Nipps (Liquidator), in the matter of Dimension Agriculture Pty Ltd (in liq)

[2024] FCA 1070

FEDERAL COURT OF AUSTRALIA

Nipps (Liquidator), in the matter of Dimension Agriculture Pty Ltd (in liq) [2024] FCA 1070

File number:

WAD 239 of 2024

Judgment of:

BANKS-SMITH J

Date of judgment:

12 September 2024

Date of publication of reasons:

13 September 2024

Catchwords:

CORPORATIONS - application made by liquidator under s 477(2B) and s 506(1A) of the Corporations Act 2001 (Cth) for retrospective approval of entry into a funding agreement and approval of entry into retainer agreement - whether a proper exercise of the liquidator's powers - suppression orders - application allowed

Legislation:

Corporations Act 2001 (Cth) ss 477, 506

Federal Court of Australia Act 1976 (Cth) ss 37AF, 37AG

Cases cited:

Brown v DML Resources Pty Ltd (In liq) (No 2) [2001] NSWSC 590; (2001) 52 NSWLR 685

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

Goyal (liquidator), in the matter of OLI 1 Pty Ltd (in liq) [2020] FCA 450

Harvard Nominees Pty Ltd v Tiller (No 2) [2020] FCA 604

Harvard Nominees Pty Ltd v Tiller (No 4) [2022] FCA 105

Harvard Nominees Pty Ltd v Tiller [2020] FCAFC 229; (2020) 282 FCR 530

Hundy (liquidator), in the matter of 3 Property Group 13 Pty Ltd (in liquidation) (No 2) [2023] FCA 173

Kitay v Frigger [No 2] [2024] WASC 113

McGrath Re HIH Insurance Ltd [2005] NSWSC 731

Division:

General Division

Registry:

Western Australia

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Number of paragraphs:

43

Date of hearing:

12 September 2024

Counsel for the Plaintiff:

Mr JF Nagle

Solicitor for the Plaintiff:

Edwards Mac Scovell l

ORDERS

WAD 239 of 2024

IN THE MATTER OF DIMENSION AGRICULTURE PTY LTD (IN LIQUIDATION) (ACN 631 148 528)

JEREMY JOSEPH NIPPS AS LIQUIDATOR OF DIMENSION AGRICULTURE PTY LTD (IN LIQUIDATION) (ACN 631 148 528)

Plaintiff

ORDER MADE BY:

BANKS-SMITH J

DATE OF ORDER:

12 SEPTEMBER 2024

THE COURT ORDERS THAT:

1.Pursuant to s 477(2B) and s 506(1A) of the Corporations Act 2001 (Cth), the plaintiff, as liquidator of Dimension Agriculture Pty Ltd (In Liquidation), be granted approval nunc pro tunc to enter into, on the Company's behalf, the litigation funding agreement in the form that appears at Annexure 'JJN-11' to the Affidavit of Jeremy Joseph Nipps affirmed 30 August 2024 (Nipps Affidavit).

2.Pursuant to s 477(2B) and s 506(1A) of the Corporations Act 2001 (Cth), the plaintiff, as liquidator of Dimension Agriculture Pty Ltd (In Liquidation), be granted approval to enter into, on the Company's behalf, a retainer agreement in terms substantially similar to the draft retainer agreement that appears at Annexure 'JJN-12' to the Nipps Affidavit.

3.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, made available (whether electronically or otherwise), disclosed to or accessed by any person or entity other than the plaintiff and his legal representatives without prior notice being provided to the plaintiff, and not until the conclusion of the liquidation of the Company or until further order of the Court, whichever is the earlier:

(a)the unredacted copy of the Nipps Affidavit;

(b)Exhibits 'JJN-7', 'JJN-11' (excluding pages 141 and 151), 'JJN-12' and 'JJN-13' to the Nipps Affidavit;

(c)the unredacted copy of the written submissions filed on 4 September 2024 in support of this application; and

(d)any transcript of the hearing of this application.

4.The plaintiff is to file by 5:00pm on 13 September 2024:

(a)the Nipps Affidavit with paragraphs 39, 52 to 61, 75 to 77, 82 to 91, 93 to 96, 98 to 108, 109(b) and (c), 112 and 115 redacted (and subject to order 3(b) above); and

(b)the submissions filed on 4 September 2024 in support of this application with paragraphs 21 and 23 to 26 redacted.

5.The costs of and incidental to this application be costs in the liquidation of the Company.

