].

[440]Business Information Memorandum: CB, Tab 54, 696 [2]. See Reasons, [52].

[441]Business Information Memorandum: CB, Tab 54, 709 [12]. See Reasons, [52].

[442]Transcript of Proceedings 25 October 2021 (n 7) 53.2-53.5 (Mr Austin QC).

[443]Liquidators’ aide-memoire (attached as Annexure A to these Reasons). See also Transcript of Proceedings 25 October 2021 (n 7) 66.17-67.9 (Mr Austin QC) where the liquidators made submissions by reference to the liquidators’ aide-memoire.

1. I am satisfied there is a solid foundation for the claim that Daiwa would, but for the breaches, have acquired the assets of Barokes pursuant to an agreement in accordance with the terms of Daiwa’s Fourth Offer, being a consideration of $6,500,000 made up of a cash component of up to $3,000,000 with $3,500,000 to be set off against the debt owed by Barokes to Daiwa.[444] I refer to these Reasons at [163(j)].

   [444]Proposed statement of claim, [124].

1. I am satisfied there is a solid foundation for the claim that the liquidators’ breach of duty caused loss to Barokes in the range of $2,545,972.36 to $4,000,000 calculated as follows:[445]

(a)$6,500,000 purchase price under Daiwa’s Fourth Offer (cash component of $3,000,000 and release of $3,500,000 in debt). I refer to the matters I have earlier addressed in these Reasons on the treatment of the release of debt.[446]

(b)Less $2,500,000 (cash component paid by Intelligent Packaging under the sale of business and assets agreement).[447]

(c)Less the amount of any valid debt assumed by Intelligent Packaging, being part of the purchase price under the Joint Venture’s Third Offer (being not more than $1,454,027.64,[448] being the ‘Related Party Liabilities’ under the sale of business and assets agreement)[449].  There is a solid foundation for the claims that the debts were not valid. I refer to my Reasons at [160(c)].

[445]Daiwa’s submissions: CB, Tab 3, [86].

[446]Reasons, [160(a)].

[447]CB, Tab 82, ‘Schedule 1 – Items’.

[448]Refer to footnote n 430 above.

[449]Refer to footnote n 431 above.

1. The proposed statement of claim refers to an amount of $4,000,000[450] but Daiwa’s submissions also refer to an amount between $2,589,630 to $4,000,000.[451]

   [450]Proposed statement of claim, [125.2].

   [451]Daiwa’s submissions: CB, Tab 3, [86].

1. Alternatively, if I am wrong that there is a solid foundation for the claim that the release of debt should be taken into account, I am satisfied that there is a solid foundation for the claim that Barokes suffered a loss of $500,000 being the difference between $3,000,000 (cash component of Daiwa’s Fourth Offer) and $2,500,000 (cash component paid by Intelligent Packaging under the sale of business and assets agreement). As I have already stated in these Reasons, the liquidators submitted that this was the proper calculation of the alleged loss and that it is ‘not insignificant’.[452]

   [452]Transcript of Proceedings 25 October 2021 (n 7) 88.13-88.20 (Mr Austin QC).

1. As I have said earlier in these Reasons,[453] Daiwa submitted that leave is also required as the proposed defendants are Court appointed liquidators.[454] For the same reasons I have already given,[455] I am also satisfied that the claims based upon:

(a)Daiwa’s First Offer do not have sufficient merit or constitute a prima facie case;

(b)the Foreign Patent proceedings and Daiwa’s Fourth Offer do have sufficient merit and constitute a prima facie case.[456]

[453]Reasons, [120].

[454]Transcript of Proceedings 22 October 2021 (n 4) 93.23-93.29 (Mr Bender). See Eighty Second Agenda Pty Ltd (in its capacity as trustee of the Rice Family Trust) v Handberg [2014] VSC 665 [18] (Croft J). See also Mamone v Pantzer [2001] NSWSC 26 [4] (Santow J).

[455]Reasons, [137]-[167].

[456]See Eighty Second Agenda Pty Ltd (in its capacity as trustee of the Rice Family Trust) v Handberg [2014] VSC 665 [32]-[35] (Croft J).

