Krejci, in the matter of Greatcell Solar Limited (in liq)
[2022] FCA 67
•3 February 2022
FEDERAL COURT OF AUSTRALIA
Krejci, in the matter of Greatcell Solar Limited (in liq) [2022] FCA 67
File number: NSD 1358 of 2021 Judgment of: CHEESEMAN J Date of judgment: 3 February 2022 Catchwords: CORPORATIONS – application by liquidators pursuant to section 477(2B) of the Corporations Act 2001 (Cth) for approval of entry into funding agreements and costs agreements – where the liquidators wish to pursue public examinations for the purpose of assessing claims that they believe may be available to them and the companies in liquidation – where agreements are sought to be entered into for the purpose of funding the proposed public examinations and certain related work – where the companies are otherwise without sufficient funds to pursue the proposed public examinations – whether entry into the agreements is in the interests of the administrations – whether approval should take effect nunc pro tunc – Held: application successful.
PRACTICE AND PROCEDURE – confidentiality orders sought in respect of evidence supporting the application – where that evidence comprises the funding agreements and costs agreements – Held: confidentiality orders made.
Legislation: Corporations Act 2001 (Cth), s 477(2B)
Federal Court of Australia Act 1976 (Cth), s 37AF
Cases cited: Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89; (2011) 85 ACSR 38
Hird (Liquidator), in the matter of Allmine Group Limited (in liq) [2018] FCA 781
Hurst, in the matter of Liquor National Pty Ltd (in liq) [2019] FCA 1581
Hutchison v Hillcrest Litigation Services Limited [2010] NSWSC 934
Kogan, in the matter of Rogulj Enterprises Pty Ltd (in liq) [2021] FCA 856
Vickers, Re York St Mezzanine Pty Ltd [2011] FCA 1028; (2011) 196 FCR 479
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 29 Date of hearing: 3 February 2022 Solicitor for the Plaintiffs: Ms L Bullen of Colin Biggers and Paisley ORDERS
NSD 1358 of 2021 IN THE MATTERS OF GREATCELL SOLAR LIMITED (IN LIQUIDATION) AND GREATCELL SOLAR AUSTRALIA PTY LTD (IN LIQUIDATION)
PETER PAUL KREJCI AND ANDREW JOHN CUMMINS IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF GREATCELL SOLAR LIMITED (IN LIQUIDATION) ACN 111 723 883 AND GREATCELL SOLAR AUSTRALIA PTY LTD (IN LIQUIDATION) ACN 131 374 064
Plaintiffs
ORDER MADE BY:
CHEESEMAN J
DATE OF ORDER:
3 FEBRUARY 2022
THE COURT ORDERS THAT:
Funding Agreements
1.Pursuant to s 477(2B) of the Corporations Act 2001 (Cth) the Plaintiffs’ entry, in their capacity as liquidators of Greatcell Solar Limited (in liquidation) ACN 111 723 883 (GSL), into the funding agreement dated 3 December 2021 between the Commonwealth of Australia (acting through the Attorney-General's Department ABN 92 661 124 436) (Commonwealth) and the Plaintiffs (in their own capacity) and on behalf of GSL (being pages 1 to 40 of Confidential Annexure PPK-2 to the affidavit of Peter Paul Krejci dated 23 December 2021) be approved nunc pro tunc.
2.Pursuant to s 477(2B) of the Act the Plaintiffs’ entry, in their capacity as liquidators of Greatcell Solar Australia Pty Ltd (in liquidation) ACN 131 374 064 (GSA), into the funding agreement dated 3 December 2021 between the Commonwealth and the Plaintiffs (in their own capacity) and on behalf of GSA (being pages 41 to 81 of Confidential Annexure PPK-2) be approved nunc pro tunc.
Costs Agreements
3.Pursuant to s 477(2B) of the Act the Plaintiffs’ entry, in their capacity as liquidators of GSL, into the costs agreement dated 3 December 2021 between the Colin Biggers & Paisley Lawyers (CBP) and the Plaintiffs as liquidators of GSL (being pages 82 to 91 of Confidential Annexure PPK-2) be approved nunc pro tunc.
