In the Matter of the Pindan Group [No 6]
[2023] WASC 408
•27 OCTOBER 2023
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: IN THE MATTER OF THE PINDAN GROUP [No 6] [2023] WASC 408
CORAM: STRK J
HEARD: 25 OCTOBER 2023
DELIVERED : 25 OCTOBER 2023
PUBLISHED : 27 OCTOBER 2023
FILE NO/S: COR 102 of 2021
EX PARTE
VINCENT ANTHONY SMITH, COLBY RHYS O'BRIEN AND SAMUEL JOHN FREEMAN, as joint and several receivers of PINDAN CAPITAL EAST PERTH PTY LTD (receivers appointed) ACN 602 041 243 and 52 LORD STREET PTY LTD (receivers appointed) ACN 601 472 904 and as joint and several liquidators of PINDAN CAPITAL PTY LTD (IN LIQUIDATION) ACN 139 599 652
Applicants
Catchwords:
Corporations - External administration - Application by joint and several liquidators and court appointed joint and several receivers for an order pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) - Whether the applicants would be justified in entering into and giving effect to a deed of settlement and release - Issue calls for exercise of legal judgment
Legislation:
Corporations Act 2001 (Cth) sch 2 (Insolvency Practice Schedule (Corporations)) s 90-15
Rules of the Supreme Court 1971 (WA) O 67B r 5(b)
Result:
Application granted
Category: B
Representation:
Counsel:
| Applicants | : | D Weinberger |
Solicitors:
| Applicants | : | Squire Patton Boggs |
Case(s) referred to in decision(s):
Ao Qing Investment Pty Ltd v 52 Lord St East Perth Pty Ltd [2022] FCA 743
Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 268 CLR 524
Ex parte Frigger [2020] WASC 365
GDK Projects Pty Ltd, Re Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541
Mitchell (Liquidator) v Fowler, in the matter of WITS Holdings Pty Ltd (In Liquidation) [2023] FCA 1231
Nipps (Admin) v Remagen Lend ADA Pty Ltd, Re Adaman Resources Pty Ltd (Admin Apptd) (No 4) [2021] FCA 644
Re A.C.N 004 410 833 Limited (formerly Arrium Limited) (in Liquidation) [2021] NSWSC 799
Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409
Re Autocare Services [2021] FCA 167
Re Broens Pty Ltd (in liq) [2018] NSWSC 1747
Re Community Work Pty Ltd (in liq) [2018] FCA 425
Re Equititrust Limited (in Liquidation) (Receiver Appointed) [2019] FCA 1063
Re Fund Options (Australia) Pty Ltd (in liq) [2020] FCA 1256
Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674
Re GGA Lifestyle Pty Ltd (Administrators Appointed); Ex Parte Woodhouse [2019] WASC 167
Re Great Southern Managers Australia Ltd (in liq) [2014] WASC 312
Re Halifax Investment Services Pty Ltd (No 8) [2020] FCA 533; (2020) 144 ACSR 292
Re Hawden Property Group Pty Ltd (in liq) [2018] NSWSC 481; (2018) 125 ACSR 355
Re HIH Insurance and related matters [2004] NSWSC 5
Re Nexus Energy Ltd [2014] NSWSC 1041
Re Octiviar Administration Pty Ltd (in liq) (2015) 107 ACSR 1; [2015] NSWSC 516
Re ONE.TEL Ltd [2014] NSWSC 457
Re Pindan Group Pty Ltd (Administrators Appointed) [2021] WASC 347
Re Pindan Group Pty Ltd (Administrators Appointed) [No 2] [2021] WASC 358
Re Pindan Group Pty Ltd (Administrators Appointed) [No 3] [2021] WASC 480
Re Pindan Group Pty Ltd (Administrators Appointed) [No 4] [2022] WASC 143
Re Pindan Group Pty Ltd (Administrators Appointed) [No 5] [2022] WASC 469
Re Poles & Underground Pty Ltd (Admin Apptd) [2017] FCA 486
Re Queensland Nickel Pty Ltd (in liquidation) (No 2) [2022] FCA 101
Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83
Re Union Standard International Group Pty Ltd (Administrators appointed) (No 2) [2020] FCA 1111
Rubix Investments Group Pty Ltd [2018] NSWSC 1184
STRK J:
Introduction
The Pindan group of companies is primarily a Western Australian property and construction group. Samuel John Freeman, Colby Rhys O'Brien and Vincent Anthony Smith were appointed as joint and several liquidators of nine related entities, and are the joint and several deed administrators of Pindan Group Pty Ltd (subject to deed of company arrangement), and Pindan Contracting Pty Ltd (subject to deed of company arrangement). They were formerly administrators and deed administrators of Pindan Asset Management Pty Ltd. Relevantly, they are the joint and several receivers of Pindan Capital East Perth Pty Ltd (receivers appointed) (PCEP) and 52 Lord St East Perth Pty Ltd (receivers appointed) (52 Lord St), and the joint and several liquidators of Pindan Capital Pty Ltd (in liquidation) (PCAP).
Since June 2021, Mr Freeman, Mr O'Brien and Mr Smith have sought various forms of relief and directions from the court by applications made in the proceeding known as COR 102 of 2021.[1]
[1] Including orders made for the reasons published in Re Pindan Group Pty Ltd (Administrators Appointed) [2021] WASC 347; Re Pindan Group Pty Ltd (Administrators Appointed) [No 2] [2021] WASC 358; Re Pindan Group Pty Ltd (Administrators Appointed) [No 3] [2021] WASC 480; Re Pindan Group Pty Ltd (Administrators Appointed) [No 4] [2022] WASC 143; and Re Pindan Group Pty Ltd (Administrators Appointed) [No 5] [2022] WASC 469.