ATTITUDE OF THE LIQUIDATORS

1. The second principal factor is the attitude of the liquidators.

1. Daiwa submitted that the attitude of the liquidators is of no real relevance in circumstances where the claims are made against the liquidator.[457] I agree. The liquidators submitted that this is not a case where the liquidators will pursue claims sought to be made by Daiwa.[458] The liquidators conceded that this factor has been ‘satisfied’.[459]

   [457]Daiwa’s submissions: CB, Tab 3, [106].

   [458]Liquidators’ submissions: CB, Tab 4, [40].

   [459]Ibid.

1. The present case may be distinguished from the ordinary and usual situation in which a liquidator brings proceedings on behalf of a company. It is ‘out of the ordinary and special.’[460]

   [460]See El-Saafin v Franek (No 4) [2020] VSC 389 [205] (Lyons J).

PRACTICAL CONSIDERATIONS

1. The third principal factor concerns practical considerations, with particular reference to the financial protection of the liquidator and the assets of the company by means of an indemnity and, if indicated, security.

1. In Carpenter v Pioneer Park Pty Ltd,[461] Barrett J said:[462]

It is proper to look to the capacity of an applicant to provide the company with financial protection when considering whether it is in the interests of the company for the applicant to be allowed to bring proceedings on its behalf.

[461]Carpenter v Pioneer Park Pty Ltd (2008) 71 NSWLR 577.

[462]Ibid [57] (Barrett J) (emphasis added).

1. Daiwa submitted in its written submissions that it ‘proffers an undertaking to indemnify Barokes from any liability for costs ordered against it in the proceedings.’[463]

   [463]Daiwa’s submissions: CB, Tab 3, [107].

1. At the hearing, Daiwa offered to undertake to the Court to:

(a)pay Barokes’ the costs of the derivative proceedings;

(b)indemnify Barokes, following final determination of the derivative proceedings, from any liability for costs ordered against it and for any costs properly incurred by it as a result of the proceedings being brought in its name.[464]

[464]Transcript of Proceedings 25 October 2021 (n 7) 3.3-3.11 (Mr Bender).

1. Daiwa submitted that it should not be required to give security for its indemnity as Daiwa is entitled to receive a substantial dividend from Barokes at the conclusion of the winding-up by reason of its admitted debt. It submitted that this was estimated to be about $2.118M as at 17 September 2019, being the date of the third report to creditors. [465] Daiwa’s entitlement to a dividend effectively stands as security.[466] Daiwa submitted that having regard to the matters in the third report to creditors:[467]

The only way Your Honour could conclude that there would be an insufficient entitlement to a distribution at the end of this case to stand a security for the undertaking I've given, would be if Your Honour concluded that the liquidators could reasonably spend something approaching $2 million by way of their own remuneration.  And I don't understand Mr Austin to suggest that.  And if he did, it would be entirely inappropriate in my respectful submission.

[465]Ibid 3.22-3.30 (Mr Bender).

[466]Ibid 122.13-122.31 (Mr Bender).

[467]Ibid 122.23-122.31 (Mr Bender).

1. In the alternative, Daiwa submitted that if the Court is against this submission and orders security then the security could be paid into court or some other form of security could be provided.[468]

   [468]Ibid 123.13-123.15 (Mr Bender).

1. The liquidators submitted, in its written submissions, that there would be prejudice to the assets of Barokes and the course of the liquidation should the proceedings be pursued by Daiwa.[469]  The liquidators submitted the assets available for the benefit of the creditors would be diminished if the proceedings were pursued.[470] They submitted that this could be cured by an order that Daiwa pay ‘security for costs’ as a condition on the grant of leave.[471]

   [469]Liquidators’ submissions: CB, Tab 4, [41].

   [470]Ibid.

   [471]Ibid.

1. At the hearing, the liquidators submitted that Daiwa should provide security for Daiwa’s proposed indemnity for any costs that are going to incurred  by Barokes if it is unsuccessful.[472] The liquidators relied upon the following matters: [473]

(a)Daiwa is a foreign corporation.

