In the matter of Minken Pty Ltd (in liq)
[2019] VSC 288
•3 May 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2017 00214
In the matter of Minken Pty Ltd (in liquidation) (ACN 109 844 537)
| MINKEN PTY LTD (IN LIQUIDATION) (ACN 109 844 537) (and others according to the schedule) | Plaintiffs |
| v | |
| TIMOTHY JOHN ENTWISLE (and others according to the schedule) | Defendants |
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JUDGE: | CONNOCK J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16 April and 3 May 2019 |
DATE OF JUDGMENT: | 3 May 2019 |
CASE MAY BE CITED AS: | In the matter of Minken Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 288 |
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CORPORATIONS – Liquidation – Authority to enter into settlement agreements – Oral legal advice – Performance involves a period exceeding three months – Section 477(2B) of the Corporations Act 2001 (Cth) – Unlikely to cause significant delay in the liquidation – Approval granted.
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APPEARANCES: | Counsel | Solicitors |
| For Mr G Crisp and Mr S Arnautovic as joint and several liquidators of the fourth defendant | Mr M Galvin QC | Matthews Folbigg Lawyers |
HIS HONOUR:
Introduction
By interlocutory process filed on 9 April 2019, Glenn Anthony Crisp and Sule Arnautovic (Racso Liquidators) in their capacity as joint and several liquidators of the fourth defendant (Racso) seek approval pursuant to s 477(2B) of the Corporations Act 2001 (Cth) (Act) of a settlement agreement between Racso, Baraman Holdings Pty Ltd (Baraman) and Timothy Entwisle (collectively, Entwisle parties), and Adam McGoldrick recorded in a deed entered into on 21 March 2019 (Deed of Settlement).
The application was brought within this proceeding, being a proceeding commenced by the liquidators of Minken Pty Ltd (in liquidation) (Minken) and Henton Pty Ltd (in liquidation) (Henton) (Minken Liquidators) in which they seek directions pursuant to s 479(3) of the Act in relation to various transactions and matters arising out of the Minken and Henton liquidations (Directions Proceeding).
Racso is the fourth defendant in the Directions Proceeding, Mr Entwisle is the first defendant, Baraman is the second defendant, and Mr Adam McGoldrick is the fifth defendant. The other defendants are Civileng Constructions Pty Ltd (in liquidation) (Civileng) and Zido Pty Ltd (Zido), being the third and sixth defendants respectively. The Entwisle parties, Mr Adam McGoldrick, and Racso have been active parties in the Directions Proceeding but, to date, Civileng and Zido have elected not to take an active role or seek to be heard.[1]
[1]The position was confirmed in a document provided to the Court by the Minken Liquidators dated 12 March 2019, which also confirmed that Walturn Pty Limited (in liq) and Mr Ian McGoldrick’s bankruptcy trustee, Mr Juratowitch, did not wish to be heard and would abide the orders of the Court.
Some of the directions sought by the Minken Liquidators in the Directions Proceeding relate to how the Minken Liquidators are to deal with the surplus proceeds of the sale of a property at 17–27 Cotham Road, Kew, Victoria previously owned by Minken (Kew Property). So far as Racso is concerned, the compromise the subject of the Deed of Settlement relates to the surplus proceeds from the sale of the Kew Property.[2]
[2]The Court was informed that Racso’s interest in the Directions Proceeding relates only to this aspect of it and that Racso and the Racso Liquidators have no interest in the other matters the subject of the Directions Proceeding. Racso’s written submissions headed ‘Outline of submissions of liquidators for the Fourth Defendant (Racso)’ (Racso’s written submissions), 1 [2].
The application was supported by the affidavits of Mr Crisp affirmed on 9 April 2019 and 3 May 2019, the affidavit of Mr Andrew Behman sworn on 15 April 2019, and detailed written submissions dated 9 April 2019. The Racso Liquidators also relied on parts of the affidavit of Mr Wallace-Smith,[3] one of the Minken Liquidators, sworn 4 October 2017 and filed in the Directions Proceeding.
[3]And various documents exhibited to it that were included in the Court Book in the Directions Proceeding.
The agreement the subject of the Deed of Settlement was reached part of the way through the hearing of the Directions Proceeding following a judicial mediation, and is conditional upon Racso obtaining approval pursuant to s 477(2B) of the Act. The further hearing of the Directions Proceeding has been adjourned to enable this application to be made and to allow for some other matters associated with the Directions Proceeding to be attended to.
