Krejci (liquidator), in the matter of Half Price Enterprises Pty Ltd (In Liquidation)
[2021] FCA 805
•7 June 2021
FEDERAL COURT OF AUSTRALIA
Krejci (liquidator), in the matter of Half Price Enterprises Pty Ltd (In Liquidation) [2021] FCA 805
File number: NSD 323 of 2021 Judgment of: MARKOVIC J Date of judgment: 7 June 2021 Date of publication of reasons: 16 July 2021 Catchwords: CORPORATIONS – application for extension of time under s 588FF(3)(a) of the Corporations Act 2001 (Cth) (Act) – where potential causes of action identified against interested persons – where further investigations necessary to consider applicable defences and utility of commencing proceedings – where third party funding to conduct further investigations only recently secured – where merit in permitting liquidator to proceed with investigations – application allowed
CORPORATIONS – application for approval of entry into a funding agreement under s 477(2B) of the Act – where nunc pro tunc approval sought – where proposed terms of funding agreement not unusual or onerous – where funding agreement necessary to allow liquidator to pursue further investigations – application allowed
Legislation: Corporations Act 2001 (Cth) ss 477(2B), 588FF
Federal Court of Australia Act 1976 (Cth)
Cases cited: Chin, in the matter Agatha Trading Pty Ltd (in liq) [2020] FCA 991
Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) (No 2) [2017] FCA 755
Robinson, in the matter or Reed Constructions Australia Pty Lt (in liq) [2017] FCA 594
Donnellon Childcare Holdings Pty Ltd (in liq), in the matter of Donnellon Childcare Holdings Pty ltd (in liq) v Donnellon [2020] FCA 1003
In the matter of Australian Vocational Learning Institute Pty Ltd (in liq) [2019] FCA 1638
Vaughan v Catanzariti, in the matter of Italian Prestige Jewellery Pty Limited (in Liq) [2018] FCA 1403
Re Clare Castle Pty Ltd (in liq) (2011) 255 FLR 435
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 37 Date of hearing: 7 June 2021 Counsel for the Plaintiffs: Ms M Hall Solicitor for the Plaintiffs: Hall & Wilcox ORDERS
NSD 323 of 2021 BETWEEN: PETER PAUL KREJCI IN HIS CAPACITY AS LIQUIDATOR OF HALF PRICE ENTERPRISES PTY LTD (IN LIQUIDATION) (ACN 119 943 332)
First Plaintiff
HALF PRICE ENTERPRISES PTY LTD (IN LIQUIDATION) (ACN 119 943 332)
Second Plaintiff
AND: KILMALLOCK (ACT) PTY LTD (ACN 052 195 614)
Interested Person
CROCI AUSTRALIA PTY LTD (ACN 059 529 887)
Interested Person
ORDER MADE BY:
MARKOVIC J
DATE OF ORDER:
7 JUNE 2021
THE COURT ORDERS THAT:
1.Pursuant to s 37AF and s 37AG(1)(a) 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, the following documents be marked confidential on the Court file and not be published, disclosed or accessed except pursuant to an order of the Court and that their contents be suppressed for 12 months or until the date of the conclusion of any proceeding commenced by the plaintiffs as contemplated in paragraph 1 of their originating process filed in this proceeding or foreshadowed by the first plaintiff as against the director of Half Price Enterprises Pty Ltd (In Liquidation) for insolvent trading, whichever is the later:
(a)confidential affidavit of Peter Paul Krejci sworn 13 April 2021;
(b)exhibit PPK-2 to the confidential affidavit of Peter Paul Krejci sworn 13 April 2021; and
(c)the second sentence of paragraph 17, the third and fourth sentences of paragraph 18 and the second sentence of paragraph 42 of the submissions filed by the plaintiffs on 2 June 2021.
2.Pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth) (Act), the time for making an application under s 588FF(1) of the Act in relation to the following transactions be extended for a period of 12 months from the date of this order:
(a)payments made by the second plaintiff to Kilmallock (ACT) Pty Ltd totalling $690,656.44 in the period from 17 October 2017 to 16 April 2018; and
(b)payments made by the second plaintiff to Croci Australia Pty Ltd totalling $328,354.15 in the period from 17 October 2017 to 16 April 2018.
