Re GVE Hampton Pty Ltd (in liq)
[2022] VSC 539
•7 September 2022 Ex tempore; revised reasons published 13 September 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2020 04437
IN THE MATTER OF GVE HAMPTON PTY LTD (IN LIQUIDATION) (ACN 167 150 521)
| PETER GOUNTZOS AS LIQUIDATOR OF GVE HAMPTON PTY LTD (IN LIQUIDATION) (ACN 167 150 521) AND ANOTHER (ACCORDING TO THE ATTACHED SCHEDULE) | Plaintiffs |
| v | |
| EUGENE KROK AND OTHERS (ACCORDING TO THE ATTACHED SCHEDULE) | Defendants |
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JUDGE: | Connock J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7 September 2022 |
DATE OF JUDGMENT: | 7 September 2022 Ex tempore; revised reasons published 13 September 2022 |
CASE MAY BE CITED AS: | Re GVE Hampton Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2022] VSC 539 |
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CORPORATIONS – Liquidation – Authority to enter into settlement agreement - Section 477(2A) of the Corporations Act 2001 (Cth) - Application by the liquidator for Court approval of a compromise – Whether there is a debt for the purpose of s 477(2A) – Where the liquidator has formed the view that compromise of the debt and entry into the settlement deed is in the best interests of creditors – Section 477(2A) general principles – Section 477(2A) relevant factors – Form of order – Court approval granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr C Moller and Ms R McCarthy | FCW Lawyers |
| For the Defendants | Mr P Tatti, solicitor | Aitken Partners Pty Ltd |
| For Shangri-La Construction Pty Ltd (a creditor) | Dr M Wolff | Noble Lawyers |
HIS HONOUR:
Introduction and summary
The first plaintiff (Liquidator) as liquidator of the second plaintiff (Company) seeks approval pursuant to s 477(2A) of the Corporations Act 2001 (Cth) (Act) of a compromise of a debt of more than the $100,000 prescribed amount (Debt Compromise). Section 477(2A) applies by reason of the operation of s 506(1A) of the Act because on 4 December 2017 the Company was placed into a creditors’ voluntary winding up. The Liquidator does not seek a direction under s 90-15 of the Insolvency Practice Schedule to the Act (IP Schedule) that the Liquidator is justified in compromising the debt or entering into the settlement of which the Debt Compromise forms part.
The Debt Compromise is part of a broader settlement of the claims brought by the Liquidator and the Company against the defendants in this proceeding. The defendants include the Company’s directors and persons and entities associated with them who are alleged to have received payments or have been involved in transactions that it is alleged left the Company unable to pay its creditors. The broader settlement (Settlement) is recorded in a settlement agreement entered into in March 2022 (Settlement Agreement), as varied by a settlement variation agreement made on 7 September 2022 (Variation Agreement).
The Company is said to have six creditors (Creditors) as follows, with the three creditors marked with an asterisk being parties associated with one or more of the defendants:
Unsecured Creditors Total Amount Deputy Commissioner of Taxation
$2,400,721.87 GVE Corporation Pty Ltd*
$964,617.93 Hassall’s Litigation Services*
$10,000.00 Vladislav Hyatt (Formerly Trading As ‘Hyatts Solicitors’)*
$76,000.00 Stanwycks Accountants
$3,165.00 Shangri-La Constructions Pty Ltd (Shangri-La)
$196,266.30 Total $3,650,771.10
If the Debt Compromise is approved, the amount to be paid by the defendants to the Company under the Settlement Agreement as varied by the Variation Agreement (Varied Settlement Agreement) is $2.45 million (Settlement Sum). The Settlement Sum is to be paid within 30 days of the court approving the Debt Compromise.
Although there are said to be six creditors, for the reasons addressed in the affidavit evidence, the Deputy Commissioner of Taxation (ATO) is the only creditor who will prove in the liquidation.[1] As is apparent from the above, the ATO is owed more than $2.4 million.
[1]Assuming, as the Liquidator expects, no other creditors emerge.
All Creditors were given notice of the application and an opportunity to be heard, and procedural directions were made to facilitate the same. All of the Creditors either supported the application and the Settlement or did not oppose it.[2] No creditors sought to be heard in relation to the application, although Dr Wolff for Shangri-La did appear for part of the hearing to clarify one aspect of his client’s position.
[2]There had been some initial opposition to the application by Shangri-La, but by the time of the hearing its position had changed and it supported the application.
The plaintiff relied upon affidavits of the Liquidator sworn 22 March 2022, 26 May 2022, 30 May 2022, and 7 September 2022. The (confidential) affidavit of 30 May 2022 attached a lengthy joint memorandum of advice from experienced counsel (Counsel’s Advice) regarding, among other things, this application and the prospects of success of the Liquidator’s and the Company’s claims against the defendants in the proceeding (Claims). Confidentiality orders were made in respect of the 30 May 2022 affidavit and Counsel’s Advice on 3 June 2022 (Confidentiality Orders).
The plaintiff also relied upon an affidavit of the defendants’ solicitor, Mr Tatti, sworn on 7 September 2022, which exhibited various documents, including a deed recording a settlement of disputes and costs issues in other proceedings between Shangri-La and the defendants (Shangri-La Settlement Deed). The exhibited documents also included a deed poll executed by Shangri-La recording that it would not prove in the liquidation of the Company.[3]
[3]Many of the documents exhibited to the affidavits that were filed before 7 September 2022 were collected in the application book which became Exhibit P1, which also included additional documents.
The plaintiffs relied upon detailed written submissions, which were supplemented orally by counsel for the plaintiffs.
The application was supported by the defendants. The defendants’ solicitor, Mr Tatti, made brief submissions which, in substance, adopted the submissions made on behalf of the plaintiffs.
For the reasons that follow I have determined that:
(a) The Debt Compromise should be approved pursuant to s 477(2A) of the Act.
(b) Given the terms of the Confidentiality Orders made on 3 June 2022, it is not necessary to make further confidentiality orders in relation to the Liquidator’s affidavit of 30 May 2022 or Counsel’s Advice.
(c) The plaintiffs’ costs of and incidental to this application should be costs in the liquidation of the Company.
Relevant principles and observations – s 477(2A) of the Act
Section 477(2A) of the Act provides as follows:
477 Powers of liquidator
…
(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.
Regulation 5.4.02 of the Corporations Regulations 2001 (Cth) prescribes the amount of $100,000 for s 477(2A)(a) of the Act.
A review of the authorities regarding s 477(2A) of the Act reveals that, at least in this case, there is no need to add a further gloss on that which has been said before regarding the terms and operation of s 477(2A) of the Act.
