Re Amerind Pty Ltd (in liq)
[2023] VSC 350
•22 June 2023 (given ex tempore, revised)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2022 01557
IN THE MATTER of AMERIND PTY LTD (IN LIQUIDATION) (ACN 005 224 331)
BETWEEN:
| BRENT LEIGH MORGAN (in his capacity as liquidator of AMERIND PTY LTD (IN LIQUIDATION) (ACN 005 224 331)) | Plaintiff |
| - and - | |
| CARTER HOLT HARVEY PLYWOOD PTY LTD (ACN 002993106) (formerly known as CARTER HOLT HARVEY WOODPRODUCTS AUSTRALIA PTY LTD) ACN 002 993 106) | Interested Party |
| COMMONWEALTH OF AUSTRALIA represented by the DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS (ABN 96 584 957 427) | Interested Party |
| CRAIG IVOR BOLWELL in his capacity as liquidator of AMRIMEAR PTY LTD (IN LIQUIDATION) | Interested Party |
---
JUDGE: | Hetyey AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 22 June 2023 |
DATE OF JUDGMENT: | 22 June 2023 (given ex tempore, revised) |
CASE MAY BE CITED AS: | Re Amerind Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 350 |
---
CORPORATIONS — Corporations Act 2001 (Cth) —s 477(2B) — Application for approval of compromise likely requiring more than three months to perform — s 90-15 (Schedule 2, Insolvency Practice Schedule (Corporations)) — Whether liquidators justified and acting reasonably in entering into proposed compromise — All significant creditors support terms of settlement — Importance of creditors’ views — Role and adequacy of legal advice concerning settlement — Where liquidator considers settlement in best interests of company.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C Brown | Williams Winter |
| For Carter Holt Harvey Plywood Pty Ltd (Interested Party) | Ms S Brenker | Polczynski Robinson |
| For the Commonwealth of Australia (Interested Party) | Mr J Moore KC | King & Wood Mallesons |
| For Craig Bolwell (in his capacity as liquidator of Amrimear Pty Ltd (in liq) (Interested Party) | Ms C Pulverman, solicitor appearing | FCW Lawyers |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background......................................................................................................................................... 1
Procedural history.............................................................................................................................. 4
Terms of Settlement........................................................................................................................... 6
Relevant provisions and principles................................................................................................ 8
Consideration.................................................................................................................................... 12
Orders under s 90-15 of the IPS................................................................................................. 12
Approval of Terms of Settlement under s 477(2B)................................................................. 16
Conclusion......................................................................................................................................... 16
HIS HONOUR:
Introduction
Before the Court is an interlocutory application made on 22 May 2023 by Brent Leigh Morgan (‘Liquidator’ or ‘plaintiff’), in his capacity as liquidator of Amerind Pty Ltd (in liq) (‘Amerind’ or ‘Company’), seeking approval of the Liquidator’s entry into terms of settlement dated 15 May 2023 (‘Terms of Settlement’) pursuant to s 477(2B) of the Corporations Act 2001 (Cth) (‘Act’) and orders under ss 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations) (‘IPS’) (which is Schedule 2 of the Act) that the Liquidator is justified and acting reasonably in giving effect to the Terms of Settlement.
The substantive proceeding in which the present application is brought relates to the proper characterisation and treatment of an amount of approximately $1.46 million, which are the proceeds of a settlement (‘Settlement Proceeds’) between the Company, its related entity, Amrimear Pty Ltd (in liq) (‘Amrimear’), and other parties pursuant to a deed of settlement entered into on or around 9 December 2015. The history underlying the proceeding is long and complex. For the sake of brevity, I will not recite the entire history, but I will refer to a number of salient matters.
Background
Amerind, which was incorporated on 5 August 1976, is one of a number of companies located in Australia and overseas that were controlled by Mr Naja David or related entities. Mr David was the sole director of the Company from 14 September 2005. He is also the trustee of the Naja David Family Trust, of which Mr David’s ex-wife, Kathryn David, and their children, are beneficiaries.