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

REASONS FOR JUDGMENT

BANKS-SMITH J:

1. Mr Jeremy Nipps is the liquidator of Dimension Agriculture Pty Ltd (in liq).  On 12 September 2024 I made orders granting retrospective approval of the liquidator's entry into a litigation funding agreement relating to proposed litigation to be brought by Dimension and the liquidator against Mr Giovanni Nicoletti.  I also granted approval for the liquidator to enter into a solicitors' retainer agreement relating to the proposed litigation.  Certain suppression orders were made in relation to documents on the Court record.  These are my reasons for making those orders.

   Background

2. The proposed litigation follows litigation in this Court the subject of a number of decisions, including relevantly Harvard Nominees Pty Ltd v Tiller (No 2) [2020] FCA 604 (PJ); Harvard Nominees Pty Ltd v Tiller [2020] FCAFC 229; (2020) 282 FCR 530 (Appeal); and Harvard Nominees Pty Ltd v Tiller (No 4) [2022] FCA 105 (Partial re-trial).

3. The background can be summarised in general by having regard to the reasons in the above proceedings and the unredacted parts of the liquidator's affidavit filed in support of this application.

4. Prior to Dimension's incorporation, Mr Simon Tiller leased certain farms, one of which was owned by Harvard Nominees Pty Ltd, Mr John Caratti and Mr Allen Caratti.  Mr Tiller was in financial trouble and was believed to be paying below market rates to lease the farms:  PJ [334]‑[336], [365].

5. Dimension was incorporated on 22 January 2019.  ASIC records indicate that at the time of incorporation, the directors of Dimension were Mr Tiller and Mr Bryce, and Mr Bryce was the sole shareholder of Dimension.

6. There were other various sub-leases and arrangements, but relatively on or around 8 February 2019, Dimension entered into several deeds under which Dimension and Mr Tiller leased the farms from Harvard: PJ [2].

7. One week later, on 15 February 2019, Mr Tiller assigned his interest in the leases to Dimension and relinquished any involvement in the farms: PJ [4].

8. On 28 February 2019, just over one month after Dimension was incorporated, Mr Nicoletti was appointed a director and became the sole shareholder of Dimension, and Mr Tiller resigned as a director of Dimension, as evidenced by ASIC records.

9. Harvard became aware of Mr Nicoletti's involvement in Dimension and the operation of the farms and commenced proceedings against Dimension, Mr Tiller, Mr Nicoletti and Mr Bryce.  Harvard claimed the defendants had engaged in misleading or deceptive conduct and sought damages, a declaration that Dimension's leases of the farms were void, and delivery up of the farms:  PJ [24]-[27].

10. Judgment in the proceeding (PJ) was delivered on 11 May 2020.

11. On about 10 January 2021, Dimension delivered up vacant possession of the farms to Harvard.

12. Following the Appeal, aspects of the proceedings were remitted and were the subject of the Partial re-trial.  Orders were made on 8 March 2022 following the Partial re-trial, requiring Dimension to pay Harvard a total of $2,269,413.49.

13. Dimension did not pay the judgment debt to Harvard and the liquidator was appointed liquidator of Dimension on 21 March 2022.

14. As a result of his investigations to date, the liquidator has come to the view that it appears Dimension's activities involved little more than being the lessee of the farms, which were effectively controlled and managed by Mr Nicoletti and his company, Apache Investments Australia Pty Ltd.  It appears Dimension did not carry on any other business, have any trade creditors, have any employees or any source of income, save for payments or loans made to it by Apache for the purpose of servicing the leases, paying related taxes and expenses, and defending the proceedings in this Court to which I have referred.

15. Dimension's cash at bank (as at the date of the liquidator's affidavit) was $510.81 and it had no other material assets.

16. The liquidator has investigated potential claims that might be brought by Dimension against Mr Nicoletti in relation to his conduct as a director of Dimension, arising from the subject matter of the proceedings and Dimension's incurring of the debt to Harvard (Nicoletti claims).  Expressed generally, the liquidator has formed the view in his commercial judgment that there is a sound and reasonable basis upon which to pursue the Nicoletti claims.

17. Save for the Nicoletti claims, the liquidator has not been able to identify any assets that would allow for a dividend to be paid to any creditors of Dimension.

18. The liquidator is not in a position to pursue the Nicoletti claims without funding.

    Principles

19. A liquidator has the power to do all such things as are necessary for winding up the affairs of the company and distributing its property: s 477(2)(m) of the Corporations Act 2001 (Cth).

