Re Great Southern Ltd (in liq)
[2015] WASC 171
•18/05/2015
RE GREAT SOUTHERN LTD (IN LIQ); EX PARTE GREAT SOUTHERN LTD (IN LIQ) AND OTHERS NAMED IN THE SCHEDULE [2015] WASC 171
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2015] WASC 171 | |
| 18/05/2015 | |||
| Case No: | COR:91/2015 | 12 MAY 2015 | |
| Coram: | BEECH J | 12/05/15 | |
| 24 | Judgment Part: | 1 of 1 | |
| Result: | Approval given Directions made | ||
| B | |||
| PDF Version |
| Parties: | GREAT SOUTHERN LTD (IN LIQ) AND OTHERS NAMED IN THE SCHEDULE (ACN 052 046 536) |
Catchwords: | Corporations External administration Winding up Application by liquidator for approval to enter a settlement deed Application by liquidator for directions that they are justified in entering and performing settlement deed |
Legislation: | Corporations Act 2001 (Cth), s 477(2A), s 477(2B), s 511 |
Case References: | Elderslie Finance Corporation Ltd v Newpage Pty Ltd (No 6) [2007] FCA 1030; (2007) 160 FCR 423 Great Southern Ltd (in liq) (receivers & managers appointed) v Young [2014] WASC 481 Onefone Australia Pty Ltd v OneTel Ltd [2010] NSWSC 498; (2010) 78 ACSR 163 Re Bell Group (in liq); Ex parte Woodings [2009] WASC 235 Re Bell Group Ltd (in liq); Ex parte Woodings [2013] WASC 409 Re Bell Group NV (in liq); Ex parte Insurance Commission of Western Australia [No 2] [2015] WASC 114 Re Great Southern Managers Australia Ltd (in liq); Ex parte Jones [2014] WASC 312 Re Gunns Plantations (in liq) (No 3) [2014] VSC 267 Re Hazelton Air Charter Pty Ltd [2002] FCA 529; (2002) 41 ACSR 472 Re HIH Insurance Ltd (in liq) [2004] NSWSC 5 Re HIH Insurance Ltd [2005] NSWSC 731 Re Hogan; Ex parte West Australian Newspapers Ltd [2009] WASCA 221; (2009) 41 WAR 288 Re Newtronics Pty Ltd; Ex parte Stewart [2007] FCA 1375 Re One.Tel Ltd (in liq) [2014] NSWSC 457; (2014) 99 ACSR 247 Re Robins SM; Ex parte West Australian Newspapers Ltd [1999] WASCA 16; (1999) 20 WAR 511 Re S & D International Pty Ltd (in liq) (No 7) [2012] VSC 551; (2012) 92 ACSR 28 Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 Re Timbercorp Ltd (in liq) [2011] VSC 189 Re York Street Mezzanine Pty Ltd (in liq) [2011] FCA 1028; (2011) 196 FCR 479 Russell v Russell (1976) 134 CLR 495 TK v Australian Red Cross Society (1989) 1 WAR 335 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
GREAT SOUTHERN LTD (IN LIQ) AND OTHERS NAMED IN THE SCHEDULE (ACN 052 046 536)
Plaintiffs
Catchwords:
Corporations - External administration - Winding up - Application by liquidator for approval to enter a settlement deed - Application by liquidator for directions that they are justified in entering and performing settlement deed
Legislation:
Corporations Act 2001 (Cth), s 477(2A), s 477(2B), s 511
Result:
Approval given
Directions made
Category: B
Representation:
Counsel:
Plaintiffs : Mr M C J Hoffmann QC & Mr J M Healy
Solicitors:
Plaintiffs : Lipman Karas
Case(s) referred to in judgment(s):
Elderslie Finance Corporation Ltd v Newpage Pty Ltd (No 6) [2007] FCA 1030; (2007) 160 FCR 423
Great Southern Ltd (in liq) (receivers & managers appointed) v Young [2014] WASC 481
Onefone Australia Pty Ltd v OneTel Ltd [2010] NSWSC 498; (2010) 78 ACSR 163
Re Bell Group (in liq); Ex parte Woodings [2009] WASC 235
Re Bell Group Ltd (in liq); Ex parte Woodings [2013] WASC 409
Re Bell Group NV (in liq); Ex parte Insurance Commission of Western Australia [No 2] [2015] WASC 114
Re Great Southern Managers Australia Ltd (in liq); Ex parte Jones [2014] WASC 312
Re Gunns Plantations (in liq) (No 3) [2014] VSC 267
Re Hazelton Air Charter Pty Ltd [2002] FCA 529; (2002) 41 ACSR 472
Re HIH Insurance Ltd (in liq) [2004] NSWSC 5
Re HIH Insurance Ltd [2005] NSWSC 731
Re Hogan; Ex parte West Australian Newspapers Ltd [2009] WASCA 221; (2009) 41 WAR 288
Re Newtronics Pty Ltd; Ex parte Stewart [2007] FCA 1375
Re One.Tel Ltd (in liq) [2014] NSWSC 457; (2014) 99 ACSR 247
Re Robins SM; Ex parte West Australian Newspapers Ltd [1999] WASCA 16; (1999) 20 WAR 511
Re S & D International Pty Ltd (in liq) (No 7) [2012] VSC 551; (2012) 92 ACSR 28
Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83
Re Timbercorp Ltd (in liq) [2011] VSC 189
Re York Street Mezzanine Pty Ltd (in liq) [2011] FCA 1028; (2011) 196 FCR 479
Russell v Russell (1976) 134 CLR 495
TK v Australian Red Cross Society (1989) 1 WAR 335
- BEECH J:
Introduction
1 The plaintiffs (the Liquidators) are liquidators of a number of companies in the Great Southern Group. In that capacity, they have commenced a number of actions on behalf of various companies within the Great Southern Group. In this proceeding, they sought directions under s 511 of the Corporations Act 2001 (Cth) (the Act) that they are justified in entering into and performing settlement deeds settling a number of actions they have commenced against various parties. They also sought orders necessary under s 477(2A) and s 477(2B) approving the entry into the settlement deeds. Finally, they also sought a direction under s 511 that they are justified in apportioning the proceeds of the settlement deeds as between the companies within the Great Southern Group in the manner proposed in the affidavit sworn by one of the Liquidators.