The application is narrow in scope and the Court was informed that it was ‘brought purely on the basis that there is some prospect that there are obligations that might endure beyond three months…’.[4] The Racso Liquidators have not made an application for directions or approval of the Deed of Settlement pursuant to any other provision of the Act.
[4]Transcript of 27 March 2019 at 8:23–31.
For the reasons that follow, it is appropriate to give approval to the Racso Liquidators pursuant to s 477(2B) of the Act to enter into the Deed of Settlement.
Background
The background to the matter was described in the ‘Background’ section of the Deed of Settlement, as follows:
A.“On or about 10 February 2005, Racso contributed the sum of $464,510.92 (“the Racso Payment”) to the purchase of the property at 17-27 Cotham Road, Kew VIC (“the Kew Property”) by Minken Pty Ltd (“Minken”).
B.On 6 November 2012, Mr Sule Arnautovic and Mr Glenn Anthony Crisp were appointed Joint and Several Administrators of Racso and subsequently as Joint and Several Liquidators on 11 February 2013 (“the Racso Liquidators”).
C.On or about 16 November 2012, Perpetual Trustee Company Limited (“Perpetual”), as first registered mortgagee of the Kew Property, appointed Quentin James Olde, Ross Andrew Blakeley and Andrew Peter Schwarz (“the Receivers”) as receivers and managers of Minken’s property, including the Kew Property.
D. The Receivers sold the Kew Property and, after discharging Minken’s debt to Perpetual and paying a sum of $650,000 to Masterplan Properties Pty Ltd, paid the surplus of $1,382,820.53 (“the Surplus Sale Proceeds”) into the Supreme Court of Victoria.
E.On 20 December 2013, Simon Alexander Wallace-Smith and Robert Scott Woods (“the Minken Liquidators”) were appointed as the joint and several liquidators of Minken.
F. On 31 August 2017, the Minken Liquidators commenced proceedings in the Supreme Court of Victoria (proceedings number S ECI 2017 00214) (“the Proceeding”) seeking directions in relation to the distribution of the Surplus Sale Proceeds.
G.Racso, Baraman, Entwisle and McGoldrick are parties to the Proceeding.
H.In the Proceeding, Racso claims:
(a) that:
(i) the Racso Payment was received by Minken and applied in the purchase of the Kew Property under a purchase money resulting trust (“the Racso Contribution”); and
(ii) Racso is, therefore, entitled to receive repayment of the Racso Contribution out of the Surplus Sale Proceeds without deduction (“the Purchase Money Resulting Trust Claim”); or
(b) alternatively, that:
(i) Racso lent the amount of the Racso Payment to Minken (“the Racso Loan”); and
(ii) Racso is entitled, therefore, to lodge a proof of debt in the winding up of Minken in respect of the Racso Loan;
(“the Racso Loan Claim”)
(collectively, “the Racso Claims”).
I. In the Proceeding, Baraman and Entwisle deny the Racso Claims on grounds including that:
(a) Racso was at all material times an alter ego of lan Andrew McGoldrick; and
(b) lan Andrew McGoldrick is indebted to Minken in a sum of $650,000 (“the McGoldrick Debt”);
(c) by reason of the rule in Cherry v Boultbee (1839), 4 My. & C. 442 (Ch.), Racso is entitled neither to repayment of the Racso Contribution nor to a dividend out of the winding up of Minken unless and until the McGoldrick Debt is repaid to Minken in full;
(“the Entwisle Contention”).
J. Racso and McGoldrick deny the Entwisle Contention.
K.In the Proceeding, McGoldrick adopts the Racso Claims, but he contends that Racso made the Racso Contribution and/or the Racso Loan as trustee of the Racso Family Trust and that he is now the trustee of that trust (“the McGoldrick Contention”).
L. Racso, Baraman and Entwisle deny the McGoldrick Contention.
M.The Minken Liquidators have indicated to the parties on an E&OE basis that they have estimated that the likely dividend to creditors proving in the liquidation of Minken will not exceed 12 cents in the dollar.