At all relevant times, Amerind manufactured and distributed decorative architectural finishes and panel products throughout Australia. The Company purchased raw stock (which it manufactured into finished product) and also finished stock (which it sold as a wholesaler). The products sold by the Company included particleboard, medium-density fibreboard, and plywood.
On 11 March 2014, Brent Morgan, James Imray, and Geoffrey Reidy were appointed as administrators of Amerind and, on the same day, Andrew Hewitt and Matthew Byrnes were appointed as receivers and managers of the Company by Bendigo and Adelaide Bank Limited (‘BABL’). On 13 August 2014, the creditors of Amerind resolved to wind up the Company and appointed Mr Morgan, Mr Imray and Mr Reidy as liquidators (‘Liquidators’).
As at the date of the appointment of the Liquidators, the Company had around 157 employees and the unsecured creditors of Amerind were owed a total of over $25.6 million. Mr Morgan determined that Amerind was insolvent from at least 15 August 2013 and that over $18.1 million in unsecured debts was incurred from 15 August 2013 to the Liquidators’ appointment in August 2014.
Mr David was a director and beneficial owner of 50% of the shares in Amrimear, which was the registered proprietor of the land and property known as, and situated at, 47 Business Street, Yatala, in the state of Queensland (‘Yatala Property’). Amrimear leased the Yatala Property to Amerind. In or about 2012, Amerind assisted Amrimear in re-financing security over the Yatala Property. This involved the Bank of Melbourne providing a credit facility to Amerind in the amount of about $8 million, secured by a registered mortgage over the Yatala Property. In November 2012, BABL provided a credit facility to Amerind, secured by a mortgage from Amrimear to BABL over the Yatala Property. BABL also entered into a debtor finance agreement with Amerind on 19 December 2012, by which BABL agreed to provide debtor finance facilities to the Company, up to a limit of $25 million.
On 1 July 2014, Amrimear sold the Yatala Property and BABL received total proceeds of $5,973,489 from the sale, which discharged the debts owed by Amerind to BABL. Following the sale of the Yatala Property, there were surplus proceeds of sale in the amount of $1,969,707.66 (‘Yatala Surplus’).
Amerind and Amrimear maintained an inter-company loan account, with Amrimear owing around $3.1 million to Amerind as at 11 March 2014. Amrimear was placed into liquidation on 20 June 2016.
On 23 February 2015, the Liquidator and Amerind commenced proceedings in this Court[1] against Mr David, Amrimear, and Mr David’s son (‘Supreme Court proceeding’). The claim against Mr David was for insolvent trading in the amount of over $18.1 million, in addition to a claim for compensation for breaches of statutory and general law duties and compensation for voidable transactions under s 588FF of the Act. The Liquidator and Amerind also sought compensation under s 588FF of the Act in respect to payments made by Amerind to Amrimear.
[1]Proceeding S CI 2015 00795.
Earlier, in about 2007, Ms David commenced a proceeding in the Family Court of Australia[2] against Mr David (‘Family Court proceeding’). In mid-2015, Ms David filed an amended application in the Family Court proceeding, seeking orders that the Yatala Surplus be paid to her. Shortly thereafter, Amerind sought to be joined as a respondent and filed an affidavit deposing to the claims made in the Supreme Court proceeding and exhibiting key documents. On or about 9 December 2015, Ms David, Amerind, the Liquidator, and Amrimear entered into a deed of settlement (‘First Deed of Settlement’), pursuant to which the parties agreed, among other things, that the Yatala Surplus, plus an additional amount of $362,000 located from proceeds of the sale of the Yatala Property and less certain costs adjustments (‘Residual Surplus’), be paid to Ms David. An additional term included the Liquidator covenanting to apply any amount received from Ms David against any judgment debt or settlement between the Liquidator, Mr David and/or Amrimear in the Supreme Court proceeding. Ms David, Amerind, and the Liquidator then entered into a second deed of settlement on the same day (‘Second Deed of Settlement’), which entailed those parties agreeing to divide the Yatala Surplus as to 36% in favour of Ms David and as to 64% in favour of Amerind, with the Residual Surplus of $312,000 to be divided between Ms David as to 28% and Amerind as to 72%. On 15 January 2016, Amerind received $1.46 million pursuant to the First and Second Deeds of Settlement (‘Settlement Proceeds’). The Settlement Proceeds are currently held by Amerind in a term deposit account (less amounts paid to the Liquidator for reasonable costs and expenses incurred in recovering the Settlement Proceeds and other amounts relating to the liquidation of the Company).
