[No 4]
[2009] WASC 43
•13 FEBRUARY 2009
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE THE BELL GROUP LTD (in liq) (ACN 008 666 993); EX PARTE WOODINGS (in his capacity as one of the joint liquidators of THE BELL GROUP LTD (in liq) (ACN 008 666 993) [No 4] [2009] WASC 43
CORAM: HASLUCK J
HEARD: 13 FEBRUARY 2009
DELIVERED : 13 FEBRUARY 2009
FILE NO/S: COR 108 of 1991
MATTER :Corporations Act 2001 (Cth) s 479(3)
THE BELL GROUP LTD (in liq) (ACN 008 666 993)
EX PARTE
ANTONY LESLIE JOHN WOODINGS (in his capacity as one of the joint liquidators of THE BELL GROUP LTD (in liq) (ACN 008 666 993)
Applicant
FILE NO/S :COR 11 of 1993
MATTER :Corporation Act 2001 (Cth) s 479(3)
BELL GROUP FINANCE PTY LTD (in liq) (ACN 009 165 182)
BETWEEN :ANTONY LESLIE JOHN WOODINGS (in his capacity as liquidator of BELL GROUP FINANCE PTY LTD (in liq) (ACN 009 165 182)
Applicant
Catchwords:
Corporations - Application by liquidator for directions with respect to a proposed variation to litigation funding arrangement - Arrangement between liquidator and creditors as to funding and indemnification of liquidation costs - Issues as to propriety concerning a perception of lack of independence or conflict in entering into and giving effect to a proposed deed of variation - Whether set-up, infrastructure costs and expenses of winding up have status as a priority claim - Ruling that having regard to special features of Bell Group companies liquidation that liquidator's infrastructure set-up and demobilisation costs may be characterised as winding up expenses in the nature of a priority payment - Directions sought by liquidator approved
Legislation:
Corporations Act 2001 (Cth), s 479(3), s 556(1)(a), s 564, s 566(1)(a)
Result:
1. Suppression of judgment
2. Directions that infrastructure set-up and demobilisation costs constitute winding up expenses in these special circumstances
Category: B
Representation:
COR 108 of 1991
Counsel:
Applicant: Mr J C Vaughan
Solicitors:
Applicant: Christensen Vaughan
COR 11 of 1993
Counsel:
Applicant: Mr J C Vaughan
Solicitors:
Applicant: Christensen Vaughan
Case(s) referred to in judgment(s):
Hall v Poolman (2007) 215 FLR 243
Re Allebart Pty Ltd (in liq) [1971] 1 NSWLR 24
Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409
Re Beni-Felkai Mining Co Ltd [1934] Ch 406
HASLUCK J: The applicant in these proceedings is Antony Leslie John Woodings. He comes before the Court in his capacity as liquidator of Bell Group Finance Pty Ltd (in liq).
By interlocutory applications dated 11 February 2009 in COR 108 of 1991 and COR 11 of 1993 the applicant seeks certain orders and directions pursuant to s 479(3) of the Corporations Act 2001 (Cth). By that provision the liquidator of a company may apply to the Court for directions in relation to any particular matter arising under the winding up.
The orders sought described in summary form are that first the application be heard at a hearing from which the public and the parties are excluded with the exception of the applicant and his legal representatives and necessary court staff; second, a direction that the applicant may execute a deed of variation in respect of an indemnification agreement previously made; third, publication of any report of the hearing and the contents of exhibit A to the affidavit of Andrew John Mason sworn 10 February 2009 be prohibited; fourth, certain specified papers be placed in a sealed envelope only to be opened on the order of a judge. Provision is also made for incidental orders, including the costs of the application.
The application is supported by the affidavit of Andrew John Mason and exhibit A to the affidavit of the applicant sworn 11 February 2009. The matter comes before me pursuant to a certificate of urgency dated 11 February 2009 and upon the basis that at the hearing of the application counsel was to justify the making of the application on an ex parte basis.
In order to describe the circumstances prompting these applications it will be useful by way of overview to go to the recital to the proposed draft deed of variation. This recital presents the position in summary form. It is to this effect: the liquidator was appointed additional liquidator of The Bell Group Ltd (in liq) by order of the Supreme Court of Western Australia made on 3 March 2000 as varied by the order of the Supreme Court of Western Australia made on 4 July 2000. The liquidator is pursuing various claims against third parties in the proceedings known as the Bell litigation. The liquidator is without funds in the liquidation of the company. The creditors agreed to indemnify the liquidator for the purposes and in the manner stated in an agreement for indemnification dated 6 April 1995, as varied from time to time, and incorporated into a consolidated version dated 3 August 1999.
Pursuant to the agreement for indemnification the creditors indemnify the liquidator for his reasonable costs and expenses for the conduct of the proceedings which expenses include the cost of the provision of staff and administrative support by the accounting practice of Taylor Woodings, 6th Floor, 30 The Esplanade, Perth, Western Australia.