(b)Daiwa’s shareholding in Barokes is worthless.

(c)It is not suggested that it owns any other assets with this jurisdiction save for its entitlement to an dividend, which is now of uncertain value.

(d)There is no evidence that an undertaking given to the Court would be enforceable in Japan and, if it is, why anybody should have to go there to enforce it.

[472]Transcript of Proceedings 25 October 2021 (n 7) 89.31-90.4 (Mr Austin QC).

[473]Ibid 88.21-89.4 (Mr Austin QC).

1. In my opinion, any grant of leave should be on the basis that Daiwa undertakes to the Court to:

(a)pay Barokes’ costs of the derivative proceedings; and

(b)indemnify Barokes from any liability for costs ordered against it and for any costs incurred by it in the derivative proceedings.

1. In my opinion, the indemnity should not be limited to ‘following a final determination of the derivative proceedings’. In the event that Barokes is ordered to pay the liquidators' costs prior to a final determination of the proceedings, for example of an interlocutory application and those costs are taxed prior to the determination of the proceeding, Daiwa should indemnify Barokes. The indemnity also should not be limited to costs ‘properly incurred by Barokes’. The limitation is not appropriate. Daiwa is bringing the claim in the name of Barokes.

1. In my opinion, any grant of leave should also be on condition that Daiwa provides security for its indemnity.

1. First, Daiwa is incorporated in Japan and there is no evidence that it has any assets in this jurisdiction except for a loan to Barokes and the likelihood of receiving a dividend with respect to it as part of the liquidation of Barokes. The loan has no value. Daiwa relied upon the third creditors report, which is dated 17 September 2019. It also submitted that the only expenses to be incurred since that time were the liquidators’ costs.  The third creditors report also stated, inter alia, ‘The final return may change as a result of receiving additional claims or existing claims are substantiated in part or in full.’[474] The third creditors report also stated that there were still a number of acts and dealings to be carried out.[475] This included the following, which was not exhaustive:[476]

   [474]Third Report to Creditors: CB, Tab 94, 1049.

   [475]Ibid 1048.

   [476]Ibid.

·     Continuing to attend to ongoing litigation;

·     Continuing to facilitate the transfer of the Company’s business and assets to the purchaser;

·     Continuing investigations into the conduct of the Company’s officers; and

·     Prepare a declaration and distribution of dividend to creditors (including formal adjudication of claims process).

1. In my opinion, the current likely amount of the dividend is uncertain.

1. There is no evidence of the likely costs of the proposed derivative proceeding, including of any potential adverse costs order, that may be the subject of the indemnity.

1. As a result, I am not satisfied upon the present evidence, especially given the further acts and dealings referred to in the liquidators’ report, that the dividend would be sufficient to meet any indemnity.

1. Secondly, if I am wrong and the dividend would be sufficient to meet any indemnity, I am not satisfied that it represents appropriate security. The indemnity may be called upon prior to the conclusion of the winding-up of Barokes and the payment of any dividend. For example, if the derivative proceeding did not succeed Barokes may be ordered to pay the costs and this would be prior to Daiwa receiving any dividend from Barokes at the conclusion of the winding-up. This means that the indemnity may be called upon in circumstances in which the dividend is not liable to be paid to Daiwa.

OTHER RELEVANT CIRCUMSTANCES

1. Daiwa submitted that ‘[t]he claim is prima facie a strong one’.[477] It submitted that there is a public interest in ensuring compliance by the liquidators with the statutory duties and a private interest of creditors of Barokes.[478]

   [477]Daiwa’s submissions: CB, Tab 3, [108].

   [478]Ibid.

1. The liquidators submitted that the granting of leave would likely produce little, if any, tangible benefit for the creditors.[479] The liquidators submitted that the winding up of Barokes has come to an end (but for the proceeding) and the proceeding will delay the payment to creditors.[480]

   [479]Liquidators’ submissions: CB, Tab 4, [42].

   [480]Ibid [42], [66].