2 On 12 May 2015, I made the orders sought by the Liquidators, stating that I would publish my reasons. These are my reasons.
Background
3 Great Southern Ltd (GSL) was a listed public company whose principal activities involved the development, marketing and management of managed investment schemes (MIS) across a range of agricultural products, including timber plantations, beef cattle, olives, almonds and wine grapes as well as direct investments into cattle and forestry assets.
4 Great Southern Finance (GSF) is a wholly owned subsidiary of GSL. GSF's business was to provide finance to investors in the group's MIS, manage the loans made to the investors and sell loans through securitisation agreements with third parties.
5 Great Southern Managers Australia Ltd (GSMAL) is a wholly owned subsidiary of GSL. GSMAL was the responsible entity for all the group's MIS.
6 On 16 May 2009, the Liquidators were appointed as joint and several administrators of the Great Southern Group companies. On 19 November 2009, the creditors resolved to wind up the Great Southern Group.
7 Shortly after the appointment of administrators and on 18 May 2009, partners of McGrath Nicol were appointed as the Receivers and Managers over all of the assets and undertakings of GSL, GSMAL and certain other wholly owned subsidiaries of GSL. The Receivers and Managers retired from GSL and GSMAL on 18 December 2013.
8 Over the period of the receivership, the Receivers and Managers made distributions in excess of $440.9 million (including accrued interest) to the secured creditors of Great Southern Group companies. The Receivers and Managers did not pass control of any surplus assets of the Great Southern Group to the Liquidators and the balance of the secured debt of approximately $5.8 million was ultimately repaid in full from assets available to the Liquidators in respect of certain of the Great Southern companies.
9 Up until September 2012, the liquidations of the Great Southern Group were largely unfunded. The Receivers and Managers remained in control of the assets of GSL and a number of Great Southern Group companies.
10 In 2011 and 2012, so as to preserve possible causes of action, the Liquidators caused various Great Southern Group companies to file a number of protective writs.
11 In or around July 2012, the Liquidators entered into negotiations with a Funder, with respect to the funding of investigation and prosecution of any claims available to GSL, GSF, GMSAL and/or the Liquidators. On 17 September 2012, in the Federal Court, Gilmour J authorised the Liquidators' entry into a litigation funding agreement with the Funder.
12 Subsequent to the Liquidators obtaining funding, the circumstances of each of the claims preserved by these writs were investigated, and advice was received not to proceed with a number of these claims, with the consequence that those writs were not served.
13 On 24 December 2012, the GSF Writ was served upon Messrs Rhodes and Young. The claim made against Messrs Rhodes and Young in the GSF Proceedings is that in the period 30 March 2005 to 30 June 2008 they acted in breach of their duties as directors in failing to ensure that GSF implemented appropriate credit policies and procedures. That is said to have led to it making loans which were ultimately irrecoverable, being the loans made to a group of investors introduced to the Great Southern Group through a financial advisor named Nancy Keep (leading to a loss of $23.6 million), and other uncreditworthy loans (leading to a loss of $18.5 million).
14 Shortly after service was effected, the GSF Proceedings were placed in the CMC List. On 15 December 2014, the trial of the GSF Proceedings was listed for five weeks from 4 May 2015 to 5 June 2015. On 8 April 2015 the parties informed me that the action had been conditionally settled, and I vacated the trial dates.
15 On 26 September 2012, the Liquidators caused the GSL Director Writ to be filed in the GSL Director Proceedings to preserve claims by GSL and the Liquidators against GSL's former executive directors. The claim made against the Directors is that they breached their statutory, tortious, fiduciary and contractual duties in failing to ensure the financial statements of GSL and the Great Southern Group in the period June 2006 to March 2008 complied with the applicable accounting standards and the requirements of the Act, causing GSL to pay dividends of $55.3 million otherwise than out of profits, contrary to the requirements of section 245T of the Act, and to overpay income tax of $8 million in respect of overstated taxable income recorded in the 2007 tax year.