By an interlocutory process filed on 27 September 2023, Mr Freeman, Mr O'Brien and Mr Smith as the joint and several receivers of PCEP and 52 Lord St, and the joint and several liquidators of PCAP (together the applicants) seek, among other things, a direction pursuant to s 90‑15 of the Insolvency Practice Schedule (Corporations), which is sch 2 to the Corporations Act 2001 (Cth). The application primarily concerns the question of whether the applicants are justified in entering into a deed of settlement and release (which in these reasons is described as the Receivers' Settlement Deed).
For the reasons set out below I am prepared to grant the relief pressed on behalf of the applicants. The orders made at the conclusion of the hearing are reproduced at sch A to these reasons.
Evidence
Counsel refers to and reads five affidavits in support of the application.
27 September 2023 affidavit of Mr Freeman
The first is an affidavit sworn by Mr Freeman on 27 September 2023, which is marked confidential and to which Mr Freeman annexed documents marked SJF‑1 to SJF‑7. The annexures include a copy of the Receivers' Settlement Deed.
Among other things, Mr Freeman deposes to his experience in the area of corporate insolvency; the basis for seeking an order that his affidavit be treated as confidential; the background and circumstances giving rise to this application; the key terms of Receivers' Settlement Deed; and that he has formed the view that it is in the interests of the creditors of PCEP and PCAP that the applicants enter into and give effect to the Receivers' Settlement Deed, and the basis for the same.
The orders sought by the applicants in the interlocutory process filed on 27 September 2023 include an order that Mr Freeman's affidavit sworn on 27 September 2023, together with its annexures, be treated as confidential and not be published or disclosed except pursuant to an order of the court.
I note that Mr Freeman's affidavit and the documents annexed contain confidential information including the terms of the Receivers' Settlement Deed; legal advice received by the applicants on potential available claims which is the subject of legal professional privilege; and details of the potential claims including the risks, limitations and issues faced by the applicants in prosecuting and defending proceedings in the Federal Court of Australia (which proceedings are described below).
Mr Freeman is concerned that if the confidential information contained in his affidavit was disclosed to third parties or the public, the potential settlement the subject of this application would be seriously prejudiced. Further, he is concerned that if the court is not minded to grant the relief sought in this application and the Federal Court proceedings are prosecuted and defended, the matters outlined and disclosed in his affidavit would significantly prejudice and adversely impact the applicants' ability to prosecute and defend the proceedings.
I note that three of the seven documents annexed to Mr Freeman's affidavit are not confidential nor sensitive. They are Mr Freeman's curriculum vitae; the liquidators of PCAP's statutory report to creditors pursuant to r 70‑40 of the Insolvency Practice Schedule (Corporations) dated 18 August 2021; and the reasons for decision of Jackson J in Federal Court proceeding NSD 1169 of 2020, which reasons were published on 4 July 2022: Ao Qing Investment Pty Ltd v 52 Lord St East Perth Pty Ltd [2022] FCA 743. I note that these three annexures are readily available to persons interested in the same.
Despite this, I am satisfied that Mr Freeman's affidavit does contain confidential information, and it is appropriate to restrict access to it. I will make an order that the content of Mr Freeman's affidavit of 27 September 2023 may not be published or disclosed except pursuant to an order of the court on notice to the applicants.
These reasons have been prepared so as to not disclose the substance of the confidential information before the court and which I weigh in the balance in the determination of the application.
19 June 2023 affidavit of Mr Freeman
The second is the affidavit sworn by Mr Freeman on 19 June 2023, to which Mr Freeman annexed documents marked SJF‑1 to SJF‑11. The affidavit was filed on 20 June 2023 in support of an interlocutory process filed on behalf of the applicants in this proceeding on 20 June 2023 by which the applicants sought certain declarations and directions.
Among other things, in his affidavit of 19 June 2023 Mr Freeman deposes to his appointment and the appointment of Mr O'Brien and Mr Smith to various entities that form part of the Pindan group of companies from 18 May 2021; the incorporation of PCAP, PCEP and 52 Lord St; the shareholding of 52 Lord St; the 52 Lord St Shareholders Agreement and what he says is the effect of that agreement; his belief that the paid‑up capital in 52 Lord St is held by Ao Qing Investment Pty Ltd (33.10%) and by PCEP (66.90%); there being a dispute as between PCEP and Ao Qing Investment, the shareholders of 52 Lord St; proceedings having been commenced in the Federal Court by Ao Qing Investment against PCEP and PCAP with respect to issues arising out of the shareholding in 52 Lord St; the proceeding commenced in the Federal Court by PCEP and PCAP seeking, among other things, declaratory relief concerning the 52 Lord St Shareholder Agreement; the applications made in the Federal Court for leave to bring derivative proceedings in the name of 52 Lord St pursuant to s 237 of the Corporations Act by Ao Qing Investment and PCEP, and to leave being granted to each of the shareholders on 4 July 2022; negotiations and a mediation having taken place between Ao Qing Investment and PCEP which led to a purported agreement regarding the settlement and dismissal of the Federal Court proceedings and the preparation of a document titled 'Settlement and Release Deed ‑ Commercial' (which in these reasons is described as the Purported Settlement Deed); the terms of the Purported Settlement Deed; the appointment of Mr Freeman, Mr O'Brien and Mr Smith as joint and several receivers of the property of PCEP by order of the Federal Court on 2 March 2023; the appointment of Mr Freeman, Mr O'Brien and Mr Smith as joint and several receivers of the property of 52 Lord St by order of the Federal Court on 24 March 2022; the sale of only real asset of 52 Lord St, being the property situated at 52 Lord Street, East Perth (52 Lord St Property), and settlement of that sale on 31 March 2023; the investigations undertaken by the applicants; and the basis for the applicants seeking orders from this court in relation to the enforceability of the Purported Settlement Deed (that is, part of the relief sought on behalf of the applicants in the interlocutory process filed on 20 June 2023).