In Re Spedley Securities Ltd (in liq)[4] (Spedley Securities), Giles J considered an application to compromise that was made under the Companies (NSW) Code, the legislation as it was prior to the Company Law Reform Act 1992 (Cth). The following observation has been frequently referred to since:
In any application pursuant to s 377(1) the court pays regard to the commercial judgment of the liquidator (Re Chase Corporation (Australia) Equities Ltd (1990) 8 ACLC 1118). 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 the 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. The same restraint must apply when the question is whether the liquidator should be authorised to enter into a particular transaction the benefits and burdens of which require assessment on a commercial basis. Of course, the compromise of claims will involve assessment on a legal basis, and a liquidator will be expected (as was made plain in Re Chase Corporation (Australia) Equities Ltd) to obtain advice and, as a prudent person would in the conduct of his own affairs, advice from practitioners appropriate to the nature and value of the claims. But in all but the simplest case, and demonstrably in the present case, commercial considerations play a significant part in whether a compromise will be for the benefit of creditors.
[4](1992) 9 ACSR 83, 85–86.
In Dean-Willcocks v ATTT Investments Pty Ltd,[5] Young J addressed aspects of public interest as a factor in the following terms:
18. The Court, when it is asked to give an approval, cannot ignore the general public interests involved. It must, of course, keep predominantly in mind the interests of the creditors but there is always a public interest that persons who have caused the downfall of a company should not be allowed to escape from any consequences of those actions by coming to a deal with the creditors even if those creditors get some money that they otherwise would not obtain. There is also the public interest that insolvent companies should not go back into the market place to trade.
[5](1999) 17 ACLC 1310.
In Re HIH Insurance Ltd[6] (HIH), Barrett J addressed the threshold ‘debt’ requirement and the court’s discretion as follows:
[12] Case law emphasises that s 477(2A) applies only in relation to a “debt” strictly so called. In some cases where the claim in question has not been a “debt” as such, courts have declined to grant approval under the section because such approval is unnecessary: see, for example, Re Luxtrend Pty Ltd [1997] 2 QdR 86; Re Tietyens Investments Pty Ltd (1999) 31 ACSR 1. In other cases, it appears that a strict approach of that kind has not been taken: see, for example, Re Oliver Davey (Pacific) Pty Ltd [1999] VSC 241. I have no doubt that, if the relevant claim is unquestionably not a “debt” as such, the correct approach is to dismiss any application under s 477(2A) as unnecessary. But that approach should be taken only in a clear-cut case. This is because s 477(2A) goes to the existence of a liquidator’s power. Each of s 477(1) and 477(2) begins with the words “Subject to this section”, so that a power conferred by one of those provisions (including the power to compromise debts and claims conferred by s 477(1)(d)) simply does not arise, in a case dealt with by s 477(2A) or s 477(2B), unless court approval is given. It should follow, in my view, that the course of dismissing a s 477(2A) application on the basis that the particular claim is not, strictly speaking, a “debt” should be followed only in the clearest of cases.
[13] In the present case, the true nature of the so-called reinsurance contracts is the subject of close and detailed analysis in the joint opinion. That opinion makes it clear that certain aspects of the apparent transactions were not, in reality, as they seemed to be and that the true contractual intent is to be gathered, in part at least, from sources outside the formal documents. Such uncertainties of characterisation are, in my view, sufficient to warrant a view that the contractual rights arising from the agreements and their adjuncts are sufficiently likely to entail (or include) “debts” that the court should proceed on the basis the liquidators prefer, namely, that their power to compromise, by resort to the commutation mechanisms, should be put beyond doubt by s 477(2A) approval, assuming that it is otherwise appropriate to grant that approval.
…
[15] 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): [Extracted earlier in these reasons above]
…
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.
[6][2004] NSWSC 5.
Elderslie Finance Corp Ltd v Newpage Pty Ltd (No 6)[7] (Elderslie Finance) is another frequently cited decision, particularly in connection with the detailed consideration of the threshold ‘debt to the company’ requirement. In that case, Lindgren J observed that:
[7](2007) 160 FCR 423.
[18] Mr Hamilton and Mr Parsons and CBI (Mr Parsons and CBI appeared with leave on the hearing of Mr Hamilton’s application) argued for an expansive construction of the expression “a debt to the company”. Various submissions were made. It was suggested that a claim based on any of the voidable transaction provisions was a claim of “a debt to the company”. It was put that any claim that, if successful, would result in a judgment debt in favour of the company was a claim of “a debt to the company”. It was also contended that the legal nature of the claim that had in fact been made was irrelevant, and that all that mattered was the terms of the compromise. It seems that, according to this contention, it would suffice that a proposed compromise referred to a release of “all debts to the company” without any consideration of the question whether any claim that had in fact been made could possibly be classified as “a debt to the company”.
[19] I did not accept these submissions. The terms of s 477(1)(d) and (2A) plainly indicate that, generally speaking, a liquidator’s power of compromise is not to be constrained by the necessity of obtaining approval from the Court, a committee of inspection (if any), or the creditors. If the expression “a debt to the company” in subs (2A) is construed in such a manner that it covers most of the ground of para (d) of subs (1), the Parliament’s intention is frustrated. The issue assumes particular importance because the construction of the expression goes not only to the necessity for the liquidator to obtain approval, but also to the power of the Court to grant it.
[20] As Barrett J observed in Re HIH Insurance Ltd [2004] NSWSC 5 at [12] (HIH), it appears that in some cases a strict approach has not been taken to the jurisdictional question posed by the expression “a debt to the company”. In some cases, Judges have granted approval under s 477(2A) without discussion of the jurisdictional question. It can be just as important to decide that a compromised claim is not one of a debt to the company as to decide that it is. In Spalla v St George Motor Finance Ltd (No 7) [2006] FCA 1177, for example, a challenge was made to a compromise entered into by a liquidator on the ground that approval under s 477(2A) had not been obtained, and Kenny J had no hesitation in holding that the submission failed because it was “based on a misunderstanding as to what constitutes a ‘debt’ under the relevant section” (at [143]).
[21] The history of the requirement that certain compromises by liquidators be approved by the Court, by the committee of inspection or by a resolution of the creditors was referred to by Moynihan J in Re Luxtrend Pty Ltd (in liq) [1997] 2 Qd R 86 at 87 (Luxtrend). The position under the 1961-62 cooperative régime and under the 1981 cooperative “Code” scheme, as well as under the Corporations Law in its original form in 1991, made the liquidator’s power of compromise generally subject to a requirement of the approval of creditors or of the court, subject to an exception in the case of a debt of not more than a certain monetary limit: see s 236(1)(d) and (2)(i) of the Companies Act 1961 (NSW) (in which the monetary figure was £300), s 377(1)(d) and (2)(j) of the Companies Code (in which the monetary limit was $20,000), and s 477(1)(d) and (2)(j) of the Corporations Law in their original form (where, again, the monetary limit was $20,000, and compromises of debts to the company being calls and liabilities for calls also required approval regardless of the amount). That is to say, the position was structurally the converse of the present one.