16 On 24 September 2012, the Liquidators caused the GSL PwC Writ to be filed in the GSL PwC Proceedings to preserve claims by GSL and the Liquidators against PwC as to their alleged breaches of contractual, statutory and tortious duties in the conduct of their audits for the financial year ended 30 June 2006 and the three month period ended 30 September 2006.
17 From the date of the filing of the respective protective writs in the GSL Director and GSL PwC Proceedings, extensive investigations were undertaken by the Liquidators. As these investigations were not yet complete and the writs were due to lapse, an application for the extension of the writs was made. By orders made by Registrar C Boyle on 23 and 24 September 2013, the validity of the GSL PwC Writ and the GSL Director Writ were extended by six months to 31 March 2014.
18 On 23 April 2014, PwC filed an application seeking (among other things) an order setting aside the order made by Registrar C Boyle on 23 September 2013 extending the validity of the GSL PwC Writ. On 16 May 2014, Mr Young and Messrs Rhodes and Butlin filed applications in the GSL Director Proceedings seeking (among other things) orders setting aside the order made by Registrar C Boyle on 24 September 2013 extending the validity of the GSL Director Writ. The various applications relating to the extension of the two GSL Writs were heard together by Allanson J.
19 On 17 December 2014, Allanson J delivered his reasons for decision in respect of the applications made in the GSL Director Proceedings in Great Southern Ltd (in liq) (receivers & managers appointed) v Young1 and:
(1) made an order setting aside the order extending the validity of the GSL Director Writ as against Messrs Rhodes and Butlin;
(2) dismissed Mr Young's application for leave to withdraw his unconditional appearance and setting aside the order extending the validity of the GSL Director Writ as against him; and
(3) stated that the plaintiffs' application to correct certain irregularities in failing to comply with O 7 r 1(3) fell away.
20 Judgment in respect of the applications made in the GSL PwC Proceedings remains reserved and PwC requested that Allanson J defer delivery of judgment in view of the settlement discussions then on foot between the parties.
21 The Liquidators appealed the decision of Allanson J in respect of Messrs Rhodes and Butlin, and Mr Young filed both a rectification application and an appeal. Mr Young's appeal has since been discontinued in light of the settlement (with Mr Young indicating that he would seek orders nunc pro tunc to continue his appeal should the settlement fail) and his rectification application has been adjourned sine die. The Liquidators' appeal has been stayed and will be discontinued following receipt of the Settlement Sum in accordance with the terms of the Settlement Deeds once the directions and approvals sought are made.
The Settlement Deeds
22 On 17 and 18 February 2015, a mediation took place before the Hon Kevin Lindgren AM QC involving the parties to the Settlement Deeds and the Directors' insurers. On 18 February 2015, the terms of a settlement of each of the Proceedings were agreed on a without prejudice and confidential basis, subject to the execution of a deed of settlement. There has followed a lengthy period of negotiation over the terms of the proposed Settlement Deeds. The Settlement Deeds were eventually executed on 20 April 2015.
23 In the event the remaining condition precedent is satisfied, by way of summary, pursuant to the Settlement Deeds:
(1) the Directors' Settlement Deed settles disputes between the Directors, their Related Persons, Related Entities, the Great Southern Released Persons, the Liquidators and the Companies (defined in the Settlement Deeds as meaning all or any of GSL, GSMAL, GSS, GSF and any of the other companies within the Great Southern Group including but not limited to the companies listed in sch 1 to the deed). PwC is also a party to the Directors' Settlement Deed since reciprocal releases and covenants are provided as between PwC and the Directors;
(2) the PwC Settlement Deed settles disputes between PwC (including all current and former partners and employees of PwC), the Liquidators and the Companies. The Directors are also parties to the PwC Settlement Deed since reciprocal releases and covenants are provided as between the Directors and PwC; and
(3) although the terms of the settlement have been recorded in separate deeds, each of the deeds is dependent on the other for effect, and the PwC Settlement Deed essentially mirrors the Directors' Settlement Deed with appropriate changes to reflect matters specifically relevant to the settlement reached between the Liquidators, the Companies and PwC.
24 The terms of the Settlement Deeds are confidential between the parties to them. As I will explain later in these reasons, in my view, that confidentiality should be upheld. Consequently, I do not outline the terms of the Settlement Deeds in these reasons, although I have, of course, taken those terms into account in determining that it was appropriate to make the orders sought by the Liquidators.
Legislative provisions
25 Section 477(2A) is made applicable by s 506(1A) to a creditor's voluntary winding up.
26 Section 477(2A) provides as follows:
(2A) 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 compromise a debt to the company if the amount claimed by the company is more than:
(a) if an amount greater than $20,000 is prescribed - the prescribed amount; or
(b) otherwise - $20,000.
28 Section 477(2B) is made applicable to a creditor's voluntary winding up by s 506(1A). Section 477(2B) provides as follows:
(2B) Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf (for example, but without limitation, a lease or a 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 liquidator, or any contributory or creditor, may apply to the Court:
(a) to determine any question arising in the winding up of a company; or
(b) to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court.