4.Pursuant to s 477(2B) of the Act the Plaintiffs’ entry, in their capacity as liquidators of GSA, into the costs agreement dated 3 December 2021 between CBP and the Plaintiffs as liquidators of GSA (being pages 92 to 101 of Confidential Annexure PPK-2) be approved nunc pro tunc.
Confidentiality
5.Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice as provided in s 37AG(1)(a), Confidential Annexure PPK-2 be suppressed and not published to any person other than the Plaintiffs and their legal advisers until the conclusion of the liquidation of GSL and GSA or until further order of the Court, whichever is the earlier.
Costs
6.The costs of this application be apportioned equally as costs in the liquidations of GSL and GSA.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
CHEESEMAN J:
OVERVIEW
The plaintiffs, Peter Paul Kjerci and Andrew John Cummins, in their capacities as joint and several liquidators of Greatcell Solar Limited (in liquidation) (GSL) and Greatcell Solar Australia Pty Ltd (in liquidation) (GSA) (together, the Companies), move on an originating application filed on 24 December 2021 seeking approval nunc pro tunc under s 477(2B) of the Corporations Act 2001 (Cth) to enter into on behalf of each of the Companies:
(1)funding agreements with the Commonwealth acting through the Attorney-General’s Department by which the Commonwealth has agreed to fund certain work in connection with proposed public examinations of the directors of the Companies; and
(2)costs agreements with Colin Biggers and Paisley Lawyers (CBP) with respect to the legal work to be undertaken in relation to the proposed public examinations (together the agreements).
Approval is sought nunc pro tunc because the liquidators entered into the relevant agreements on behalf of the Companies on 3 December 2021 prior to filing the present application. The Court's approval is necessary under s 477(2B) of the Act because the terms of the funding agreements are such that the obligations created may exceed three months and the liquidators have not (for reasons set out below) sought or obtained approval from the creditors of the Companies to enter into the funding agreements.
The liquidators also seek confidentiality orders in respect of the relevant agreements.
The liquidators relied on an affidavit of Peter Kjerci sworn 23 December 2021 and the annexures thereto (one of which is confidential annexure PPK-2 which comprised of the four agreements the subject of the present application).
Mr Kierci is a principal of the corporate restructuring, insolvency and business advisory firm BRI Ferrier (NSW). He is a chartered accountant and registered liquidator. He has practiced for more than 20 years as an accountant specialising in insolvency related matters in Australia. He makes his affidavit based on his own knowledge and belief and from information that he and BRI staff have obtained through acting as liquidators and previously as administrators of the Companies. Mr Kjerci deposes to opinions held by himself and his fellow liquidator Mr Cummins, who with him, was previously a voluntary administrator of the Companies.
For the reasons that follow, having read and considered the evidence relied on by the liquidators and with regard to the relevant principles, I am satisfied that it is appropriate to make orders nunc pro tunc under s 477(2B) of the Act. I am further satisfied having regard to the terms of the relevant agreements that it is appropriate to make the orders nunc pro tunc. Finally, I am satisfied that it is appropriate to make confidentiality orders over discrete parts of the evidence on the grounds that it is necessary to do so to prevent prejudice to the proper administration of justice.
BACKGROUND
The liquidators have formed the view, based in part on legal advice, that the liquidators or the Companies may have claims against the directors of the Companies, including for breach of their directors duties (including trading while insolvent, among other potential breaches). In Mr Kjerci’s experience, such claims are more likely to be successful if they are supported by evidence and information gathered via the public examinations of the directors of the relevant companies. The liquidators propose to conduct public examinations of the directors for the purpose of investigating the potential claims, the availability of any safe harbour defence and the capacity of the directors to satisfy any judgment that may be obtained.