[2]Proceeding MLC 6328 of 2007.
On 21 November 2017, Amerind and the Liquidator obtained judgment against Mr David in the Supreme Court proceeding. The judgment relates to two claims only, namely the insolvent trading claim against Mr David, in the amount of $18.74 million, and the claim against Mr David, in debt for $2.068 million.
Procedural history
The Liquidator commenced the present proceedings on 4 May 2022, seeking directions under ss 90-15 and 90-20 of the IPS in respect of:
(a) the proper characterisation and treatment of the Settlement Proceeds;
(b) whether any security attaches to the Settlement Proceeds;
(c) whether any such security is a circulating security interest for the purposes of s 340 of the Personal Properties Act 2009 (Cth); and
(d) whether s 561 of the Act (which deals with the priority of employees’ claims over circulating security interests) applies in respect of the disbursement of the Settlement Proceeds.
The Commonwealth of Australia (‘Commonwealth’), Carter Holt Harvey Plywood Pty Ltd (‘Carter Holt’), and Craig Bolwell in his capacity as liquidator of Amrimear (collectively, ‘Interested Parties’) have each filed notices of appearance in the proceeding and grounds of claim on the Settlement Proceeds in accordance with orders of the Court made on 24 June 2022. The Interested Parties have also filed submissions supporting their claims. Accordingly, the proceeding incorporates claims by the Interested Parties inter se.[3]
[3]See Re G B Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 680 (McLelland J) (‘Re G B Nathan and Co Pty Ltd’).
The Liquidator’s submissions dated 17 March 2023 and 24 April 2023 express his views about the proper characterisation of the Settlement Proceeds and whether Carter Holt or Amrimear have security in the Settlement Proceeds. In summary, the Liquidator submitted that the Settlement Proceeds are properly characterised as the proceeds of the Liquidator’s and Amerind’s claims against Amrimear and Mr David under ss 588FF and 588M of the Act on the basis that those claims were articulated in the Supreme Court proceeding and Family Court proceeding and at the times of the First and Second Deeds of Settlement. The Liquidator’s alternative position is that the Settlement Proceeds are the proceeds of Amerind’s claims against Amrimear in respect of the Yatala Property and the Yatala Surplus, as were previously articulated in the prior litigation and settlement deeds. The Liquidator has also maintained that neither Carter Holt nor Amrimear have security in the Settlement Proceeds. Further, any security Carter Holt or Amrimear may have in the Settlement Proceeds is a circulating security interest and subordinated under s 561 of the Act to the claims of priority creditors, including employees and the Commonwealth (which has paid out employee creditors under the Fair Entitlements Guarantee scheme).
On 2 May 2023, the Court made orders, among other things, referring the proceeding to judicial mediation and, in the event the mediation was unsuccessful, fixing the matter for final hearing on an estimate of three days. On 15 May 2023, the plaintiff and the Interested Parties attended judicial mediation before the Honourable Associate Justice Efthim. The judicial mediation was successful. At its conclusion, the Liquidator and the Interested Parties signed the Terms of Settlement. The Terms of Settlement were provided to the Court by way of a confidential exhibit to an affidavit filed by the plaintiff.
The Liquidator then filed the present application on 22 May 2023, seeking orders under s 477(2B) of the Act for the Court’s approval of the plaintiff’s entry into the Terms of Settlement and under ss 90-15 and 90-20 of the IPS for the Court to confirm that the Liquidator is justified and acting reasonably in giving effect to the Terms of Settlement (‘application’).