20. That power is qualified by s 477(2B) (extracted below), which requires approval from the Court, a committee of inspection or the creditors for a liquidator to enter into an agreement on the company's behalf, if the term of that agreement or obligations under it extend for more than three months.

21. The powers under s 477(2) and s 477(2B) are available to the liquidator in a case such as this, where the liquidator has been appointed in a voluntary winding up, as provided by s 506 of the Corporations Act.

22. In this case it is clear that the funding agreement and the retainer agreement include obligations that will extend beyond three months.  It is on this basis that the liquidator seeks relief.

23. Section 477(2B) of the Corporations Act provides as follows:

    477     Powers of liquidator

    …

    (2B)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.

24. The principles in relation to an application such as this, and in the context of a litigation funding agreement, were usefully collected by Wigney J in Hundy (liquidator), in the matter of 3 Property Group 13 Pty Ltd (in liquidation) (No 2) [2023] FCA 173 (3 Property Group (No 2)) and I respectfully adopt and extract that summary for convenience:

    [18]The reason that approval is required in respect of agreements which may operate or involve obligations that extend beyond three months is that such agreements tend to cut across the general expectation that the winding up of a company will proceed expeditiously:  Re HIH Insurance Ltd [2004] NSWSC 5 at [15]; Re Golden Sands Hospitality Pty Ltd (in liq) (No 2) [2017] NSWSC 450 at [15], [17].

    [19]The requirement to obtain approval of such agreements affords some protection against ill-advised or improper actions on the part of the liquidator:  Empire (Aust) Nominees Pty Ltd v Vince (2000) 35 ACSR 167; [2000] VSC 324 at [12]. The Court's task is not to second guess the liquidator's commercial judgment, but rather to determine whether there are grounds for suspecting a lack of good faith, some error of law or principle, or some other good reasons to intervene: Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-86; Leigh, re AP and PJ King Pty Ltd (in liq) [2006] NSWSC 315 at [23]; Stewart, re Newtronics Pty Ltd [2007] FCA 1375 at [26]; Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher & Barnet (2015) 89 NSWLR 110; [2015] NSWCA 85 at [125] (Bathurst CJ, with Beazley P, Macfarlan, Meagher and Barrett JJA agreeing).

    [20]In respect of funding agreements that require approval pursuant to s 477(2B) of the Corporations Act, the factors that may be relevant to assessing whether approval should be granted include: the manner in which the funding or indemnity will be provided under the agreement; the prospects of success of the proposed litigation; the risks involved in the claim; the interests of creditors other than the proposed defendant or respondent; possible oppression; the nature and complexity of the cause of action; the extent to which the liquidator has canvassed other funding options; the level of the funder's premium, if any; and the extent to which the liquidator has consulted with creditors: Leigh at [25]; Re ACN 076 673 875 Ltd (rec and mgr apptd) (in liq) (2002) 42 ACSR 296; [2002] NSWSC 578 at [16]-[34]; Hughes, in the matter of Sales Express Pty Ltd (in Liq) [2016] FCA 423 at [20].

    [21]The Court may give retrospective approval under s 477(2B) in appropriate circumstances: Hutchison v Hillcrest Litigation Services Ltd [2010] NSWSC 934 at [25]; Newtronics at [25]; Vickers, in the matter of York Street Mezzanine Pty Ltd (in liq) (2011) 196 FCR 479; [2011] FCA 1028 at [27]; Hird (Liquidator), in the matter of Allmine Group Limited (in liq) [2018] FCA 781 at [33].

    [22]A liquidator is not necessarily required to give creditors, or the defendant or respondent in proceedings that are to be funded by the agreement in respect of which approval is sought, notice of an application for approval of an agreement pursuant to s 477(2B): Re Bell Group Ltd (in liq) ACN 008 666 993 [2009] WASC 235 at [58]; Jones, Saker, Weaver and Stewart (Liquidators), in the matter of Great Southern Limited (in liq) (Receivers and Managers Appointed) [2012] FCA 1072 at [50]; Onefone Australia Pty Ltd v One.Tel Pty Ltd (2010) 78 ACSR 163; [2010] NSWSC 498 at [11]-[13], upheld on appeal in Deloughery & Ors v Weston (2010) 79 ACSR 180; [2010] NSWCA 148 at [36] (Giles JA and Handley AJA, with Spigelman CJ agreeing); Kogan, in the matter of Rogulj Enterprises Pty Ltd (in liq) [2021] FCA 856 at [35]; Thorn (liquidator), in the matter of South Townsville Developments Pty Ltd (in liq) [2022] FCA 143 at [52]-[57].

