Re Intellicomms Pty Ltd (in liq) (No 3)
[2022] VSC 525
•8 September 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2022 03449
IN THE MATTER of INTELLICOMMS PTY LTD (IN LIQUIDATION) (ACN 153 181 367)
| GLENN JEFFREY FRANKLIN AND PETR VRSECKY in their capacity as joint and several liquidators of INTELLICOMMS PTY LTD (IN LIQUIDATION) (ACN 153 181 367) | First and Second Plaintiffs |
| - and - | |
| INTELLICOMMS PTY LTD (IN LIQUIDATION) (ACN 153 181 367) | Third Plaintiff |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6 September 2022 |
DATE OF JUDGMENT: | 8 September 2022 |
CASE MAY BE CITED AS: | Re Intellicomms Pty Ltd (in liq) (No 3) |
MEDIUM NEUTRAL CITATION: | [2022] VSC 525 |
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CORPORATIONS – Winding up – Application by liquidators under s 477(2B) of Corporations Act 2001 (Cth) for approval of agreement, the performance of which will exceed three months – Approval granted – Orders made for confidentiality under r 28A.06 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms B E Slocum | Madgwicks |
HIS HONOUR:
The first and second plaintiffs, Messrs Glenn Jeffrey Franklin and Petr Vrsecky (the ‘Liquidators’), are the liquidators of the third plaintiff, Intellicomms Pty Ltd (ACN 153 181 367) (in Liquidation) (‘Intellicomms’).
By an originating process filed 5 September 2022, the Liquidators apply for approval pursuant to s 477(2B) of the Corporations Act (2001) (Cth) (the ‘Act’), now for then, to enter into a Deed of Amendment extending the term of an agreement titled ‘Managed Services Agreement’ (‘MSA’) dated 6 June 2022 (as amended on 17 August 2022) between Intellicomms and Comms Australia Pty Ltd, trading as Connecting Now (‘Connecting Now’).
More specifically, the originating process seeks an order that:
The Court approve the extension of the term of the Managed Services Agreement between [Intellicomms] and Connecting Now until such date that all [Intellicomms’] current customers have either:
(a) had their contracts with [Intellicomms] novated to Connecting Now; or
(b)confirmed they do not consent to the novation of their contracts to Connecting Now.
The Liquidators rely on the affidavit of Glenn Jeffrey Franklin sworn 2 September 2022.
The originating process also seeks an order that Exhibit “GJF‑2” to the affidavit of Mr Franklin remain confidential and not be disclosed to any person without leave of the Court.
On 6 September 2022, I made orders that are set out at the conclusion of these reasons and I indicated I would provide reasons.
Background
Until September 2021, Intellicomms operated a business providing translation services to commercial enterprises under the trading name “ezispeak” in Australia and in New Zealand through a wholly owned subsidiary, Intellicomms NZ Ltd (‘Intellicomms NZ’).
By an originating process filed 4 October 2021,[1] the Liquidators made application under ss 588FB, 588FDA, 588FDB, 588FE and 588FF of the Act for relief in respect of a Sale Agreement dated 8 September 2021 (‘TF Sale Agreement’) between Intellicomms and the defendant in that proceeding, Tecnologie Fluenti Pty Ltd (‘TF’), involving the sale of the business assets of Intellicomms to TF (‘Voidable Transaction Proceeding’).
[1]S ECI 2021 03635.
On 11 May 2022, I published reasons[2] for determining that the TF Sale Agreement was a creditor-defeating disposition within the meaning of s 588FDB(1) of the Act and voidable pursuant to s 588FE(6B) of the Act and indicated that I would make orders setting aside the TF Sale Agreement under s 588FF after considering submissions from the parties as to appropriate orders to be made consequent to my reasons. In my reasons in the Voidable Transaction Proceeding, I set out the factual background leading up to the Voidable Transaction Proceeding and these reasons should be read in conjunction with those reasons.
[2]Re Intellicomms Pty Ltd (in liq) [2022] VSC 228 (‘reasons’).