The Liquidator relies on the following material in support of the application:
(a) the affidavits of Brent Morgan sworn on 3 May 2022, 5 July 2022, 21 December 2022, and 19 April 2023;
(b) the affidavits of Adam Lopez sworn on 23 May 2023 and 21 June 2023, which include confidential exhibits, including legal advice received by the Liquidator in respect of which the Liquidator does not waive privilege; and
(c) the Liquidator’s submissions dated 17 March 2023, submissions in reply filed 24 April 2023, and submissions filed in support of the interlocutory application dated 26 May 2023.
The Interested Parties, who are themselves creditors of Amerind, have all been served with the application and non-confidential supporting material, and they appeared at the hearing. All of the Interested Parties consent to the relief sought by the Liquidator in the application. At the hearing, the Interested Parties each made short oral submissions to confirm that position. The Commonwealth also filed written submissions dated 2 June 2023, which support the Liquidator’s submissions.
The Liquidator caused a circular to be sent to Amerind’s wider pool of creditors on or about 6 June 2023 regarding the dispute about the Settlement Proceeds and today’s hearing. A Dropbox link was supplied to enable creditors to access all non-confidential documents pertaining to the application. None of those creditors sought to be heard on the application.
Terms of Settlement
The key Terms of Settlement are as follows:
(a) by 22 May 2023, the Liquidator will file an application seeking the relief in the form of the present application [cl 1];
(b) the Interested Parties in this proceeding will consent to the orders sought in the application [cl 2];
(c) if the Court grants the application, the parties agree to a further order that the proceeding be dismissed with no order as to costs [cl 3a];
(d) if the Court grants the application, the Liquidator will distribute the Settlement Proceeds as follows:
(i) first, towards the Liquidator’s Universal Distributing[4] costs and expenses, including the costs of the application then estimated to be $648,910 (and to be capped at $670,000 on the basis the application will take no more than one day) [cl 2(a), 3 and 6];
[4]See Re Universal Distributing Co Ltd (in liquidation) (1933) 48 CLR 171 (Dixon J).
(ii) second, one half of the remaining balance to be paid to the priority creditors referred to in ss 556(1)(e), (g) and (h) of the Act [cl 2(b), 3]; and
(iii) third, the other half of the remaining balance to be paid to Carter Holt [cl 2(c), 3]; and
(e) Carter Holt to pay $25,000 to Amrimear’s solicitors upon receipt of the payment from the Liquidator [cl 5].
(f) in the event the Liquidator’s claim for a Universal Distributing lien against the Settlement Proceeds exceeds the amount of $648,910, the Liquidator agrees that at the time he seeks approval of his remuneration and/or costs and disbursements, he will separately itemise in his report to a committee of inspection the items referable to his claim for a lien [cl 7].
The Liquidator has obtained advice from counsel on 3 November 2022 and 22 May 2023 in respect of the reasonableness of the Terms of Settlement and the relative merits of the Interested Parties’ claims in the proceeding.
Relevant provisions and principles
Section 90-15 of the IPS states:
(1)The Court may make such orders as it thinks fit in relation to the external administration of a company.
…
(2)The Court may exercise the power under subsection (1):
(a)on its own initiative, during proceedings before the Court; or
(b)on application under section 90-20.
Examples of orders that may be made
(3)Without limiting subsection (1), those orders may include any one or more of the following:
(a)an order determining any question arising in the external administration of the company;
Section 90-20 of the IPS specifies who may apply for an order under s 90-15. Those persons include:
(a)a person with a financial interest in the external administration of the company;
…
(d) an officer of the company; …
Section 90-15 is broad in its scope and contemplates not only the exercise of judicial discretion, but also the determination of substantive rights.[5]
[5]Re Polat Enterprises Pty Ltd (in liquidation) [2020] VSC 485, [31] (Hetyey AsJ). See also Michael Murray and Jason Harris, Keay's Insolvency: Personal & Corporate Law and Practice (Lawbook, 11th ed, 2018) [10.335].