26 June 2023 affidavit of Mr Freeman
The third is the affidavit sworn by Mr Freeman on 26 June 2023, to which Mr Freeman annexed documents marked SJF‑1 to SJF‑42.
Again, the affidavit was filed on 27 June 2023 in support of the interlocutory process filed on behalf of the applicants in this proceeding on 20 June 2023 by which the applicants sought certain declarations and directions in relation to, among other things, the enforceability of the Purported Settlement Deed. It having become apparent to Mr Freeman that AO Qing Investment would take a contrary position to that application and oppose the relief sought, Mr Freeman said that he made his further affidavit to supplement the matters raised in his affidavit of 19 June 2023. Inclusive of annexures, Mr Freeman's affidavit of 26 June 2023 is over 1700 pages.
Among other things, Mr Freeman further describes and deposes to background information as to PCAP, PCEP, 52 Lord St and Ao Qing Investment; the 52 Lord St Shareholders Agreement and matters of corporate governance; requests having been made of the current purported directors of 52 Lord St and PCEP for various corporate documents; what he understands to be the capital contributions made by the shareholders of 52 Lord St and to the investigations undertaken by the applicants with respect to the same; to the requests made on behalf of PCAP for further information in relation to the request made of PCAP that it enter into a settlement deed which among other things contemplated releases being granted in favour of Ao Qing Investment, 52 Lord St and PCEP, and the dismissal of the Federal Court proceedings; to the concerns raised on behalf of PCAP as to whether the current purported directors of PCEP were validly appointed and could bind PCEP; to Mr Freeman having formed the view that the Purported Settlement Deed was not validly executed or enforceable and the basis for having formed that view; the background to the appointment of Mr Freeman, Mr O'Brien and Mr Smith as joint and several receivers of the property of PCEP and 52 Lord St; Mr Freeman's views as to the likely future of 52 Lord St and PCEP following a final distribution of funds; Mr Freeman's preliminary view in respect of the date of insolvency of PCEP and the basis for the same; and the applicants' (then) proposed next steps.
6 July 2023 affidavit of Mr Zaki
The fourth is the affidavit of Masiullah Zaki sworn on 6 July 2023. Mr Zaki is a partner of Squire Patton Boggs and acts for the applicants in this proceeding. He annexed to his affidavit documents marked MZ‑1 to MZ‑5. The affidavit was filed on 6 July 2023 in support of the interlocutory process filed on behalf of the applicants in this proceeding on 20 June 2023 by which the applicants sought certain declarations and directions.
Among other things, Mr Zaki annexed to his affidavit a copy of the supplementary report prepared by the joint and several receivers appointed to the property of PCEP pursuant to the orders of the Federal Court made on 2 March 2023; described the approach adopted by the joint and several liquidators of PCAP in the Federal Court proceedings; and deposed to notice having been given to all known creditors and interested parties of 52 Lord St and PCEP of the interlocutory process filed on behalf of the applicants on 20 June 2023.
24 October 2023 affidavit of Mr Freeman
The fifth is the affidavit of Mr Freeman sworn on 24 October 2023 in support of this application to which Mr Freeman annexed documents marked SJF‑1 to SJF‑4.
Among other things, Mr Freeman deposes to notice of the court's orders made on 12 September 2023 having been provided on 14 September 2023 to all known creditors and interested parties of PCEP and 52 Lord St, as contemplated by those orders; to notice of the interlocutory process filed on 27 September 2023 and the court's orders made on 12 September 2023 having been provided on 11 October 2023 to all known creditors of PCAP; to his belief that as at 24 October 2023 no creditor or interested party of PCAP, PCEP or 52 Lord St had responded to the notice given, raised any issue or indicated that they wished to be heard with respect to this application.
Circumstances that give rise to the application
The context in which the application is pressed is described below, sourced from the outline of submissions filed on behalf of the applicants on 18 October 2023, and the affidavits read in support of this application.
At the hearing of this application, counsel also moved for an order that the outline of submissions be treated as confidential and not published or disclosed except pursuant to an order of the court. I am satisfied that the submissions filed in support of the application contain some confidential information, and it is appropriate to restrict access to it. Again, these reasons have been prepared so as not to disclose the substance of the confidential information contained in the outline of submissions.
PCAP was incorporated on 22 September 2009, and focused on the identification and establishment of property development projects. PCAP has interests in several companies, which are predominately 100% controlled through special purpose vehicle entities.[2] On 18 May 2021, Mr Freeman, Mr O'Brien and Mr Smith were appointed joint and several liquidators of PCAP.[3]
[2] Affidavit of SJ Freeman sworn 19 June 2023, SJF-9, page 113.