N. The parties desire to settle their various claims and denials recited above on the basis that the Purchase Money Resulting Trust Claim will be abandoned and any dividend paid by the Minken Liquidators to Racso in respect of the Racso Loan and/or any other amount for which Racso may be admitted to proof (“Minken Racso Dividend”) will be shared by Racso as to 80%, Baraman as to 10% and McGoldrick as to 10%.”
Further background was referred to in the affidavits of Mr Crisp, Mr Behman and Mr Wallace Smith,[5] and Racso’s written submissions. With respect to the Racso liquidation and the Deed of Settlement, the matters Mr Crisp deposed to include the following:
[5]And certain documents in the court book relied upon. See, for example, Racso’s written submissions at [20]–[28] and footnotes 20–35. The background to the winding up of Minken and Henton and some other related entities is also evident from the reasons of Elliott J in Entwisle v Minken Pty Ltd (Receivers and Managers Appointed) [2013] VSC 709, [6]–[164].
(a) The funds remaining in Racso’s liquidation being only $2,136.42.
(b) The limited number of creditors in Racso’s liquidation and the total amount of creditors’ claims exceeding $10 million.
(c) The Minken Liquidators having estimated that the likely dividend to creditors proving in Minken’s liquidation will not exceed $0.12 in the dollar.
(d) If, as contemplated by the Deed of Settlement, Racso lodges a proof of debt in respect of the Racso Loan (as defined in the ‘Background’ section of the Deed of Settlement as set out above) the proof of debt is expected to be $539,571.88 with any dividend from the Minken liquidation being $67,081.48.
(e) The Deed of Settlement providing for Racso to receive 80 per cent of any dividend on the admission of its proof of debt, being $53,665.18, with the remaining 20 per cent to be shared equally between Baraman and Mr Adam McGoldrick, being $6,708.15 each.[6]
(f) Aspects of the timing of the application having regard to the circumstances in which the compromise arose during the course of the hearing of the Directions Proceeding.
(g) Mr Crisp’s expectation that, having regard to the costs of the liquidation, including legal costs and counsel’s fees, there will be insufficient funds in Racso’s liquidation to meet the costs of the liquidation or any creditor claims.
[6]Based on the information provided to the Racso Liquidators by the Minken Liquidators.
The Court was informed by senior counsel for Racso[7] that legal advice had been given to the Racso Liquidators.[8] The point was reinforced in Racso’s written submissions when addressing the prospects of success of the resulting trust claim the subject of the Deed of Settlement. The submissions recorded that ‘the liquidators’ determination to enter into the agreement was informed by an assessment of the legal merits of the claim to an interest under a purchase money resulting trust as well as commercial considerations, including the practicalities, costs and risks associated with participating in a trial of complex issues of fact and law, many of which have no relevance to the Racso liquidation. The liquidators have taken legal advice regarding Racso’s prospects…’.[9]
[7]Who had been acting for and appearing on behalf of Racso and the Racso Liquidators for an extended period in connection with the Directions Proceeding.
[8]Senior counsel also indicated that it was not written advice; Transcript 27 March 2019 at 8:26-28.
[9]Racso’s written submissions at [20]. The submissions further recorded at [29] that the circumstances ‘strongly support a finding’ that the ‘… Contributions [to the Kew Property by Racso and the Entwisle parties] were by way of loan and leave little room for a contention that they give rise to proprietary interests under purchase money resulting trusts. That is to say, the prospects of Racso’s primary contention are marginal at best.’
Shortly before the scheduled hearing date[10] the Court was informed that the Racso Liquidators were informing creditors of the application and the proposed compromise and that they expected to be in a position to inform the Court of the creditors’ attitudes at the hearing of the application.[11] The notification of creditors was also referred to and addressed in the affidavit of Mr Behman and the Court raised the question of whether it was possible that the creditors might not have received notice sufficiently in advance of the hearing date. Senior counsel for Racso was also cognisant of that possibility and properly acknowledged and addressed it. Consequently, the further hearing of the matter was adjourned and the Racso Liquidators were directed to provide written notice of the adjourned date to the creditors. The giving of such notice to creditors was addressed in the affidavit of Mr Crisp affirmed on 3 May 2019.
[10]16 April 2019.
[11]Racso’s written submissions at [34].
The Court did not receive notification from any creditor during the period of the adjournment and no creditors sought to be heard. Senior counsel for the Racso Liquidators also informed the Court[12] that no creditors had responded to the notice or indicated that they were opposed to the application or intended to appear.
