Re HIH Casualty & General Insurance Ltd (in liq)

[2002] NSWSC 1036

CITATION:	HIH Casualty [2002] NSWSC 1036
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 1810/01
HEARING DATE(S):	15/10/02
JUDGMENT DATE:	6 November 2002
PARTIES :	In the matter of HIH Casualty and General Insurance Limited (In Liquidation) Anthony Gregory McGrath and Alexander Robert Mackay Macintosh - Liquidators - Applicants
JUDGMENT OF:	Barrett J

COUNSEL :	Mr N A Coffey, Solicitor - Applicants
SOLICITORS:	Blake Dawson Waldron - Applicants
CATCHWORDS:	CORPORATIONS - winding up - liquidator - approval required to enter into agreement of greater than three months duration - approval sought after the event
LEGISLATION CITED:	Corporations Act 2001 (Cth)
CASES CITED:	Emanuele v Australian Securities Commission (1997) 188 CLR 114 Empire (Aust) Nominees Pty Ltd v Vince (2000) 35 ACSR 167 Re FAI General Insurance Co Ltd [2001] NSWSC 882 Re HIH Insurance Group Ltd [2001] NSWSC 308 Lord Corporation Pty Ltd v Green (1991) 22 NSWLR 532 National Mutual Fire Insurance Co Ltd v Commonwealth [1981] 1 NSWLR 400 Registrar of Aboriginal Corporations v Bibelman Mia Aboriginal Corporation [2001] FCA 136 Re Sit Simplex Stulte Pty Ltd [2001] QSC 363
DECISION:	Approval granted

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

WEDNESDAY, 6 NOVEMBER 2002

1810/01 – HIH CASUALTY AND GENERAL INSURANCE LIMITED (IN LIQUIDATION)

JUDGMENT

1 By an interlocutory process filed on 15 October 2002, Mr McGrath and Mr Macintosh, the liquidators of HIH Casualty & General Insurance Limited (“HIH”), seek an order approving their entering into, on behalf of HIH, certain agreements for the acquisition of services by HIH.

2 The services concerned are clearly services of a kind required for the proper and efficient conduct of the activities of HIH under the control of its liquidators. The present case is one in which the winding up is expected to be of significant duration, with the consequence that the liquidators must, of necessity, perform functions which would not form part of a winding up conducted according to normal expectations. The questions arising on an application under s.477(2B) in such a case are, in essence, whether there is a public interest in seeing the winding up continue for an extended period and whether, leaving aside the commercial merits or otherwise of the agreement (these not normally being the concern of the court), it is of a nature that properly relates to the due performance of the functions of the liquidator in relation to the extended administration: Re FAI General Insurance Co Ltd [2001] NSWSC 882.

3 I am satisfied that these questions should be answered in the affirmative in this case. There is, however, the point that each of the agreements has already been entered into and operates by reference to a “commencement date” which has already passed. It seems, therefore, that, subject to any contrary effect that absence of prior approval under s.447(2B) may produce, the providers of services are already contractually bound to provide the services, while HIH, for its part, is already contractually bound to take the services and to pay for them. This raises squarely the question whether approval under s.447(2B) may be given in some kind of retrospective fashion.

4 As is emphasised in the judgments of members of the High Court in Emanuele v Australian Securities Commission (1997) 188 CLR 114, a question of this kind is always to be approached by reference to the construction of the particular statute. The task is to discover, from the statute itself, which of the possibilities identified by Glass JA in National Mutual Fire Insurance Co Ltd v Commonwealth [1981] 1 NSWLR 400 applies in the particular circumstances:

“… the proceeding is either a complete nullity or else it remains valid irrespective of whether or not leave is subsequently granted or else it continues in a state of suspended validity which will come to an end if leave is not obtained within an unspecified time.”

5 In the present case, the applicable statutory provision reads, so far as is relevant, as follows:

“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 …”.

6 The provision considered in Emanuele said:

“An application by any of the following, or by persons including any of the following, may only be made with the leave of the Court …”.