The liquidator has proposed that he will establish, operate, staff and where necessary demobilise the office required to support the conduct of the proceedings. The costs, at cost, for establishing, operating, staffing and demobilising that office will be paid, funded and where necessary guaranteed, by the creditors under the agreement for indemnification as expenses for the conduct of the proceedings.
The creditors, other than Bell Group NV (in liq) which is a terminating creditor, have agreed with the liquidator to vary the agreement for indemnification for the purposes and the manner stated in the variation Deed.
Having described the background to the applications in general terms it will now be useful and appropriate for me to look at the circumstances of the matter in more detail.
It appears from the materials before me that the applicant was appointed the official liquidator of BGF on 3 March 1993. Geoffrey Frank Totterdell was appointed the official liquidator of The Bell Group Ltd, known as TBGL, and several of its subsidiary companies. The applicant is also the liquidator of certain other subsidiaries of TBGL which with BGF are referred to as The BGF Companies.
The cluster of companies as a whole is referred to in the principal supporting affidavit as The Bell Group of Companies and I will adopt that terminology. The BGF companies and the TBGL companies, with the exception of Bell Bros Holdings Ltd are the principally named applicants in Supreme Court action number CIV 1464 of 2000 together with Mr Woodings and Mr Totterdell. The action is referred to as 'the proceedings' which includes, where applicable, certain associated proceedings. These are sometimes, and perhaps generally, known as the Bell Litigation.
The applicant has the conduct of the proceedings on behalf of the TBGL and BGF companies. To date the conduct of the liquidation of the subject companies has predominantly involved the conduct of the proceedings on behalf of those companies. The proceedings are large and complex. The Hon Justice Owen recently delivered his reasons for decision in the proceedings with the result that the parties are currently involved in settling the form of the final orders to be made. It seems likely that there will be appeals from the judgment.
Funding for the conduct and prosecution of the proceedings as I have indicated has been provided under the so called 'Indemnifying Creditors Agreement' concluded by the consolidated version in November 1999. The commercial arrangements that have been in place are that the applicant as liquidator charges for his time and invoices the indemnifiers monthly. These are creditors of the subject companies, being the Australian Taxation Office, called the Commonwealth, and the State Government Insurance Commission of Western Australia, called ICWA, the latter being represented by the Law Debenture Trust.
The applicant was formerly a partner in the accounting firm of Taylor Woodings but currently practises on his own from that firm's premises, having been provided with the use of various staff and support services. The monthly invoices of Taylor Woodings are submitted to the indemnifiers after approval, together with the applicant's fees.
The applicant was recently informed that Taylor Woodings is no longer prepared to provide the support services because the firm undertakes work for various banks, including St George's Bank Ltd and BankWest, both of which were recently acquired by banks which are defendants in the proceedings, namely Westpac and Commonwealth Bank respectively. On 16 January 2009 the applicant was informed that he must vacate the offices of Taylor Woodings and make other arrangements for support services in respect of the proceedings.
The applicant describes in pars 18 to 25 of the principal affidavit the significant body of work that has yet to be undertaken in respect of the proceedings and the cost of attending to the same. He would need to run an office for the conduct of the proceedings and the liquidations for anywhere between one to seven years. After reviewing various options the applicant is of the view that the only viable options are to expand his current accounting practice, which I will call the 'conventional option' per par 27(a) of the affidavit, or to negotiate an arrangement with the indemnifying creditors, which I will call the 'alternate option' per par 27(e) of the affidavit.
The applicant is of the view that both options have implications for any perceptions that may exist that he lacks independence from the creditors. He is therefore of the view that it is appropriate that he disclose these matters to the court and seek directions that he may properly and justifiably take the proposed course of action, that is, to pursue the alternate option.
It is said by the applicant at par 35 of the principal affidavit that under the existing arrangements there is already the potential for a perception of a lack of independence in that the applicant's exposure to the risk of a liability for costs and expenses may colour his actions and advice. Extending the existing arrangements, such that the continuing indemnifying creditors more directly bear the costs and risks associated with providing the support staff and infrastructure required to service the proceedings, ought not to increase that potential for a perception of a lack of independence. It is said that any potential perception of a lack of independence will remain unchanged or be reduced, the reduction being as a result of the applicant's lessened financial dependence on the ongoing conduct of the proceedings.
The applicant has provided estimates and costings in his affidavit that bear upon these issues. I pause to note that in the course of the hearing it emerged from discussion and from the materials before me as an estimate that if pursuant to the conventional model overheads were absorbed in hourly rates of the professionals and service providers in the usual way, the projected expenses in the case would amount to $1,706,355. Under the alternate model where the proposed hourly rate is to be less the costs would be a lesser overall figure of $1,309,550. The reason for the difference is that under the alternate model the liquidator will be immunised against the risks of being burdened with the demobilisation and certain other costs as will appear later.