25. As this application also involves entry into the retainer agreement, I note that in Kitay v Frigger [No 2] [2024] WASC 113 at [79]-[91], Hill J collected and considered a number of authorities that considered whether a legal costs agreement is an agreement to which s 477(2B) applies. Her Honour concluded at [91]:

    On this basis, I consider that approval under s 477(2B) of the Act is required for agreements entered into by the liquidator as agent for or representative of the company, as well as agreements in the name of the company. However, approval is not required for entry into agreements by the liquidator in their own name. In determining whether the agreement has been entered into by the liquidator as agent for or representative of the company or in their own name, it is necessary to consider the substance of the agreement, whether the company is a party to the agreement or appears to have the status of a party under the agreement, and who receives the benefit of the services provided under the agreement.

26. The retainer agreement in this case (having regard to its introduction and signing clause, and without the need to reveal any confidential information) is proposed to be made between the law firm Hotchkin Hanly and the liquidator in his personal capacity, in his capacity as liquidator of Dimension and separately with Dimension. In those circumstances it is apparent that approval under s 477(2B) is required.

    Why approval is appropriate

27. The power to approve an agreement under s 477(2B) of the Corporations Act has been described as granting 'a discretion to permit an administrative step to be taken which would otherwise be prohibited':  Brown v DML Resources Pty Ltd (In liq)(No 2) [2001] NSWSC 590; (2001) 52 NSWLR 685 at [55], cited in 3 Property Group (No 2) at [24].

28. In the exercise of that power, I have taken into account a number of matters.

29. First, there is no reason to doubt the liquidator's assessment that there is a sound and reasonable basis upon which to bring the proposed claims against Mr Nicoletti.  The liquidator's affidavit goes into some further detail in this regard, but I accept the liquidator's submission that at this stage such information should not be disclosed, as to do so may prejudice the conduct of the proceedings:  3 Property Group (No 2) at [34]-[35].  A draft statement of claim setting out the Nicoletti claims was before the Court, and there is nothing on the face of the draft pleading that suggests the claims are spurious, an abuse of process, or the like.

30. Second, I have taken into account the fact that Harvard is the party that has offered to fund the litigation.  Harvard is the largest creditor in Dimension's liquidation.  There are few independent unsecured creditors and Harvard's interests are aligned with their interests, to the extent the proceedings are seeking to recoup funds for distribution to the creditors.  The liquidator has deposed to the fact that without funding, proceedings will not be pursued.  The access to funding from Harvard provides an opportunity for all unsecured creditors to receive some dividend in the liquidation if the litigation proceeds and succeeds, albeit that the value of that opportunity is presently uncertain.  Harvard will not be a party to the proceedings.  The liquidator considers there will be no prejudice to creditors by proceeding with the funding agreement and proposed litigation.

31. Third, the liquidator has taken independent advice from lawyers Edwards Mac Scovell as to the terms of the funding agreement and the retainer agreement.  The liquidator, having considered the advice received, is of the view that the terms proposed are reasonable (although one term might not be considered common or typical) and do not contain any onerous conditions.  The advice (which on its face would be privileged) is not before the Court, but I have no reason to doubt the liquidator's assessment.  Furthermore, I take into account that the liquidator has appropriately sought such advice from lawyers who were not on the record in the underlying litigation and will not be on the record in the proposed litigation relating to the Nicoletti claims.

32. Fourth, I have had regard to the terms of the funding agreement and proposed retainer agreement, which were attached to the affidavit of the liquidator.  It is appropriate that the terms remain confidential pending any further Court order.  Given the need to preserve such confidentiality, I will not refer to any particular terms.  However, on their face there is nothing in the agreements that would cause me to doubt the liquidator's assessment that the terms proposed are reasonable (even allowing for the fact that one term might not be considered common or typical) and do not include any onerous conditions.

33. Fifth, I place significant weight on the fact that despite the involvement of a litigation funder, the liquidator will retain the overarching control over the proposed proceedings, having regard to his fiduciary position including as an officer of Dimension, with concomitant duties to Dimension.  Importantly, the liquidator has disclosed that he intends to continue to retain Edwards Mac Scovell to advise him in relation to these aspects of his duties as a liquidator of Dimension.