The Companies are not in sufficient funds to meet the likely cost of the proposed examinations having regard to the cash-at-bank position of the Companies, the costs incurred to date and the priority claims in the liquidations.
The liquidators have not formally adjudicated on any claims but have identified potential claims by creditors of the Companies as follows:
Category
GSL
GSA
Secured
$754,995.97
$754,995.97
Priority
$277,511.34
$741,332.10
Unsecured
$5,687,357.70
$61,766,679.79
Total
$6,719,865.01
$63,263,007.86
The purported secured creditors assert joint and several claims against both of the Companies, and therefore these claims are recorded as potential claims in both of the liquidations. Claims are made by the Australian Tax Office and Revenue New South Wales which are similarly recorded in both of the liquidations. A large portion of the unsecured claims against GSA comprise a claim by GSL in respect of a related party loan. The liquidators acknowledge that there is potential overlap in the unsecured claims between the two liquidations that has not been eliminated at this stage of the administration.
In or about March 2020, having formed the view that the Companies did not have sufficient assets to meet the anticipated costs of the proposed public examinations, the liquidators approached the Commonwealth to request funding. The liquidators, having previous experience of obtaining funding from the Commonwealth in the context of other liquidations, believed that the Commonwealth may have an interest in providing funding for the proposed public examinations. That belief proved to be correct. I note in passing that the Commonwealth had previously paid a total of $727,045.64 to former employees of the Companies on account of unpaid entitlements through the Fair Entitlements Guarantee Scheme.
On 3 December 2021, the liquidators entered into funding agreements with the Commonwealth in respect of the each of the Companies by which the Commonwealth agreed to provide funding for certain work connected with the proposed public examinations. The liquidators also entered into costs agreements dated 3 December 2021 with CBP on behalf of each GSL and GSA. The costs agreements relate to CBP acting in relation to the present application and the proposed public examinations.
LEGAL PRINCIPLES
The principles in relation to s 477(2B) of the Act, are well established. A convenient summary is reproduced from Hurst, in the matter of Liquor National Pty Ltd (in liq) [2019] FCA 1581 Gleeson J (when her Honour was in this Court) at [15] - [19]:
[15]Section 477(2B) of the Act qualifies the general power of liquidators under s 477(2)(m) to “do all such things as are necessary for the winding up the affairs of the company and distributing its property”.
[16]The standard imposed under s 477(2B) concerns an assessment by the Court that entry into the agreement is a proper exercise of power and not ill-advised or improper on the part of the liquidator, rather than involving the exercise of commercial judgment: Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257 at [11] per Black J citing McGrath and Another (in their capacity as liquidators of HIH Insurance Limited and Others) [2010] NSWSC 404; (2010) 266 ALR 642 at [13].
[17]In Pascoe; Re Matrix Group Ltd (in liq) [2011] FCA 1117 at [7], Jacobson J cited with approval the following statement by Austin J of the relevant test in Leigh; Re AP and PJ King Pty Ltd (in liq) [2006] NSWSC 315 at [23]:
Although the court has the statutory task [under s 477(2B)] of giving “approval” to a liquidator’s agreement that may end more than three months after it is entered into, the case law shows that the court undertakes something less than a complete “merits review”. As Giles J said in Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-6:
… the court is necessarily confined in attempting to second guess the liquidator in the exercise of his powers, and generally will not interfere unless there can be seen to be some lack of good faith, some error of law or principle, or real and substantial grounds for doubting the prudence of the liquidator’s conduct.
[18]The Court’s task is to satisfy itself, having regard to the liquidator’s commercial judgment, that there is no error of law, grounds for suspecting bad faith or any other good reason to intervene: Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109 at 118; Stewart, Re Newtronics Pty Ltd [2007] FCA 1375.