[22] It was s 73 of the Corporate Law Reform Act 1992 (Cth) (No 210, 1992) that amended s 477 of the Corporations Law by omitting the general requirement of approval. An exposure draft of the Bill for that Act and an Explanatory Paper were released early in 1992. The Explanatory Paper stated (at [931]) that the proposed amendments implemented a recommendation of the Harmer Report (Australian Law Reform Commission Report 45: General Insolvency Inquiry (1988)). The Harmer Report had recommended (at [608]-[610]) that the powers of a liquidator generally be exercisable without the need for approval of creditors or the court, subject to exceptions in the cases of the power to compromise debts above a prescribed amount, and the power to enter into long-term commitments. The expansion of the liquidator’s powers to act without approval was recommended on the basis of the competence and qualifications of persons who act in the capacity of liquidator.
[23] The Harmer Report’s recommendations were reflected in the omission of the general requirement of approval from subs (1) and the insertion of a requirement of approval in new subss (2A) (debts to the company of more than any prescribed amount exceeding $20,000, and if none was prescribed, $20,000), and (2B) (agreements that may end or be performed beyond three months after they are entered into).
[24] The meaning of the word “debt” can be affected by its context. There is a line of authority to the effect that the expression “a debt to the company” in s 477(2A) bears its familiar meaning of a sum of money that is either immediately payable, or that, by reason of an existing obligation, will become payable in the future (debitum in praesenti, solvendum in futuro): Luxtrend [1997] 2 Qd R 86; Re Tietyens Investments Pty Ltd (in liq) (recs and mgrs apptd) (1999) 31 ACSR 1 at [92]-[94] (Tietyens); and see Austin RP and Ramsay IM, Ford’s Principles of Corporations Law (13th ed, LexisNexis Butterworths, 2007) at [28-260], p 1412. Accordingly, claims by liquidators to recover amounts paid away by the company under voidable transactions have been held to lie outside the predecessor provision of s 477(2A), namely, s 477(2A) of the Corporations Law: Luxtrend [1997] 2 Qd R 86; Nambucca Investments Pty Ltd v Snoco Ltd [1999] NSWSC 211 at [2]. In Tietyens 31 ACSR 1 a claim of equitable damages based on accessorial liability for breaches of trust, the primary cause of action being a claim based on Barnes v Addy (1874) 9 Ch App 244, was similarly held not to be a claim of a debt to the company.
[25] The voidable transactions claim pleaded in the Points of Claim is not a claim of a debt to Newpage. There is no present liability under such a claim — a liability would come into existence only if and when the Court made an order under s 588FF if Mr Hamilton applied for the order and proved that the payments constituted a voidable transaction.
[26] In HIH [2004] NSWSC 5 at [12] and QBE Workers Compensation (NSW) Ltd v GJ Formwork Pty Ltd (2006) 56 ACSR 687 at [4]-[5] (QBE), Barrett J said that where there is room for argument about whether a claim is one of a debt to the company, the court should err on the side of treating the claim as a debt rather than decline to grant approval under s 477(2A). His Honour pointed out that the opening words of s 477(1) have the effect of making the power to compromise contained in para (d) of that subsection subject to subss (2A) and (2B). It follows that if it transpired that a claim was, indeed, one of “a debt to the company” within subs (2A), a compromise of it without approval of the Court, of the committee of inspection or of a resolution of the creditors, would lie outside the power of the liquidator.
[27] With respect, I agree with the approach suggested by his Honour, and would add that in my view s 477(2A) applies where the claimed debt to the company of more than $20,000 is one of several, perhaps many, claims that are all the subject of a single comprehensive compromise. A Judge is rightly reluctant to turn away, on the ground of lack of jurisdiction, a liquidator who comes to the Court seeking approval under s 477(2A), if there is a possibility that in consequence the proposed compromise will be entered into in contravention of the prohibition contained in that subsection. A particular difficulty is that a liquidator and the Court are called upon to classify a claim as being of a debt or non-debt kind in unfavourable circumstances. It is in the interests of creditors that the liquidator compromise a claim early and without the expensive factual and legal investigation that resolution of the debt/non-debt question may demand. This dictates the position in which the Court is also placed when dealing with the liquidator’s ex parte application.
[28] Be all this as it may, as Barrett J acknowledged in HIH [2004] NSWSC 5, if the claim is “unquestionably” not a debt, the correct approach is to dismiss any application under s 477(2A) as unnecessary (at [12]).
In Handberg (in his capacity as liquidator of S & D International Pty Ltd (in liq)) & Anor v MIG Property Services Pty Ltd,[8] Robson J embraced the observations referred to above and added some observations of his own regarding the desirability of a liquidator obtaining legal advice in the context of applications under s 477(2A) of the Act.[9]
[8](2012) 92 ACSR 38.
[9]Ibid [78]–[81]. In the ‘peculiar circumstances’ of that case, Robson J was prepared to proceed and grant approval even though no legal advice had been obtained.
In Re One.Tel Ltd (in liq),[10] Brereton J succinctly summarised the position as follows:
[28] Section 477(2A) is concerned with the compromise of debts due to the company, which would otherwise be assets in the administration, and has the effect that the liquidator cannot compromise substantial debts without the approval of the committee of inspection, the creditors, or of the court. Essentially, its purpose is to ensure that the interests and wishes of those affected by a compromise, chiefly the creditors, are a major consideration in making such a compromise. As Giles J said in Re Spedley Securities Ltd (1992) 9 ACSR 83 (Spedley Securities):
…
[29] Thus while the court does not exhaustively or closely consider the commercial merits or otherwise of the transaction (Re CIC Insurance Ltd (2001) 38 ACSR 181; [2001] NSWSC 438 (CIC Insurance)), which it largely entrusts to the liquidator, some examination of the merits of the compromise cannot be avoided (Re 246 Arabella Investments Pty Ltd (in liq) [2012] NSWSC 1212 (246 Arabella Investments)). However, if the liquidator expresses the opinion that it is an appropriate commercial compromise, and there does not appear to be any such lack of good faith, error in law or principle, or real or substantial ground for doubting the reasonableness of the liquidator’s view (as referred to in Re Mineral Securities Australia Ltd (in liq) [1973] 2 NSWLR 207), the court will generally give its approval (Re Adscaff Pty Ltd [2013] NSWSC 1081 at [5]).
[10](2014) 99 ACSR 247. See also Australian Securities and Investments Commission v Piggott Wood & Baker (a firm) (2015) 104 ACSR 261, [35]–[37] (Kerr J).
Most recently, Cheeseman J in Re Tracy, Linchpin Capital Group Limited (in liq)[11] stated the principles regarding s 477(2A) as follows:
[11][2022] FCA 739.