[12]At the further hearing of the application on 3 May 2019. The Court was also informed that the Racso Liquidators were expressly not seeking any orders pursuant to s 1322 of the Act.
Operation of s 477(2B)
Section 477(2B) of the Act provides as follows:
(2B)Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company’s behalf (for example, but without limitation, a lease or an agreement under which a security interest arises or is created) if:
(a)without limiting paragraph (b), the term of the agreement may end; or
(b)obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;
more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.”
As is apparent, s 477(2B) prohibits a liquidator from entering into an agreement on the company’s behalf if obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance more than three months after the agreement is entered into, unless the liquidator obtains the approval of the Court, the committee of inspection (if there is one) or a resolution of the creditors.
As was pointed out by the Racso Liquidators, Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 16 ACLC 1642 (Austin J) and Stewart re Newtronics Pty Ltd [2007] FCA 1375 (Gordon J) are frequently referred to as authorities with respect to the principles governing applications for Court approval under s 477(2B). The Victorian Court of Appeal also recently discussed the authorities and principles in Re McDermott and Potts (in their capacities as joint and several liquidators of Lonnex Pty Ltd (in liq)) [2019] VSCA 23 (Whelan AP, McLeish and Hargrave JJA).
Relevant principles and observations are summarised below.[13]
[13]Parts of which have been drawn from the summary in Racso’s written submissions at [10]-[13].
The focus of s 477(2B) is delay.[14] The purpose of s 477(2B) is to restrict the unfettered exercise of powers of liquidators in circumstances where that might not be conducive to ‘an expeditious and beneficial administration’.[15] The Court will have regard to the impact that entering the agreement will have upon the duration of the liquidation and whether that impact is, in all the circumstances, reasonable in the interests of the administration.[16]
[14]Re McDermott and Potts [2019] VSCA 23 (Re McDermott and Potts), [92(7)] (Whelan AP, McLeish and Hargrave JJA).
[15]Corporate Affairs Commission v ASC Timber Pty Ltd and Others 29 ACSR 109 (CAC v ASC Timber Pty Ltd), 117 (Austin J); Re McDermott and Potts, [76] (Whelan AP, McLeish and Hargrave JJA).
[16]Bryant, Re Gunns Ltd (in liq) v LV Dohnt and Co Pty Ltd [2019] FCA 328, [6] (Davies J).
Whilst the Court does not simply ‘rubber stamp’ a proposed agreement,[17] the Court pays due regard to the liquidator’s commercial judgment. The task of the Court is:
“[not] to reconsider all of the issues which have been weighed up by the liquidator in developing the proposal, and to substitute its determination for his in….a hearing de novo [but]… simply to review the liquidator’s proposal, paying due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, satisfying itself there is no error of law or ground for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene in terms of the ‘expeditious and beneficial administration’ of the winding up.”[18]
[17]Stewart, re Newtronics Pty Ltd [2007] FCA 1375, [26] (Gordon J); Re Spedley Securities Ltd (In liq) (1992) 10 ACLC 1742, 1745 (Giles J); Re Ascot Vale Self Storage Centre Pty Ltd [2015] VSC 751, [25] (Judd J); Re McDermott and Potts, [92] (Whelan AP, McLeish and Hargrave JJA).
[18]Stewart, re Newtronics Pty Ltd, [26(4)] (Gordon J) citing CAC v ASC Timber Pty Ltd [118] (Austin J); and Warne v GDK Financial Solutions; Peridon Village Nominees (2006) 24 ACLC 1019, [60] (Austin J).
The role of the Court is to grant or deny approval to the liquidator to enter into the agreement, it is not to develop some alternative proposal which might seem preferable.[19]
[19]CAC v ASC Timber Pty Ltd, 117 (Austin J); Stewart, re Newtronics Pty Ltd, [26] (Gordon J).
The Court’s approval is not an endorsement of the proposed agreement but is merely permission for the liquidator to exercise his or her own commercial judgment in the matter.[20]
[20]Stewart, re Newtronics Pty Ltd, [26(4)] (Gordon J).