[3] Affidavit of SJ Freeman sworn 19 June 2023 par 6.
PCEP was incorporated on 26 August 2014. PCAP owns 100% of the shares in PCEP.[4] PCEP's primary asset is its shareholding in 52 Lord St, and operated as a Managed Investment Scheme.[5]
[4] Affidavit of SJ Freeman sworn 19 June 2023 par 11.
[5] Affidavit of SJ Freeman sworn 19 June 2023 par 14.
52 Lord St was incorporated on 26 September 2014 and acquired the Lord Street Property on 6 November 2014.[6] 52 Lord St's shareholders are PCEP and AO Qing Investment.[7]
[6] Affidavit of SJ Freeman sworn 19 June 2023 par 17, SJF‑3, page 40.
[7] Affidavit of SJ Freeman sworn 19 June 2023, SJF-9, page 113.
On about 26 October 2020, Ao Qing Investment commenced proceedings in the Federal Court against PCEP and PCAP for issues arising out of the shareholding in 52 Lord St.
On 8 December 2020, PCEP and PCAP commenced proceedings in the Federal Court, seeking, inter alia, declaratory relief concerning a document which is described as the 52 Lord St Shareholder Agreement. Among other things, I understand that the document contemplates that PCEP is a majority 70% shareholder and Ao Qing Investment is a minority 30% shareholder in 52 Lord St.[8]
[8] Affidavit of SJ Freeman sworn 19 June 2023 par 12(c), SJF-11.
I understand that the applicants in their capacity as the joint and several liquidators of PCAP decided to take a limited role in the Federal Court proceedings from approximately October 2022 onwards due to limited funding.[9]
[9] Affidavit of SJ Freeman sworn 19 June 2023 par 28; affidavit of M Zaki sworn 6 July 2023 par 9.
PCEP and Ao Qing Investment each filed an application in the Federal Court seeking leave to bring derivative proceedings in the name of 52 Lord St pursuant to s 237 of the Corporations Act.
The background to the dispute which ultimately led to PCEP's derivative claim and Ao Qing Investment's derivative claim was described by Jackson J in Ao Qing Investment Pty Ltd v 52 Lord St East Perth Pty Ltd at [4] to [34]. His Honour also described the proposed derivative claims and the relief sought by each party at [35] to [43] of his Honour's reasons. Leave was granted to each of the shareholders to bring derivative proceedings on 4 July 2022.[10]
[10] Affidavit of SJ Freeman sworn 19 June 2023 par 25, SJF-5.
On 2 March 2023, by order of the Federal Court, Mr Freeman, Mr O'Brien and Mr Smith were appointed joint and several receivers of the property of PCEP.[11] The purpose of the appointment of the receivers to the property of PCEP was to do the following on behalf of and in the interests of PCEP:[12]
(a) all things necessary to complete the sale of the Asset on or before 30 March 2023 pursuant to the contract for sale of land between 52 Lord Street Pty Ltd and Lord Street Sub Pty Ltd entered into on 25 November 2022 (Contract);
(b) after completion of the Contract, and in accordance with court directions, apply any proceeds from the sale of the Asset that have become part of the Receivership Property to discharge the liabilities of PCEP; and
(c) otherwise act in accordance with and give effect to these orders.
[11] Affidavit of SJ Freeman sworn 19 June 2023 par 35, SJF‑7, page 95.
[12] Affidavit of SJ Freeman sworn 19 June 2023, SJF-7, page 96.
For the purpose of the orders made on 2 March 2023, 'Asset' was defined to mean the land at 52 Lord Street, East Perth WA 6004, held by 52 Lord St (that is, the Lord Street Property).
On 24 March 2023, by order of the Federal Court, Mr Freeman, Mr O'Brien and Mr Smith were appointed as joint and several receivers of the property of 52 Lord St.[13] The purpose of the appointment of the receivers to the property of 52 Lord St was to do the following on behalf of and in the interests of 52 Lord St:[14]
(a) all things necessary to complete the sale of the Asset on or before 30 March 2023 pursuant to the contract for sale of land between 52 Lord PL and Lord Street Sub Pty Ltd entered into on 25 November 2022 (Contract);
(b) at settlement of the Contract, do all things necessary to ensure the mortgagee of 52 Lord PL is paid out in full and all costs of sale associated with the Contract, including without limitation, the commission, advertising and conveyancing fees are paid out in full as settlement adjustments, with any surplus funds to be paid into a trust account (Trust Account) held by the Receivers pending further court order;
(c) after completion of the Contract, and in accordance with court directions, apply any proceeds from the sale of the Asset that have become part of the Receivership Property to discharge the liabilities of, or satisfy the interests in, 52 Lord PL; and
(d) otherwise act in accordance with and give effect to these orders.
[13] Affidavit of SJ Freeman sworn 19 June 2023, SJF-8.
[14] Affidavit of SJ Freeman sworn 19 June 2023, SJF-8.
Again, for the purpose of the orders made on 24 March 2023, 'Asset' was defined to mean the land at 52 Lord Street, East Perth WA 6004, held by 52 Lord St (that is, the Lord Street Property).
The sale of the Lord Street Property settled on 31 March 2023 for $11,502,000.[15] The mortgage was discharged, and there is a surplus of about $7.6 million. That surplus is held by Mr Freeman, Mr O'Brien and Mr Smith as the receivers of 52 Lord St in a trust account with Macquarie Bank.[16]
[15] Affidavit of SJ Freeman sworn 27 September 2023 par 18.