30 I adopt and apply the outline of principles relating to s 511 by Pritchard J in Re Great Southern Managers Australia Ltd (in liq); Ex parte Jones:2
The words 'just and beneficial' in s 511 indicate that the court has a discretion as to whether making an order will be of advantage in the liquidation. In deciding whether to give the direction, the court must have regard to the liquidation process as a whole and not to the interests of any one particular party.
A determination under s 511 cannot, of itself, bind anyone except the liquidator and the persons entitled to participate under the winding up. The effect of a direction or order under s 511 is not to determine rights and liabilities arising out of particular transactions, but to sanction a course of conduct proposed by a liquidator so as to protect the liquidator from liability for any alleged breach of duty as liquidator, to a creditor or to the company, in respect of anything done by the liquidator in accordance with the direction or order. (However, that does not mean that the court cannot determine questions involving substantive rights in an application under s 511, provided that all necessary parties are joined.)
The protection afforded to the liquidator by virtue of a direction under s 511 is conditional upon the liquidator making 'full and fair disclosure of all relevant facts and circumstances before the court' at the time the order is made.
The rationale for s 511 is that while a company and its creditors should be left, if possible, to settle their affairs without coming to the Court at all, the liquidator in a voluntary winding up should have a means to access the Court, in the same way as a liquidator in a compulsory winding up may seek the court's direction, whenever any question arises in the course of the winding up. In many respects the Court's jurisdiction under s 511 is analogous to, although not precisely the same as, its jurisdiction under s 479(3) of the Act. To that end, s 511 confers jurisdiction over subject matters and powers that the court might not otherwise possess.
A direction may be sought under s 511 in respect of any question arising in the course of a winding up, and the section should be interpreted widely to facilitate the liquidator's functions. However, a direction will not be given merely because the liquidator has a feeling of apprehension or unease about the business decision and wants reassurance - it is not the Court's role to make what are regarded as commercial decisions for liquidators. Consequently, there must be some issue which calls for the exercise of legal judgment so as to warrant its direction - whether that be a legal issue of substance or procedure, or an issue of power, propriety or reasonableness. However, those categories are not exhaustive and other special circumstances may exist which warrant the giving of a direction.
A further instance where directions may be given is in the context of a proposed compromise of litigation involving the liquidator. Even in such a case, the court will be reluctant to give directions if only commercial considerations are involved, but special circumstances may warrant directions being given. Those special circumstances may include where the liquidator is operating in an acrimonious environment in the liquidation, and the liquidator's proposed decision risks being subjected to criticism by a particular creditor or creditors as being unreasonable or made in bad faith, or where there is a degree of personal risk of litigation attached to the liquidator that could negatively affect the winding up process. It will suffice if such an attack is in prospect. In other words, a s 511 direction may be given to protect the liquidator in circumstances where the compromise could otherwise negatively affect the winding up process. From that perspective, it can be said that the direction would be just and beneficial to advancing the liquidation process as a whole.
In Re The Bell Group Ltd (in liq); Ex parte Woodings as liquidator of the Bell Group (in liq) Hasluck J observed (in the context of an application for directions under s 479(3) of the Act) that the court 'will not interfere or second guess the liquidator's judgment unless there is a lack of good faith, error of law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct'. Brereton J in Re One.Tel Ltd did not agree with those observations, to the extent that they suggested that the Court would give a direction unless there was a lack of good faith, an error of law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct. Brereton J took the view that the Court will not make a direction under s 511 unless satisfied that the liquidator's decision is, in all of the circumstances, a 'proper and reasonable' one and that this would usually necessitate consideration of the liquidator's reasons and the process by which the decision has been reached. Although it appears that Hasluck J was drawing on observations made in earlier cases in relation to the grant of the Court's approval under s 477(2A) and s 477(2B) of the Act (and their predecessors) it is far from clear that the approach ultimately taken by his Honour in Re The Bell Group was different from that taken by Brereton J in Re One.Tel.
In the case of an application under s 511 of the Act, the Court's focus will be on whether the giving of the direction will be just and beneficial (that is, advantageous) in the winding up of the company. Determining whether the direction should be given will necessarily involve a broad consideration of matters including the nature of the proposed course of action about which the direction is sought, the circumstances relevant to that proposed course of action (especially those said to warrant the making of the direction), the reasons for and consequences of that proposed course of action (and in the case of a proposed compromise of litigation, the liquidator's commercial judgment that the proposed settlement should be pursued), and in those cases involving the determination of a legal issue relevant to that decision, the principles relevant to the determination of that issue. All of these matters will be considered for the purpose of determining whether the liquidator would be justified in taking the proposed course of action, within the overall context of the liquidation.
Ordinarily the liquidator will be expected to obtain legal advice appropriate to the nature and value of the claims the subject of a proposed compromise. However, the absence of such advice is not of itself a reason to refuse to grant a direction.