Although s 477B of the Act contemplates seeking approval before an agreement is entered into, it is established that approval of an agreement can be granted after the agreement has been entered into.[21]
[21]See, for example, Stewart, re Newtronics Pty Ltd; Lewis & Templeton Warehouse Sales Pty Ltd (in liq) v LG Electronics Australia Pty Ltd & Ors No 2 [2016] VSC 63, [115] (Sifris J) (Lewis); Chamberlain v RG & H Investments Pty Ltd (2010) 76 ACSR 415, [17]–[24] (Lindgren J) and the cases there cited.
Applications for approval under ss 477(2A) and 477(2B) are to be distinguished from applications for directions under s 90-15 of the Insolvency Practice Schedule (Corporations) and the former ss 511 and 479(3) of the Act. The effect of a direction is to sanction a course of conduct so that the liquidator can adopt that course free from the risk of personal liability for breach.
It has been observed that the fact that a direction ― unlike an approval under s 477(2A) or s 477(2B) ― exonerates the liquidator from personal liability, means that a closer examination of the liquidator’s decision is required in a directions application than in an approval application.[22]
[22]Re One.Tel Ltd and Others (2014) 99 ACSR 247 255–56, [32]–[35] (Brereton J); Lewis at [68]–[80] (Sifris J); Re McDermott and Potts, [84]–[85] and [92] (Whelan AP, McLeish and Hargrave JJA).
Applications for approval under s 477(2A) differ from applications under s 477(2B) in that the former is concerned with the compromise of ‘debts’ which would otherwise be assets in the administration. Section 477(2B), on the other hand, is concerned with the effect of long-term agreements. The main consideration in that context has been said to be the impact of the agreement on the duration of the liquidation.[23]
[23]Re One.Tel Ltd 253–4, [26] (Brereton J); Re McDermott and Potts, [83] (Whelan AP, McLeish and Hargrave JJA).
Ordinarily a liquidator will be expected to obtain legal advice appropriate to the nature and value of the claims the subject of the proposed compromise.[24] However, the absence of such advice is not of itself a reason to refuse to grant a direction.[25]
[24]Re Great Southern-Jones (2014) 9 BFRA 555 568–9, [63]–[64] (Pritchard J); cited with apparent approval by the Victorian Court of Appeal in Re McDermott and Potts, at [92(6)] (Whelan AP, McLeish and Hargrave JJA).
[25]Re Great Southern-Jones, [63]–[64] (Pritchard J); Re McDermott and Potts at [90] (Whelan AP, McLeish and Hargrave JJA).
The attitude of creditors to the proposed agreement is an important factor.[26]
[26]Re FAI Film Distribution Pty Ltd [2014] NSWSC 1904, [18] (Brereton J); Re McDermott and Potts, [92]-[93] (Whelan AP, McLeish and Hargrave JJA).
After reviewing the authorities regarding directions and approval applications, the Court of Appeal in Re McDermott and Potts expressed the ‘principles to be drawn’ as follows:[27]
[27][92] (Whelan AP, McLeish and Hargrave JJA).
(1)The nature of the inquiry undertaken by the Court when approval is sought under s 477(2B) in relation to a proposed compromise of litigation is different from the nature of the inquiry the Court undertakes under s 511 when a liquidator seeks directions in relation to such a compromise.
(2)On a directions application the Court must be positively persuaded that the liquidator’s decision to enter into the compromise is, in all the circumstances, a proper one. This necessarily involves a broad consideration of all the relevant circumstances. A direction will exonerate the liquidator.
(3)In contrast, the discrete consideration of an application under s 477(2B) involves a more circumscribed inquiry. The Court reviews the liquidator’s proposal, satisfying itself that there is no error of law or ground for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene. An order under s 477(2B) does not constitute an endorsement of the proposed compromise. An approval will not exonerate the liquidator.
(4)Given that the nature of the inquiry undertaken in relation to the directions application is broader than that under s 477(2B), it would usually be convenient to deal with the directions application first, and often that consideration would substantially overtake any discrete consideration of the application under s 477(2B).
(5)The Court always pays due regard to the commercial judgment of the liquidator, and, on both applications, the attitudes of creditors are also important.
(6)On both applications, but particularly the application for directions, it would ordinarily be expected that a liquidator would have obtained appropriate legal advice in relation to the proposed compromise, and the nature and content of that advice is a relevant consideration.
(7)While the focus of s 477(2B) is delay, the inquiry under s 477(2B) still requires consideration of the substance of the proposed compromise. If a related application for directions reveals either that the directions should, or should not, be given, discrete consideration of the application under s 477(2B) may be superfluous.
