Langdon, in the matter of Phoenix Institute of Australia Pty Ltd (in liq) (No 2)

[2021] FCA 571

FEDERAL COURT OF AUSTRALIA

Langdon, in the matter of Phoenix Institute of Australia Pty Ltd (in liq) (No 2) 2021 FCA 571  

File number:

NSD 1329 of 2020

Judgment of:

YATES J

Date of judgment:

27 May 2021

Catchwords:

CORPORATIONS – application for approval under s 477(2B) of the Corporations Act 2001 (Cth) for special liquidators to enter into a funding agreement on behalf of the company – application under s 37AF of the Federal Court of Australia Act 1976 (Cth) for confidentiality orders

Legislation:

Corporations Act 2001 (Cth) ss 477(2B), 588FF(1), 588FF(3)(b), 596A, 596B, 597(9)

Federal Court of Australia Act 1976 (Cth) s 37AF

Cases cited:

Commonwealth of Australia (Department of Education, Skills and Employment) v Phoenix Institute of Australia Pty Ltd (in liq) [2020] FCA 937

Langdon (Liquidator), in the matter of Phoenix Institute of Australia Pty Ltd (in liq) [2021] FCA 180

Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257

Division: 

General Division

Registry:

New South Wales

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Number of paragraphs:

9

Date of hearing:

27 May 2021

Counsel for the Plaintiffs:

Z M Hillman

Solicitors for the Plaintiffs:

Clayton Utz

ORDERS

NSD 1329 of 2020

IN THE MATTER OF PHOENIX INSTITUTE OF AUSTRALIA PTY LTD (IN LIQUIDATION) ACN 084 806 575

SCOTT LANGDON AND JENNIFER NETTLETON IN THEIR CAPACITY AS ADDITIONAL LIQUIDATORS OF PHOENIX INSTITUTE OF AUSTRALIA PTY LTD (IN LIQUIDATION) ACN 084 806 575

Plaintiff

ORDER MADE BY:

YATES J

DATE OF ORDER:

27 MAY 2021

THE COURT ORDERS THAT:

1.Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), approval be granted to the second and third plaintiffs, on behalf of the first plaintiff, Phoenix Institute of Australia Pty Ltd (in liquidation), to enter into the funding agreement, a draft of which is exhibited to the affidavit of Jennifer Nettleton sworn on 25 May 2021.

2.Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), on the ground that it is necessary to prevent prejudice to the proper administration of justice, the following parts of the affidavit of Jennifer Nettleton sworn on 25 May 2021, and the following documents exhibited to that affidavit, not be disclosed to any person until the conclusion of the liquidation, except with the leave of the Court:

(a)paragraph 36 and the second sentence of paragraph 39(c); and

(b)the documents at Tabs 6, 7, 9 and 10 of JN-3.

3.The plaintiffs’ costs of this application be costs in the liquidation of Phoenix Institute of Australia Pty Ltd (in liquidation).

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

YATES J:

1. On 4 June 2020, the Court made orders in proceeding NSD 581 of 2020 appointing additional liquidators (the special purpose liquidators) to Phoenix Institute of Australia Pty Ltd (in liquidation) (the Company): Commonwealth of Australia (Department of Education, Skills and Employment) v Phoenix Institute of Australia Pty Ltd (in liq) [2020] FCA 937. At that time, the Court also granted approval to the special purpose liquidators to enter into, on behalf of the Company, a funding agreement with the Commonwealth of Australia (the Commonwealth), acting through the Department of Education, Skills and Employment (the Department) in relation to (what was described as) the “first phase” of the Scope of Work they were appointed to carry out.  The Scope of Work was specified in Annexure “A” to the orders.

2. By interlocutory application filed in this proceeding on 26 May 2021, the special purpose liquidators seek an order that approval be granted for them to enter into, on behalf of the Company, a proposed second funding agreement with the Commonwealth acting through the Department. This application is necessary because s 477(2B) of the Corporations Act 2001 (Cth) (the Act) limits the power of a liquidator to enter into agreements where the term of the agreement, or the time for performance under it, extends beyond three months.  The proposed second funding agreement is of that kind.

3. I note two further matters. First, over 10 days in the period 25 February to 18 March 2021, the special purpose liquidators carried out examinations under ss 596A and 596B of the Act with respect to the Company’s examinable affairs. They also sought and obtained the production of documents pursuant to s 597(9) of the Act. Following the examinations, the special purpose liquidators obtained opinions and advice from counsel and solicitors retained on their behalf.

4. Secondly, on 22 February 2021, the Court made orders pursuant to s 588FF(3)(b) of the Act extending the time for the special purpose liquidators to make an application under s 588FF(1) with respect to possible voidable transactions. The extended time was up to and including 30 June 2021: Langdon (Liquidator), in the matter of Phoenix Institute of Australia Pty Ltd (in liq) [2021] FCA 180.

5. The application for approval of the second funding agreement is supported by an affidavit made on 25 May 2021 by one of the special purpose liquidators, Ms Nettleton.  In her affidavit, Ms Nettleton gives an account of other tasks undertaken by the special purpose liquidators since their appointment.  She also discusses the proposed second funding agreement and deposes to the likely benefits to the Company of entering into it. 

6. The special purpose liquidators seek an order providing for the non-disclosure of certain paragraphs of Ms Nettleton’s affidavit, and certain documents exhibited to it as part of a folder of documents marked JN-3, including the proposed second funding agreement itself.   I am prepared to make an order on the ground that it is necessary to prevent prejudice to the proper administration of justice.  With that in mind, it is not appropriate that I discuss the proposed agreement other than to note that a copy is in evidence and that its terms have been brought to the Court’s attention. 

7. In considering whether to grant approval under s 477(2B) of the Act, it is not for the Court to supplant the exercise of a liquidator’s judgment as to the commercial desirability of the agreement itself. Rather, the Court is concerned to determine whether entry into the agreement, on behalf of the company concerned, is a proper and bona fide exercise of the liquidator’s powers: Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257 at [11]. I have reached that state of satisfaction in the present case, having regard to the background against which the present application is brought, the reason and purpose for the appointment of the special purpose liquidators, and the scope of work that is now proposed to be undertaken with the assistance of the funding to be provided.

8. One matter that the special purpose liquidators have specifically addressed in submissions is the fact that they have not canvassed other funding options.  They submit that, having regard to the terms of the proposed second funding agreement, it may be assumed that the likelihood of such action resulting in them receiving funding on better terms than is presently offered is low.  They submit that it is appropriate that they now take a pragmatic approach in limiting the time spent in seeking out funding opportunities, given the offer of funding they have been able to obtain.  I accept those submissions.  I do note that, even though alternative funding has not been sought, the special purpose liquidators consider the terms of the proposed second funding agreement to be commercially attractive.

9. The orders that are sought will be made, subject to slight revision as to the parts of Ms Nettleton’s affidavit in respect of which an order will be made under s 37AF(1) of the Federal Court of Australia Act 1976 (Cth), as discussed with counsel.

I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates.

Associate:

Dated:       27 May 2021