The Court's directions are usually prospective, and are concerned with affording protection to the liquidator in connection with future action, not ratifying action already taken by the liquidator. Directions under s 511 are conventionally expressed in terms that 'the liquidator would be justified' in adopting a particular course of action. Having said that, particularly in cases where directions are sought in respect of settlement agreements subject to conditions precedent, the distinction between what was done in entering the agreement and before satisfaction of the condition, and what will be done in performing it, may not always be neatly compartmentalised into past and future. (footnotes omitted)
31 Pritchard J referred to the apparent difference in approach between Hasluck J in Re Bell Group (in liq); Ex parte Woodings3 and that of Brereton J in Re One.Tel Ltd.4 I adopt the approach of Brereton J in Re One.Tel Ltd. It seems to me that in Re Bell Group Hasluck J was drawing on observations made in earlier cases relating to s 477(2A) and s 477(2B). As Brereton J observed, because a direction under s 511, unlike an approval under s 477(2A) and s 477(2B), exonerates the liquidator from personal liability, a closer examination of the liquidator's decision is required when a direction is sought under s 511.
Principles relating to s 477(2A) and s 477(2B) of the Act
32 Both s 477(2A) and s 477(2B) have substantial features in common, and there is substantial overlap in their purposes. As Barrett J explained in Re HIH Insurance Ltd:5
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) 38 ACSR 181.
33 This passage has been applied in many subsequent decisions.6
34 In exercising power under s 477(2A) or s 477(2B), the court's role is to grant or deny approval of a liquidator's proposal. The court's role is not to reconsider every issue considered by the liquidator or to develop some alternative proposal which might seem to the court to be preferable. In reviewing a liquidator's proposal, the court pays appropriate regard to the liquidator's commercial judgment and knowledge of all the circumstances of the liquidation. The court must satisfy itself that there is no error of law or ground for suspecting bad faith or impropriety. Further, it must consider whether there is any good reason to intervene to ensure the expeditious and beneficial administration of the winding up. The court's approval is not an endorsement of the proposed agreement, but rather is a permission for the liquidator to exercise his or her own commercial judgment in the matter. Thus, approval under s 477(2A) or s 477(2B) does not exonerate the liquidator from personal liability. These principles have been stated in these terms in many cases.7
35 Section 477(2A) and s 477(2B) deal with different aspects or limitations on a liquidator's power, so that there are some differences in the purposes and considerations relevant to the two provisions.
36 Section 477(2A) relates to the compromise of debts due to the company. In essence, it provides that a liquidator cannot compromise substantial debts without the approval of the committee of inspection, the creditors or the court.8
37 Section 477(2A) applies only in relation to a debt strictly so called.9 However, the court will only decline to provide the necessary approval in a clear-cut case where the matter unquestionably does not involve a debt.10
38 Section 477(2B) is concerned to prevent long-term agreements which might protract the liquidation. Thus, a major consideration will be the impact of the agreement on the duration of the liquidation and whether that impact is, in all the circumstances, reasonable in the interests of the administration.11
The disposition of the application under s 511
39 I was satisfied that it was appropriate to give a direction under s 511(1) that the Liquidators have acted, and will be acting, justifiably in entering into and causing the relevant companies to enter into the Settlement Deeds and in causing the Great Southern Group to perform all actions and obligations under the Settlement Deeds. The confidentiality of the evidence I have considered constrains the extent to which I spell out all of my reasons for being so satisfied. Subject to that, my reasons are as follows.
40 First, the proceedings settled by the Settlement Deeds are legally and factually complex and involve very significant uncertainty. The GSF Proceedings require attention to whether the making of almost 200 loans across a period of years involved breaches of various duties by Messrs Rhodes and Young. Thousands of documents were proposed to be tendered at the trial. Extensive and conflicting expert reports and witness statements have been exchanged. The trial of the action was set down for five weeks.
41 The GSL Proceedings span two audit periods and two half year reviews. The investigations undertaken by the Liquidators and their solicitors have involved analysis of substantial documentation, expert reports and valuation reports.
42 Thus, the Liquidators are not seeking approval of their exercise of commercial judgment; the decision to enter the settlement involves the exercise of substantial legal judgment.
43 Secondly, the Settlement Deeds were entered into by the Liquidators in light of detailed written advice received by them from senior counsel and from their solicitors in relation to the merits of the various claims and appropriate settlement ranges. Settlement occurred in the context of a two day mediation. Following this there was substantial negotiation of the terms of the Settlement Deeds.
44 Thirdly, the Liquidators consider the settlement effected by the Settlement Deeds to be in the interests of the companies, including GSF and GSL. Among the reasons for that is the certainty produced and, in the case of the GSF Proceedings, the avoidance of a five week trial and any appeal. In the case of GSL, the settlement avoids the substantial uncertainty, risks and delays associated with the need to appeal from the decision of Allanson J and, then, to proceed to prosecute the GSL Proceedings successfully.
45 Fourthly, resolution of the claims by the Settlement Deed will substantially expedite the liquidations of companies in the Great Southern Group. If the GSF Proceedings went to trial, given the possibility of an appeal, final recovery would likely be at least 18 months or two years away. Any favourable finalisation of the GSL Proceedings would be several years away. Settlement of the GSF and GSL Proceedings will be a significant step towards finalisation of the liquidations.
