Jones, in the matter of Great Southern Ltd (in liq)

Case [2017] FCA 169

FEDERAL COURT OF AUSTRALIA

Jones, in the matter of Great Southern Ltd (in liq) [2017] FCA 169

File number: WAD 619 of 2015
Judge: GILMOUR J
Date of judgment: 1 March 2017
Catchwords:

CONTRACTS – whether the parties intended to create a legally binding arrangement between them – Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (Receivers and Managers Appointed) (In liq) (2009) 25 VR 411 distinguished

CORPORATIONS – inter-company finance arrangements and debt – debt subordination – s 563C of the Corporations Act 2001 (Cth) – whether there existed an enforceable debt subordination agreement or declaration at the time of company administration

EQUITY – doctrine of contribution – consideration of what is a just proportion or proper proportionate share of a joint obligation – consideration of the effect of insolvency on the obligation to pay contribution – whether there was a receipt of a relevant benefit giving rise to a right of contribution

Legislation:

Corporations Act 2001 (Cth)

Corporations Regulations 2001 (Cth)

Imperial Acts Adopting Ordinance 1867 (WA)

Mercantile Law Amendment Act 1856 (Imp)

Cases cited:

AE Goodwin Ltd v AG Healing Ltd (1979) 7 ACLR 481 cited

Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (Receivers and Managers Appointed) (In liq) (2009) 25 VR 411 distinguished

Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1 applied

Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612 cited

Burke v LFOT Pty Ltd (2002) 209 CLR 282 cited

Ermogenous v Greek Orthodox Community of SA Inc (2002) CLR 95 applied

Friend v Booker (2009) 239 CLR 129 cited

Hitchman v Stewart (1855) 3 Drewry 271 approved

Horne v Chester and Fein Property Developments Pty Ltd [1987] VR 913 considered

Israel v Foreshore Properties Pty Ltd (1980) 30 ALR 631 cited

Lavin v Toppi (2015) 254 CLR 459 cited

Lowe & Sons v Dixon & Sons (1885) 16 QBD 455 approved

Norman and Another v FEA Plantations Ltd and Another (2011) 195 FCR 97 considered

Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116 cited

Ogilvie v Ferry [2010] NSWSC 379 cited

Parker v Alessi [2011] NSWSC 947 applied

Re Contract Corporation (Gooch’s Case) (1871-2) LR 7 Ch App 207 cited

Re Intercontinental Properties Pty Ltd (in liq) (1977) 2 ACLR 488 cited

Re National Safety Council of Australia, Victoria Division [1990] VR 29 cited

Re NIAA Corp Ltd (in liq) (1993) 33 NSWLR 344 cited

Re Parker; Morgan v Hill [1894] 3 CH 400 applied

Re TVSN Ltd [2005] NSWSC 692 approved

Smith v Cock [1911] AC 317 cited

United States Trust Co of New York v Australia and New Zealand Banking Group Ltd (1995) 37 NSWLR 131 considered
Date of hearing: 14 and 15 June 2016
Date of last submissions: 3 June 2016
Registry: Western Australia
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 147
Counsel for the Plaintiff: Mr AP Young QC…

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AGLC
Jones, in the matter of Great Southern Ltd (in liq) [2017] FCA 169
Case
[2017] FCA 169
Decision Date

CaseChat Overview and Summary

The matter under consideration involves the liquidators of Great Southern Finance Pty Ltd (GSF) seeking clarification on the sums that Great Southern Ltd (GSL) should prove and be admitted to proof in the winding up of GSF. The central legal issues revolve around the interpretation and enforceability of certain finance arrangements and debt subordination agreements between GSL, GSF, and external finance providers, specifically the Club Banks. The court needed to determine whether the Subordination Documents constituted enforceable debt subordination agreements or declarations under section 563C of the Corporations Act 2001 (Cth), and if they did, whether GSL could join in lodging proofs of debt in the winding up of GSF for specific amounts.