15 Section 477(2A) of the Act provides that, except with the approval of the court, the committee of inspection or 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, relevantly, the prescribed amount. Approval is required in this instance as the Outstanding Debt exceeds the current prescribed amount of $100,000: regulation 5.4.02 of the Corporations Regulations 2001 (Cth).
16 The principles which the court applies when considering an application for approval are well settled. Section 477(2A) is concerned to ensure that the court exercises some oversight of the liquidator’s actions, and the court’s assessment must be made in light of the purposes for which liquidator’s powers exist: Re HIH Insurance Ltd (in liquidation) [2004] NSWSC 5 at [15] (Barrett J); Peter Hillig in his capacity as liquidator of ACN 092 745 330Pty Ltd (in Liquidation) v Battaglia [2020] NSWSC 1617 at [18] (Gleeson J); Re RubixInvestments Group Pty Ltd (in liq) [2018] NSWSC 1184 at [26] (Gleeson J).
17 The essential purpose of the requirement for approval under s 477(2A) is to ensure that the interests and wishes of those affected by a compromise, chiefly the creditors, are a major consideration in making such a compromise: In the matter of One.Tel Limited [2014] NSWSC 457; 99 ACSR 247 at 254 [28] (Brereton J as his Honour then was).
18 The court does not concern itself with the commercial desirability of the transaction. As Giles J explained in Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85:
…
19 Similarly, in One.Tel Limited, Brereton J said at 253 [26]:
The role of the court is to grant or deny approval to the liquidator's proposal, not to reconsider every issue considered by the liquidator, nor to develop some alternative proposal which might seem preferable. In reviewing the liquidator’s proposal, the court pays due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, but satisfies itself that there is no error of law or ground for suspecting bad faith or impropriety, and evaluates whether the proposal is consistent with the expeditious and beneficial administration of the winding up.
20 Thus, in deciding whether to approve a settlement, it is not necessary for the court to consider the commerciality of the settlement that has been struck by the liquidator or to ‘second guess’ his or her judgement. Rather, the court will be concerned to ensure that the proposed settlement is in the interests of creditors and there is no absence of good faith, error in law or principle or any real or substantial ground for doubting the prudence of the liquidator’s conduct.
In Re McDermott and Potts (in their capacities as joint and several liquidators of Lonnex Pty Ltd (in liq)) (ACN 097 786 751),[12] Whelan AP , McLeish and Hargrave JJA were dealing with an application under s 477(2B) of the Act[13] and in so doing made various general observations, and observations that are relevant to the terms and operation of s 477(2A) of the Act. The observations made included the following:
[12][2019] VSCA 23.
[13]And an application for a direction under s 511.
Governing principles
[63] As the associate judge was exercising discretionary powers under ss 511 and 477(2B), it is necessary for the applicants to demonstrate that he acted on a wrong principle, allowed extraneous or irrelevant matters to guide or affect him, mistook the facts, failed to take into account some material consideration, or reached a conclusion so unreasonable or plainly unjust that the appellate court may infer the existence of error.[14]
[14]House v R (1936) 55 CLR 499, 505 (Dixon, Evatt and McTiernan JJ).
[64] A review of some of the authorities concerning applications by liquidators for authorisation or directions concerning compromises is necessary. Before doing that some more general principles need to be stated.
[65] Courts recognise that they are generally unqualified and ill-equipped to make or approve of business and commercial decisions.[15] Thus, courts 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.[16] This does not inhibit courts from giving directions to liquidators in relation to the compromise of legal proceedings. The compromise of legal proceedings invariably raises legal issues, although it also usually requires the exercise of commercial judgment. As will be seen, liquidators often seek directions concerning the compromise of legal proceedings, and the courts give such directions when persuaded it is appropriate to do so.
[15]Re Mineral Securities Australia Ltd (in liq) [1973] 2 NSWLR 207, 232 (Street CJ in Eq) and Re Ansett Australia Ltd [No 3] (2002) 115 FCR 409, 422 [47] (Goldberg J) (‘Ansett’).
[16]Ansett (2002) 115 FCR 409, 428–9 [66]; Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115, 116–7 (Young J).
[66] Where an issue arises as to the interests of creditors, courts adopt the approach articulated by Lindley LJ in an oft — quoted passage of his judgment in Re English, Scottish, & Australian Chartered Bank, where he said:
If the creditors are acting on sufficient information and with time to consider what they are about, and are acting honestly, they are, I apprehend, much better judges of what is to their commercial advantage than the Court can be.[17]
[17][1893] 3 Ch 385, 409.
[67] An appropriate starting point for a review of authorities concerning applications by liquidators for authorisation or directions in relation to compromises is the decision of Giles J in Re Spedley Securities Ltd (in liq).[18]
[18](1992) 9 ACSR 83 (‘Spedley’).
…
[72] Giles J then turned to consider the significance of the commercial judgment of the liquidator in an application under s 377 (authorisation to compromise). In observations which also touched upon the relevance of legal advice, Giles J stated: [Extracted earlier in these reasons above]
[73] Significantly, Giles J went on to say that it is for these reasons that the attitudes of creditors are ‘important’ in applications such as those before him. In that connection he quoted the passage from the judgment of Lindley LJ in Re English, Scottish, & Australian Chartered Bank set out earlier.[19]
[19]Ibid.
[74] Giles J recognised that both the commercial judgment of the liquidator and the attitudes of creditors were important in applications of this kind.
[75] After the Company Law Reform Act 1992 (Cth) and the introduction of reforms as a result of the Harmer report, Austin J decided Corporate Affairs Commission v ASC Timber Pty Ltd.[20] One of the matters before Austin J was an application by a liquidator for approval under s 477(2B) to enter into long term contracts for the disposal of certain of the company’s assets. The proposed contracts were not to be completed for some years.
[20](1998) 29 ACSR 109 (‘CAC v ASC Timber’).
…
[82] In Re One.Tel Brereton J considered an application by liquidators for approval of a deed of settlement under both ss 477(2A) and 477(2B) and for directions under s 511 concerning their conduct in entering into that deed of settlement. In relation to s 477(2B) Brereton J adopted the principles originally articulated by Austin J in CAC v ASC Timber, as repeated and summarised by Gordon J in Re Newtronics and by Hasluck J in Re Bell Group. Brereton J explained that the fact that approval under s 477(2B) did not amount to an endorsement of the proposed agreement or an approval of the transaction itself meant that, unlike a direction under s 511 or 479(3), an approval under ss 477(2A) or 477(2B) in itself would not exonerate the liquidator from personal liability.[21]
[21]Re One.Tel (2014) 99 ACSR 247, 253–4 [26].
