In the matter of Swan Services Pty Limited
[2015] NSWSC 2099
•10 August 2015
|
New South Wales |
Case Name: | In the matter of Swan Services Pty Limited |
Medium Neutral Citation: | [2015] NSWSC 2099 |
Hearing Date(s): | 10 August 2015 |
Date of Orders: | 10 August 2015 |
Decision Date: | 10 August 2015 |
Before: | Brereton J |
Decision: | Liquidator given approval to enter into agreement with litigation funder on behalf of the second to eighth plaintiffs. |
Catchwords: | CORPORATIONS – winding up – liquidators – power of liquidator to enter into agreement with litigation funder – approval by Court under (CTH) Corporations Act 2001, s 477(2B) – whether agreement would unnecessarily and inappropriately protract liquidation – where liquidation likely to be protracted in any case – where relevant litigation already well-advanced – where agreement transfers risk to litigation funder – reflection of transfer of risk in liquidator’s remuneration – where Committee of Inspection unanimously rejected agreement – where notice of application for approval not given to Committee of Inspection – members of Committee given leave to apply to set aside Court’s order. |
Legislation Cited: | (CTH) Corporations Act 2001, s 477(2B) |
Category: | Procedural and other rulings |
Parties: | Anthony Wayne Elkerton in his capacity as liquidator of Swan Services Pty Limited (in liquidation) ACN 000 699 990 (first plaintiff) |
Representation: | Counsel: |
File Number(s): | 2015/234145 |
JUDGMENT (EX TEMPORE)
HIS HONOUR: The liquidator of Swan Services Pty Limited and seven subsidiaries of that company applies to the Court for approval pursuant to (CTH) Corporations Act 2001, s 477(2B), to enter into a funding agreement on behalf of the companies with a litigation funder in connection with proceedings between the companies and a person who is alleged to have been a de facto director of the companies. The Court's approval is required because it is said that the term of the agreement is likely to end or obligations of the agreement to be discharged by performance more than three months after it is entered into.
It is important that it be understood that in giving an approval under s 477(2B), the Court is not giving judicial advice that the liquidator would be justified in entering into the agreement, nor approving the agreement as an appropriate one for the liquidator to enter into, but merely conferring on the liquidator the power to enter into it which power, by reason of the limitation contained in s 477(2B), does not otherwise exist. While it is conventional on such an application to examine the agreement, to some extent, to see that it is not patently prima facie inappropriate to extend the time for that purpose, the Court's role is a limited one, and the prime consideration is whether approving such an agreement would unnecessarily and inappropriately extend the duration of the liquidation.
The evidence establishes that this liquidation is likely to continue for some considerable time, particularly given the pendency of potential claims against the company by former employees, and indemnity claims which may not crystallise until 2019. The litigation in respect of which the funding agreement is sought is already on foot and well-advanced, and even if approval were not given, is likely to continue at least to some extent for some time yet.
I am satisfied that entry into the agreement will not inappropriately nor unnecessarily prolong or protract the liquidation.
I have however been troubled by two matters, although I do not think ultimately that they necessitate declining the application.
The first is that it seems to me at least marginal whether this is a course the liquidator needs to pursue in order to sustain the litigation. Even if it is necessary, it involves a substantial transfer of risk by the liquidator to the litigation funder and, to the extent that a liquidator's remuneration should reflect the risk undertaken by the liquidator, the fact that the liquidator is transferring that risk elsewhere to a funder should be reflected in due course in moderation of the liquidator's remuneration.
Secondly, the members of the Committee of Inspection of the second plaintiff who were asked to consider the proposal, unanimously rejected it. Their reasons for that course were sought by the liquidator but not given. It is not apparent what those reasons might or could have been. However, the members of the Committee of Inspection have not been given notice of the present application, and as they effectively represent the creditors' interest and have indicated opposition to the course proposed by the liquidator, they ought to be given notice of an application such as this, and an opportunity to be heard on it. On this occasion, I will accommodate that by reserving to them leave to apply to set aside the Court's order.
Upon the undertaking of Kirsten Pearl Farmer to pay the appropriate filing fees, I grant leave to the plaintiff to file an originating process in the form initialled by me, dated this day and placed with the papers. I direct that the originating process be returnable instanter.
The Court orders that:
(1)The first plaintiff, as liquidator of the second, third, fourth, fifth, sixth, seventh and eighth plaintiffs, has approval to enter into a funding agreement on behalf of the plaintiffs on terms not materially different to those set out in either of:
(a)the funding proposal at page 57 of confidential Exhibit AE-1 to the affidavit of Anthony Elkerton, sworn 7 August 2015;
(b)the funding proposal at page 93 of confidential Exhibit AE-1 to the said affidavit.
(2)Confidential Exhibit AE-1 and the plaintiff's outline of submissions on the application be placed in a sealed envelope marked "Confidential" and not be accessed for inspection without an order of a Judge or Registrar of the Court and not to be made available for inspection except so far as the Court otherwise orders, any application to inspect the same to be referred to a Judge or Registrar and seven days' notice thereof to be provided to the solicitors for the first plaintiff.
(3)Costs of the application be costs in the winding up of the second, third, fourth, fifth, sixth, seventh and eighth plaintiffs.
(4)The liquidator give notice of this order to the members of the Committee of Inspection of the second plaintiff and the creditors of the third, fourth, fifth, sixth, seventh and eighth plaintiffs.
(5)The said members and creditors have liberty to apply within 21 days after service of such notice to vary or set aside these orders.
(6)In the case of the creditors of the third, fourth, fifth, sixth, seventh and eighth plaintiffs, such notice shall be sufficiently given by publication thereof on the liquidator's website in an appropriate place relevant to those companies and notification to the industrial union that represents the interests of the employees of those creditors.
**********
0
0
1