The court examined the evidence and submissions to determine the nature of the finance arrangements and the obligations of the Joint Obligors. It found that even if the Subordination Documents did not constitute enforceable debt subordination agreements, they still constituted relevant declarations under section 563C. The court held that the liquidators would be acting properly and justified in admitting GSL's proofs of debt in the specified amounts and in distributing GSF's assets with GSL's claim subordinated to all other creditors' claims. The court's reasoning was based on the importance of maintaining the integrity of the group as a whole, which depended on the continued existence of its constituent parts, including GSF.

The final orders of the court directed the liquidators to proceed with the admissions of the proofs of debt as specified and to distribute the assets of GSF with GSL's claim subordinated to all other creditors' claims. The court also ordered that the costs and expenses of the application be costs and expenses in the winding up of GSL and GSF.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

Whether GSL can lodge a proof of debt in the liquidation of GSF, and for what amounts it may do so, requires an examination of the finance arrangements between GSL and other companies in the Great Southern Group, including GSF, and any such agreements between those companies and external finance providers. Background to Question 1 Prior to 16 May 2009, the Great Southern Group companies were engaged in the promotion and conduct of a number of agricultural managed investment schemes in the Great Southern Region of Western Australia. In the period from February 2000 to July 2008, GSL and nine of its subsidiaries (the Security Providers) granted fixed and floating charges over their assets present and future. By about 21 July 2008, ANZ Fiduciary Services Pty Ltd (ACN 100 709 493) (ANZFS), held each of those charges as security trustee for a group of lending banks (Club Banks). Between about 26 September and 1 October 2008, GSL and 16 other Great Southern Group companies, including GSF, (together, Joint Obligors) entered into revised finance arrangements with ANZFS and the Club Banks. The obligations and liabilities of the Joint Obligors pursuant to those finance arrangements were joint and several. By late 2008, the Joint Obligors were liable to the Club Banks for the sum of approximately $380 million plus interest and costs (Joint Debt). The Joint Debt comprised the following debts:(a)a debt of $130 million, plus interest and costs, for which all of the Joint Obligors were jointly and severally liable to Australia and New Zealand Banking Group Limited (ACN 005 357 522) (ANZ) as borrowers pursuant to a facility agreement between ANZ and others dated 26 September 2008 (ANZ Facility Agreement);(b)a debt of $125 million, plus interest and costs, for which 12 of the Joint Obligors, including GSL and GSF, were jointly and severally liable to Bank of Western Australia Ltd (ACN 050 494 454) (BankWest) as borrowers pursuant to a facility agreement between BankWest and others dated 26 September 2008 (BankWest Facility Agreement); (c)a debt of $50 million, plus interest and costs, for which 12 of the Joint Obligors, including GSL and GSF, were jointly and severally liable to Commonwealth Bank of Australia (ACN 123 123 124) (CBA) as borrowers pursuant to a facility agreement between CBA and others dated 26 September 2008 (CBA Facility Agreement); and(d)a debt of $75 million, plus interest and costs, for which 11 of the Joint Obligors, including GSL and GSF, were jointly and severally liable to Mizuho Corporate Bank Ltd (ACN 099 031 106) (Mizuho) as borrowers pursuant to a facility agreement between Mizuho and others dated 26 September 2008 (Mizuho Facility Agreement).(together, the Club Banks Facility Agreements). The accounts and statements filed with the Australian Securities and Investments Commission by the receivers appointed by the Club Banks’ security trustee (Form 524s) show that, during the receivership, the Club Banks advanced a further $59,857,885.56 to Great Southern Ltd (in liquidation) (ACN 052 046 536) and certain of its subsidiaries (Receivership Funding).