[83] Brereton J emphasised the importance of directing attention to the subject matter of the two relevant provisions of s 477. Section 477(2A) is concerned with the compromise of ‘debts’ which would otherwise be assets in the administration. The ‘interests and wishes of those affected by the compromise, chiefly the creditors, are a major consideration’.[22] Section 477(2B), on the other hand, is concerned with the effect of long term agreements. The ‘interests and wishes of those affected, particularly creditors, should be highly influential in determining whether the liquidator should assume’ such obligations.[23] The ‘main consideration’ in that context is ‘the impact of the agreement on the duration of the liquidation’.[24]
[22]Ibid 254 [28].
[23]Ibid 254–5 [30].
[24]Ibid.
[84] Brereton J explained that the effect of a direction under s 511 was to sanction a course of conduct so that the liquidator could adopt that course free from the risk of personal liability for breach.[25]
[25]Ibid 255 [32].
[85] Comparing the respective applications, Brereton J said:
But the fact that a direction under s 511 ― unlike an approval under s 477(2A) or s 477(2B) ― exonerates the liquidator from personal liability, means that a closer examination of the liquidator’s decision is required than under s 477. In short, the court should not make a direction the effect of which is to exonerate the liquidator from personal liability in respect of a commercial judgment that the liquidator is concerned may prove contentious, unless satisfied that the liquidator’s decision is, in all the circumstances, a proper one.[26]
[26]Ibid 256 [35].
[86] Brereton J observed that as the inquiry under s 511 is the wider inquiry the convenient approach was to deal with that first.[27] In that context he considered in some detail the reasons given by the liquidators for the compromise emphasising, amongst other things, opinions which had been obtained from two members of senior counsel, and the fact that the committee of the creditors had unanimously approved the compromise.[28]
[27]Ibid 256 [36].
[28]Ibid 256–8 [38]–[47].
…
[88] Brereton J gave directions (although not of the width sought by the liquidators) and made orders under ss 447(2A) and 477(2B).
…
[93] It can be seen that the authorities present a tension in the circumstances of the applications the subject of the present case. The liquidator is ordinarily best placed to determine what course the liquidation should take, in the interests of creditors, any contributories and the proper recovery of the costs and expenses of the liquidation. The court will generally not enter into the merits of that determination, confining itself to the question whether the proposed course is a proper one for the liquidator to take. At the same time, the interests and wishes of creditors are highly influential and the creditors are, if properly informed, in the best position to evaluate what is in their own interests. As such, the views of the creditors as to the merits of the present proposal are a highly material consideration.
…
[98] Secondly, the associate judge was correct to regard the wishes of creditors as a very important consideration. He would have erred not to have done so. But it is clear that he did not consider himself bound to act in accordance with their wishes. He took account of other matters, including the funding position, the Millennium proceeding and the legal opinion, before deciding that the applicants’ applications should be dismissed. In doing so, he was not acting at the ‘dictation’ of creditors. He was recognising that their interests were highly influential in the exercise of his discretion.
…
[100] Thirdly, it is true that any deficiencies in the legal opinion were not of themselves a reason to refuse to approve the compromise. But the associate judge did not suggest that they were. He found substance in the criticisms that were made of the legal opinion and took that into account. Those criticisms meant that the opinion did not support a conclusion that the proposed course of conduct was a proper one.
[101] The associate judge did not err in this respect. The opinion did not explain why the amount of the compromise was reasonable. It may be accepted, as the applicants submitted, that it is not the role of lawyers to assess the commercial reasonableness of a course of action. But lawyers do identify the strengths and weaknesses of a legal position and ascribe degrees of risk accordingly. The opinion here did not do that. It did not assess the overall strength of Lonnex’s claim or the amount of damages that it would yield if successful, beyond identifying some features of the case which might lead to a recovery below the full amount of the claim (including the Re Sims point). Nor did it evaluate the strength of the offsetting claim for breach of warranty. While affording grounds for settling the proceeding, it therefore offered little support for the view that it would be proper for the applicants to enter into the particular compromise proposed.
[102] In another case this might not have mattered. But here there was an alternative course of action, advocated by the creditors and which one of them had indicated a preparedness to fund. It was necessary for the applicants to establish that, notwithstanding those matters, the compromise was a proper one.
Submissions
As to the threshold ‘debt to the company’ requirement in s 477(2A), the plaintiffs submitted that, for two reasons, the fourth defendant’s (GVE Small) obligation to repay the Company has the character of a debt. First, that under the general law a ‘debt’ is a sum of money that by reason of a present obligation will become payable in the future. Second, that, as the authorities on s 477(2A) show, if there is room for argument about whether a claim is a debt to the company the court should err on the side of treating the claim as a debt, rather than declining to grant approval under s 477(2A) on the ground of a lack of jurisdiction. In this context, reliance was placed on the observations of Lindgren J in Elderslie Finance[29] and Barrett J in HIH.[30]
[29](2007) 160 FCR 423.
[30][2004] NSWSC 5.
Counsel for the plaintiffs relied on their detailed written submissions, which were supplemented by oral submissions at the hearing. The plaintiffs submitted that the Court should approve the Debt Compromise and in doing so, counsel submitted, among other things, that:
(a) The Debt Compromise is part of a broader settlement by which the Liquidator has agreed to settle litigation in this court against the Company’s directors – and persons and entities associated with them – who received payments from the company that the directors had authorised. The payments were said to have left the Company unable to pay its remaining creditors, including the Deputy Commissioner of Taxation, which was owed approximately $2,400,000.
(b) The Liquidator had initially estimated that creditors would receive a dividend of between 60 and 70 cents in the dollar but, in light of the terms of the Varied Settlement Agreement and the Shangri-La Settlement Deed, it is only the ATO who will now prove in the liquidation and this will result in an estimated dividend increase to 72 cents in the dollar.
(c) The Liquidator has deposed that he believes the Settlement is in the best interests of the Creditors and his reasons include that the Settlement provides a return that is more certain, will be distributed sooner, and will avoid the delay, expense and risk associated with prosecuting the Claims in the proceeding and subsequent enforcement action.
(d) The application is limited to the relief sought under s 477(2A) of the Act in respect of the Debt Compromise and the Liquidator does not seek the court’s approval of, or directions in relation to, the Settlement overall – noting also that the Liquidator does not seek a direction under s 90-15 of the IP Schedule that he is justified in entering into or performing the Varied Settlement Agreement or any component of it.
(e) The application is either supported or not opposed by the Creditors.
(f) The court should have firm regard to the commercial judgment of the Liquidator that the Debt Compromise (and the Settlement) is in the best interests of the Creditors, which was also said to be supported by the position taken by the creditors not opposing or supporting the application.