The principles that were applicable to the giving of directions under the former and analogous ss 447D(1), 479, and 511 of the Act remain applicable to the giving of directions under ss 90-15 and 90-20 of the IPS.[6] In Re Ansett Australia Ltd,[7] Goldberg J said:
[T]he prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised.[8]
[6]El Saafin v Franek (No 2) [2018] VSC 683, [110] (Lyons J) (‘El Saafin’).
[7](2002) 40 ACSR 433.
[8]Ibid 451 [65].
In Sanderson v Classic Car Insurances Pty Ltd,[9] a case concerning the scope of the former s 379(3) of the Companies Code (NSW), Young J identified a number of categories of cases in which directions might properly be given to a liquidator.[10] Those categories can be summarised as follows:
[9](1985) 10 ACLR 115.
[10]Ibid 117, referred to in Re One.Tel Ltd (2014) 99 ACSR 247, 255 [34] (Brereton J) (‘Re One.Tel’); Re AWA Limited [2014] NSWSC 249, [15]; El-Saafin, [113].
(a) guidance on matters of law;
(b) guidance on questions of legal procedure;
(c) whether a liquidator should postpone a sale in order to achieve a better price; and
(d) where there are two competing offers for assets and a liquidator wishes to gain court directions in order to avoid a subsequent allegation that he or she has acted improperly in choosing one over the other.
In Re One.Tel Ltd (‘Re One.Tel’),[11] Brereton J referred to the above categories[12] and further observed that:
[W]hile the court will not generally give a direction where the matter relates to the making or implementation of a business or commercial decision, or where no legal issue is raised and there is no attack on the propriety or reasonableness of the liquidator’s decision, it may do so in the context of a proposed compromise (Spedley Securities at 85), and/or where the decision is likely to be contentious (Ansett at [65]; 7 Steel Distribution at [20]; S&D International at [58]-[59]).[13]
[11](2014) 99 ACSR 247.
[12]Ibid 255 [34].
[13]Ibid 256 [35].
As the Court of Appeal explained more recently in McDermott v Potts (in their capacities as joint and several liquidators of Lonnex Pty Ltd (in liq)) (‘McDermott v Potts’):[14]
[C]ourts are loath to interfere with the commercial judgment of liquidators on matters within their powers, and will not give directions to liquidators on such matters where no issue arises in relation to a legal matter or in relation to the propriety or reasonableness of the decision. This does not inhibit courts from giving directions to liquidators in relation to the compromise of legal proceedings … [L]iquidators often seek directions concerning the compromise of legal proceedings, and the courts give such directions when persuaded it is appropriate to do so.[15]
[14][2019] VSCA 23 (Whelan AP, McLeish and Hargrave JJA).
[15]Ibid [65].
Section 477(2B) of the Act provides that, except with the approval of the Court, the committee of inspection, or a resolution of creditors, a liquidator must not enter into an agreement on the company’s behalf if the term of the agreement may end or the obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance, more than three (3) months after the agreement is entered into.
In Re One.Tel, Brereton J explained the purpose of s 477(2B) as follows:
Section 477(2B) … is concerned with long-term agreements which might protract the liquidation, and has the effect that the liquidator cannot enter such agreements without the approval of the committee of inspection, the creditors, or of the court. Its rationale is that the interests and wishes of those affected, particularly creditors, should be highly influential in determining whether the liquidator should assume a contractual obligation that could interfere with the expeditious completion of the winding up: Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308; CIC Insurance; HIH Insurance at [15]. Thus in considering giving approval under s 477(2B), the main consideration is the impact of the agreement on the duration of the liquidation, and whether that is, in all the circumstances, reasonable in the interests of the administration: Re Opel Networks Pty Ltd [2013] NSWSC 1245.[16]
[16]Re One.Tel, 254 [30].
In Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher,[17] Bathurst CJ (with whom Beazley P, Macfarlan JA, Meagher JA and Barrett JA agreed) said:
[I]t is not generally the function of the Court, in granting approval under s 477(2B) of the Act, to review a liquidator’s commercial judgment or to second guess its decision. The Court will generally not interfere unless there seems to be some lack of good faith, some error of law or principle, or a real or substantial ground for doubting the prudence of the liquidator’s conduct [citing Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-86; Re HIH Insurance Ltd [2004] NSWSC 5 at [15]; Re McGrath at Appendix 1 par (13)]. However, as was pointed out in each of the cases cited, the Court does not act as a mere rubber stamp and will confer the power only when it is satisfied that a case for its exercise, in the particular circumstances, has been shown.[18]
[17](2015) 89 NSWLR 110 (‘Fortress Credit Corporation’).
[18]Ibid 129 [125] (Beazley P agreeing at 131 [143], Macfarlan JA agreeing at 131 [144], Meagher JA agreeing at 131 [145], Barrett JA agreeing at 131 [146]).
There are important differences between an application for directions about a compromise and an application for approval of a compromise under s 477(2B). In Re One.Tel, Brereton J explained the distinction in this way:
Importantly, the Court’s approval is not an endorsement of the proposed agreement, but merely permission for the liquidator to exercise his or her own commercial judgment in the matter. Thus the approval confers, or completes, the liquidator’s power to enter into the transaction, but does not amount to the court approving the transaction itself. The distinction is material, because it means that—unlike a direction under s 479(3) or s 511—an approval under s 477(2A) or (2B) alone does not exonerate the liquidator from personal liability.[19]
[19]Re One.Tel, 254 [26]. The observations of Brereton J in Re One.Tel were endorsed and emphasised by the Victorian Court of Appeal in McDermott v Potts, [82], [92].
As the Court of Appeal observed in McDermott v Potts, in both applications for directions and applications for approval of compromises:
[I]t would ordinarily be expected that a liquidator would have obtained appropriate legal advice in relation to the proposed compromise, and the nature and content of that advice is a relevant consideration.[20]
[20]McDermott v Potts, [92].
The respective interests and views of creditors are also a highly material consideration in both types of applications.[21] The courts have often taken the view that creditors who are provided with sufficient and timely information are in the best position to evaluate what is in their own commercial interests.[22]
[21]Ibid [93].
[22]Re English, Scottish, & Australian Chartered Bank [1893] 3 Ch 385, 409 (Vaughan Williams J); McDermott v Potts, [66], [93].
Consideration
Orders under s 90-15 of the IPS
It is uncontentious that the Liquidator has standing to bring the application under s 90-20 of the IPS as an officer of the Company or as a person with a financial interest in the external administration of the Company (in view of the fact that, under the Terms of Settlement, the Liquidator is seeking payment of his costs and expenses).
I accept the Liquidator’s submission that the Court’s jurisdiction under s 90-15 of the IPS is properly engaged in the present application. The Terms of Settlement will effect a compromise between the Liquidator and the Interested Parties in relation to the various claims made upon the Settlement Proceeds. Further, having regard to the Interested Parties’ claims and the position adopted by the Liquidator in relation to them, the Liquidator’s decision to enter into, and give effect to, the Terms of Settlement can be fairly characterised as contentious. The proceeding raises complex and substantial legal issues and questions of propriety and reasonableness in relation to how the Liquidator should deal with the Settlement Proceeds. There is utility in giving directions about the Terms of Settlement to provide the Liquidator with certainty and protection from liability in relation to how the Settlement Proceeds should be treated in the winding up.[23]
[23]Re G B Nathan and Co Pty Ltd, 674–9.
I am satisfied that it is appropriate to make orders under s 90-15 of the IPS to the effect that the Liquidator would be justified and acting reasonably in giving effect to the Terms of Settlement. I hold that view for the following reasons.