On 3 June 2022, I made final orders in the Voidable Transaction Proceeding and published reasons for the orders I made that day.[3]
[3]Re Intellicomms Pty Ltd (in liq) (No 2) [2022] VSC 310.
Relevant legislative principles
Section 477(2B) of the Act provides:
(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 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.
A liquidator is unable to enter into an agreement on behalf of a company where the term of the agreement may end, or obligations of a party to the agreement may be discharged by performance, more than three months after the agreement has been effected even if the term may end, or the obligations may be discharged, within those three months without the approval of the creditors, the committee of inspection or the Court. The Liquidators have approached the Court by reason that the MSA, if extended, will involve Intellicomms in obligations that may be discharged by performance more than three months after the agreement is entered into.
It is conventional for applications of this type to be brought ex parte[4] and, where necessary and appropriate, for orders to be made now for then.[5]
[4]Re Crosbie; Hastie Group Ltd (in liq) [2016] FCA 1289, [2] (Moshinsky J).
[5]See, for example, Re Riverside Spares Pty Ltd (in liq) [2020] NSWSC 839; Primary Securities Ltd v Willmott Forests Ltd (Recs and Mgrs Apptd) (in liq) [2017] VSC 375; Empire (Aust) Nominees Pty Ltd v Vince (2000) 35 ACSR 167; Re Stewart; Newtronics Pty Ltd [2007] FCA 1375.
In his affidavit, Mr Franklin describes the events that have occurred since my orders of 3 June 2022 in the Voidable Transaction Proceeding. He states that once the orders were made on 3 June 2022, the Liquidators embarked upon a sale process for Intellicomms’ business. However, the Liquidators were unable to service Intellicomms’ contracts with third parties during the period of the sale process without assistance.
Mr Franklin states on 6 June 2022 that the Liquidators entered into the MSA on behalf of Intellicomms with Connecting Now (a subsidiary of Call Scan Australia Pty Ltd, a significant shareholder and the litigation funder for the Voidable Transaction Proceeding), whereby Connecting Now would service the contract between Intellicomms and the Ministry of Business, Innovation and Employment (‘New Zealand Government’) from 6 June 2022 until the earlier of:
(a) on the day of completion of Intellicomms’ sale of the client contracts (as that term is defined in the MSA) to Connecting Now or any other third party purchaser; and
(b) three months after the commencement date, i.e. defined as 6 June 2022.
Mr Franklin states that after executing the MSA, six previous customers of Intellicomms agreed to be serviced by Connecting Now under the MSA.
On about 17 August 2022, the Liquidators executed a deed of amendment of the MSA to include the servicing by Connecting Now of the six additional contracts. This was the subject of a Deed of Amendment. The Liquidators request that the terms of that document be kept confidential.
The purpose of the MSA, as amended, was to provide for the servicing of Intellicomms’ customers while the Liquidators conducted a sales campaign for the business. The Liquidators formed the view prior to the execution of the MSA that if these contracts were not serviced, it was likely that they would be terminated and this would significantly decrease the value of Intellicomms’ business.
Mr Franklin states that on 16 August 2022, following an open market sales campaign, Intellicomms and Connecting Now entered into an agreement under which the assets of Intellicomms were sold to Connecting Now (‘Connecting Now Sale Agreement’). The completion date for the Connecting Now Sale Agreement was 5 September 2022.
The Connecting Now Sale Agreement has terms as follows:
(a) completion is conditional on the satisfaction or waiver of, inter alia, Connecting Now having received from the respective third parties under each of the customer contracts consent to the assignment or novation to Connecting Now;
(b) if on the completion date the New Zealand Government has not consented to the novation of its contract to Connecting Now, the purchase price would be reduced by a specified amount (‘Reduced Amount’);
(c) if the New Zealand Government consented to the assignment or novation of its contract from Intellicomms to Connecting Now after the completion date, but before 1 November 2022, Connecting Now would pay the Reduced Amount to Intellicomms upon the assignment or novation of the New Zealand Government contract; and
(d) if any of the other third parties did not consent to assign or novate their contract to Connecting Now, the parties would renegotiate the purchase price in good faith to reflect the reduction in value arising from the failure of any third party to consent to assign or novate their contract.