Submissions
The Racso Liquidators submitted that:
(a) The relevant clauses of the Deed of Settlement were as follows:[28]
[28]The reference to the ‘Minken Loan’ was acknowledged by all parties to the Deed of Settlement to be an obvious and demonstrable drafting error which is to be read and construed as ‘Racso Loan’. This was clear from the terms of the Deed of Settlement, including the definitions and paragraphs ‘H’ and ‘N’ of the ‘Background’ section extracted above. The position was confirmed in an email received by the Court dated 16 April 2019.
2.5Racso will prove in the liquidation of Minken for the amount of the Minken Loan and any further sums or sums to which it is entitled as a creditor to Minken, but excluding any right of Racso to an award of costs against Adam McGoldrick in the Proceeding;
2.6If and when Racso receives the Minken Racso Dividend, Racso will immediately pay (without deduction, set off or equitable set off) 10% of the amount of the Minken Racso Dividend to Baraman and a further 10% of the Minken Racso Dividend to McGoldrick[.]
(b) Court approval is only necessary because there are obligations imposed under the Deed of Settlement which may not be discharged within three months because timing is dependent upon, among other things, progress in Minken’s liquidation.
(c) Performance of the Deed of Settlement depends on certain directions being sought by Minken in the Directions Proceeding being given and a dividend being paid to Racso out of the Minken liquidation. The timing of these matters will be impacted by the further hearing of the Directions Proceeding, its determination and the steps to be taken in the Minken liquidation which are beyond the control of Racso and it is therefore ‘… conceivable that the directions might not be made within three months of the agreement and further that there might be some delay in the payment of a dividend by the Minken Liquidators…’.[29] It is for these reasons that approval under s 477(2B) is required.
[29]Racso’s written submissions at [32].
(d) It is possible that the performance of all obligations under the Deed of Settlement will occur within three months and it is unlikely that the delay, if any, will be significant. In any event, any delay is unlikely to prejudice the Racso liquidation. No return is expected for creditors and therefore they will not be harmed.
(e) If approval is not granted the Racso Liquidators will be committed to participation in a trial which is likely to be complex, costly, carry material risk, and unlikely to yield any return to Racso’s creditors.
(f) If approval is not granted then the nature and quantum of Racso’s entitlement to a share of the proceeds of sale of the Kew Property would depend upon the Court’s determination of a series of complex legal and factual questions.[30]
[30]These were said to be: whether Racso has a valid claim to a proprietary interest under a purchase money resulting trust; whether the Entwisle parties have a similar or corresponding claim under a purchase money resulting trust; whether Racso’s claim is a claim as an ordinary unsecured creditor in the Minken liquidation; whether the Racso Family Trust Deed existed and whether Racso’s rights (whether as a contributor under a purchase money resulting trust or as a lender) were held by it as trustee of that trust; if the Racso Family Trust exists and Racso’s rights were held by it as trustee, whether it is nonetheless entitled to be indemnified out of the trust’s share of the fund in respect of debts incurred as trustee and, if so, what are those debts; whether the rule in Cherry v Boultbee and the alter ego doctrine apply. It is possible that this submission did not fully recognise that, as events have transpired, it is only directions pursuant to s 479(3) of the Act that are sought in the Directions Proceeding. However, even if that is so it does not alter the conclusion reached on this application.
(g) Insofar as the Court may take a view that the costs and expenses of the Minken Liquidators in the directions proceeding are a first charge on the funds in the Minken Liquidation, the quantum of any return to Racso (and the Entwisle parties) will inevitably be reduced accordingly.
(h) Given the other contentions in the Directions Proceeding, the return to Racso even if the resulting trust claim had reasonable prospects of success - which, it was submitted, it does not - would be limited in any event.[31]
[31]See the calculations in Racso’s written submissions at [16].
(i) If the Court held that the Racso contribution was made by it on trust for the Racso Family Trust then Racso would receive nothing out of the Minken liquidation, except possibly to the extent it was able to demonstrate it incurred debts as trustee of the trust for which it had an outstanding right of indemnity.
(j) If, as was submitted, Racso’s contribution is properly regarded as an unsecured loan then there would be a return to Racso of the character and in the amount referred to above.[32]
[32]Based on the Minken Liquidators’ current estimate of the return to creditors of $0.12 in the dollar. See paragraph 10(c) to (e) above.
