Re Bell Group Ltd (in liq); Ex parte Woodings
[2013] WASC 409
•14 NOVEMBER 2013
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE BELL GROUP LTD (IN LIQ); EX PARTE ANTONY LESLIE JOHN WOODINGS AS LIQUIDATOR OF THE BELL GROUP LTD (IN LIQ) [2013] WASC 409
CORAM: ALLANSON J
HEARD: 4 NOVEMBER 2013
DELIVERED : 14 NOVEMBER 2013
FILE NO/S: COR 211 of 2013
MATTER :The Bell Group Ltd (In Liq) ACN 008 666 993 and certain of its subsidiaries as listed in the schedule to the originating process
EX PARTE
ANTONY LESLIE JOHN WOODINGS AS LIQUIDATOR OF THE BELL GROUP LTD (IN LIQ)
First PlaintiffGEOFFREY FRANK TOTTERDELL AS LIQUIDATOR OF THE BELL GROUP LTD (IN LIQ)
Second Plaintiff
Catchwords:
Corporations law - Winding up - Application by liquidators for approval of entering into settlement deed - Principles to be applied - Application by liquidators for directions
Legislation:
Corporations Act 2001 (Cth), s 477(2A), s 477(2B), s 477(6), s 479(3), s 543, s 1408(1), s 1323(2)
Corporations Law, pt 5.4, pt 5.5, pt 5.6, s 477(1)(d), s 477(2)(j), s 477(6), s 479(3)
Result:
Application granted
Category: B
Representation:
Counsel:
First Plaintiff : Mr J C Vaughan
Second Plaintiff : Mr J C Vaughan
Solicitors:
First Plaintiff : Ashurst Australia
Second Plaintiff : Ashurst Australia
Case(s) referred to in judgment(s):
Australian Securities and Investments Commission v Rowena Nominees Pty Ltd [2003] WASC 112; (2003) 45 ACSR 424
Chamberlain v RG & H Investments Pty Ltd (No 2) [2009] FCA 1531; (2009) 76 ACSR 415
Coats v Southern Cross Airlines Holdings Ltd (in liq) [2000] 1 Qd R 84
Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324; (2000) 35 ACSR 167
Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409; (2002) 40 ACSR 433; [2002] FCA 90
Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674
Re HIH Insurance Ltd [2004] NSWSC 5
Re Murphy & Allen; Re BPTC Ltd (in liq) (1996) 19 ACSR 569
Re One.Tel Networks Holdings [2001] NSWSC 1065
Re Read [2007] FCA 1985; (2007) 164 FCR 237
Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115
Vickers, in the matter of York Street Mezzanine Pty Ltd (in liq) [2011] FCA 1028
ALLANSON J: The first plaintiff, Mr Woodings, is the sole liquidator of the companies listed in Schedule A to these reasons. He and the second plaintiff, Mr Totterdell, are joint liquidators of the companies listed in Schedule B. For most purposes in these reasons, the companies can be dealt with as a group, and I will refer to them as the Bell Group companies.
By originating process under the Corporations Act 2001 (Cth), the plaintiffs apply for orders which would, in substance:
1.Approve nunc pro tunc the plaintiffs entering a settlement deed, settling liquidation between the liquidators and the Bell group companies, and a group of banks (the Bell proceedings).
2.Direct that the plaintiffs acted and will be acting properly and justifiably in entering into and performing the agreements under the settlement deed.
3.Direct them as to the investment of the settlement sum on completion under the settlement deed.
All of the companies in Schedules A and B, except Bell Bros Holdings Ltd (in liquidation), are parties to the Bell proceedings.
The evidence
The application was ex parte and the evidence on affidavit. The plaintiffs rely on:
1.an affidavit of Mr Woodings, sworn 16 October 2013;
2.a confidential affidavit of Mr Woodings, sworn 16 October 2013;
3.an affidavit of Mr Totterdell, sworn 23 October 2013;
4.an affidavit of Mr Chai, solicitor for the plaintiffs, sworn 30 October 2013.