First, whilst being necessarily circumspect about the contents of the confidential advice prepared by the Liquidator‘s counsel, I note that the advice recognises that each of the claims made by the Interested Parties are attended by a degree of risk. I have no reason to disagree with that view. I am satisfied the Interested Parties were each in the best position to assess their relative commercial and legal risks when they agreed on a mediated outcome and entered into the Terms of Settlement. The Terms of Settlement give the Interested Parties and the Liquidator certainty in relation to the resolution of what has been hard-fought litigation.
Secondly, the Terms of Settlement were negotiated by the parties in circumstances where they were all capably represented by counsel and solicitors at a mediation conducted by a judicial officer of this Court. The Terms of Settlement were prepared after all relevant affidavit material and submissions had been exchanged between the parties in respect of the application.
Thirdly, the trial of the proceeding is likely to occupy three hearing days and cause significant costs to be incurred by the Liquidator and the Interested Parties, in addition to the considerable costs already incurred and the costs of a possible appeal. Counsel for Carter Holt quite rightly identified that those costs must be considered in light of the fact that the Settlement Proceeds only amount to $1.46 million and that proportionality is a relevant consideration. The Liquidator is also subject to the overarching obligation contained in s 24 of the Civil Procedure Act 2010 (Vic) to ensure costs incurred in connection with the proceeding are reasonable and proportionate to the complexity or importance of the issues in dispute and the amount in dispute itself.
Further, in the event any of the Interested Parties were unsuccessful at the final hearing, it is conceivable the Court may make an adverse costs order against them. Whilst it is also possible that the Liquidator may himself become the subject of an adverse costs order, this seems less likely because the Liquidator has brought the proceeding to obtain directions in respect of the winding up of the Company.
Fourthly, whilst again being necessarily oblique about the contents of the written advice given by counsel, the Liquidator’s decision to enter into, and give effect to, the Terms of Settlement finds support in the advice. Respectfully, the advice is a clear-eyed analysis of the claims made by the Interested Parties and the likely determination of those claims.
It must be observed that many of the underlying principles in the proceeding are complex and give rise to highly technical questions of general law and statute. By way of example, Carter Holt and the Commonwealth point out that the Court would be required to consider legal issues raised by Carter Holt concerning the marshalling and subrogation of BABL’s security over the Yatala Property in circumstances where there is no authority directly on point. The Commonwealth also identifies that the proceeding is factually complex and concerns events that span approximately 15 years. At a contested multiple-day hearing, the Court would be required to consider the legal significance of those facts, including claims made and steps taken in the Family Court and the Supreme Court proceedings, and the deeds of settlement that were entered into in December 2015.
Fifthly, all parties with claims on the Settlement Proceeds have been served with the Court documents in the proceeding and the Interested Parties have actively participated in the proceeding. The Commonwealth contends the Liquidator is justified and acting reasonably in giving effect to the Terms of Settlement. Carter Holt and Amrimear also consent to the Liquidator’s interlocutory application and support the orders sought by the Liquidator. This is a material factor that weighs heavily in the exercise of the Court’s jurisdiction.
I also note the Commonwealth’s submission that persons who do not qualify for payments pursuant to the Fair Entitlements Guarantee scheme (in whole or in part) and remain priority employee creditors still stand to receive funds on a pari passu basis. I am satisfied that those priority creditors will not be prejudiced by the approval of the Terms of Settlement.
Lastly, it appears highly likely that the Liquidator is entitled to a Universal Distributing lien over the Settlement Proceeds in respect of his costs, fees, and disbursements related to getting in, preserving, and administering the Settlement Proceeds. The Interested Parties do not contest the existence of a Universal Distributing lien (as is reflected in the Terms of Settlement). As previously noted, the fees and disbursements the subject of the Universal Distributing lien were initially estimated to be $648,910 (which the Liquidator agreed under the Terms of Settlement to cap in the amount of $670,000 on the basis that this hearing would take no more than one day). The costs, fees, and disbursements covered by the Universal Distributing lien include fees incurred in connection with this proceeding (including the costs of, and incidental to, the application) (‘directions and approval costs’) and those costs, fees, and expenses in connection with the recovery of the Settlement Proceeds in the Family Court proceeding (‘recovery costs’).