(k) The Racso Liquidators have obtained legal advice regarding Racso’s prospects of success and other matters. A review of the evidence strongly supports the conclusion that the contributions made to the purchase money for the Kew Property were by way of loan and leaves little room for a contention that they gave rise to proprietary interests under purchase money resulting trusts. ‘That is to say, the prospects of Racso’s primary contention are marginal at best.’[33]
(l) The amount proposed to be paid to Adam McGoldrick in consideration for the abandonment of the Racso Family Trust claim is minimal and proportionate to the risk to Racso that the claim might be made out at trial. It was also appropriate when balanced against the time, cost and risk that would be incurred in litigating the issue and having regard to the amounts involved.
(m) The Entwisle parties contentions in the Directions Proceeding regarding the Cherry v Boultbee contention and the so-called alter ego doctrine are novel and the amount proposed to be paid in consideration of their abandonment was proportionate and appropriate having regard to the risk, time and cost likely to be involved in litigating the issues and having regard to the amount involved.
[33]Racso’s written submissions at [20]–[29].
Disposition
Having regard to the evidence, the applicable principles, and the matters raised in the written and oral submissions, I am satisfied that it is appropriate in the circumstances to grant the Racso Liquidators approval pursuant to s 477(2B) of the Act to enter into the Deed of Settlement.
First, the application was narrow in scope and was ‘brought purely on the basis that there is some prospect that there are obligations that might endure beyond three months…’.[34] The focus of s 477(2B) is delay and in the current circumstances it may be that the obligations can be performed before the expiry of three months. In any event, on the evidence, any further delays which may arise do not give rise to any material concern. It may also be noted that any such delay would be associated with the Minken liquidation and the directions that it seeks in the Directions Proceeding which is currently part heard.
[34]Transcript 27 March 2019 at 8:23–31.
Second, given the financial position in the Racso liquidation any delay will not prejudice creditors as there is expected to be no return to them. The Racso Liquidators also consider that they will not be prejudiced.
Third, given the complexities and time already associated with the Racso liquidation and its connection with the Minken and Henton liquidations, any further delay would appear to be relatively insubstantial given that liquidators were appointed to Racso on 11 February 2013.
Fourth, it appears unlikely that finalising the liquidation of Racso would occur more swiftly if entry into the Deed of Settlement was not approved. One reason for this is because the Minken Liquidators are seeking directions in the Directions Proceeding regarding, among other things, being justified in dealing with the remaining proceeds of the sale of the Kew Property in the manner contemplated by their application.[35]
[35]See, for example, the Minken Liquidators’ revised list of proposed directions filed in the Directions Proceeding and dated 11 April 2019.
Fifth, the evidence reveals that the Racso Liquidators have exercised rational commercial judgment, taking into account a range of considerations following a judicial mediation and further negotiations, whilst represented by solicitors and senior counsel. On an application of this kind it is appropriate to pay due regard to the Racso Liquidators’ exercise of judgment. As earlier noted, the Court’s approval is not an endorsement of the proposed agreement but is merely permission for the liquidator to exercise his or her own commercial judgment in the matter.
Sixth, the matters taken into account by the Racso Liquidators include advice from solicitors and experienced senior counsel who has also acted for and appeared on behalf of Racso and the Racso Liquidators over an extended period, including in connection with the Directions Proceeding. Having regard to all of the circumstances, and keeping in mind the confined nature of the application and the context in which the conditional agreement was reached and the application was made, it is not of concern in the circumstances of this case that the legal advice was given orally or that its content was not deposed to. It is also to be noted that the Racso Liquidators made careful and detailed submissions regarding what was submitted to be the poor prospects of Racso’s resulting trust claim that is the subject of the compromise and why ‘… the prospects…are marginal at best.’[36]
[36]Racso’s written submissions at [29].
Seventh, the terms of the Deed of Settlement provide for Racso to receive 80 per cent of any dividend paid in the Minken liquidation with the Entwisle parties and Mr Adam McGoldrick sharing equally the remaining 20 per cent. As noted above, the actual amounts involved are relatively small and add further force to the Racso Liquidators’ submissions regarding costs, risk, and the compromise being proportionate.