3.Pursuant to s 477(2B) of the Act, the plaintiffs have leave, nunc pro tunc, to enter into the funding agreement in the form exhibited to the confidential affidavit of Peter Paul Krejci sworn 13 April 2021.
4.The plaintiffs’ costs of this proceeding be paid from the assets of the second plaintiff as a priority within the meaning of s 556(1)(a) of the Act.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MARKOVIC J:
On 7 June 2021 I made an order pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth) (Act) extending for 12 months the period in which the first plaintiff, Peter Paul Krejci in his capacity as liquidator of Half Price Enterprises Pty Ltd (in liquidation) (Liquidator), can make an application under s 588FF(1) of the Act in relation to payments made by the second plaintiff, Half Price, in the period from 17 October 2017 to 16 April 2018 to Kilmallock (ACT) Pty Limited totalling $690,656.44 and to Croci Australia Pty Ltd totalling $328,354.50 and an order pursuant to s 477(2B) of the Act granting approval nunc pro tunc for the Liquidator to enter into a funding agreement (Second Funding Agreement). These are my reasons for making those orders.
The Liquidator relied on two affidavits sworn by him on 13 April 2021, the first an open affidavit and the second a confidential affidavit (Confidential Krejci Affidavit), and an affidavit sworn by his solicitor, Mark Robert Petrucco, on 2 June 2021. The Liquidator sought orders pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) (FCA Act) in relation to the Confidential Krejci Affidavit, the exhibit thereto and parts of their submissions (together the Confidential Material) on the ground that it would prevent prejudice to the proper administration of justice if the Confidential Material was to be disclosed.
Given the nature of the information contained in the Confidential Material, I was satisfied that it was appropriate to make the order sought. In the circumstances of a case such as this one, an order of that nature supports the public interest in the due and beneficial administration of the estates of insolvent companies for the benefit of creditors: see Chin, in the matter Agatha Trading Pty Ltd (in liq) [2020] FCA 991 (Chin) at [8].
BACKGROUND
Half Price conducted a business supplying and installing plantation and roller shutters, blinds, alfresco screens, awnings and security doors in the Greater Sydney area and the Australian Capital Territory. It employed approximately 30 staff, operated from leased premises in Seven Hills, New South Wales and had sales revenue of approximately $10 million per year for each of the financial years ending 30 June 2014, 30 June 2015, 30 June 2016 and 30 June 2017.
The Liquidator’s appointment and initial investigations
On 16 April 2018 the Liquidator was appointed as voluntary administrator of Half Price pursuant to s 436A of the Act. Upon his appointment he conducted an urgent assessment of Half Price’s business and financial position, the results of which led to a decision for the business to immediately cease trading and to terminate most of the staff. In his report to creditors dated 14 May 2018 the Liquidator recommended that Half Price be wound up in insolvency. On 20 July 2018 at the adjourned second meeting of creditors Half Price was placed into liquidation.
Following his appointment to Half Price, the Liquidator and his staff conducted a detailed analysis of the financial position and solvency of Half Price which revealed that Half Price was likely cash flow insolvent from at least 30 June 2016 and may have been balance sheet insolvent from as early as 30 June 2010. At that time the Liquidator assessed, after taking into account expected asset realisations, that there was likely to be a net deficiency of assets of approximately $6.2 million.
The Commonwealth of Australia, through the Fair Entitlement Guarantee Scheme, has paid a total of $592,805.94 for employee entitlements to eligible employee creditors of Half Price.
Since his appointment the Liquidator has undertaken various tasks which are set out in detail in his open affidavit. It is not necessary to set them out in full save to note that those tasks include conducting preliminary investigations into the affairs of Half Price, including potential voidable transactions and recovery claims; given the nature of Half Price’s business, dealing with a significant volume of customer enquiries; obtaining advice on potential recovery claims; and over a period of some 15 months preparing and submitting confidential applications for funding to pursue potential recovery claims.