46 Fifthly, entry into the Settlement Deeds provide a certainty of a return to GSL's employees and a significantly increased return to ordinary unsecured creditors of various Great Southern Group companies. While it is true that a number of the companies in the group will receive no benefit from the settlement sum, those companies will not suffer any identifiable practical detriment in circumstances where:
(1) they have no known claim;
(2) such a claim would in all likelihood be statute-barred; and
(3) where no funding is available to pursue any such claim.
47 Sixthly, in weighing the effects of the provisions in the Settlement Deed for releases by all Great Southern Group companies, and the covenants not to sue, the Liquidators have taken into account the advice they have received, and the results of their own investigations, as to whether there are any other commercially viable claims relating to pre-administration conduct available to be pursued by Great Southern Group companies.
48 Seventhly, aspects of the Funding Agreement means that settlement now, as distinct from pursuing the case over coming months and years, is advantageous to Great Southern Group companies who are parties to that agreement.
49 Finally, the only existing Committee of Inspection, being of GSL, approved the entry into of the Settlement Deeds.
50 For these reasons, I made the order that the Liquidators have acted, and will be acting, justifiably in entering into and causing GSL, GSF, GSMAL and GSS to enter into the Settlement Deeds and in performing all actions and obligations under the Settlement Deeds. Given that the Settlement Deeds contain a condition precedent that the Liquidators obtain all approvals considered necessary by them, the terms of the orders are appropriate.12
51 I was also satisfied that an order should be made that the Liquidators are justified in apportioning the proceeds paid under the Settlement Deeds between the companies in the Great Southern Group as proposed in relevant parts of Mr Weaver's affidavit. The Settlement Deeds involve global settlements of a number of actions. The Settlement Deeds did not apportion the settlement sum between the various actions. In those circumstances, it is incumbent on the Liquidators to allocate the proceeds of the settlement between the various actions.
52 In doing so, the Liquidators must apportion the settlement sum on a legal and equitable basis; they cannot simply allocate the amounts subjectively, such as based on a desire to provide all companies or creditors with something.13 That makes the question of whether the Liquidators are justified in apportioning the proceeds in the way they propose an appropriate one for a direction from the court.14
53 It is appropriate that the Liquidators seek and obtain the court's direction in circumstances where they are liquidators of all the companies in the group, and where the interests of those companies in relation to the settlement and its proceeds do not coincide in all respects.
54 The Liquidators' proposed allocation is based upon, and takes careful account of, the advice they received in relation to the merits and appropriate settlement ranges for the relevant claims. I am satisfied that the Liquidators are justified in allocating the proceeds in the manner proposed.
The disposition of the applications under s 477(2A) and s 477(2B)
55 Section 477(2A) relates to the compromise by a company of debts. The claims in the GSF Proceedings, GSL Proceedings and GSS Proceedings do not involve debts. The Deed of Settlement provides a release of all Claims, that term being broadly defined. The Liquidators are not aware of the existence of any debts. In the circumstances, and for the reasons already given, approval under s 477(2A) is appropriate.
56 In relation to s 477(2B), the Settlement Deeds contain some provisions that will operate for a period longer than three months after being entered into. In particular, the releases, the covenants not to sue, and the confidentiality obligations will persist for more than three months. Those obligations will not unduly protract the liquidation. More generally, the Settlement Deeds will certainly not protract the liquidation. To the contrary, as I have said, the settlement of the GSL and GSF Proceedings will significantly accelerate the finalisation of the liquidation of those and other companies within the Great Southern Group.
Confidentiality orders
57 The Liquidators sought an order that the application be heard in a closed court. They also sought orders that the entirety of the affidavits and submissions relied upon by the plaintiffs be made confidential and unavailable for inspection.
58 I was not persuaded to make orders to that effect.
59 The fundamental importance of the principle of open justice is well-known.15 The principle is not absolute, and is not an end in itself, divorced from its rationale.16
60 One exception to the principle of open justice arises if public knowledge of the proceedings is likely to defeat the paramount object of doing justice according to law.17 That is the exception on which the Liquidators relied. In that context, I applied the principle stated by Malcolm CJ in TK v Australian Red Cross Society18 that it must be shown that a public hearing is likely to lead directly or indirectly to a denial of justice. The applicant must satisfy the court that nothing short of total privacy will enable justice to be done.
61 In this case, I was not satisfied that only total privacy would enable justice to be done. To the contrary, there is a substantial amount of material by way of background and history relating to the liquidations and various court actions that is not confidential in nature; and there was no reason why, generally at least, the submissions could not be made in open court.
62 Ultimately, the Liquidators filed three affidavits dated 12 May 2015, and a further confidential affidavit of that date and obtained an order to uplift the affidavits already filed. Oral submissions were heard in open court. The Liquidators sought confidentiality orders only in relation to the confidential affidavit of 12 May 2015. I was satisfied that confidentiality orders in relation to the confidential affidavit were appropriate. By definition, I will not canvass in detail the contents of that affidavit, but it includes:
(a) privileged and confidential information regarding the existence, terms and effect of the Settlement Deeds;
(b) the terms and operation of the confidential funding agreements the subject of confidentiality orders made in the Federal Court;
(c) privileged and confidential legal advice regarding the various claims, including their prospects of success and appropriate settlement ranges;
(d) information as to insurance cover available to companies within the Group and claims made against those insurance policies; and
(e) privileged and confidential legal advice regarding the Liquidators' entry into the Settlement Deeds.