7 There is, to my mind, a difference between a provision saying that something “may only” be done with a certain kind of permission or leave and one stating that a person “must not” do a thing except with a particular permission or approval. In the former case, capacity and power are arguably denied, whereas the latter involves something more in the nature of a restriction on the exercise of a power.

8 I regard the provision now under consideration as the equivalent of one stating that a particular thing may be done with a particular approval, since a provision of that kind obviously carries within it a restriction precluding the doing of the thing without the approval. For this reason, I consider applicable to this case the approach taken by Cohen J in Lord Corporation Pty Ltd v Green (1991) 22 NSWLR 532 in relation to s.377(1)(c) of the Companies (New South Wales) Code. That section was in the following terms:

“The liquidator may, with the authority of the Court, of the committee of inspection or of a resolution of the creditors -
(c) make any compromise or arrangement with creditors …”

9 Cohen J was asked to authorise under the section the making of a compromise that had already been concluded. It was submitted that, since the approval had not been obtained in advance, the contract was made in excess of the liquidator’s powers and therefore invalid. Cohen J did not accept that submission:

“The fact that the liquidator entered into this compromise does not
necessarily mean that it is invalid because the authority of the court was not given before its execution. In similar provisions in the English Companies Acts where the authority or approval of the court or the committee of inspection was required before engaging solicitors it has been held on a number of occasions that a failure to obtain that approval did not invalidate the engagement of the solicitors so as to prevent their costs being taxed and
paid. The approval of the court can be given retrospectively: see Re London Metallurgical Co [1897] 2 Ch 262; Re Associated Travel Leisure and Services Ltd [1978] 1 WLR 547; [1978] 2 All ER 273 and Re A Debtor [1985] 1 WLR6; [1984] 3 All ER 995. The fact that the court can give a retrospective approval indicates that the act to which approval is given is not invalid but no doubt could be rendered invalid if the approval were to be refused. It was
certainly made clear that the person entering into a compromise with a liquidator could not successfully allege that he is not bound because the liquidator had no power to effect that compromise. It was held in a Queensland case that where a liquidator has compromised a claim for damages without obtaining the authority or approval of the court it was competent for creditors who have not been paid in full and the shareholders to appeal to set aside the compromise: Re Stuckey and Co (In Liquidation); Ex parte Williams [1918] QWN 35.

The effect of the case last-mentioned seems to be that the transaction is not invalidated on the basis that prior approval was not given but that creditors who are affected by that decision may seek to have the compromise set aside. This is consistent with the principle behind s.377(1), or its equivalent in other statutes, that the authority is required in order to give protection to the company, and accordingly to the creditors, by requiring the decision of the liquidator to be reviewed by the court or committee of inspection or the creditors generally. In my opinion the deed is not invalid and may be considered by the court on an application to approve its terms.”

10 It has, in any event, been expressly held that the court may grant retrospective approval under s.447(2B). I adopt, in that respect, the following observations of Warren J in Empire (Aust) Nominees Pty Ltd v Vince (2000) 35 ACSR 167:

“In the ordinary course of insolvency practice the court would ordinarily expect that an official liquidator would be fully mindful of his or her obligations under the Law when acting as liquidator of a company. If a liquidator is unaware or uncertain of his or her obligations then legal advice should be obtained. The court has an expectation that a liquidator will be aware of the obligations and powers particularly those contained under s.477 of the Law. In order to exercise certain powers such as those under s.477(2B) a liquidator ought be aware of the necessity to obtain leave of the court or approval of creditors or the committee of inspection.
Such approval should be obtained in advance of the exercise of the power in question, although the court has the power to give a retrospective sanction in a proper case to action taken without the requisite approval: see Re Associated Travel, Leisure & Services Ltd (in liq) [1978] 1 WLR 547; also, A R Keay, McPherson: The Law of Company Liquidation , 4th ed, LBC Information Services, 1999, p 349.”