The applicant's conclusion was that the best interests of the Bell Group administrations would be served by his discussing the issues with the indemnifiers, negotiating an amendment to the current indemnifying creditors agreement whereby rather than the staff and infrastructure being provided by the firm of which he was a partner at their usual rates, the staff and infrastructure continue to be identified, sourced and managed by the applicant and the costs at cost are paid, funded and, where necessary, guaranteed by the indemnifiers. This is described as the proposal, being the alternate model I mentioned a moment ago.
Exhibited to the applicant's affidavit are exchanges of correspondence by letter or email evidencing that the principal continuing indemnifying creditor, ICWA, is willing to amend the existing indemnity in this manner. More particularly, ICWA as the major indemnifying creditor will support the various arrangements provided the costs of the proposed Bell Group office including the demobilisation costs mentioned earlier may be characterised as properly incurred costs, charges and expenses of the winding up having the status as a priority claim.
Exhibited to the applicant's affidavit also is a draft deed of variation to agreement of indemnification, being the draft deed I mentioned a moment ago while referring to the recital to that deed. Based on his past experience the applicant anticipates that the Commonwealth will also execute the draft deed of variation.
It is said that the effect of the proposed variation will enable the status quo to continue and that the applicant will continue to manage the affairs of the BGF and the TBGL companies in a manner thought to be in their best interests. He will continue the present practice of budgeting and accounting to the indemnifying creditors for his fees and expenses on a monthly basis. Further, the indemnifying creditors will continue the present practice of paying fees and expenses monthly subject to review of the same in satisfaction as to any queries raised.
It is said that the appointment of an entirely new liquidator at this stage could only occur at a huge cost to the subject companies. However, the variation is designed to ensure that other than charging for his time in the usual way, the applicant will have no personal financial exposure to or capacity to gain a financial benefit from the continuation or outcome of the administrations.
In the event that the administrations come to an abrupt end, the applicant will be indemnified against any outstanding costs and expenses. The applicant notes that under the existing indemnifying creditors agreement he is obliged to use his best endeavours to procure an order of the court under s 564 of the Corporations Act 2001 for the repayment of any amount advanced by the creditors to him under the agreement in the priorities set out in the agreement such that all the costs and expenses indemnified under the agreement will be treated as costs and expenses of the liquidations of the Bell Group of Companies and would be afforded the priority that arises under s 556(1)(a) of the Corporations Act.
The proposal to be effected by the variation involves the passing on of costs incurred by the applicant in departing Taylor Woodings, establishing a new office with support staff and infrastructure and terminating any of the new arrangements. These are all but collectively the demobilisation costs. It is said that these costs will be incurred solely for the purpose of the liquidations of the subject companies and can be regarded as costs and expenses properly incurred by the applicant in preserving, realising or getting in property of the Bell group of Companies, subject to priority, under s 556(1)(a) of the Corporations Act.
The applicant notes also that he is currently engaged in negotiation of larger scale variations to the agreement for indemnification which are to update and deal with future events such as an expected appeal. Further, he notes that he has been given until 14 February 2009 to depart the offices of Taylor Woodings with the result that the present order and directions are sought as a matter of urgency so that he can lease premises and employ certain designated members of staff. He has presently financed these arrangements personally.
It is against this background that the applicant seeks directions as to whether he may execute the draft deed of variation and that the demobilisation costs are costs properly incurred by himself in preserving, realising or getting in property of the Bell Group of Companies subject to a priority under s 556(1)(a) of the Corporations Act 2001.
It appears from earlier discussion that pursuant to s 479(3) of the Corporations Act that a court appointed liquidator may apply to the court for directions in relation to any particular matter arising under the winding up. It appears also that directions are sought in this matter concerning an issue of propriety, namely a possible issue of perception of a lack of independence or conflict in entering into and giving effect to the proposed deed of variation. Further there is a legal issue as to whether the start‑up, infrastructure costs and demobilisation costs may be characterised as properly incurred costs and expenses of the winding up, having status as a priority claim in accordance with s 556(1)(a) of the Corporations Act.
I note in passing that the directions are sought in respect of a proposed variation to a litigation funding arrangement, being a field where liquidators are exhorted to seek directions as a matter of course. The advantages of the alternate proposal are said to be that it enables the retention of the applicant as liquidator of the subject companies. It will enable appropriate accounting support to be provided to him. It will result in reduced operating costs for accounting support. It will result in a lessened personal exposure to the applicant in the event that the proceedings come to a conclusion due to settlement. Thus it reduces the risk that a material personal interest may affect or distort the applicant's assessment of any settlement proposal or any other step in the proceedings.