Evidence

Evidence Before The Court

The plaintiffs are also mindful that, whilst striving to assist the Court, they must be, and appear to be, independent and impartial: Re Intercontinental Properties Pty Ltd (in liq) (1977) 2 ACLR 488, 491-492; Re National Safety Council of Australia, Victoria Division [1990] VR 29, 34; Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612, 641 [123], 643 [132].Evidence The plaintiffs application was supported by the following affidavit evidence:(a)the affidavit made by Cameron Arthur Rhodes on 26 August 2015 (Mr Rhodes’ Affidavit);(b)the affidavit made by Simon Martin on 31 August 2015;(c)the affidavit made by Neil John Hackett on 2 September 2015 (Hackett Affidavit);(d)the affidavit made by Joshua Skalnik on 29 September 2015 (Skalnik Affidavit);(e)the affidavit made by Darren Gordon Weaver on 6 October 2015; (f)the affidavit made by Ruth Mary Loveranes on 11 November 2015;(g)the affidavit made by Melanie Jin Ting Khoo on 4 February 2016;(h)the affidavit made by Alice McCleary on 11 April 2016, excluding paragraph 23 of that affidavit, (Ms McCleary’s Affidavit);(i)the affidavit made by Neil John Hackett on 10 May 2016;(j)the affidavit made by Simon Martin on 20 May 2016; and(k)the affidavit made by Melanie Jin Ting Khoo on 15 June 2016 (Ms Khoo’s Supplementary Affidavit).QUESTION 1 What sum(s) should GSL prove, and be admitted to proof, in the winding up of GSF? Whether GSL can lodge a proof of debt in the liquidation of GSF, and for what amounts it may do so, requires an examination of the finance arrangements between GSL and other companies in the Great Southern Group, including GSF, and any such agreements between those companies and external finance providers. Background to Question 1 Prior to 16 May 2009, the Great Southern Group companies were engaged in the promotion and conduct of a number of agricultural managed investment schemes in the Great Southern Region of Western Australia. In the period from February 2000 to July 2008, GSL and nine of its subsidiaries (the Security Providers) granted fixed and floating charges over their assets present and future. By about 21 July 2008, ANZ Fiduciary Services Pty Ltd (ACN 100 709 493) (ANZFS), held each of those charges as security trustee for a group of lending banks (Club Banks). Between about 26 September and 1 October 2008, GSL and 16 other Great Southern Group companies, including GSF, (together, Joint Obligors) entered into revised finance arrangements with ANZFS and the Club Banks. The obligations and liabilities of the Joint Obligors pursuant to those finance arrangements were joint and several. By late 2008, the Joint Obligors were liable to the Club Banks for the sum of approximately $380 million plus interest and costs (Joint Debt). The Joint Debt comprised the following debts:(a)a debt of $130 million, plus interest and costs, for which all of the Joint Obligors were jointly and severally liable to Australia and New Zealand Banking Group Limited (ACN 005 357 522) (ANZ) as borrowers pursuant to a facility agreement between ANZ and others dated 26 September 2008 (ANZ Facility Agreement);(b)a debt of $125 million, plus interest and costs, for which 12 of the Joint Obligors, including GSL and GSF, were jointly and severally liable to Bank of Western Australia Ltd (ACN 050 494 454) (BankWest) as borrowers pursuant to a facility agreement between BankWest and others dated 26 September 2008 (BankWest Facility Agreement); (c)a debt of $50 million, plus interest and costs, for which 12 of the Joint Obligors, including GSL and GSF, were jointly and severally liable to Commonwealth Bank of Australia (ACN 123 123 124) (CBA) as borrowers pursuant to a facility agreement between CBA and others dated 26 September 2008 (CBA Facility Agreement); and(d)a debt of $75 million, plus interest and costs, for which 11 of the Joint Obligors, including GSL and GSF, were jointly and severally liable to Mizuho Corporate Bank Ltd (ACN 099 031 106) (Mizuho) as borrowers pursuant to a facility agreement between Mizuho and others dated 26 September 2008 (Mizuho Facility Agreement).(together, the Club Banks Facility Agreements).

