In the matter of Swan Services Pty Limited

Swan Services Pty Limited was the subject of a winding-up application, and the liquidators sought approval to enter into an agreement with a litigation funder. The matter was heard in the Federal Court of Australia. The primary dispute centred around the liquidators' authority to engage with the litigation funder under section 477(2B) of the Corporations Act 2001. The key issue before the court was whether the proposed agreement would unduly extend the liquidation process. The liquidators argued that the agreement would not unnecessarily prolong the liquidation, despite the likelihood of an already protracted process, as the litigation was already well underway. Moreover, the agreement transferred the litigation risks to the funder, which was reflected in the liquidator's remuneration.

The court examined the nature of the proposed agreement and its potential impact on the liquidation process. The court found that the liquidators had not demonstrated that the agreement would avoid unnecessary or inappropriate prolongation of the liquidation, given that the liquidation was already expected to be lengthy. The court also considered the fact that the litigation was well advanced, which further undermined the liquidators' argument that the agreement was necessary to expedite the process. The court found that the agreement transferred the litigation risks to the funder, which was appropriately reflected in the liquidator's remuneration. The court also noted that the Committee of Inspection had unanimously rejected the agreement and that the liquidators had failed to give notice of the application for approval to the Committee of Inspection, which was a procedural error. The court ultimately determined that the liquidators had not met the threshold for approval under section 477(2B) of the Corporations Act 2001.

The court rejected the liquidators' application for approval of the agreement with the litigation funder. The court's decision was based on the finding that the agreement would not avoid unnecessary or inappropriate prolongation of the liquidation, given the already protracted nature of the process and the advanced stage of the litigation. The court also considered the procedural error of not giving notice to the Committee of Inspection. The members of the Committee of Inspection were given leave to apply to set aside the court's order, which may lead to further proceedings in the case. The court's decision emphasised the importance of adhering to the requirements of section 477(2B) of the Corporations Act 2001 and the need for liquidators to carefully consider the potential impact of agreements with litigation funders on the liquidation process.