The disadvantages of the proposal are that it will see the TBGL and BGF windings up meeting the infrastructure, set-up costs and demobilisation costs of the Bell Group office. Because of that TBGL and BGF are exposed to the risk that should the proceedings come to an unexpected, early and abrupt end, infrastructure set‑up costs and demobilisation costs of the Bell Group office will exceed the anticipated reduced operating costs for accounting support.
In Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 at [65] Goldberg J observed that there must be something more than the making of a business or a commercial decision before a court will give directions in relation to or approving of that decision. It may be a legal issue of substance or procedure. It may be an issue of power, propriety or reasonableness if some issue of this nature is required to be raised. In short there must be an issue calling for the exercise of legal judgment. In Hall v Poolman (2007) 215 FLR 243 at [388] Palmer J observed that the liquidator proposing to enter into a litigation funding agreement should apply to the court for directions as a matter of course.
I note in passing that a direction that an external administrator may properly and justifiably enter into and give effect to an agreement is used to signify that it is appropriate that he should do so. It is a form of direction in common use. It is implicit in such an order that the court is approving the agreement - see Re Ansett Australia at [85].
A liquidator is generally thought to have separate duties of independence, impartiality and avoidance of conflict. He must be and be perceived to be independent of the company, its directors and shareholders and individual creditors. He must act and be perceived to act impartially in the discharge of the duties and responsibilities of his or her office and he must ensure that he does not place himself in a position where there is or might be a conflict between a duty to creditors and their personal interests.
In general, however, it is proper for a liquidator to accept funding from a creditor, see Re Allebart Pty Ltd (in liq) [1971] 1 NSWLR 24 at 28. I note in passing that in Allebart's case one of the creditors of an insolvent company in the process of compulsory winding up provided the liquidator with the funds to investigate the company for conduct of the company's offices. Street J held that this was permissible since in some situations this money may be all a liquidator has available; however, a liquidator must ensure that his independence is not compromised.
Let me now return to the circumstances of the present case.
In my view it emerges from earlier discussion that the matter before the Court is more than merely a matter requiring a business or commercial decision; it is in the nature of an issue calling for the exercise of legal judgment in respect of matters of power, propriety and reasonableness bearing in mind that matters of perception can be important also. Further, I am of the view that neither the entry into nor the giving effect to of the deed of variation would impair or give rise to a reasonable apprehension of impairment to the applicant's independence and impartiality in the conduct of the proceedings.
In essence, the proposal does no more than introduce a new funding mechanism for accounts support; that is, the financing of a Bell Group office. It remains the case that the applicant has sole day‑to‑day conduct of the proceedings and will have his own legal representation. Subject to senior counsel's advice and approval of the Court the applicant may settle the proceedings in the face of the indemnifying creditors' wishes to the contrary. Moreover, by securing the indemnifying creditors' financial commitments at this stage the windings up are less susceptible to any assertion of financial pressure at a later time as, for example, on a receipt of a settlement proposal. It emerges from earlier discussion that the applicant will have a lessened material personal interest in the ongoing conduct of proceedings and the windings up.
The indemnified costs in the event of the proposed variation being approved will include both infrastructure set-up costs and demobilisation costs. Such costs are not ordinarily considered to be valid costs in the expenses of a winding up. Costs and expenses of a winding up will usually embrace debts and liabilities and carrying on the business of a company such as rent and outgoings payable on premises occupied by the company and salaries and wages of employees, see McPherson's Law of Company Liquidation (5th ed) at par 13.700.
Here, however, the costs are of a different nature in that they are costs concerning the accounting support required to assist the applicant in the conduct of the proceedings. Infrastructure, set‑up costs and demobilisation costs would not ordinarily be characterised as expenses relating to the winding up because they would appear to be costs of the insolvency practitioner's business. However, in the present case it is said that the distinguishing feature of these windings up is that their size and complexity now necessitates that the liquidator establish a Bell Group office, being essentially a small special purpose accounting firm.
The sole purpose of the Bell Group office will be the provision of accounting support for the proceedings in the Bell Group windings up. In Re Beni-Felkai Mining Co Ltd [1934] Ch 406 at 419 it was said the term 'expenses' is not a term of art. It may include any expenses which the liquidator may be compelled to pay in respect of his acts in the course of a proper liquidation of the company's assets.
In the end, having regard to the special features of this case including the size and complexity of the proceedings and the fact that the proceedings represent essentially the focus of the winding up activity, I am of the view that the infrastructure set-up costs and demobilisation costs can be characterised as expenses that relate to the windings up. They are expenses that the liquidator is, from practical necessity, compelled to pay so as to preserve, realise and get in property of the subject companies, also to perform his functions as liquidator of the subject companies. Accordingly I am satisfied that the demobilisation costs are costs properly incurred by the applicant in preserving, realising or getting in property of the Bell group of companies subject to a priority under s 556(1)(a) of the Corporations Act 2001.
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