The recovery costs amount to $258,857.04. The Liquidator’s counsel was instructed at the hearing that, given the extent of overlap of claims made by Amerind and the Liquidator in the Supreme Court and the Family Court proceedings, the costs of the Supreme Court proceeding are also subsumed within the recovery costs.
As to the directions and approval costs, Mr Lopez explains in his 21 June 2023 affidavit that whilst the Liquidator initially stated in his affidavit of 21 December 2022 that the directions and approval costs at that time were just under $188,000, the Liquidator’s total fees, disbursements, and costs associated with the proceeding up to 29 May 2023 are now $392,920.50. The increase largely represents costs associated with the judicial mediation process and the costs of preparing this application. In addition, Mr Lopez deposes that there are additional legal costs, disbursements, and remuneration charges relating to the hearing today, which amount to approximately $21,740. This brings the total directions and approval costs to $414,660.50.
Some of the Liquidator’s remuneration has already been approved by a committee of inspection under s 60-10 of the IPS. The Court also notes that the Liquidator will need to seek approval of his outstanding fees and expenses the subject of the Universal Distributing lien in the ordinary course under s 60-10 of the IPS. In accordance with cl 7 of the Terms of Settlement, the Liquidator will need to separately identify those items the subject of the lien. I do not wish to pre-empt the approval process by commenting on the reasonableness of the Liquidator’s fees and expenses claimed under the Universal Distributing lien. I accept the plaintiff’s submission that the creditors with a direct interest in the Settlement Proceeds (namely, the Interested Parties) have not objected to those fees and expenses as part of this application. I also note that as a result of the increase in the directions and approval costs, the total costs and expenses covered by the Universal Distributing lien amount to approximately $673,517, which would be subject to the pre-determined cap in cl 6(b) of the Terms of Settlement.
Approval of Terms of Settlement under s 477(2B)
For the same reasons set out above, and for the following additional reasons, I accept the Court has jurisdiction under s 477(2B) of the Act and that it would be appropriate for the Court to approve the Terms of Settlement as:
(a) it is likely the Terms of Settlement will take more than three months to perform. I note in this regard that notice is required to be given in respect to the payment to priority creditors, including employees. The applicable notice period under reg 5.6.65 of the Corporations Regulations 2001 (Cth) is two months. In the event there is any delay in making payment following the expiry of this notice period, the performance of the Terms of Settlement may well extend beyond three months; and
(b) if the performance of the Terms of Settlement is extended in this way, I consider such delay would be reasonable in all the circumstances and apprehend that it will cause little to no prejudice to the timely administration of the winding up of Amerind.
Conclusion
In view of the above matters, I will make the following orders:
(1) Pursuant to s 477(2B) of the Corporations Act 2001 (Cth) (‘Act’), the entry by the plaintiff into the terms of settlement dated 15 May 2023 (being ‘Confidential Exhibit B’ to the Affidavit of Adam Lopez sworn 23 May 2023 (‘Terms of Settlement’) is approved.
(2) Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), the plaintiff is justified and acting reasonably in giving effect to the Terms of Settlement.
(3) The proceeding be dismissed with no order as to costs.
SCHEDULE OF PARTIES
| S ECI 2022 01557 | |
| BETWEEN: | |
| BRENT LEIGH MORGAN (in his capacity as liquidator of AMERIND PTY LTD (IN LIQUIDATION) (ACN 005 224 331)) | Plaintiff |
| - and - | |
| CARTER HOLT HARVEY PLYWOOD PTY LTD (ACN 002993106) (formerly known as CARTER HOLT HARVEY WOODPRODUCTS AUSTRALIA PTY LTD) ACN 002 993 106) | Other Party |
| COMMONWEALTH OF AUSTRALIA represented by the DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS (ABN 96 584 957 427) | Other Party |
| CRAIG IVOR BOLWELL in his capacity as liquidator of AMRIMEAR PTY LTD (IN LIQUIDATION) | Other Party |
0
5
0