11 Her Honour went on to discuss analogous cases:

In Re Associated Travel, Leisure & Services Ltd (in liq) Templeman J was concerned with circumstances where a liquidator gave instructions to solicitors who successfully recovered a debt owed to the company. Subsequently, the solicitors’ costs were disallowed on the ground that the liquidator did not obtain prior approval of the court before instructing the solicitors. The English statute [ Companies Act 1948 s.245] precluded a liquidator from, inter alia, appointing a solicitor to assist in the winding up of the company without approval of the court or the committee of inspection. Templeman J held that in a proper case such as that before the court where the appointment of solicitors resulted in benefit to the creditors, the court had power to allow the liquidator to retain out of the assets of the company sums to indemnify him against the solicitors’ costs. Templeman J (at 549) considered that under the English statute [Companies Act s.246 (3) ] the liquidator could apply to the court for directions in relation to any particular matter arising under the winding up and that either under that section or under its inherent powers the court may authorise the liquidator to make a variety of payments: see also in Re Banque des Marchands de Moscou Koupetschesky [1953] 1 WLR 171.
There is an obvious policy underlying the requirements of s.477(2B) of the Law namely that it is intended to afford some protection against ill-advised or improper actions on the part of a liquidator. Ultimately, the absence of the required sanction is a matter that effects only the relationship between the liquidator and the company or its creditors and cannot be made the subject of objection by a third party: see Re Home Counties Life Insurance Co (1862) 6 LT 374; Re English & Scottish Marine Insurance Co (1870) 23 LT 685; Ali v Premier Timber Co (1952) (1) SA 689; also, Keay, 1999, p 349. It seems that a facilitative approach has prevailed largely in relation to the institution of legal proceedings by the liquidator for which it was formerly necessary to obtain leave or approval: see Dublin City Distillery Ltd v Doherty [1914] AC 823; Waisbrod v Potgieter (1953) (4) SA 502; Re Western Australian Holiday Resorts Ltd (in liq) [1961] WAR 152.”

12 In Re HIH Insurance Group Ltd [2001] NSWSC 308, Hamilton J regarded the present question as settled. After referring to Empire (Aust) Nominees, his Honour said, in relation to the question of retrospective approval:

“There is, therefore, no difficulty in my now granting approval to the entry into the subject agreement by the seven companies if minded to do so.”

13 Further approval of the approach that had commended itself to Warren J was expressed by Carr J in Registrar of Aboriginal Corporations v Bibelmen Mia Aboriginal Corporation [2001] FCA 136; see also Re Sit Simplex Stulte Pty Ltd [2001] QSC 363.

14 Plainly, it is, as Warren J observed in Empire (Aust) Nominees, ordinarily to be expected that a liquidator, being mindful of his or her obligations, will obtain any necessary s.477(2B) approval in advance of entering into an agreement of the kind with which the section deals. Unless the approval is granted, the liquidator is operating in a manner not sanctioned by the Act and is exposed to potentially adverse consequences. For reasons I have stated, however, I am persuaded by the decided cases that the court may give approval even though a relevant agreement has already been entered into. Moreover, in view of my comments about the particular agreements in this case, approval is appropriate and should be given.

15 The court orders that the following be approved under and for the purposes of s.477(2B) of the Corporations Act 2001 (Cth), namely, the making by Anthony Gregory McGrath and Alexander Robert Mackay Macintosh, as joint liquidators of HIH Casualty and General Insurance Limited, of the following Contracted Services Agreements:

(a) agreement dated 21 March 2002 and made on or about that date with DISC International and Danny Go;

(b) agreement dated 5 August 2002 and made on or about that date with Zulaika B de Silva and Patricia de Silva;

(c) agreement dated 6 May 2002 and made on or about that date with T & T Com Pty Ltd and Trang Tran;

(d) agreement dated 2 February 2002 and made on or about that date with xCx Consulting Pty Limited;

(e) agreement dated 31 July 2001 and made on or about that date with Lautech Consulting Pty Ltd and Roland Lautec;

(f) agreement dated 22 January 2002 and made on or about that date with ACN 008 482 291 Pty Ltd and Kha Sang Phan;

(g) agreement dated 17 June 2002 and made on or about that date with Petre Meskoski Pty Ltd and Petre Meskoski;

(h) agreement dated 31 May 2002 and made on or about that date with StraTech Consulting Unit Trust and Steve Franey, Peter Aroney, Jeff Wright and Vicky Argument.

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Last Modified: 11/07/2002