Decision

Reasons for decision

Nonetheless, even if the Subordination Documents did not constitute an enforceable debt subordination agreement or agreements as I have found, they would still constitute, for the purposes of s 563C of the Corporations Act, relevant declarations. CONCLUSION I would for these reasons determine and direct as follows:1.The plaintiffs would be acting properly and justified in causing Great Southern Ltd (in liquidation) (ACN 052 046 536) to:(a)join with the other borrowers, identified in the Facility Agreement between Australia and New Zealand Banking Group Ltd (ACN 005 357 552) (ANZ) and others, dated 26 September 2008, who paid the whole debt owed to ANZ pursuant to that agreement, in lodging a proof of debt in the winding up of Great Southern Finance Pty Ltd (in liquidation) (ACN 009 235 143) (GSF) for $172,684,554.28;(b)join with the other borrowers, identified in the Facility Agreement between Bank of Western Australia Ltd (ACN 050 494 454) (BankWest) and others, dated 26 September 2008, who paid the whole debt owed to BankWest pursuant to that agreement, in lodging a proof of debt in the winding up of GSF for $166,021,484.66;(c)join with the other borrowers, identified in the Facility Agreement between Commonwealth Bank of Australia (ACN 123 123 124) (CBA) and others, dated 26 September 2008, who paid the whole debt owed to CBA pursuant to that agreement, in lodging a proof of debt in the winding up of GSF for $66,428,784.98; and(d)join with the other borrowers, identified in the Facility Agreement between Mizuho Corporate Bank Ltd (ACN 099 031 106) (Mizuho) and others, dated 1 October 2008, who paid the whole debt owed to Mizuho pursuant to that agreement, in lodging a proof of debt in the winding up of GSF for $99,643,177.48.2.The plaintiffs, in their capacity as liquidators of GSF, would be acting properly and justified in admitting in full each of the proofs referred to in paragraph 1 above in the winding up of GSF.3.The plaintiffs, in their capacity as liquidators of GSF, would be acting properly and justified in distributing the assets of GSF on the basis that the part of GSL’s claim against GSF that is founded upon the loan from GSL to GSF (in the amount of $148,230,149) is subordinated to all other claims of creditors of GSF.4.The plaintiffs’, Cameron Arthur Rhodes’s, Phillip Charles Butlin’s and Bendigo and Adelaide Bank Ltd’s costs and expenses of this application be costs and expenses in the winding up of GSL and GSF.

Ratio Decidendi

Legal Principle Established

Mr Rhodes and Mr Butlin submitted that the asserted agreement was devoid of consideration. In particular, Mr Rhodes and Mr Butlin submitted that there is no evidence that consideration passed to GSL from GSF in return for any agreement by GSL to subordinate its debt and, as in Atco, there is nothing in the evidence to indicate that GSL requested the subsidiaries to continue to trade: Atco (2009) 25 VR 411, 429-431 [61]–[68]; Norman and Another v FEA Plantations and Another (2011) 195 FCR 97, 111 [122]–[124]. In Atco, it was held that to establish the existence of good consideration, it must be made to appear that the promise was really offered as the price or quid pro quo for the action taken. The case, as I mentioned before, concerned the enforceability of letters of support provided by a parent company to a subsidiary. The Victorian Court of Appeal held that it was necessary to show that that the parent company, in effect, requested the subsidiary to continue to trade in return for the undertaking of continued support and that the subsidiary was moved by that request. The Court also held that the request need not be express and may be implied. On the facts of that case, the Court found that there was no such express or implied request. Bendigo submitted that the position is different here because although there is no evidence of an express request, it is implied. It referred to Norman which concerned the enforceability of a commitment letter provided from one company (FEA) to another (FEAP), both of which were part of a group of companies conducting managed investment schemes. In that case, Finkelstein J held that it is possible to infer that the request for the commitment letter was premised on the proposition that, without it, FEAP would no longer act as responsible entity. The inference was drawn because, in the absence of the commitment letter, FEAP could not, consistently with its licence conditions act as responsible entity of the schemes. This finding was upheld on appeal. Although GSF was not the responsible entity of the managed investment schemes in the present case, it played an integral role in the group. The preamble to GSL's board resolution recited that the purpose of the resolution was to, among other things, "establish continuing support for Australian Financial Services Licence (AFSL) obligations". The importance of the AFSL obligations is disclosed in GSL's financial reports as a matter concerning "capital risk management" and it is submitted that this affected the group as a whole. I accept Bendigo’s submission that the integrity of the group as a whole depended on the continued existence of its constituent parts, of which GSF was one. Without subordination, as I earlier explained, GSF would have ceased to be a going concern and could no longer have fulfilled an important function which it was required to perform in the group, namely to provide loans to investors wishing to borrow to invest in the group's managed investment schemes.