63 I was satisfied that confidentiality orders should be made in relation to the confidential affidavit. Similar orders are commonly made in applications of this kind.19 The public interest in the due and orderly conduct of liquidations favours the making of such orders. Absent the making of such orders, liquidators would be discouraged to engage freely in the negotiation of compromises of their disputes.20 In the context of an application for directions such as an application under s 511, it is appropriate that a liquidator disclose confidential matters such as opinions of counsel or information regarding the financial impacts of proposed settlements, without losing the confidentiality of that material.21
Conclusion
64 For the reasons I have given, I made orders in terms of sch B.
SCHEDULE A
Liquidators
Martin Bruce Jones
Darren Gordon Weaver
James Henry Stewart (save for Great Southern HVT Holdings Pty Ltd (In Liquidation), Great Southern Pine Pty Ltd (In Liquidation) and Great Southern Plantations Holdings Pty Ltd (In Liquidation))
Great Southern Group
Great Southern Finance Pty Ltd (In Liquidation) ACN 009 235 143 (GSF)
Great Southern Securities Pty Ltd (In Liquidation) ACN 009 283 621 (GSS)
Great Southern Managers Australia Limited (In Liquidation) ACN 083 825 405 (GSMAL)
Beagle Holdings Pty Ltd (In Liquidation) ACN 009 280 782 (BHPL)
Beagle Management Pty Ltd (In Liquidation) ACN 009 280 791 (BMPL)
Great Southern Almond Holdings Pty Ltd (In Liquidation) ACN 122 130 652 (GSAH)
Great Southern Cattle Holdings Pty Ltd (In Liquidation) ACN 113 922 642 (GSCH)
Great Southern Cattle Managers Pty Ltd (In Liquidation) ACN 113 922 660 (GSCM)
Great Southern Export Company Pty Ltd (In Liquidation) ACN 113 408 549 (GSEC)
Great Southern Forestry NT Pty Ltd (In Liquidation) ACN 084 646 435 (GSFNT)
Great Southern HVT Holdings Pty Ltd (In Liquidation) ACN 123 433 778 (GSHVT)
Great Southern Infrastructure Pty Ltd (In Liquidation) ACN 126 069 314 (GSI)
Great Southern Land Holdings Pty Ltd (In Liquidation) ACN 087 074 093 (GSLH)
Great Southern Olive Holdings Pty Ltd (In Liquidation) ACN 111 092 374 (GSOH)
Great Southern Olive Processing Pty Ltd (In Liquidation) ACN 128 547 437 (GSOP)
Great Southern Olives Company Limited (In Liquidation) ACN 121 381 208 (GSOC)
Great Southern Pine Pty Ltd (In Liquidation) ACN 087 353 820 (GS Pine)
Great Southern Plantations Holdings Pty Ltd (In Liquidation) ACN 132 912 184 (GSPH)
Great Southern Property Holdings Limited (In Liquidation) ACN 121 245 047 (GSPHL)
Great Southern Property Managers Limited (In Liquidation) ACN 108 409 641 (GSPM)
Great Southern Vineyard Holdings Pty Ltd (In Liquidation) ACN 107 020 191 (GSVHPL)
GSPT Debenture Holdings Pty Ltd (In Liquidation) ACN 121 220 273 (GSDH)
Hampton Securities Australia Pty Limited (In Liquidation) ACN 062 193 597 (HSAPL)
Pensyl Pty Ltd (In Liquidation) ACN 108 588 389 (GPEN)
Sylvatech Limited (In Liquidation) ACN 073 019 093 (GSYL)
Sylvatech Securities Limited (In Liquidation) ACN 100 797 475 (GSYLSEC)
SCHEDULE B
2. The confidential affidavit of Darren Gordon Weaver sworn on 12 May 2015 (including all attachments thereto) and the written outline of submissions marked confidential (Documents):
2.1 are to be placed in a sealed envelope marked: 'Confidential - not to be accessed for inspection without order of a Judge or Master of the Court'; and
2.2 are not be available for inspection except so far as the Court orders.
3. Any application to inspect the Documents is be referred to a Judge or Master of the Court with three business days' notice thereof to be provided to the solicitors for the plaintiffs.
4. Disclosure or publication of the contents of the Documents is prohibited, save with the leave of the Court.
5. Publication of any reasons for judgment be suspended for 7 business days from the date of provision to the plaintiffs, within which the plaintiffs are to make any application for confidentiality orders with respect to those reasons.