Funds available to the Liquidator
Relevantly, there are presently only limited funds available in Half Price’s liquidation account. As at 13 April 2021 the accrued work in progress for work undertaken in respect of the liquidation exceeded the amount held in the liquidation account. The Liquidator does not at present have sufficient funds in the liquidation to enable his staff to carry out necessary further investigation work and work associated with instructing solicitors or to instruct lawyers to conduct further investigations in relation to potential recovery actions for the benefit of creditors.
The Liquidator says that unless further recoveries are made from the potential recovery claims that he has identified (see [13] below) there will be no dividend paid to any class of creditor in the liquidation.
The Liquidator explains that at all times at which there have been funds in the administration, aside from the payment of the administrator’s/Liquidator’s remuneration, those funds have been used to carry out the various tasks undertaken to progress the administration/liquidation. Due to the limited funds available the Liquidator has had to prioritise the steps taken in relation to potential recovery actions and their timing. It is only now, having secured third party funding (see [16] below), that there will be sufficient funds available in the liquidation to enable the Liquidator to conduct further detailed investigations.
The Liquidator sought an extension of time under s 588FF(3)(b) of the Act and approval to enter into the Second Funding Agreement to enable him to undertake further investigations, including by conducting public examinations of relevant witnesses and or prospective defendants and obtaining legal advice for the benefit of Half Price’s creditors, while preserving the potential claims he has identified against Kilmallock and Croci.
Possible recovery actions
As set out at [8] above, following his appointment one of the tasks undertaken by the Liquidator and his staff was a preliminary investigation of possible recovery actions against third parties. Those investigations revealed:
(1)a potential claim for insolvent trading against the company’s director, Mr Lowrey, for approximately $1.8 million. That claim does not become statute-barred until 30 July 2024 and the Liquidator has taken certain steps to progress that claim; and
(2)potential unfair preference claims under ss 588FA, 588FE and 588FF of the Act against each of Kilmallock and Croci who were trade suppliers to Half Price. The Liquidator has taken limited steps in relation to these potential claims. On 9 April 2021 he caused letters of demand to be sent by his solicitors, Hall & Wilcox, to each of those companies in respect of the claim. Kilmallock subsequently responded by way of a detailed letter denying that it is liable and setting out why it says that is so. No detailed response has been received from Croci. Kilmallock and Croci were each given notice of the application for an extension of time under s 588FF(3)(b) of the Act and informed the Liquidator, through their respective lawyers, that they did not oppose the application.
The Liquidator explains that Kilmallock and Croci may have defences available to them under the Act which would need to be considered prior to commencement of any recovery proceeding. Indeed, as I have already noted, Kilmallock has provided a detailed response to the alleged claims. To date, the Liquidator has not had sufficient assets available to him to progress any detailed investigations in relation to any possible defences to these potential claims, including in the form of conducting public examinations.
Funding
Since the commencement of the liquidation the Liquidator has pursued avenues to secure funding to facilitate further investigations and recovery action processes with the view that, if successful, they would provide a return to creditors. Those attempts are set out in detail in the Krejci Confidential Affidavit. It is not necessary to set them out here. In summary, since October 2018 the Liquidator has been negotiating with the Commonwealth acting through the Department of Jobs and Small Business and subsequently the Attorney-General’s Department to secure funding. On 9 May 2019 he entered into a funding agreement with Half Price and the Commonwealth for the provision of limited funding to obtain advice in relation to the potential insolvent trading claim against Mr Lowrey. On 12 April 2021 the Liquidator entered into the Second Funding Agreement with Half Price and the Commonwealth following his continued negotiations throughout 2019 and 2020, the terms of which are confidential.
As the Liquidator has only recently secured third party funding to enable him to conduct further investigations into to the affairs of Half Price, including in relation to the potential unfair preference claims identified against Kilmallock and Croci, he seeks a 12-month extension of the limitation period which, subject to this application, expired on 16 April 2021. The Liquidator considers a 12-month extension to be a reasonable timeframe in which to complete his further investigations and, if he determines that claims are available, to obtain further funding to commence those claims.
The Liquidator is not aware of any particular prejudice that will arise to Kilmallock or Croci if the extension is granted. However, in his view if the extension sought is not granted the unsecured creditors of Half Price will suffer prejudice because they will lose the potential to pursue recovery actions which, if successful, could result in a dividend being paid to them.
