Primary Securities Ltd v Willmott Forests Limited (Receivers and Managers Appointed) (In Liquidation)

[2017] VSC 375

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMERCIAL COURT

S ECI 2015 00490

PRIMARY SECURITIES LTD	Plaintiff
v
WILLMOTT FORESTS LIMITED (Receivers & Managers Appointed) (In Liquidation) & ORS	Defendants

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JUDGE:	JUDD J
WHERE HELD:	Melbourne
DATE OF HEARING:	8 June 2017
DATE OF JUDGMENT:	27 June 2017
CASE MAY BE CITED AS:	Primary Securities Ltd v Willmott Forests Limited (Receivers & Managers Appointed) (In Liquidation) & Ors
MEDIUM NEUTRAL CITATION:	[2017] VSC 375

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CORPORATIONS — Managed Investment Scheme — Deed of Settlement — Sale of assets — Approval required under s 477(2B) of the Corporations Act 2001 (Cth) — Deed of Settlement made subject to approval by court.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Dr P Vout	Mills Oakley Lawyers
For the Defendants	Ms K Brazenor	Arnold Bloch Leibler

HIS HONOUR:

1. The trial of this proceeding had been refixed on a number of occasions and was eventually scheduled to commence on 15 May 2017, on an estimate of eight days.  The trial concerned the future of forestry schemes promoted by the first defendant, Willmott Forests Limited, prior to the appointment of receivers and managers, and liquidators.

1. In and from 1995 until December 2011 Willmott was the responsible entity of the Willmott Forests 1995–1999 project conducted on land in the Bombala region.  The project was a managed investment scheme in which growers entered into leases with Willmott for a parcel of land, for a period of 25 years with a five-year option.  The land was planted with trees in the expectation that timber would be harvested and sold between 16 and 25 years after planting.

1. The second and third defendants, Craig David Crosby and Ian Menzies Carson, were appointed joint and several voluntary administrators of the Willmott Group on 26 October 2010.  On 22 March 2011 they were appointed as liquidators.

1. On 22 December 2011 the plaintiff, Primary Securities Ltd, replaced Willmott as responsible entity of the project.  Almost immediately there were disputes between Primary and the liquidators concerning the validity of grower leases which would, if valid, encumber land which the liquidators wished to sell for the benefit of creditors.  There was another dispute concerning a claimed lien by the liquidators.  These disputes were the catalyst for litigation that went to the Court of Appeal and eventually the High Court.[1]

   [1]Willmott Growers Group Inc v Willmott Forests Limited [2013] HCA 51; Re Willmott Forests Ltd [2012] VSCA 202; Re Willmott Forests Ltd [2012] VSC 29; Primary Securities v Willmott Forests [2016] VSCA 309; [2015] VSC 138; Willmott Forests v Primary Securities [2013] VSC 574.

1. In its outline of argument, prepared in anticipation of opening its case on 15 May 2017, Primary submitted that prior to Christmas 2015 the liquidators had implemented a strategy to bring the project to a premature end.  That strategy was pleaded as the liquidators’ ‘True Purpose’.  Primary submitted that the liquidators’ goal was to maximise the value of project land by removing the encumbrances of grower lease agreements.  Primary argued that the liquidators’ strategy lacked a proper basis and evinced a contumelious disregard for the rights and interests of growers, and exceeded their powers.  While the expression of outrage was understandable, as a foundation for contending impropriety on the part of the liquidators, it was elusive.

1. It may be observed from the tenor of these comments that the litigation was acrimonious.  The issues for trial included the validity of default notices given to growers; whether growers should be given relief from forfeiture; whether growers were entitled to an equitable lien; claims for damages or equitable compensation with respect to the value of the trees; and whether Willmott Forests should be ordered to transfer certain parcels of land to Primary.

1. Disclaimer notices had been issued by the liquidators in respect of some leases, but subsequently withdrawn.  Shortly before the commencement of the trial the liquidators filed a summons in which they sought an extension of time within which to disclaim property in response to notice given to them on behalf of Primary.  An extension of time might have necessitated an adjournment of the trial.

1. On the first day of the trial, the hearing was adjourned to permit the parties to continue negotiations that had commenced in earnest a few days earlier.  On 15 May 2017 the parties executed a deed of settlement, and call option in favour of Primary.

1. By summons filed 11 May 2017 the liquidators made application for approval, nunc pro tunc, to enter into the agreements. The approval was sought in order to comply with s 477(2B) of the Corporations Act 2001 (Cth) because performance would not be completed within three months. Section 477(2B) 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.