(g) There was no evidence to suggest any absence of good faith, any error of law or principle, or the existence of any sound reason to doubt the Liquidator’s prudence. Further, it was submitted that it could be seen that the Liquidator had undertaken a comprehensive assessment of relevant considerations, including: prospects of success; timing and delay; cost and expense; litigation risk; enforcement and recovery issues; the quantum of the Settlement and the substantial dividend that will result; and the minimal risk of any other creditors emerging.
As mentioned, the defendants adopted the submissions of the plaintiffs, and Dr Wolff on behalf of Shangri-La confirmed that Shangri-La supported the application and the Settlement.
Consideration and disposition
Taking into account the terms and operation of s 477(2A) of the Act, the evidence, the principles and observations earlier referred to, the submissions, and the particular circumstances of this case, I am satisfied that it is appropriate for the court to approve the Debt Compromise. I elaborate below as to why.
As to the threshold question of whether the Settlement involves (in part) the compromise of a debt to the Company of an amount more than the $100,000 prescribed amount, I am satisfied that it does. The debt in question is the debt the subject of a loan agreement between the Company and GVE Small dated 1 June 2017 and a deed of variation of loan agreement between the same parties dated 1 September 2017. The debt owed to the Company by GVE Small is compromised as part of the Settlement the subject of the Varied Settlement Agreement. I accept the plaintiffs’ submission that GVE Small’s repayment obligation can be characterised as a ‘debt owed to the company’ because the debt the subject of the loan agreements is a sum of money that is either immediately payable or, by reason of an existing obligation the subject of those agreements, a sum of money that will become payable in the future. I refer in this regard to the authorities referred to above and, in particular, the observations of Lindgren J in Elderslie Finance[31] and Barrett J in HIH.[32]
[31](2007) 160 FCR 423, [24]–[28] and the cases there referred to.
[32][2004] NSWSC 5, [12]–[15].
That being so, it is neither necessary nor possible on this application to determine the controversy in the substantive proceeding between the Company and GVE Small regarding the validity or otherwise of the variation to the loan agreement dated 1 September 2017, or any factual questions as to whether the option referred to in that agreement to extend the repayment date to a date in 2023 was exercised by GVE Small. I add for completeness that the defendants did not take issue with the plaintiffs’ submission that the Settlement involved a compromise of the debt to which I have referred, or make any submissions to the contrary.
Even if I had considered that there was some room for argument about whether the Debt Compromise involved a ‘debt to the company’, I would have adopted the approach of Barrett J in HIH, as referred to by Lindgren J in Elderslie, and erred on the side of treating the claim as a debt rather than declining to grant approval under s 477(2A). This could readily have been catered for in the orders by qualifying the terms of the order to record that the approval operated insofar as the Settlement involved the compromise of a debt to the Company exceeding the prescribed amount under s 477(2A)(a) of the Act. In this case that is not necessary as the position is sufficiently clear for present purposes.
With respect, I also agree with the approach referred to by Lindgren J in Elderslie Finance that s 477(2A) of the Act applies where the debt in question is one of several, perhaps many, claims that are all the subject of a single comprehensive compromise – as is the case here. I add that none of this detracts from the proposition referred to by Barrett J in HIH[33] that, where the claim is ‘unquestionably’ not a debt, the correct approach is to dismiss any application under s 477(2A) of the Act as being unnecessary.
[33][2004] NSWSC 5, [12].
As to the considerations that have caused me to be satisfied that it is appropriate to exercise the court’s discretion to approve the Debt Compromise, I refer to the principles and observations earlier referred to and draw attention to the following matters.[34]
[34]Which are addressed in no particular order.
I accept that the Liquidator is an experienced insolvency practitioner who has considered the position of the Creditors as a whole and exercised his commercial judgment, noting also the expression of his view that he considers the Debt Compromise, and the Settlement, to be in the interests of the Creditors. The evidence revealed that this is a view that the Liquidator rationally and genuinely holds. It is appropriate for the court to pay due regard to the Liquidator’s commercial judgment in the manner referred to in the authorities discussed above. As those authorities also reveal, it is material, although not determinative, that neither the Debt Compromise nor the Settlement is opposed by any of the Creditors and none of the Creditors sought to avail themselves of the opportunity to speak against it. I am also satisfied that this is a case where, given the notice to the Creditors, the history of Shangri-La’s involvement, and the other circumstances of this case, there is no need for a contradictor.[35]
[35]In relation to the role of contradictors more generally, see Lewis & Templeton & Warehouse Sales Pty Ltd (in liq) v LG Electronics Australia Pty Ltd & Ors (No 2) (2016) 48 VR 450, [46]–[67] (Sifris J).
I of course accept that the application does not involve an application for a direction pursuant to s 90-15 of the IP Schedule that the Liquidator is justified in entering into the Settlement Agreement or Variation Agreement. However, given the overlap of considerations that would have arisen in the circumstances of this case had such an application been made, this is a relatively neutral factor.
There was nothing in the evidence to raise a concern that the Creditors are being treated unfairly, and the evidence also demonstrated that they have been informed and had the opportunity to be heard. There was also no evidence to suggest, or raise any concern about, any lack of good faith on the part of the Liquidator. The evidence points the other way, which in part is supported by: the involvement of solicitors with the Liquidator throughout; the involvement of experienced counsel in pursuing the Claims and the proceeding; the obtaining of detailed legal advice on the prospects of the Claims; the disclosure of Counsel’s Advice to the court on a confidential basis on this application; the giving of notice to Creditors; and the Liquidator’s estimated return to Creditors – both before and after the entry into the Shangri-La Settlement Deed by Shangri-La and the defendants.
There was also no evidence to suggest that there is or may have been some error of law or principle by the Liquidator, which is a point that is reinforced by the detailed joint memorandum of advice from counsel. I have had regard to Counsel’s Advice in the customary way, which was thorough and considered. That advice need not be and should not be disclosed in these reasons. That said, I observe that it does not raise any concern regarding the Debt Compromise – or the Settlement more broadly – and further underscores the arm’s length nature of the negotiations and considerations that have resulted in the Liquidator exercising his commercial judgment to enter into the Debt Compromise and the Settlement. The advice addressed many topics including, appropriately: the Claims in question; the position of the Creditors; the prospects of success of the Claims; litigation risk; enforcement considerations; issues of timing; delay-related considerations; and this application. It is apparent that the Liquidator considers the Debt Compromise and the Settlement to be reasonable and prudent and there is nothing in Counsel’s Advice that raises any concern about that position in the circumstances.