The plaintiffs also put before the court, while reserving their privilege in them, a series of legal advices. They also relied upon a confidential document, setting out financial modelling undertaken for the purpose of the settlement.
I am satisfied that it is proper to proceed in this manner, which preserves the confidentiality of the settlement for which the plaintiffs seek court approval, as well as the confidentiality of the material on which the plaintiffs have acted: see, for example, Vickers, in the matter of York Street Mezzanine Pty Ltd (in liq) [2011] FCA 1028 [63], and the cases cited there by Gordon J.
The facts
The parties
Mr Totterdell was appointed on 24 July 1991 as liquidator of The Bell Group Limited (in liquidation). He was appointed as liquidator to the other companies in Schedule B on various dates between then and 21 December 1995.
Mr Woodings was appointed official liquidator of Bell Group Finance Pty Ltd on 3 March 1993. Later he was appointed sole liquidator of the other companies listed in Schedule A, and joint liquidator with Mr Totterdell of those listed in Schedule B. He is also provisional liquidator of Western Interstate Pty Ltd (in liquidation). Western Interstate is a party to the Bell proceedings.
On 3 March 2000, in relation to the companies in which they were joint liquidators, Templeman J ordered that Mr Woodings was to do all things required or authorised by law to be done by a liquidator of each company in respect to the conduct and prosecution of the Bell proceedings, to the exclusion of Mr Totterdell. The orders also required Mr Totterdell to provide assistance to Mr Woodings, and to do all things necessary or convenient to progress the prosecution and settlement of the Bell proceedings, as may be reasonably required by Mr Woodings.
Accordingly, from 3 March 2000, Mr Woodings has had sole conduct of the prosecution of the Bell proceedings for the companies in Schedules A and B. He also holds a power of attorney to conduct the proceedings on behalf of Law Debenture Trust Corporation plc.
Because the winding up of the Bell Group companies was effectively deferred, pending the conclusion of the Bell proceedings, Mr Totterdell has not performed substantive work on the liquidations since March 2000. He has, since then, retired from practice, although he remains party to various proceedings which have been stayed pending the outcome of the Bell proceedings. Despite his limited role in the conduct of the proceedings, it was necessary for Mr Totterdell, as the joint liquidator, to execute the settlement deed at Mr Wooding's request.
Two other plaintiffs in the Bell proceedings are independently represented: Bell Group NV (in liquidation), a body incorporated in the Netherlands Antilles; and Bell Group (UK) Holdings Ltd (in liquidation) (in administrative receivership), a company registered in the United Kingdom.
The Bell proceedings
The proceedings against the banks were commenced in the Federal Court in 1995. In 2000, they were transferred to this court.
Funding for the proceedings was provided by a group of indemnifying creditors. More recently, on payment of amounts which were uncontested following the decision in the Court of Appeal, the proceedings have been funded from those uncontested amounts.
The trial commenced in July 2003, and continued until 22 September 2006. The trial judge delivered reasons for judgment on 28 October 2008, and made final orders on 30 April 2009.
The final orders included orders for monetary relief in favour of certain of the plaintiffs, and payment of costs by the banks for the benefit of Bell Group Finance and the Bell Group Limited. As at 29 May 2009, the date on which orders for payment were to take effect, the total amount payable by the banks was approximately $1,662,000,000.
The banks appealed to the Court of Appeal. Respondents to the appeal filed cross‑appeals in respect to certain aspects of the trial judgment. The appeal was heard between 18 April and 22 June 2011, with judgment given on 17 August 2012. The Court of Appeal dismissed the banks' appeal, and upheld aspects of the cross‑appeals. In effect, the result of the judgment of the Court of Appeal was to increase the amount payable by the banks, as at 29 May 2009, to approximately $2,322,000,000. To that amount must be added post‑judgment interest. The appeal orders also included favourable cost orders for the benefit of the respondents.
On 14 September 2012, the banks applied to the High Court for special leave to appeal. Special leave was granted on 15 March 2013.