Mr Franklin states that all third parties have been provided with a Deed of Novation, novating their contract from Intellicomms to Connecting Now. Following negotiation as to the terms, five of Intellicomms’ seven customers have agreed to enter into the respective Deeds of Novation, novating their contracts from Intellicomms to Connecting Now.
The remaining third-parties who are yet to consent to the novation of their contracts are:
(a) the New Zealand Government; and
(b) HealthShare Victoria (‘HealthShare’).
A representative of the New Zealand Government has similarly informed Mr Franklin’s associate on 30 August 2022 that it is awaiting for its internal approval processes to be completed. The New Zealand Government’s representative has previously informed Mr Franklin’s office that it was aiming to complete approval by 5 September 2022, however they have yet to confirm when they expect the internal approval processes will be completed.
A representative of HealthShare has indicated to an associate of Mr Franklin that HealthShare is waiting for its internal approval processes to be completed but they hope to be in a position to formally consent to the novation by 5 September 2022 and if not, within the following few business days.
Mr Franklin states that he is not presently aware of any concern held by HealthShare, or the New Zealand Government with the respective novations and he is not aware of any reason why those third parties would not provide their consent. He states that he is informed by his staff, who have been party to communications with the representatives of those entities respectively, that the delay only arises because of the lengthy internal approval processes.
Mr Franklin states that while the Connecting Now Sale Agreement contains mechanisms to address the delay in the consent and novation from these two customers, if the term of the MSA expires on 5 September and is not extended, Intellicomms will not be capable of performing its contracts in the interim and those customers will be left without a translation service provider. Mr Franklin is concerned that should this eventuate, HealthShare and the New Zealand Government may terminate their contracts, triggering a substantial reduction in the purchase price under the Connecting Now Sale Agreement.
Mr Franklin states that in the opinion of the Liquidators, they consider it is in the best interests of Intellicomms’ creditors to:
(a) extend the completion date of the Connecting Now Sale Agreement to Monday 12 September 2022 to allow time for the HealthShare and New Zealand Government contracts to be novated along with the rest of the contracts;
(b) in the event the New Zealand Government has not consented to the novation by 12 September 2022, to complete the Connecting Now Sale Agreement subject to clause 5, which allows for payment for the transfer of the NZ Government contract to be made on the novation by the NZ Government on or before 1 November 2022 (or as otherwise agreed by the parties), and
(c) extend the term of the MSA (in so far as it is applicable) until such date that both HealthShare and the New Zealand Government have either:
(i) consented to the novation of their contract to Connecting Now; or
(ii) confirmed they do not consent to the novation of their contract to Connecting Now.
Mr Franklin states that he has been informed by Mr Tim Hood of Connecting Now that Connecting Now will agree to extend the term of the MSA if the necessary Court approval is obtained. The commencement date of the MSA is 6 June 2022 and expires three months after that date, i.e. the date of the hearing of this application, being 6 September 2022. Thus, while the MSA did not originally require approval under s 477(2B) of the Act, any extension of term beyond 6 June 2022 will require the approval of the Court.
Applicable principles
The purpose of s 477(2B) “is to ensure that contractual provisions as to timing do not cut across the general expectation that the winding up will proceed in as expeditious fashion as the circumstances allow”.[6]
[6]ReKogan, Rogulj Enterprises Pty Ltd (In Liq) [2021] FCA 856, [17].
A review of the recent authorities concerning the application of s 477(2B) reveals that the most common context in which applications are made under that section is to seek approval of entry into funding agreements.[7] As such, much of the discussion and principles said to arise for consideration in that body of case law are not particularly apt in the context of this application.
[7][2017] FCA 1206. See Kelly (liquidator), Re Australian Institute of Professional Education Pty Ltd (in liq) [2018] FCA 642; ReCrosbie; Hastie Group Ltd(in liq) [2016] FCA 1289; ReSales Express Pty Ltd (in Liq) [2016] FCA 423.