If the Debt Compromise is not approved the Settlement will not proceed and this will result in, among other things, some additional expense in taking the steps in preparation for trial, but noting that the Liquidator is being supported through a no-win, no-fee, arrangement with legal practitioners. It will also involve considerable delay given that the interlocutory steps in the proceeding have not advanced very far to date. It seems likely that, at the earliest, this would result in a trial in late 2023 or perhaps in the first quarter of 2024, with further delay to follow pending the delivery of judgment. In addition, even if some or all of the Claims were ultimately successful, there is the risk of subsequent appeals and all that this may entail in terms of further delay and potential expense. To this may be added enforcement risks that might arise in connection with the defendants and their respective financial positions, which it was apparent the Liquidator had appropriately taken into account and investigated. It may be noted in this context that any further delay would be occurring in a context where the liquidation commenced nearly four years ago, and in circumstances where the Creditors support or do not oppose the application or the Settlement more broadly.
The prospect of such delay and additional expense may be contrasted with the position if the Debt Compromise is approved. If approval is granted it will see payment of the Settlement Sum within 30 days and a final dividend being able to be declared by the Liquidator in about 30 days after that, with the winding up to be concluded in the few months following. In the light of the other circumstances, this factor favours the grant of approval.
Given that Shangri-La supported the Debt Compromise, the Settlement, and the application, it is no longer strictly necessary to address in these reasons the somewhat complex, lengthy and seemingly bitter disputes between Shangri-La and the defendants. These disputes appear to have arisen in the context of Shangri-La having been the builder of the Hampton property development that was the sole enterprise of the Company before it was voluntarily wound up. Part of this background is addressed in my reasons in Shangri-La Construction Pty Ltd v GVE Hampton Pty Ltd (in liq) (Special Purpose Reasons),[36] to which I refer. The Special Purpose Reasons relate to Shangri-La’s failed application to appoint a special purpose liquidator in place of the Liquidator to explore and bring claims of the character brought by the Liquidator against the defendants in this proceeding.
[36][2021] VSC 161 (Connock J).
That said, and for completeness, I make the following observations regarding the position of Shangri-La:
(a) The Liquidator carried out investigations and commenced these proceedings without seeking to examine any of the defendants pursuant to ss 596A and 596B of the Act. The Liquidator was able to formulate the claims and commence this proceeding without the need to conduct such examinations, which was a course open to him and one which, on the evidence before the court, appears to have been a prudent and proper course for the Liquidator to take.
(b) In the context of the challenged personal and business relationship between Shangri-La and a number of the defendants, Shangri-La sought to appoint a special purpose liquidator to pursue claims against the defendants. As I have said, this application was unsuccessful.
(c) As referred to in the Special Purpose Reasons, in 2018 and 2019 Shangri-La sought authorisation from ASIC to become an eligible applicant to summon Mr Eugene Krok and other defendants for examination as to the Company’s examinable affairs pursuant to ss 596A and 596B of the Act. This was not disclosed to the Liquidator at the time, although he became aware of it shortly after he had instructed solicitors to commence the preparation of this recovery proceeding.
(d) Shangri-La was ultimately granted eligible applicant status and on 25 July 2019 applied to the Federal Court for the issue of examination summonses against Mr Hyatt, Mr Eugene Krok, Mr Greg Krok and Ms Ada Khait (Examinees). Thereafter numerous applications associated with the proposed examinations were made by the Examinees. As at the date of the hearing of this application the examinations had not taken place.[37]
[37]They were scheduled to take place later this year.
(e) Shangri-La had initially indicated that it would oppose this application, although this was recalibrated some time ago to a position where it informed the Liquidator and the court that it did not oppose the application or the Settlement but that it submitted that the application should not proceed until after the examinations had taken place. As things transpired, this submission was not put at the hearing. Shangri-La entered into a settlement agreement with the defendants on 7 September 2022 that is recorded in the Shangri-La Settlement Deed and it is no longer pursuing the examinations.
(f) The Liquidator was not a party to the Shangri-La Settlement Deed and was not involved with the proposed examinations.
(g) The Shangri-La Settlement Deed was said by Dr Wolff at the hearing to be a document resolving all issues between Shangri-La and the defendants and that it essentially concerned the resolution of disputes regarding outstanding costs orders in this court (in respect of the special purpose liquidator application) and in the Federal Court (regarding attempts by the Examinees to have the summonses for examination set aside).
(h) Among other things, the Shangri-La Settlement Deed recorded that the ‘GVE Parties’ would pay Shangri-La the sum of $100,000. It also provided for Shangri-La and the GVE Parties[38] to each execute a deed poll covenanting not to prove in the liquidation of the Company and recorded the consent of the parties to orders being made in the Federal Court dispensing with the proposed examinations.
[38]Who also comprise the defendants in this proceeding.
It was in this context that Shangri-La supported the application before me, the Debt Compromise, and the Settlement. It also did not contend that the application should await the conduct of the examinations in the Federal Court. This was unsurprising given that they are no longer being pursued by Shangri-La. That said, prior to the court being informed on the morning of the hearing of the developments between Shangri-La and the defendants, and of the Varied Settlement Agreement, it was not clear whether or not Shangri-La was going to press a contention that the hearing should await the proposed examinations. In part this was because directions had previously been made for Shangri-La to file and serve any submissions by mid-July 2022 and it did not file or serve any.
It was in this context that the Varied Settlement Agreement was entered into reducing the settlement sum to be paid to the Company by $100,000, from $2.55 million to $2.45 million, as explained in part in the Liquidator’s affidavit sworn on 7 September 2022.[39]
[39]I add for completeness that Dr Wolff informed the court ‘for the record’ that, although Shangri-La had agreed not to prove in the liquidation of the Company, it was not aware at the time that it entered into the Shangri-La Settlement Deed that there was to be a variation to the Settlement Agreement between the plaintiffs and the defendants. Dr Wolff also confirmed that Shangri-La’s position remained that it supported the Debt Compromise and the Settlement, and that it was not pursuing the examinations.
It will be apparent from the above that to the extent that it remained a live issue, the hearing deferral issue fell away because the examinations are no longer to proceed. However, even if it had been contended at the hearing that this application should not be heard and determined until after the conclusion of the examinations of the Examinees by Shangri-La in the Federal Court, I would not have accepted that submission. Briefly, this is because of the following:
(a) The Liquidator did not conduct examinations and did not need to do so in order to commence this proceeding and make the Claims that have been made in this proceeding against the defendants. The Liquidator was in a position to commence and pursue the Claims in this proceeding without conducting examinations. As a result, any attendant costs and delays that would have been associated with pursuing examinations were avoided.
(b) If the examinations by Shangri-La were still to occur, the Liquidator’s evidence was that he proposed to continue the liquidation until after the examinations so that, if anything unexpected emerged that warranted further exploration, the Liquidator would have been in a position to do so. The Liquidator also deposed to the releases in the Varied Settlement Agreement being restricted to the subject matter of the proceeding and not other claims that might conceivably emerge.