The appeal in the High Court does not challenge all aspects of the final orders, as varied by the Court of Appeal. The banks and the respondents agreed that amounts which are wholly uncontested for the purpose of the High Court proceedings would be paid. The uncontested amounts, which include the costs at first instance, totalled $718,134,657.88.
In early September 2013, the banks and the respondents to the High Court appeal, and others, reached an agreement on the terms of a deed of settlement regarding the Bell proceedings and other related proceedings. The deed was executed by all parties and exchanged on 17 September 2013. The deed includes obligations on the parties to keep its terms confidential.
The High Court appeal has been adjourned.
The statutory regimes
Counsel for the plaintiffs has very helpfully identified the statutory regimes that apply and relevant transitional provisions. There are six Bell Group companies which were wound up by orders of the court made before 23 June 1993:
•The Bell Group Ltd (in liquidation);
•Bell Bros Holdings Ltd (in liquidation);
•Bell Group Finance Pty Ltd (in liquidation) (receiver and manager appointed);
•Bell Publishing Group Pty Ltd (in liquidation);
•Wigmores Tractors Pty Ltd (in liquidation)
•W & J Investments Ltd (in liquidation).
The combined effect of s 1408(1) of the Corporations Act and s 1323(2) of the Corporations Law is that the winding up of these six companies must be carried out in accordance with and is governed by so much of pts 5.4, 5.5 and 5.6 of the Corporations Law in force before 23 June 1993 as applies to such a winding up.
In summary, there was no equivalent in the Corporations Law to s 477(2B) of the Corporations Act. Section 477(1)(d) and s 477(2)(j) of the Corporations Law required approval to compromise a judgment debt in an amount greater than $20,000. The other provisions relevant to this application ‑ s 477(6) and s 479(3) of the Corporations Law ‑ have not materially changed in the current Act.
The orders sought
The Aide Memoire
To assist the court in this application, the plaintiffs provided a document headed 'Aide Memoire', which identifies and summarises relevant parts of the settlement deed. They request orders that the document also be confidential, and be not available for inspection except on the order of a judge or master of the court.
The document was provided to assist the court in preparation for the hearing, and on the basis that the assistance would not compromise the confidentiality of the settlement deed. It is appropriate to make the orders sought, and I will do so.
Approval to enter the settlement deed
The settlement deed compromises debts to the Bell Group companies, where they claim more than $100,000. Under its terms, the obligations of parties to it may be discharged by performance more than three months after the agreement is entered into. Accordingly, under s 477(2A) and s 477(2B) of the Corporations Act, the plaintiffs must not enter into the settlement agreement except with the approval of the court, or a committee of inspection, or of a resolution of the creditors.
Counsel for the plaintiffs provided very detailed submissions on the wealth of case law on court approvals under s 477(2A) and s 477(2B). The relevant factors and principles are, for present purposes, conveniently summarised in Re HIH Insurance Ltd [2004] NSWSC 5 [15] (Barrett J):
This brings me to the approach that the court is to take in deciding whether to grant approval under s 477(2A) or s 477(2B). Although the two provisions deal with different aspects of a liquidator's powers, both are concerned to ensure that the court exercises some oversight of the liquidator's actions and, in effect, confers or completes the necessary power only where it sees that a case for exercise of the power in the particular circumstances has been sufficiently shown. The court's assessment must be made in light of the purposes for which liquidators' powers exist. One overriding purpose is to serve 'the interests of those concerned in the winding up ‑ here the creditors' (Re Spedley Securities Ltd (1992) 9 ACSR 83 per Giles J); the other is to do whatever needs to be done 'for the proper realisation of the assets of the company' or to assist its winding up (Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 per Young J). The court does not concern itself with the commercial desirability of the transaction. As Giles J said in the Spedley Securities case (above):
'The court pays regard to the commercial judgment of the liquidator. That is not to say that it rubber stamps whatever is put forward by the liquidator but, as is made clear in Re Mineral Securities (Australia) Ltd [1973] 2 NSWLR 207 at 231‑2, the court is necessarily confined in attempting to second guess a liquidator in the exercise of his powers, and generally will not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct.'