[19]In Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89; (2011) 85 ACSR 38 at [24], the Full Court endorsed the following comprehensive list of factors relevant to the Court’s assessment of a proposed litigation funding agreement:
(1)the liquidator’s prospects of success in the litigation;
(2)the nature and complexity of the cause of action;
(3)the extent to which the liquidator has canvassed other funding options;
(4)the level of the funder’s premium;
(5)the liquidator’s consultation with creditors; and
(6)the risk involved in the claim (including the amount of costs likely to be incurred in the proposed litigation, the extent to which the funder is to contribute to those costs, and the extent to which the funder is to contribute to the defendant’s costs if the action is not successful, or towards any order for security for costs).
The Court may give retrospective approval under s 477(2B) in appropriate circumstances: Hutchison v Hillcrest Litigation Services Limited [2010] NSWSC 934 (White J) at [25]; Vickers, Re York St Mezzanine Pty Ltd [2011] FCA 1028; (2011) 196 FCR 479 (Gordon J) at 484 - 485 [27]; Hird (Liquidator), in the matter of Allmine Group Limited (in liq) [2018] FCA 781 (Gleeson J) at [41] citing a number of cases as examples of retrospective approval.
CONSIDERATION
Approval under s 477(2B)
For the reasons that follow, I am satisfied that there is a clear basis for the Court to approve the liquidators’ entry into the funding and costs agreements and that it is appropriate to do so. I am also satisfied that the grant of approval should take effect as at the date of the liquidators’ entry into the agreements.
Having regard to the considerations set out by the Full Court in Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89; (2011) 85 ACSR 38 at [24], I note the following on the application.
The funding under the agreements is limited to defined work related, to or arising from, the proposed public examinations. Therefore, a consideration as to the liquidators’ prospects of success in any future litigation is not applicable in these circumstances. Further, given that public examinations are not litigious in nature, the liquidators and the Companies are not at risk of being the subject of an adverse costs order. Public examinations are a common method by which liquidators can obtain information about the examinable affairs of a company. Mr Krejci has deposed that, at this stage, the proposed examinees will be mandatorily examined pursuant to s 596A of the Act. In that respect, the application seeking issuance of the summonses for examination is unlikely to be complex. The potential causes of action which the liquidators intend to investigate - being breaches of directors duties and insolvent trading - are well established and do not involve novel claims.
The liquidators have been frank as to why they have not explored alternative funding to that secured from the Commonwealth. Based on their previous experience with the Commonwealth in similar circumstances, the liquidators consider the Commonwealth’s usual funding terms to be favourable to funding available from private funders. The liquidators' preference was to obtain funding from the Commonwealth. When Commonwealth funding was offered, the liquidators considered that it was not necessary to canvas alternative sources of funding.
The liquidators have explained why, in their view, the terms of the particular funding agreements are favourable. The Commonwealth does not charge a premium on the funding provided pursuant to the funding agreements. The liquidators are only required to repay the funding in the event that recoveries are made as a result of the proposed public examinations. If such recoveries are made, and the funding is repaid, the Commonwealth charges nominal interest to cover the cost of loaning the money. The liquidators properly draw attention to the fact that the Commonwealth requires confirmation by the liquidators that the funding provided would be treated as a priority payment pari passu with the priority afforded to the liquidators' costs and remuneration by s 556(1)(a) of the Act. The liquidators consider this requirement to be reasonable as, if the liquidations of the Companies had sufficient funds to meet the costs of the proposed public examinations, those costs would have been given priority pursuant to section 556(1)(a). For this reason, the liquidators are satisfied that the Commonwealth's request for priority repayment of their funding contribution will not unfairly prejudice the creditors of the Companies.
The liquidators have not consulted with creditors. The liquidators’ reasons for not doing so are that at least one of the proposed examinees (being one of the directors of the Companies) is a potential creditor and the liquidators suspect that this director is in contact with other proposed examinees. As such, the liquidators did not wish to put the proposed examinees on notice of the proposed public examinations or on notice of the possible claims they intend to investigate at this early stage believing this may compromise the effectiveness of the public examinations. The liquidators also considered that approaching creditors would be futile in circumstances where the directors of the Companies, and proposed examinees, were identified as substantial potential creditors and could influence the vote at a creditors’ meeting. Further, the liquidators submit that creditors would not have any proper basis to object to the funding agreements being approved.