[16] Affidavit of SJ Freeman sworn 19 June 2023, SJF‑9, page 119.
Ao Qing Investment was incorporated on 23 September 2014.[17]
[17] Affidavit of SJ Freeman sworn 19 June 2023, SJF‑4, page 47.
The appointment of receivers by the Federal Court in respect of both PCEP and 52 Lord St was in connection with the Federal Court proceeding known as NSD 1169 of 2020 brought by AO Qing Investment as a result of a dispute which had arisen in respect of respective shareholdings in 52 Lord St.[18] In issue as between PCEP and Ao Qing Investment has been their proportionate entitlement to the $7.6 million surplus.
[18] Affidavit of SJ Freeman sworn 19 June 2023, SJF-9, page 109.
Ao Qing Investment asserted that while it owns 30% of the issued shares in 52 Lord St, it was entitled, pursuant to a purported agreement entered into in September 2022, to 50% of the $7.6 million surplus. The agreement upon which Ao Qing Investment relied was said to be recorded in a document styled 'Settlement and Release Deed - Commercial' (described in these reasons as the Purported Settlement Deed). While the Purported Settlement Deed bears the date 5 August 2022, I am informed by the applicants that it is common ground that it was executed on 20 September 2022. The parties to the Purported Settlement Deed were PCEP, Ao Qing Investment and 52 Lord St.
By an interlocutory process filed in this proceeding (known as COR 102 of 2021) on 20 June 2023 (which was later amended), declarations and directions were sought by Mr Freeman, Mr O'Brien and Mr Smith in relation to the Purported Settlement Deed, and as to the manner of distribution of the property, assets and undertakings of 52 Lord St.
Mr Freeman deposed that the overarching purpose of that application was to determine the interests and entitlements of Ao Qing Investment and PCEP to the 'Assets' (as defined in the 24 March Orders) of 52 Lord St, that is, the Lord St Property; and following the determination of the application, he would be able to present proposed distribution waterfalls for shareholders, less any other approved distributions (including creditor claims) and the receivers' remuneration and costs.[19]
[19] Affidavit of SJ Freeman sworn 26 June 2023 par 113.
By orders made in the proceeding on 30 June 2023 pursuant to O 18 r 4 of the Rules of the Supreme Court, Mr Freeman, Mr O'Brien and Mr Smith in their capacity as joint and several receivers of PCEP were joined as second plaintiff; Mr Freeman, Mr O'Brien and Mr Smith in their capacity as joint and several receivers of 52 Lord St were joined as third plaintiff; and Ao Qing Investment was joined as the fifth defendant. (No joinder order was sought with respect to PCAP. A review of the court record reveals that PCAP had been named a plaintiff since 8 April 2022 upon the filing of an interlocutory process in COR 102 of 2021 which, among other things, concerned the liquidation of nine related Pindan entities.)
Only one aspect of the interlocutory process filed on 20 June 2023 (as amended) was programmed to a contested hearing. Ao Qing Investment maintained that the Purported Settlement Deed was binding and enforceable. While the applicants sought various declarations and directions by the interlocutory process filed on 20 June 2023, the sole question that was to be the subject of the hearing on 12 and 13 September 2023 was the applicants' application for a declaration that the Purported Settlement Deed was not binding and enforceable.[20]
[20] Amended interlocutory process filed 28 June 2023 par 5(a); order 2 of the orders made on 30 June 2023; and order 6 of the orders made on 12 July 2023.
By an email communication received at 7.18 pm on 11 September 2023, the court was informed that a conditional settlement had been reached as between the applicants and Ao Qing Investment, subject to Mr Freeman, Mr O'Brien and Mr Smith obtaining various court approvals in their capacity as the receivers of PCEP and 52 Lord St. Instead of hearing the applicants' application for a declaration concerning the Purported Settlement Deed, at the request of the applicants and Ao Qing Investment on 12 September 2023 the court made various programming orders, including orders for the filing of this application and supporting materials. The applicants' interlocutory process filed 20 June 2023 (as amended) was otherwise adjourned for hearing on 23 and 24 November 2023.[21]
[21] Order 5 of the orders made on 12 September 2023.
The applicants' position
Counsel for the applicants submitted that in all of the circumstances, the court should make the orders sought in the interlocutory process filed on 27 September 2023. That is:
(a)an order that Mr Freeman's affidavit sworn 27 September 2023, together with its annexures, be treated as confidential and not be published or disclosed except pursuant to an order of the court;
(b)an order pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) that the applicants are justified in entering into and giving effect to the Receivers' Deed of Settlement which is substantially in the same form as appears at SJF‑6 (pages 158 to 174) to the affidavit of Mr Freeman sworn 27 September 2023;
(c)orders which compel the applicants to give notice of the orders made to creditors of PCEP, 52 Lord St and PCAP, so as to grant any person who can demonstrate sufficient interest to modify or discharge the orders an opportunity to apply to modify or discharge the orders; and
(d)an order that the applicants' costs of, and incidental to the interlocutory process filed on 27 September 2023 be costs and expenses in the external administration of each of the 'plaintiff companies', and paid out of the assets of those companies.
Counsel also moved for confidentiality orders with respect to the submissions filed on behalf of the applicants in support of this application and the transcript of the hearing of this application.