Although this was said in relation to s 477(2A ), I consider the statement to be equally applicable to s 477(2B). As Austin J observed in Re United Medical Protection Ltd [2003] NSWSC 237, the considerations arising under both provisions are 'much the same', although I would add that s 477(2B) focuses particular attention on the need to ensure that contractual provisions as to timing do not cut across the general expectation that winding up will proceed in as expeditious a fashion as circumstances allow: Re G A Listing & Maintenance Pty Ltd (above), Re CIC Insurance Ltd [2001] NSWSC 438; (2001) 38 ACSR 181.
I am constrained in the reasons I can give because much of the evidence which I have considered is confidential. To consider the orders proposed, I have had particular regard to the evidence in Mr Woodings' confidential affidavit regarding the process by which settlement was reached; to the terms of the settlement deed; and the detailed negotiations about the terms of the deed; to the legal advice provided to the plaintiffs by senior counsel at various times in the process, including after 'in principle' settlement terms had been accepted; to the plaintiffs' financial modelling of the effect of the proposed settlement; and to the value of the claim.
I have also considered the history of this litigation, which I have very briefly summarised above, and the nature of the issues now before the High Court on the grant of special leave. Those more closely connected with the case have exhausted the repertoire of adjectives to describe its size and complexity.
Those matters all affect the consideration of whether the plaintiffs are acting in good faith, and whether there is some error or other substantial ground for doubting the prudence of their proposed conduct. On all of the material before me, I am satisfied there is not.
There are three particular matters which influence me in reaching that result. First, the compromise of the claims at this stage involves a legal as well as a commercial assessment. The liquidators have obtained legal advice from senior counsel, appropriate to the nature and value of the claims. Second, while not all creditors have seen and approved the proposed settlement, the major creditors have had the opportunity to consider it. Two of the indemnifying creditors are parties to the settlement deed, and the third, through its representative, signed the 'in principle' agreement. There is overwhelming support for the settlement from creditors. I note, however, as counsel pointed out, that some of the creditors are themselves in liquidation and the present plaintiffs are the liquidators of those companies. Third, on the matters addressed by Mr Woodings in his confidential affidavit, I am satisfied that Mr Woodings has properly considered the best interests of the creditors, including whether the settlement is more likely to expedite rather than delay the completion of the winding up of each company in the group.
I am satisfied that the plaintiffs have made out a case for the exercise of the powers to grant approval under both s 477(2A) and s 477(2B), and, for those six companies governed by the Corporations Law, under s 477(1)(d) and s 477(2)(j).
The next question is whether, the plaintiffs having executed the settlement, the court's approval should be given nunc pro tunc. While approval should normally be obtained in advance of the exercise of the power in question, there appears to be no doubt that the court has the power to give approval that operates from an earlier time: see, for example, Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324; (2000) 35 ACSR 167 [10]; Re Read [2007] FCA 1985; (2007) 164 FCR 237; Vickers, in the matter of York Street Mezzanine Pty Ltd (in liq). The grounds for acting without prospective approval have been explained by Mr Woodings in his confidential affidavit, and the settlement deed is conditional on court approval. There is, in my opinion, no impediment to approval being now granted.
There is divergence of opinion about whether it is appropriate for the court to order, under s 1322(4)(d), that the period for the liquidator to apply for the court's approval be extended: see Re Read [39] ‑ [41]; Chamberlain v RG & H Investments Pty Ltd (No 2) [2009] FCA 1531; (2009) 76 ACSR 415 [22] ‑ [24]. The course proposed by the plaintiffs, following that adopted in Chamberlain, is expedient. Because of my finding that the court should grant approval under s 477(2A) and s 477(2B), I will grant approval nunc pro tunc from the date that the plaintiffs and the various companies entered into the settlement deed. I will further order, if and to the extent that an extension of time is required for the plaintiffs to bring an application for approval under s 477(2A) and s 477(2B), that time is extended. I will give a direction under s 479(3) of the Corporations Act that each plaintiff (as liquidator or provisional liquidator of each company) may act on the settlement agreement as if he had entered into it with the prior approval of the court. And I will declare, under s 1322(4)(a) that the settlement agreement is not invalid by reason of having been entered into without the court's prior approval.