6. Pursuant to section 477(2A) of the Corporations Act 2001 (Cth) (the Act), as made applicable by section 506(1A) of the Act, the entry into of:
6.1 the settlement deed between Great Southern Limited (In Liquidation) ACN 052 046 536 (GSL), Great Southern Finance Pty Ltd (In Liquidation) ACN 009 235 143 (GSF), Great Southern Managers Australia Limited (In Liquidation) ACN 083 825 405 (GSMAL), Great Southern Securities Pty Ltd (In Liquidation) ACN 009 283 621 (GSS), Messrs Martin Bruce Jones, Darren Gordon Weaver and James Henry Stewart as joint and several liquidators (the Liquidators) of GSL and the companies named in the Schedule to the Originating Process (with GSL, the Great Southern Group), Cameron Arthur Rhodes, Phillip Charles Butlin, John Carlton Young (the Directors) and PricewaterhouseCoopers (PwC); and
6.2 the settlement deed between GSL, GSF, GSMAL, GSS, the Liquidators, PwC and the Directors;
(collectively the Settlement Deeds), in the form of DGW-1 and DGW-2 to the confidential affidavit of Mr Darren Gordon Weaver sworn on 12 May 2015 (the Confidential Weaver Affidavit), is approved, notwithstanding that by the terms of the Settlement Deeds, the Liquidators may be compromising debts due to one or more of the members of the Great Southern Group which are potentially greater than $100,000.
8. Pursuant to section 511(1) of the Act, the Court finds that the Liquidators as joint and several liquidators of the Great Southern Group:
8.1 have acted and will be acting justifiably in entering into, and causing GSL, GSF, GSMAL and GSS to enter into the Settlement Deeds and the Great Southern Group to perform all actions and obligations under the Settlement Deeds; and
8.2 are justified in apportioning the settlement sum payable pursuant to the Settlement Deeds in the manner set out in paragraphs 135 and 136 of the Confidential Weaver Affidavit.
9. The plaintiffs' costs of and incidental to this application are costs properly incurred in the liquidations of GSL and GSF and may be paid out of the assets of those companies, and shared equally between them.
10. The plaintiffs have liberty to apply for further directions.
1Great Southern Ltd (in liq) (receivers & managers appointed) v Young [2014] WASC 481.
2Re Great Southern Managers Australia Ltd (in liq); Ex parte Jones [2014] WASC 312 [56] - [65].
3Re Bell Group (in liq); Ex parte Woodings [2009] WASC 235 [47].
4Re One.Tel Ltd (in liq) [2014] NSWSC 457; (2014) 99 ACSR 247 [35] - [36].
5Re HIH Insurance Ltd (in liq) [2004] NSWSC 5 [15].
6 See, for example, Re Bell Group Ltd (in liq); Ex parte Woodings [2013] WASC 409 [28] (Allanson J); Re One.Tel Ltd [25].
7 See, for example, Re Newtronics Pty Ltd; Ex parte Stewart [2007] FCA 1375 [26] (Gordon J); Re Bell Group Ltd (in liq) [2009] WASC 235 [57] - [58]; Re One.Tel Ltd [26].
8Re One.Tel Ltd [28].
9Re HIH Insurance Ltd [15]; Re S & D International Pty Ltd (in liq) (No 7) [2012] VSC 551; (2012) 92 ACSR 28 [66] (Robson J).
10Re HIH Insurance Ltd [12]; Re Timbercorp Ltd (in liq) [2011] VSC 189 [17] - [18] (Judd J); Re One.Tel Ltd [63].
11Re One.Tel Ltd [30].
12 See Re One.Tel Ltd [57] - [62]; Re Bell Group (in liq) [2013] WASC 409 [43].
13Re Gunns Plantations (in liq) (No 3) [2014] VSC 267 [38] (Judd J); Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83, 87 - 88 (Giles J); ReHazelton Air Charter Pty Ltd [2002] FCA 529; (2002) 41 ACSR 472 [51] (Goldberg J).
14Re Spedley Securities (87 - 88); Re Gunns.
15 See, for example, Russell v Russell (1976) 134 CLR 495, 520; TK v Australian Red Cross Society (1989) 1 WAR 335, 336 - 337 (Malcolm CJ); Re Robins SM; Ex parte West Australian Newspapers Ltd [1999] WASCA 16; (1999) 20 WAR 511 (Pidgeon, Ipp & Steytler JJ).
16Re Hogan; Ex parte West Australian Newspapers Ltd [2009] WASCA 221; (2009) 41 WAR 288 [30] - [34] (McLure P), [49] - [51] (Owen JA).
17Re Bell Group Ltd (in liq) [2009] WASC 235 [16].
18TK v Australian Red Cross Society (338).
19 See, for example, Re Bell Group [2013] WASC 409; Onefone Australia Pty Ltd v OneTel Ltd [2010] NSWSC 498; (2010) 78 ACSR 163; (Barrett J; Re York Street Mezzanine Pty Ltd (in liq) [2011] FCA 1028;(2011) 196 FCR 479 (Gordon J); Elderslie Finance Corporation Ltd v Newpage Pty Ltd (No 6) [2007] FCA 1030; (2007) 160 FCR 423 (Lindgren J).
20Elderslie Finance [43].
21York Street Mezzanine [62] - [64]; Re HIH Insurance Ltd [2005] NSWSC 731 (Barrett J); Re Bell Group NV (in liq); Ex parte Insurance Commission of Western Australia [No 2] [2015] WASC 114 [16] (Master Sanderson).
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