Eighth, even if it had not been Racso’s position that the prospects of its resulting trust contention were ‘marginal at best’, any additional amount that would be recovered was submitted to be limited in any event.[37]
[37]See, for example, Racso’s written submissions and [15]–[16].
Ninth, if approval is not granted then Racso and the Racso Liquidators will remain involved with ongoing litigation in connection with (at least) the Directions Proceeding with all that this would entail, including time, cost and risk in circumstances where the funds in the Racso Liquidation are unlikely to be sufficient to meet the costs and expenses of the liquidation.
Tenth, although the Deed of Settlement was executed by the Racso Liquidators before the application was made, its operation is ‘… conditional upon Racso obtaining approval to enter into [the Deed of Settlement] pursuant to section 477(2B) of the Corporations Act 2001 (Cth) and [the Deed of Settlement] shall have no force or efficacy unless and until such approval is granted or obtained.’[38] In any event, approval can be granted pursuant to s 477(2B) of the Act after an agreement has been entered into.[39]
[38]Clause 3.1 of the Deed of Settlement.
[39]See paragraph 22 above and note 21.
Eleventh, on the material before me I am satisfied that there does not appear to be any basis for suspecting bad faith, impropriety, or error of law.
Twelfth, no application has been made by the Racso Liquidators for directions (or approval) under any other provision of the Act and therefore considerations relevant only to applications of that kind do not fall to be considered.
Thirteenth, the Racso Liquidators informed the creditors in the Racso liquidation of the application and the proposed compromise[40] and provided them with a copy of Mr Crisp’s first affidavit and Racso’s detailed written submissions. Although initially the notice provided to creditors was short, the risk of prejudice was addressed by adjourning the further hearing of the application to 3 May 2019 and directing that the Racso Liquidators inform the creditors in writing of that adjourned date. This occurred and was addressed in Mr Crisp’s second affidavit. As mentioned, no creditors have sought to be heard.
[40]See Racso’s written submissions at [34] and paragraphs 12 and 13 above.
Finally, I observe that because the application was an application made in the Directions Proceeding, it was made on notice to the other parties and, as things transpired, the Minken Liquidators and Mr Adam McGoldrick were separately represented by solicitors and counsel at the hearing of the application.[41] In these circumstances, and having regard to the background and the other considerations mentioned above, including the notice to creditors and the involvement of, and communications with, the parties connected with the Directions Proceeding,[42] I do not consider that the absence of a contradictor on this application to be an impediment to, or to militate against, the granting of approval in this case. [43]
[41]On the first day. They were also represented on the second day of the hearing, and the Entwisle parties were represented by solicitors and senior counsel at that time also.
[42]See, for example, the Minken Liquidators’ document headed ‘Notice Position of Parties Not Presently before the Court’ dated 12 March 2019.
[43]See generally in this regard the observations made by Sifris J about the role of contradictors in Lewis at [46]–[67].
Conclusion
It is appropriate to grant the Racso Liquidators retrospective approval pursuant to s 477(2B) of the Act to enter into the Deed of Settlement. Subject to hearing any further submissions regarding the precise form of order, it is proposed to make an order to that effect.
SCHEDULE OF PARTIES
S ECI 2017 00214
| MINKEN PTY LTD (IN LIQUIDATION) (ACN 109 844 537) | First Plaintiff |
| HENTON PTY LTD (IN LIQUIDATION) (ACN 050 025 431) | Second Plaintiff |
| SIMON ALEXANDER WALLACE-SMITH AND ROBERT SCOTT WOODS IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF MINKEN PTY LTD (IN LIQUIDATION) (ACN 109 844 537) AND HENTON PTY LTD (IN LIQUIDATION) (ACN 050 025 431) | Third Plaintiff |
| - and - | |
| TIMOTHY JOHN ENTWISLE | First Defendant |
| BARAMAN HOLDINGS PTY LTD (ACN 073 104 551) | Second Defendant |
| CIVILENG CONSTRUCTIONS PTY LTD (IN LIQUIDATION) (ACN 006 901 195) | Third Defendant |
| RACSO PTY LTD (IN LIQUIDATION) (ACN 007 107 523) | Fourth Defendant |
| ADAM MCGOLDRICK | Fifth Defendant |
| ZIDO PTY LTD (ACN 006 520 672) | Sixth Defendant |
Date: 3 May 2019
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