I will make orders to the same effect for those six companies under the Corporations Law.
Application for directions: Corporations Act s 479(3), Corporations Law s 479(3)
The plaintiffs seek further directions under s 479(3): in effect, that each of them 'was, is and will be acting properly and justifiably' in entering into and causing the companies to enter into the settlement deed, and in performing and causing the companies to perform the agreements under the settlement deed.
Under s 479(3), a liquidator may apply to the court for directions in relation to a matter arising under a winding up. The proper subject of such an application for directions is the manner in which the liquidator should act in carrying out his functions. In Coats v Southern Cross Airlines Holdings Ltd (in liq) [2000] 1 Qd R 84, 93, Fitzgerald P (with whom McPherson JA and Thomas J agreed), described the primary purpose of the court's directions to a liquidator as 'the protection of the liquidator from allegations that he or she has acted improperly or unreasonably or has caused actionable loss'. If the liquidator has made full and fair disclosure to the court of the material facts, he or she will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him in accordance with the directions: Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 679; Australian Securities and Investments Commission v Rowena Nominees Pty Ltd [2003] WASC 112; (2003) 45 ACSR 424 [78] ‑ [79].
The court will generally not give directions that relate to the making of a business or commercial decision, where there is no challenge to the reasonableness or propriety of the decision, and no issue calling for the exercise of legal judgment: see, for example, Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115, 117; (1986) 4 ACLC 114; Re GB Nathan & Co Pty Ltd (686 – 687); Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409; (2002) 40 ACSR 433; [2002] FCA 90 [65].
I am satisfied there is a proper case for the exercise of the power under s 479(3). Counsel for the plaintiffs referred to the following factors, all of which I consider are relevant and favour making a direction of the kind sought. First, the settlement is complex and involves not only commercial judgment but also an assessment of legal issues. The plaintiffs have taken advice from senior counsel, but that is no reason to deny them the protection of a direction of the court. Second, the court has approved the entry into the agreement, and the making of a direction of the kind sought is a condition of the principal provisions of the deed coming into operation: Re One.Tel Networks Holdings [2001] NSWSC 1065 [42]. Third, the size and complexity of the Bell proceedings, including the amount of the judgment debt that is to be compromised, place the plaintiffs in an extraordinary position. While the size of the debt compromised may not, on its own, be a sufficient reason to make a direction, it is a factor to be considered with others. Fourth, Mr Totterdell has had very limited involvement with these matters since March 2000, but is required by the orders made by Templeman J on 3 March 2000 to do all things necessary or convenient to progress the prosecution and settlement of the Bell proceedings as may be reasonably required by Mr Woodings. Whether Mr Totterdell is acting reasonably and justifiably in entering into and performing the agreement in these circumstances involves more than a commercial judgment. Fifth, although there is no person, currently identified, who challenges the propriety of the settlement, not all creditors have seen and approved it.
Finally, with regard to Bell Group Finance Pty Ltd, Mr Woodings has disclosed an actual conflict of interest arising from his office as liquidator of all of the Bell Group companies. The allocation of the settlement sum adopted in the settlement takes into account that Bell Group Finance is exposed to a higher level of risk on one aspect of the High Court appeal. Mr Woodings has, in the confidential material, set out his basis for considering that the adjustment adopted in response to that factor is fair and reasonable. Whether the allocation is justified, having regard to Mr Woodings' position, is an issue that goes beyond commercial judgment, and is an issue that supports the exercise of the court's power in s 479(3).