1. The liquidators did not seek the approval of the committee or a resolution by creditors.  Under clause 3, the deed was made subject to court approval.  The relevant clauses had, of course, been inserted into the contracts by the parties. 

1. Courts do not automatically accede to an application by a liquidator to approve or authorise conduct.  Not every compromise, agreed between litigants, and requiring court approval, is approved.  Thus, to include such a term as a condition to performance is to assume a risk that a court may properly decline to express its approval or authorise conduct.

1. The risk that a court will decline to exercise the power to approve an agreement or authorise related conduct may be influenced by the existence of alternative pathways to approval. Section 477(2B) is one such example. A court might reasonably require the liquidator to first exhaust other pathways before entertaining the application. To include a condition precedent requiring court approval, nunc pro tunc, in such circumstances may place the court in a difficult position, by pre-empting its willingness to deal with the application for approval at all.

1. Had the parties to the agreement incorporated the range of options under s 477(2B), the court might well have been persuaded to hear an application for approval, without requiring the liquidators to first seek approval of the committee or creditors. But that is not the point. The parties should not pre-empt the willingness of the court to hear the application, where alternative means of approval are available, or where approval is not otherwise necessary, without a sufficient explanation. While it is always open to a court to refuse an application for approval, the consequence of such a refusal may be commercially unpalatable to the parties, and place pressure on the court to give effect to their contract, when approval might otherwise have been refused.

1. In the present case, all parties to the agreement were represented on the liquidators’ application for approval.  Both pressed for approval by the court, explaining that context and subject matter made such an application the prudent course to adopt.  Context included the commencement of what promised to be a long and acrimonious trial, extending over a number of weeks, coupled with serious allegations of impropriety made against the liquidators.  The subject matter involved the commercial resolution of a dispute concerning the operation of a large managed investment scheme with numerous scheme members whose interests were necessarily affected.

1. I accept that context and subject matter made it appropriate for the application of approval to be made to the court.

1. Orders were made for notification of the application, with supporting material, to the Willmott Committee of Inspection, the receivers and managers, ASIC, and to scheme members by publishing the material on the liquidators’ web site dedicated to providing information concerning the scheme litigation.  All material, excluding a small number of confidential exhibits, was published.  Notice was given that anyone wishing to participate in the hearing was required to file and serve an appearance, and any affidavit and submission, on or before 2 June 2017.  No-one has taken advantage of that opportunity.  That was not surprising, as Primary effectively represented the interests of participating scheme investors who wish to continue the operation of the scheme.

1. The agreements entered into by the parties have the effect of providing Primary with the right to purchase the land from the liquidators by instalments.  The total purchase price is $4 million.  From the proceeds of sale, the liquidators are entitled to deduct the sum of approximately $490,000 to satisfy a lien over the funds, with the balance available to creditors.  There was evidence that the market value of the land, encumbered by growers’ leases, was around $3.5 million, or less if growers were not required to remove stumps.  Other offers for the land, on an unencumbered basis, were slightly higher.

1. Grower rights over the land, and thus the existence of an encumbrance, was at the heart of the dispute.  That dispute, with attendant risks to all parties, has been resolved.  The outcome for creditors is fair and reasonable, having regard to the valuations, and the conditions attaching to alternative offers.  In my opinion the parties are to be congratulated on arriving at the compromise, giving growers another opportunity to get some value from their investment, and the creditors a fair, reasonable and definitive outcome. 

1. This compromise avoids the complexity of other failed schemes in which no new responsible entity has been found willing to carry on the scheme.  In those cases joint sales, necessitating cooperation between receivers and liquidators, became the norm.  There was sequential litigation involving approval and apportionment of proceeds of sale.  Grower objections were also the norm.  That complexity has been avoided in the present case with the participation of Primary, and now by its agreement with the liquidators.

1. On 5 June 2017 I made the following orders:

1.Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), the Second and Third Defendants’ entry (in their capacity as liquidators of the First Defendant) into the following agreements is approved nunc pro tunc:

(a)the Deed of Settlement dated 15 May 2017, as amended by an Amendment Deed dated 25 May 2017, in the form set out in exhibit ‘CDC-39’ to the affidavit of Craig Crosbie dated 26 May 2017 (Crosbie Affidavit); and

(b)the Call Option (as defined in the Crosbie Affidavit), substantially in the form set out in exhibit ‘CDC-40’ to the Crosbie Affidavit.

2.The exhibit ‘Confidential CDC-45’ to the Crosbie Affidavit be kept confidential and placed in a sealed envelope and not be opened in the absence of an order of the Court.

3.The costs of this application are costs in the winding up of the First Defendant.