1. I do not consider that the public interest is a significant or overwhelming factor.   I am not satisfied that the claims are prima facie ‘strong claims’. For the reasons I have given I am satisfied that they have a solid foundation.

1. I do not accept the liquidators submissions that the granting of leave would likely produce little, if any, tangible benefit for the creditors. In the event that the claims succeed then Barokes may be entitled to substantial damages.[481]

   [481]Reasons, [160]-[161], [165]-[167].

1. I accept that the proceeding will likely delay the payment to creditors.

EXERCISE OF DISCRETION

1. I am satisfied from my consideration of the relevant factors that the circumstances of this case favour the exercise of the Court’s discretion to grant leave. In my opinion, the circumstances can fairly be described as ‘out of the ordinary and special’. Upon Daiwa giving undertakings to the Court to:

(a)pay Barokes’ costs of the derivative proceedings;

(b)indemnify Barokes from any liability for costs ordered against it and for any costs incurred by it in the derivative proceedings;

I will exercise my discretion to grant leave to Daiwa to bring proceedings in the name of Barokes, substantially in the form of the proposed statement of claim (excluding those claims identified in these Reasons).

1. Leave will also be subject to conditions that:

(a)the derivative proceedings are commenced in this Court within 28 days from the grant of leave (i.e. the date of the orders); and

(b)Daiwa provide security for its undertaking to indemnify Barokes in a form to be agreed within 14 days of the grant of leave or determined by the Court.

1. I will hear from the parties on the precise form of the undertakings and conditions.

CONCLUSION

1. As a result of my decision to exercise my discretion to grant leave to Daiwa to bring proceedings in the name of Barokes, it is not necessary for me to consider Daiwa’s alternative application concerning section 90-15 of the Insolvency Practice Schedule.

1. I will hear from the parties on the precise form of order, including on the form of the undertakings and conditions and on costs. The parties are requested to confer on the form of orders and to provide a form of order to chambers, or in the absence of agreement, forms of orders, to chambers by 4pm on 5 November 2022. The Court will then list the matter for further hearing.

ANNEXURE A[482]

[482]Annexure A is a copy of the liquidators’ aide-memoire relied upon at the hearing.

DAIWA CAN COMPANY v KOUTSOUKOS & ORS

SUPREME COURT OF VICTORIA PROCEEDINGS NO. S ECI 2021 02423

DEFENDANTS’ AIDE-MÉMOIRE AS TO OFFER COMPARISON

Daiwa Can Company (3rd offer)	Intelligent Packaging (3rd offer)	Daiwa Can Company (subsequent 4th offer on 19 April 2019)
Consideration (Cash)	1,500,000	2,500,000	3,000,000
Priority Creditors
- Richard Lukins	31,074	0	31,074
- Related Employees	10,500	0	10,500
- Super	6,623	6,623	6,623
Balance after Priority Claims	1,451,803	2,493,377	2,951,803
Unsecured Creditors
- Daiwa Can Company	5,828,854	10,828,854	7,328,854
- Greire Pty Limited	920,842	0	920,842
- Knights Quest P/L	100,000	0	100,000
- Excluded Employee Claims	389,528	0	389,528
- Trade/Statutory Creditors	927,686	927,686	927,686
8,166,910	11,756,540	9,666,910
Estimated Dividend Subject to Costs	0.1778	0.2121	0.3054
Daiwa Return in Dividend ($)	1,036,175	2,296,629	2,237,875

SCHEDULE OF PARTIES

DAIWA CAN COMPANY	Plaintiff
- and -
JAMES KOUTSOUKOS AS JOINT AND SEVERAL LIQUIDATOR OF BAROKES PTY LTD (IN LIQUIDATION) (ACN 079 714 579)	First Defendant
DAVID COYNE AS JOINT AND SEVERAL LIQUIDATOR OF BAROKES PTY LTD (IN LIQUIDATION) (ACN 079 714 579)	Second Defendant
BAROKES PTY LTD (IN LIQUIDATION) (ACN 079 714 579)	Third Defendant