(c) The evidence did not reveal any basis for a likelihood that the Creditors’ positions would improve through examinations, whether in connection with prospects of additional claims, additional recovery, or otherwise. I also note in this context the evidence regarding the steps and investigations taken by the Liquidator to date regarding the defendants’ financial position, and the evidence about it being unlikely that any new creditors will be uncovered.
(d) There was overall support of the Creditors for the application to proceed and for approval to be given to the Debt Compromise.
(e) Shangri-La did not put forward any evidence or submissions pursuant to previous directions that suggested that it was likely or reasonably possible that any material additional advantage might be gained by the Creditors – whether an advantage of a kind that would warrant further delay in connection with this application, the Debt Compromise, the Settlement, or otherwise.
(f) The general principles and observations in the authorities regarding the significance of the commercial judgment of liquidators, the absence of any evidence to cause any concern regarding the Liquidator’s good faith, prudence or judgment, and the benefits to be achieved if the Debt Compromise is approved.
Finally, I add three further observations regarding the Varied Settlement Agreement and the position of Shangri-La. First, given that the ATO position is improved by the Varied Settlement Agreement, I accept the plaintiffs’ submission that it is not necessary to give additional notice to the ATO or the other Creditors of that relatively modest reduction of the Settlement Sum, noting also that the other Creditors have indicated that they will not be proving in the liquidation, and nearly all are aware of the reduction in any event given that one creditor is Shangri-La and three others are associated with the defendants.
Second, I accept the plaintiffs’ submission that the reduction of the Settlement Sum by $100,000 does not result in Shangri-La improving its position over the other Creditors when viewed in the context of the Shangri-La Settlement. The Liquidator stated in his evidence on this topic in his affidavit of 7 September 2022, that by not proving in the liquidation but instead receiving $100,000 from the defendants, this equated arithmetically to a notional dividend to Shangri-La in the order of 50.9 cents in the dollar. This is less than the 60-70 cent estimate the Liquidator had previously stated it was likely the Creditors would have received under the Settlement Agreement. It is also to be noted that the Liquidator and the Company were not party to the Shangri-La Settlement Agreement, which was of course unsurprising.
Third, and as I have said, Dr Wolff for Shangri-La confirmed during the hearing that it remained Shangri-La’s position that it supported the Settlement, the Debt Compromise, and the approval application.[40]
[40]As would be expected, Shangri-La is not a party to the Varied Settlement Agreement between the defendants, the Company and the Liquidator.
In the circumstances, the Debt Compromise the subject of the Liquidator’s application pursuant to s 477(2A) of the Act should be approved.
Conclusion and proposed orders
Pursuant to s 477(2A) of the Act it is appropriate to approve the Debt Compromise that forms part of the Settlement the subject of the Varied Settlement Agreement, and to order that the plaintiffs’ costs of and incidental to the application are costs in the liquidation of the Company.
Given the terms of the Confidentiality Orders made on 3 June 2022 in respect of the Liquidator’s 30 May 2022 affidavit and Counsel’s Advice, it is not necessary to make any additional confidentiality orders in respect of that affidavit or Counsel’s Advice.
The authenticated orders made on 7 September 2022 following the delivery of oral reasons at the end of the hearing were in the terms annexed to these reasons.
ANNEXURE TO CONNOCK J REASONS
Re GVE Hampton Pty Ltd (in liq) – [2022] VSC 539
IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2020 04437
IN THE MATTER OF GVE HAMPTON PTY LTD (IN LIQUIDATION) (ACN 167 150 521)
BETWEEN:
| PETER GOUNTZOS AS LIQUIDATOR OF GVE HAMPTON PTY LTD (IN LIQUIDATION) (ACN 167 150 521) AND ANOTHER (ACCORDING TO THE ATTACHED SCHEDULE) | Plaintiffs |
| - and - | |
| EUGENE KROK AND OTHERS (ACCORDING TO THE ATTACHED SCHEDULE) | Defendants |
GENERAL FORM OF ORDER
JUDGE: | The Honourable Justice Connock |
DATE MADE: | 7 September 2022 |
ORIGINATING PROCESS: | Originating process filed on 1 December 2020 |
HOW OBTAINED: | At the hearing of the plaintiffs’ application by summons filed 22 March 2022 |
ATTENDANCE: | Mr C T Moller of counsel for the plaintiffs Mr P Tatti, solicitor, for the defendants Dr M Wolff of counsel for Shangri-La Construction Pty Ltd (part of the hearing only) |
OTHER MATTERS: | A. In this order, “the settlement agreement (as varied)” is the settlement agreement dated 9 March 2022 between the plaintiffs and the defendants (exhibited as “PG-10” to the affidavit of Peter Gountzos made on 22 March 2022) as varied by the variation agreement made on 7 September 2022 (a copy of which was provided to the Court at the hearing and comprised Exhibit P3 and Exhibit P4). B. This order is signed by the Judge pursuant to rule 60.02(1)(b) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic). |
THE COURT ORDERS THAT:
Pursuant to section 477(2A) of the Corporations Act 2001 (Cth), the compromise of the debt the subject of the loan agreement between the fourth defendant and the second plaintiff dated 1 June 2017 and the deed of variation of loan agreement between the same parties dated 1 September 2017, the terms of which compromise are set out in the settlement agreement (as varied), is approved.
The plaintiffs’ costs of and incidental to their summons filed 22 March 2022 are costs in the liquidation of the second plaintiff.
The proceeding is listed for further directions at 10:00am on 21 October 2022 before Justice Connock.
DATE AUTHENTICATED: | 7 September 2022 |
| _________________________________ The Honourable Justice Connock |
SCHEDULE OF PARTIES
S ECI 2020 04437
BETWEEN:
| PETER GOUNTZOS AS LIQUIDATOR OF GVE HAMPTON PTY LTD (IN LIQUIDATION) (ACN 167 150 521) | First Plaintiff |
| GVE HAMPTON PTY LTD (IN LIQUIDATION) (ACN 167 150 521) | Second Plaintiff |
| -and- | |
| EUGENE KROK | First defendant |
| GREG KROK | Second defendant |
| VLADISLAV HYATT | Third defendant |
| GVE SMALL PTY LTD (ACN 618 897 297) | Fourth defendant |
| RESLING PTY LTD (ACN 115 520 557) | Fifth defendant |
| A G KROK DEVELOPMENTS PTY LTD (ACN 167 133 477) | Sixth defendant |
| HYATT INVESTMENTS PTY LTD (ACN 151 267 980) | Seventh defendant |
| IRENA LANSTER | Eighth defendant |
| ADA KHAIT | Ninth defendant |
| OLICORP PTY LTD (ACN 114 525 496) | Tenth defendant |
| E KROK DEVELOPMENTS PTY LTD (ACN 167 133 548) | Eleventh defendant |
| GVE BRIGHTON PTY LTD (ACN 162 757 137) | Twelfth defendant |
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