Applicable legal principles - directions pursuant to s 90-15(1) of the Insolvency Practice Schedule (Corporations)
Division 90 of the Insolvency Practice Schedule (Corporations) concerns the review of an external administration of a company, which may be undertaken by the court (div 90 subdiv B), or by another registered liquidator (div 90 subdiv C). The court is afforded wide powers to inquire into the external administration of a company and s 90‑15(1) of the Insolvency Practice Schedule (Corporations) provides a source of power for the court to make orders. A receiver of property of a corporation and a liquidator of a corporation both have, among others, standing to apply for orders pursuant to s 90‑15.[22]
[22] Section 90-20(1)(d) of the Insolvency Practice Schedule (Corporations), read with s 9 of the Corporations Act (pars (c) and (f) of the definition of 'officer').
While the court's power under s 90‑15(1) of the Insolvency Practice Schedule (Corporations) is 'very broad',[23] the ambit of s 90‑15 has not yet been fully considered by the authorities.[24]
[23] Re Halifax Investment Services Pty Ltd (No 8) [2020] FCA 533; (2020) 144 ACSR 292 [51] (Gleeson J), cited by Stewart J in Re Union Standard International Group Pty Ltd (Administrators appointed) (No 2) [2020] FCA 1111 [7].
[24] Re Broens Pty Ltd (in liq) [2018] NSWSC 1747 [39] (Gleeson J); see also Re Hawden Property Group Pty Ltd (in liq) [2018] NSWSC 481; (2018) 125 ACSR 355 [7] ‑ [8] (Gleeson JA), cited in Ex parte Frigger [2020] WASC 365 [12] (Allanson J).
The court may make such orders as it thinks fit in relation to the external administration of a company,[25] and s 90‑15(3) gives examples of the types of orders that the court may make under s 90‑15(1). This includes an order determining any question arising in the external administration of the company.[26] Further, s 90‑15(3)(a) accommodates the determination of substantive rights, provided appropriate notice has been afforded to potentially affected parties.[27]
[25] Section 90-15(1) of the Insolvency Practice Schedule (Corporations).
[26] Section 90-15(3)(a) of the Insolvency Practice Schedule (Corporations), see Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 268 CLR 524 [166] (Gordon J).
[27] Re Autocare Services [2021] FCA 167 [44] (Farrell J), cited by Banks‑Smith J in Nipps (Admin) v Remagen Lend ADA Pty Ltd, Re Adaman Resources Pty Ltd (Admin Apptd) (No 4) [2021] FCA 644 [37].
In GDK Projects Pty Ltd, Re Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541 at [33], Farrell J recognised the power in s 90‑15(1) to be 'in its terms, unconstrained', but held that 'despite the breadth of the power … it is difficult to envisage circumstances where the power could be exercised if the court could not be satisfied that it would be just and unless the applicant had demonstrated sufficient utility to the external administration'.
When orders under s 90‑15 are sought, regard should also be had to the objects of the Insolvency Practice Schedule (Corporations), reproduced below:[28]
[28] Nipps (Admin) v Remagen Lend ADA Pty Ltd, Re Adaman Resources Pty Ltd (Admin Apptd) (No 4) [24] (Banks‑Smith J).
1-1Objects of this Schedule
(1)The object of this Schedule is to ensure that any person registered as a liquidator:
(a)has an appropriate level of expertise; and
(b)behaves ethically; and
(c)maintains sufficient insurance to cover his or her liabilities in practising as a registered liquidator.
(2)The object of this Schedule is also:
(a)to regulate the external administration of companies consistently, unless there is a clear reason to treat a matter that arises in relation to a particular kind of external administration differently; and
(b)to regulate the external administration of companies to give greater control to creditors.
Section 90‑15(4) contains a non-exhaustive list of matters that the court may take into account in exercising the discretion under s 90‑15.
Section 90‑15 confers power on the court to give directions to administrators that was previously conferred by the now repealed s 477D(1) of the Corporations Act, and to liquidators that was previously conferred by the now repealed s 479(3) of the Corporations Act. As observed by Stewart J in Re Union Standard International Group Pty Ltd (Administrators Appointed) (No 2) at [8]:[29]
The court's power under s 90-15(1) includes a power to give directions about a matter arising in connection with the performance or exercise of an administrator's functions or powers: Reidy, in the matter of eChoice Ltd (Administrators Appointed) [2017] FCA 1582 at [26] - [27] (Yates J). In this respect, s 90-15(1) confers a power to give directions that was previously conferred by ss 447D(1) and 479(3) of the Act concerning administrators and liquidators, respectively: see Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; 93 ALJR 807 at [166] (Gordon J); Reidy at [27] (Yates J); and Kelly (liquidator), in the matter of Australian Institute of Professional Education Pty Ltd (in liq) [2018] FCA 780 at [30] (Gleeson J). The principles governing directions to administrators and those governing directions to liquidators are relevantly analogous: Re Ansett Australia Ltd (No 3) [2002] FCA 90; 115 FCR 409 at [43] (Goldberg J).
[29] See also Rubix Investments Group Pty Ltd [2018] NSWSC 1184 [31] ‑ [32] (Gleeson JA), citing Re HIH Insurance and related matters [2004] NSWSC 5 (Barrett J) and Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 (Giles J).