The liquidators have formed the view that there may be claims available to the Companies in liquidation that warrant further investigation. Further, the liquidators’ opinion is that there does not appear to be a safe harbour defence available to the directors in respect of those claims. The successful pursuit of those claims may result in funds becoming available for the benefit of creditors. The agreements enable the investigation of the potential claims via public examinations to be progressed. While the liquidators accept that there is some risk involved in public examinations, that risk is minor having regard to the fact that there is no risk of adverse costs order being made against the liquidators or the Companies. The liquidators also submit that any risk is mitigated by the terms of the funding agreements which require repayment with a nominal amount of interest only in the event of a recovery. The liquidations are otherwise without sufficient funds to commence proceedings and the liquidators contend that in the absence of funding there will only be a nominal return to creditors.
The liquidators have satisfactorily explained their reasons for not bringing the funding agreements to the attention of creditors.
The liquidators have not explained what led to the funding agreements being executed prior to the present application being brought before the Court. They point to the fact that the funding agreements relevantly provide that all of the Commonwealth’s obligations under the agreement are suspended until the requisite approval is obtained under s 477(2B). Notwithstanding that the better course would have been to seek approval before entry into or as a condition precedent of the funding agreements, I am satisfied that in the present case there is nothing to indicate any error of law, bad faith or impropriety in the liquidators' decision to enter into the funding agreements.
In terms of the costs agreements I note that the liquidators secured an agreement from CBP to limit its costs to the amount of funding granted by the Commonwealth pursuant to the funding agreements. The funding agreements provide that the liquidators must not retain solicitors other than CBP to act for them in relation to the work covered by the funding agreements without prior written consent of the Commonwealth. I further note that the liquidators are obliged by the terms of the funding agreements to take reasonable steps to ensure that costs are kept to a minimum and no more than is proportionate, fair and reasonable in all the circumstances. Given the agreement to limit the costs agreements to the amount payable under the funding provided by the Commonwealth under the funding agreements, I am satisfied that consistently with the liquidators’ view that the costs agreements are reasonable, it was in the interest of the Companies for the liquidators to enter into the costs agreements on behalf of the Companies.
Accordingly, I will make orders nunc pro tunc approving entry into the agreements under s 477(2B) of the Act.
Confidentiality
The principles applicable to the making of suppression and non-publication orders are well known and are summarised in Kogan, in the matter of Rogulj Enterprises Pty Ltd (in liq) [2021] FCA 856 at [28] – [31]. I will not repeat them here.
By prayer 5 of the originating application, the plaintiffs seek an order pursuant to rule 2.32(1)(b) of the Federal Court Rules 2011 (Cth) that the annexure PPK-2 to the affidavit of Mr Krejci dated 23 December 2021 be kept confidential. Annexure PPK-2 comprises the funding agreements and costs agreements to which the application relates. The terms of the funding agreements require the parties to keep the agreement confidential save for limited exceptions including relevantly for the purpose of the present application and for any future application under s 564 of the Act.
My view is that it would be more appropriate to make an order under s 37AF of the Federal Court of Australia Act 1976 (Cth) (FCA Act) on the ground set out in s 37AG(1)(a) that the order is necessary to prevent prejudice to the proper administration of justice because disclosure of the agreements may provide an unfair forensic advantage to the directors who are the subject of the proposed examinations and the potential future claims. I am also satisfied that the public interest in the due and beneficial administration of insolvent companies for the benefit of creditors weighs in favour of an order being made under s 37AF of the FCA Act in the present proceedings.
Accordingly, I will make confidentiality orders which will remain in place until the conclusion of the liquidation of the Companies or until further order of the Court, whichever is the earlier.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman. Associate:
Dated: 3 February 2022
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