34. Sixth, having regard to the terms of s 477(2B), I have taken into consideration (in the absence of any committee of creditors) whether the creditors should have been invited to approve entry into the respective agreements. The liquidator addressed this option in his affidavit. He presently understands that some creditors may be related to Mr Nicoletti. There is a rational basis for assuming that their consent to entry into a funding agreement would not be forthcoming. Other creditors are related to Dimension. In those circumstances the liquidator did not consider it appropriate to exercise a casting vote on a resolution, should such course have been required. I accept that in the present case, having regard to the identity of the creditors, it was appropriate to approach the Court for approval in the terms sought.

1. Seventh, nothing turns on the fact that this application proceeded ex parte.  A liquidator is not necessarily required to give creditors notice of such an application:  3 Property Group (No 2) at [22]. One could surmise that the person most interested in this application would be Mr Nicoletti or creditors related to him. Any opposition to the application would inevitably be influenced by self-interest. That is not a criticism of Mr Nicoletti but an objective inference.

2. Eighth, I have taken into account the retrospective nature of the application insofar as the funding agreement is concerned.  Approval can be given retrospectively:  3 Property Group (No 2) at [21]. Although the funding agreement was executed prior to this application being made, it is subject to and conditional on approval under s 477(2B). The liquidator deposed to the fact that such a course is not unusual as a liquidator seeks to 'lock down' the commercial terms of a funding agreement as soon as possible. I am satisfied that it is appropriate in the circumstances of this case that an order be made retrospectively insofar as the funding agreement is concerned.

3. The above matters persuaded me that it was appropriate to make the orders sought under s 477(2B).

   Suppression orders

4. The liquidator sought suppression orders under s 37AF of the Federal Court of Australia Act 1976 (Cth), initially in relation to all filed documents but revised at the hearing to apply only to parts of the documents. Whilst it may be acknowledged that in some cases 'blanket' suppression orders might be made on such an application (for example, Goyal (liquidator), in the matter of OLI 1 Pty Ltd (in liq) [2020] FCA 450 at [39] (Markovic J)), the materials in this case were not unduly extensive and the task of identifying confidential information was not onerous. The approach of identifying information said to be confidential, similar to the approach followed by Wigney J in 3 Property Group (No 2), was appropriate in this case.  Orders were sought on the basis that they are necessary to prevent prejudice to the proper administration of justice (s 37AG(1)(a)).

5. Suppression orders are not uncommon and indeed have been described as conventional in the context of a liquidation:  Goyal at [32].

6. The rationale for this approach was explained by Barrett J in McGrath Re HIH Insurance Ltd [2005] NSWSC 731 at [10]-[13], where his Honour observed that the administration of justice is very likely to be prejudiced by availability to the potential defendants of (and any public airing of) the information concerning the liquidator's proceedings that will inevitably be divulged by the adducing of evidence and the making of submissions on the hearing of the s 477(2B) application. His Honour noted the likelihood of a real and negative impact upon the due and orderly conduct of the proposed proceedings themselves, if defendants have access to information that, in the ordinary course, a plaintiff is entitled to keep confidential in the plaintiff's own interests.

7. In 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 Gleeson J observed the following in the context of funding agreements and confidentiality orders under s 37AF of the Federal Court Act:

   [40]In previous cases which are substantially similar to this case, including Re Ambient Advertising Pty Ltd (in liq) [2015] NSWSC 1079, Victoria v Goulburn Administration Services (In Liq) [2016] VSC 654 and Victoria v CTM Training Solutions Pty Ltd (In Liq) [2017] VSC 47, the proposed funding deeds were kept confidential as between the special purpose liquidators and the funder. There is no reason why this matter should be any different.

   [41]The clear public interest in the due and beneficial administration of the estates of insolvent companies for the benefit of creditors is a relevant consideration in favour of a s 37AF order in this case. I was satisfied that an order pursuant to s 37AF should be made to protect commercially confidential information provided in support of the application.

8. I am satisfied that the suppression orders sought are necessary to prevent prejudice to the proper administration of justice, because the terms of the funding agreement and retainer agreement are commercially confidential, and because disclosure of them and of certain other information in the evidence and submissions relating to those documents would be prejudicial to the liquidator and his conduct of the proposed proceedings.

   Orders

9. Orders were made accordingly.

I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.

Associate:

Dated:       13 September 2024