As to the function of and scope of s 90-15 of the Insolvency Practice Schedule (Corporations) where a direction is sought, I adopt the observation made by Stewart J in Re Union Standard International Group Pty Ltd (Administrators Appointed) (No 2) at [9], which follows the decision of Goldberg J in Re Ansett Australia Ltd (No 3):[30]
The function of a judicial direction of this kind is not to determine rights and liabilities arising out of a particular transaction, but to confer a level of protection on the administrator. An administrator who acts in accordance with a judicial direction, having made full and fair disclosure to the court of the material facts, has 'protection against claims that they have acted unreasonably or inappropriately or in breach of their duty in making the decision or undertaking the conduct' proposed.
[30] Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409 [44] (Goldberg J). See also Re ONE.TEL Ltd [2014] NSWSC 457 [32] (Brereton J); followed in Re Fund Options (Australia) Pty Ltd (in liq) [2020] FCA 1256 [42] (Farrell J).
Whether to exercise the power under s 90‑15 will often be informed by the principles that applied on such an application to the court for directions.[31] The approach of the court on an application for directions by an external administrator are well-established. The court will not give a direction if the direction relates to the making of a business or commercial decision. There must be something more before the court will give a direction. The 'something more' may be a legal issue of substance or procedure or an issue of power, propriety or reasonableness. Put differently, there must exist some issue calling for the exercise of legal judgment.[32]
[31] Re GGA Lifestyle Pty Ltd (Administrators Appointed); Ex Parte Woodhouse [2019] WASC 167 [18] (Vaughan J), citing Re Broens Pty Ltd (in liq) [39] (Gleeson J). See also Re Poles & Underground Pty Ltd (Admin Apptd) [2017] FCA 486 [41] (Gleeson J); and Re Community Work Pty Ltd (in liq) [2018] FCA 425 [45] ‑ [47] (Gleeson J).
[32] Re Ansett Australia Ltd (No 3) [65] (Goldberg J); adopted in Re Nexus Energy Ltd [2014] NSWSC 1041 [12] ‑ [13] (Black J); Nipps (Admin) v Remagen Lend ADA Pty Ltd, Re Adaman Resources Pty Ltd (Admin Apptd) (No 4) [38] (Banks‑Smith J); and in Re GGA Lifestyle Pty Ltd (Administrators Appointed); Ex parte Woodhouse [19] ‑ [20] (Vaughan J). See also Re ONE.TEL Ltd [33] (Brereton J).
In Re Union Standard International Group Pty Ltd (Administrators Appointed) (No 2), Stewart J at [10] ‑ [11] further noted:
[10]A court may give a direction on an issue of 'substance or procedure' or 'of power, propriety or reasonableness': Ansett at [65]. Although a court will not give a direction on a decision that is purely commercial, a direction may be provided where there is a 'particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought': Ansett at [65]. As Black J observed in In the matter of RCR Tomlinson Ltd (administrators appointed) [2018] NSWSC 1859, a decision may have a 'commercial character' but nonetheless be amenable to judicial direction. His Honour said (at [14]) of the application before him (which sought a direction as to whether a company should borrow loan funds):
The Court has been prepared to give directions of this kind, where the decision is a complex one, and where it has to be made, as here, under circumstances of time pressure, in respect of a very large corporate group, and by balancing different interests. The Court's preparedness to grant such a direction in those circumstances reflects the intrinsic unfairness of leaving a voluntary administrator to be at risk of liability, in respect of a complex decision of that kind, where any decision that is made, including making no decision, will have inevitable risks for some or all of the affected constituencies.
[11]Because the effect of a direction under s 90-15 is to exonerate the liquidator or administrator if full disclosure is made, it will usually necessitate consideration by the court of the liquidator's or administrator's reasons and decision making process: see Re ONE.TEL Ltd [2014] NSWSC 457; 99 ACSR 247 at [36] per Brereton J (referring to former s 511 of the Act).
The value of a direction is to protect the applicant from liability for breach of duty or unreasonable behaviour provided full disclosure has been made to the court.[33]
[33] Re Ansett Australia Ltd (No 3) [44] (Goldberg J); Re Nexus Energy Ltd [12] ‑ [13] (Black J); Nipps (Admin) v Remagen Lend ADA Pty Ltd, Re Adaman Resources Pty Ltd (Admin Apptd) (No 4) [38] (Banks‑Smith J); and Re GGA Lifestyle Pty Ltd (Administrators Appointed); Ex parte Woodhouse [21] (Vaughan J), citing Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 679 ‑ 680 (McLelland J).
The ambit of s 90‑15 has not yet been fully considered by the authorities.[34] However, I accept that the court's power under s 90‑15(1) to make orders extends, in appropriate circumstances, to giving directions of the kind sought by the applicants in this application. That is, in the context of a proposed settlement by compromise and releases, by giving a direction as to whether the external administrator is justified in agreeing to a proposal, notwithstanding that a commercial judgment may be involved.[35] Such a direction will be appropriate where the external administrators' proposed decision risks being subjected to criticism by a particular creditor or creditors as being unreasonable or made in bad faith.[36]
[34] As observed in Re Pindan Group Pty Ltd (Administrators Appointed) [No 4] [65], citing Re Broens Pty Ltd (in liq) [39] (Gleeson J); see also Re Hawden Property Group Pty Ltd (in liq) [7] ‑ [8] (Gleeson JA), cited in Ex parte Frigger [12] (Allanson J).