APPLICATION FOR AN EXTENSION OF TIME UNDER S 588FF(3)(B) OF THE ACT
Legal principles
Section 588FF of the Act relevantly provides:
(1)Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:
(a)an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;
(b)an order directing a person to transfer to the company property that the company has transferred under the transaction;
(c)an order requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction;
(d)an order requiring a person to transfer to the company property that, in the court’s opinion, fairly represents the application of either or both of the following:
(i)money that the company has paid under the transaction;
(ii)proceeds of property that the company has transferred under the transaction;
(e)an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction;
(f)if the transaction is an unfair loan and such a debt, security or guarantee has been assigned--an order directing a person to indemnify the company in respect of some or all of its liability to the assignee;
(g)an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company;
(h)an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time;
(i)an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time;
(j)an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable.
…
(3) An application under subsection (1) may only be made:
(a) during the period beginning on the relation-back day and ending:
(i)3 years after the relation-back day; or
(ii)12 months after the first appointment of a liquidator in relation to the winding up of the company;
whichever is the later; or
(b)within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period.
In Vaughan v Catanzariti, in the matter of Italian Prestige Jewellery Pty Limited (in Liq) [2018] FCA 1403 at [29] and [31]-[32] I set out the following principles relevant to the exercise of the discretion to extend time under s 588FF(3)(b) of the Act:
29In McGrath v National Indemnity Company (2004) 182 FLR 309; [2004] NSWSC 391 at [18] Barrett J held that “the ambiguity in s 588FF(3)(b)” should be resolved in favour of a construction under which an extension order made after the period of three years has expired is effective for the purposes of the section provided that the application upon which the order was made was itself, by the filing of the appropriate initiating process, within that period.
…
31Section 588FF(3)(b) of the Act confers a discretion on the Court. In Marsden (liquidator) v CVS Lane PV Pty Limited, in the matter of Pentridge Village Pty Limited (in liq) (receiver and manager appointed) (controller appointed) (2018) 124 ACSR 100; [2018] FCA 102 at [54]-[55] Gleeson J set out the principles which guide the exercise of that discretion:
54The Court is required to consider what is fair and just in all the circumstances: BP Australia Ltd v Brown (2013) 58 NSWLR 322; [2003] NSWCA 216 (BP Australia) at [187]. The applicant for the extension must satisfy the Court that it should be granted: BP Australia at [183].
55The matters that ordinarily inform the exercise of the Court’s discretion are:
(1)the liquidator’s explanation for the delay in taking action within the three year period provided for by the statute;
(2)the merits of the foreshadowed proceeding, assessed by a “preliminary review”; and
(3)any likely prejudice that would be suffered if the extension of time is granted: Parker, Re Worldwide Specialty Property Services Pty Ltd (in liq) v Worldwide Specialty Property Services Pty Ltd (in liq) [2017] FCA 687 at [15]-[16]; Walker and Moloney v CBA Corporate Services (NSW) Pty Ltd [2012] FCA 328 (Walker) at [43].
32In Walker and Moloney v CBA Corporate Services (NSW) Pty Limited (2012) 88 ACSR 153; [2012] FCA 328 at [44] Nicholas J said the following about the issue of the assessment of the merits of a proposed action in circumstances where an extension is sought to permit further investigation:
The preliminary review of the merits of the proposed proceedings is “an investigation as to whether such proceedings would be so devoid of prospects that it would be unfair, by granting an extension, to expose the other party to the continuing prospect of suit”: Green v Chiswell Furniture Pty Ltd (in liq) [1999] NSWSC 608 at [15] (Green) per Austin J. However, a review of the merits may be unnecessary if the purpose of the application for an extension of time is to allow the liquidator time in which to properly decide whether or not to bring the proposed proceedings: Green per Austin J at para [15]; see also the summary of the relevant principles of White J in New Cap Reinsurance Corporation Ltd (in liq) v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [52]-[55].