The terms of the direction also require consideration. The minute of proposed orders seeks a direction that each of the plaintiffs
(i)was, is and will be acting properly and justifiably in:
(A)entering into and causing the Companies to enter into the Settlement Deed; and
(B)performing and causing the Companies to perform the agreements under the Settlement Deed; and
(ii)may act on the Settlement Deed as though he … and the Companies had entered into the Settlement Deed with the prior approval of the Court …
I have some reservations whether it would be a proper exercise of the power under s 479(3) to give a direction that each plaintiff 'was' acting properly and justifiable in entering into the settlement deed. The function of directions is to advise the liquidator as to the proper course for him to take in the liquidation. It is essentially concerned with future action: Re Murphy & Allen; Re BPTC Ltd (in liq) (1996) 19 ACSR 569. With an agreement that is subject to a condition precedent, the distinction between what was done in entering it, and before satisfaction of the condition, and what will be done in performing it, may not always be neatly compartmentalised into past and future. I have had regard to the condition precedent in the settlement deed, both the way in which it operates and the wording of the approvals and directions it requires. I am not sure why the wording of the relevant clause in the settlement deed has not been followed. I will make directions that, in substance, meet the requirements of that clause. I am not satisfied that requires an order in the terms of the minute.
Directions as to investment of the Settlement Sum
The powers of a court appointed liquidator are primarily contained in s 477 of the Corporations Act. Section 477(6) provides that the exercise by the liquidator of the powers conferred by that section is subject to the control of the court.
Mr Woodings seeks a direction that, upon receipt of the settlement sum under the settlement deed, he is to invest those amounts, or any part of them:
(i) in any manner in which trustees are for the time being authorised by law to invest trust funds; or
(ii)on deposit with an eligible money market dealer; or
(iii)on deposit at interest with any authorised deposit taking institution regulated under the Banking Act 1959 (Cth).
The direction is sought to avoid a possible lacuna as to regulation of the investment of the settlement sum on completion under the settlement deed. The plaintiffs submit that under the settlement deed Mr Woodings will not, at least initially, hold the settlement sum in his capacity as liquidator, but rather as trustee. The usual regulatory provisions applicable to a liquidator may not apply. The plaintiffs seek to overcome that by a direction that picks up the investments permitted in s 543 of the Corporations Act and requires him to invest the funds in that manner.
I am satisfied that it is proper to make the direction sought, as part of the court's powers of control and supervision over the liquidator as an officer of the court.
Costs
Finally, the plaintiffs request an order that the costs of the application are costs in the winding up, and may be paid out of the assets of the companies severally in the proportions specified in a schedule to the orders. The costs will be borne severally by the Bell Group companies in the proportions in which Mr Woodings will hold the settlement sum on trust.
I am satisfied that is a reasonable and equitable basis on which to apportion the costs and the order should be made.
Orders
I will ask the plaintiffs to bring in orders to give effect to these reasons. The only departure from the minute of proposed orders will be in the wording of the direction under s 479(3). Otherwise the orders will be in the terms of that minute.
Schedule A
Bell Group Finance Pty Ltd (in liquidation)
Bell Publishing Group Pty Ltd (in liquidation)
Bell Equity Management Limited (in liquidation)
Great Western Transport Pty Ltd (in liquidation)
Harlesden Finance Pty Ltd (in liquidation)
Industrial Securities Pty Ltd (in liquidation)
Western Transport Pty Ltd (in liquidation)
Dolfinne Securities Pty Ltd (in liquidation)
Wanstead Securities Pty Ltd in (liquidation)
Schedule B
The Bell Group Limited (in liquidation)
Ambassador Nominees Pty Ltd (in liquidation)
Belcap Enterprises Pty Ltd (in liquidation)
Bell Bros Pty Ltd (in liquidation)
Bell Bros Holdings Ltd (in liquidation)
Dolfinne Pty Ltd (in liquidation)
Maradolf Limited (in liquidation)
Maranoa Transport Pty Ltd (in liquidation)
Neoma Investments Pty Ltd (in liquidation)
TBGL Enterprises Limited (in liquidation)
WAON Investments Pty Ltd (in liquidation)
Wanstead Pty (in liquidation)
Wigmores Tractors Pty (in liquidation)
W & J Investments Limited (in liquidation)
31
15
2