[35] See Re Octiviar Administration Pty Ltd (in liq) (2015) 107 ACSR 1; [2015] NSWSC 516 [13] (Stevenson J). See also Re Queensland Nickel Pty Ltd (in liquidation) (No 2) [2022] FCA 101 [40] (Greenwood J); Mitchell (Liquidator) v Fowler, in the matter of WITS Holdings Pty Ltd (In Liquidation) [2023] FCA 1231 [20] (Halley J), citing Re A.C.N 004 410 833 Limited (formerly Arrium Limited) (in Liquidation) [2021] NSWSC 799 [14] (Black J); and Re Equititrust Limited (in Liquidation) (Receiver Appointed) [2019] FCA 1063 (Jagot J).
[36] Re Octiviar Administration Pty Ltd (in liq) [13] (Stevenson J), citing Re Great Southern Managers Australia Ltd (in liq) [2014] WASC 312 [61] (Pritchard J).
Disposition
Confidentiality
As noted above, I am satisfied that Mr Freeman's affidavit sworn 27 September 2023; the submissions filed on behalf of the applicants in support of this application on 18 October 2023; and the transcript of the hearing of the application on 25 October 2023 contain confidential information, and it is appropriate to restrict access to them. I will make an order that except pursuant to an order of the court, the documents may not be published or disclosed to anyone except the applicants, the applicants' legal representatives and counsel, the court and officers of the court.
Direction pursuant to s 90-15(1) of the Insolvency Practice Schedule (Corporations)
The confidential affidavit of Mr Freeman discloses that after undertaking a thorough analysis of the issues, the applicants have concluded with the benefit of legal advice that it is in PCEP and PCAP creditors' interests to enter into and give effect to the Receivers' Settlement Deed.
I am satisfied that the evidence discloses several competing tensions in the circumstances faced by the applicants which give rise to the appropriateness of the call for directions under s 90‑15(1) of the Insolvency Practice Schedule (Corporations). The matter is not one that solely concerns the making or implementation of a commercial decision such that the court's involvement in the matter is not appropriate.
Given the compromise that entering into the Receivers' Settlement Deed will represent (which could attract criticism), together with the complexity of the issues intended to be ventilated in the Federal Court proceedings and in the application made in this proceeding by the interlocutory process filed on behalf of the applicants on 20 June 2023 by which the applicants sought certain declarations and directions, I accept that the circumstances present an appropriate occasion for a direction under s 90‑15(1).
Further, I am cognisant that:
(a)entry into the Receivers' Settlement Deed will provide certainty for creditors; and
(b)the pursuit of litigation is inherently uncertain and, subject to a number of risks such that a return to any class of creditor is not certain.
The applicants have adduced evidence of circumstances in which the court can be satisfied that it is just to grant relief, and by that evidence have also demonstrated sufficient utility to the external administration.
In all of the circumstances, I am satisfied that there is a proper evidentiary basis to conclude that the applicants would be justified in resolving by agreement with Ao Qing Investment the matters in issue in the application before this court filed on 20 June 2023 (at par 5(a)); and bringing to an end by compromise with Ao Qing Investment the Federal Court proceedings.
Further, I note that on 12 September 2023 the court made various programming orders, which included the filing of the interlocutory process by which this application was pressed, and supporting materials. Among other things, it was ordered that any person who can demonstrate sufficient interest in relation to this application and wishes to be heard in relation to the same must three business days before the date fixed for hearing provide, among other things, written notice to Mr Freeman, Mr Smith and Mr O'Brien in their capacity as joint and several receivers of PCEP and 52 Lord St by notice to their solicitors and written notice to the court, and before appearing must file a notice of appearance in accordance with Form 4; and if appropriate, an affidavit stating any facts on which the person intends to rely.[37]
[37] Order 4 of the orders made on 12 September 2023.
I note the evidence of Mr Freeman that there was compliance with order 11 of my orders of 12 September 2023. I also note that as at the hearing of this application, the court had received no notice of any party seeking to be heard, and a review of the court's record revealed that no notice of appearance in accordance with Form 4 had been filed.
No person sought to appear and be heard, and I am informed that the applicants are not aware of any person who wished to be heard in relation to the relief sought. In any event, the orders sought on behalf of the applicants include a regime which will enable any person who could demonstrate sufficient interest to modify or discharge the orders to apply to the court.
Counsel for the applicants also agreed to the inclusion of an order which made the direction conditional upon the applicants not entering into, or giving effect to, the Receivers' Settlement Deed before 4.00pm on 9 November 2023, so as to allow any person who can demonstrate sufficient interest to modify or discharge the orders an opportunity to promptly apply to the court.
Conclusion and orders
After considering all of the evidence and upon hearing counsel for the applicants, I am satisfied that there is a proper basis to conclude that the applicants would be justified in in entering into and giving effect to the Receivers' Settlement Deed in substantially in the same form as appears at SJF‑6 (pages 158 to 174) to the affidavit of Mr Freeman sworn 27 September 2023.
I also consider it appropriate that the applicants' costs of and incidental to this interlocutory process be costs and expenses in the external administrations of each of PCEP, PCAP and 52 Lord St, and be paid out of the assets of those companies. Liberty to apply with respect to the allocation of those costs and expenses as between the three entities is reserved to the applicants.
The orders made on 25 October 2023 are reproduced at sch A to these reasons.
Sch A - Orders made on 25 October 2023
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
LP
Associate to the Honourable Justice Strk
27 OCTOBER 2023
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