In Re Clare Castle Pty Ltd (in liq) (2011) 255 FLR 435 at [129]-[142] Ward J (as her Honour then was) considered the relevance of delay in assessing what is fair and just in all the circumstances in the context of an application under s 588FF(3)(b) of the Act. In particular at [134] her Honour said:
Circumstances of the kind that may be relevant to a consideration of delay on the part of a liquidator can be gleaned from the judgment of Finn J in Taylor v Woden (to which reference was made by Barrett J in Arnautovic) in which reference was made to indications in the material there before the court as to matters such as the complexity of the affairs of the companies and the gross deficiencies in records; the lack of assets in the companies and hence lack of financial resources to fund an investigation; “importantly, the need to obtain, and the time lag involved in obtaining, financial backing for the investigation”; the place of this event in the web of matters in respect of which legal proceedings could be considered and on which advice was necessary; the other proceedings that have already been brought on; and the course the liquidator was then taking in holding a s 596A examination for the purpose of obtaining further evidence. In Itek, Burley J noted the listing of those relevant factors by Finn J as of assistance in identifying what may need to be established by the applicant in any given case.
In Donnellon Childcare Holdings Pty Ltd (in liq), in the matter of Donnellon Childcare Holdings Pty ltd (in liq) v Donnellon [2020] FCA 1003 at [31] Reeves J observed that a liquidator’s hesitancy to take action in circumstances where he or she is without funds may be a relevant factor in considering any explanation for the delay in the context of an application under s 588FF(3)(b) of the Act.
Consideration
As I have already observed the period for commencement of any proceeding pursuant to s 588FF(1) of the Act would have expired on 16 April 2021 unless an order was made under s 588FF(3)(b) extending the period in which such a proceeding can be commenced. As the originating process was filed prior to the expiry of the limitation period on 14 April 2014, an extension order made after the expiry of the three year period, as is the case here, is effective.
The first question to consider is the explanation for the delay in commencing proceedings.
The Liquidator has been hesitant in commencing any proceedings until completion of further investigations including conducting public examinations. I accepted that further investigations are necessary in order to test any possible defences and assess the overall utility of pursuing the contemplated proceedings against Kilmallock and Croci. This is particularly so in light of the position notified by Kilmallock to the Liquidator, through his lawyers.
I also accepted that although funds had been received during the course of the liquidation, for example by way of settlement of a preference claim against the Australian Taxation Office, those funds had to be expended on other aspects of the liquidation, including the various tasks which the Liquidator identified had been undertaken by him and his staff. It is evident that the Liquidator initially prioritised investigation of the potential insolvent trading against Mr Lowrey. Given the potential magnitude of that claim, no criticism can be made of the Liquidator for doing so.
The Liquidator’s evidence disclosed that, upon the funding becoming available, he acted quickly to file his application for an extension of time.
In my view the Liquidator provided an adequate explanation for the delay.
As to merit of the potential claims, given the Liquidator’s intention to use the period of any extension to facilitate further investigations, it is not apposite to review the merits of the potential proceedings. The question is whether there is merit in the liquidator undertaking further investigations: see Chin at [35]. Based on the evidence before me I was satisfied that there was merit in permitting the Liquidator to proceed with his further proposed investigations.
The Liquidator is of the opinion that he does not consider there to be any particular prejudice to Kilmallock or Croci in allowing the extension application. This opinion was, in my view, supported by the fact that neither of those companies appeared at the hearing of the Liquidator’s application and each of them informed the Liquidator that they did not oppose the application. The only prejudice identified by the Liquidator was that to the unsecured creditors if the extension application is not successful.
Balancing the public policy considerations in maintaining limitation periods with the explanation for delay, the benefit of the proposed further investigations and the potential prejudice to unsecured creditors, I was satisfied that it was fair and just in the circumstances of this case to make an order extending the time under s 588FF(3)(b) of the Act. Given the nature of the investigations that the Liquidator intends to undertake, including by way of public examination, I was satisfied that it was appropriate to allow an extension of 12 months.
APPLICATION FOR APPROVAL UNDER S 477(2)(B) OF THE ACT
Legal principles
Section 477(2) of the Act sets out the powers of a liquidator. Those powers are conditioned by s 477(2B) which provides:
Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company’s behalf (for example, but without limitation, a lease or an agreement under which a security interest arises or is created) if:
(a) without limiting paragraph (b), the term of the agreement may end; or
(b)obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;
more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.
In Robinson, in the matter or Reed Constructions Australia Pty Lt (in liq) [2017] FCA 594 at [33]-[37] Gleeson J set out the principles relevant to the consideration of an application for approval by a liquidator of a company under s 477(2)(B) of the Act as follows:
[33]In Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89; (2011) 85 ACSR 38 (“Fortress”) at [40], the Full Court observed that, in considering whether to give approval under s 477(2B), the Court must consider the purposes for which the powers of a liquidator exist. Those purposes include the recovery of funds for the benefit of creditors: McGrath and Another (in their capacity as liquidators of HIH Insurance Limited and Others) [2010] NSWSC 404; (2010) 266 ALR 642 at [13]; Pascoe; re Brentwood Village Ltd (in liq) [2014] FCA 1295, [44].
[34]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 (“Cassegrain”) at [11] per Black J citing Re McGrath (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; (2010) 266 ALR 642.
[35]In Pascoe; reMatrix Group Ltd (in liq) [2011] FCA 1117 (“Pascoe”) at [7], Jacobson J cited with approval the following statement by Austin J of the relevant test in Leigh; Re AP & 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.
[36]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.
[37]In Fortress, at [24], the Full Court endorsed the following comprehensive list of factors (identified by Austin J in Leigh re AP& PJ King Pty Ltd (in liq) [2006] NSWSC 315 at [25] and Re ACN 076 673 875 Ltd (rec’r & mgr apptd) (in liq) [2002] NSWSC 578; (2002) 42 ACSR 296 at [17]–[34]) relevant to the Court’s assessment of a proposed litigation funding agreement:
(1) the prospects of success of the proposed litigation;
(2) the interests of creditors other than the proposed defendant;
(3) possible oppression;
(4) the nature and complexity of the cause of action;
(5) the extent to which the liquidator has canvassed other funding options;
(6) the level of the funder’s premium;
(7) consultations with creditors; and
(8) the risks involved in the claim.
However, the Court does not simply rubber stamp whatever is put before it by a liquidator. Further, the public interest may be a relevant consideration in deciding whether to grant approval of a litigation funding agreement: see In the matter of Australian Vocational Learning Institute Pty Ltd (in liq) [2019] FCA 1638 at [20]-[21].
The terms of s 477(2B) of the Act require that the liquidator of a company not enter into an agreement on the company’s behalf that contravenes the terms of the section except with the approval of the Court, the committee of inspection or a resolution of the creditors. Notwithstanding that prohibition, the Court has the power in appropriate circumstances to make an order nunc pro tunc where a liquidator has, as is the case here, entered into an agreement without first seeking the necessary approval: see Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) (No 2) [2017] FCA 755 at [27].
Consideration
I was satisfied that an order should be made approving the entry into of the Second Funding Agreement by the Liquidator. The terms of the Second Funding Agreement are included in the exhibit to the Confidential Krejci Affidavit and cannot be disclosed. However, based on my review of them and the Liquidator’s evidence about entry into the Second Funding Agreement, it is clear that the Second Funding Agreement is in the best interest of Half Price’s creditors (other than the proposed defendants). Its terms are not unusual or onerous in nature and are, indeed, favourable to Half Price and its creditors. Further, it is the only available way for the Liquidator to pursue his further investigations and to carry out public examinations. Those steps are necessary in order to better understand the relevant background and facts so as to permit the Liquidator to form a view about whether proceedings should be commenced either against Mr Lowrey for insolvent trading and/or against Kilmallock or Croci in relation to the payments they received.
The Liquidator entered into the Second Funding Agreement prior to obtaining the Court’s approval. While that is clearly not what s 477(2B) of the Act contemplates or, indeed, requires, and ought not be the usual course, I was satisfied in the circumstances, and given the conditional operation of the Second Funding Agreement and the efficiency with which the application for approval was made, that the order could be made nunc pro tunc.
CONCLUSION
For those reasons I made the orders sought by the plaintiffs in their originating process filed on 14 April 2021.
I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic. Associate:
Dated: 16 July 2021
12
21
2