In this regard, in Elkerton, Re South Head & District Synagogue (Sydney) (In Liq),[8] Farrell J observed:
The liquidators point out that in In the matter ofCity Pacific Limited [2017] NSWSC 784 at [12]–[13], Brereton J referred to a similar list of considerations and noted that, while it is true that those considerations can be identified from the authorities, they are more relevant where a direction is sought that the liquidator would be justified in entering into such an agreement. That is because those considerations are relevant to an evaluation of propriety of the liquidator’s judgement and whether the liquidator should receive the protection that flows from a direction under s 479 of the Corporations Act. I accept that, in considering an application under s 477(2B), an important question is whether any prolongation of the liquidation which might be occasioned by the agreement for which approval is sought is warranted by the offsetting benefits that might flow from it.[9](emphasis added)
[8][2017] FCA 1206.
[9]Ibid [19].
Brereton J, in ReFAI Film Distribution Pty Ltd,[10] observed (omitting citations):
Section 477(2B) is concerned with long term agreements which might protract the liquidation and has the effect that the liquidator cannot enter such agreements without the approval of the committee of inspection, the creditors, or of the court. Its rationale is that the interests and wishes of those affected, particularly creditors, should be highly influential in determining whether the liquidator should assume a contractual obligation which would interfere with the expeditious completion of the winding up. Thus in considering giving approval under s 477(2B), the main consideration is the impact of the agreement on the duration of the liquidation and whether that is in all the circumstances reasonable in the interests of the administration.[11]
[10][2014] NSWSC 1904.
[11]Ibid [18].
Conclusion
This application involves an assessment of whether any prolongation of the liquidation that might be occasioned by the approval of an extension of the MSA is warranted by the offsetting benefits that might flow from it. In my view, the answer to that enquiry is clearly yes.
The sale of Intellicomms’ business for the best possible price is of paramount consideration in these circumstances. The purpose of the extension of the MSA is to protect the goodwill associated with the HealthShare and New Zealand Government contracts pending conclusion of the negotiations presently being conducted in respect of the novations to Connecting Now. It is expected that those negotiations will conclude in the near future and approval of the MSA, despite the fact that its performance may extend over three months, is clearly necessary to protect the interests of Intellicomms’ creditors by preserving its goodwill until this can occur. The factor of preservation of Intellicomms’ goodwill by the continued engagement of Connecting Now to provide translation services clearly outweighs the factor of prolongation of the liquidation.
As has been mentioned, the originating process also seeks an order in respect of confidentiality in regard to Exhibit “GJF-2” to Mr Franklin’s affidavit. I accept the submissions of Ms Slocum of counsel for the plaintiffs that the negotiation and completion of the sale is at a commercially sensitive juncture and that this warrants a confidentiality order to prevent inspection of documents that reveal the terms of the sale of Intellicomms’ business.
I will order, pursuant to r 28.06A of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) that Exhibit “GJF-2” to the affidavit of Glenn Jeffrey Franklin sworn 2 September 2022 not be inspected or copied without leave of the Court and, that, together with the transcript of the hearing on 6 September, be regarded as confidential and private and be filed on RedCrest in a part of the electronic file maintained for this proceeding, in a place that prevents their inspection without leave of the Court upon five days’ written notice to the solicitors for the plaintiffs.
For completeness, I set out the orders made by me on 6 September 2022:
1. Pursuant to r 28A.06 of the Rules, the confidential exhibit “GJF-2” to the affidavit of Glenn Jeffrey Franklin sworn 2 September 2022 and the transcript of the hearing of the application on 6 September 2022 remain confidential and not be disclosed to any person without the leave of the Court, sought upon five days’ written notice to the plaintiffs’ solicitors.
2. Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), the Court approves the extension of the term of the Managed Services Agreement dated 6 June 2022 (as amended on 17 August 2022), described in paragraph 2 of the affidavit of Glenn Jeffrey Franklin sworn 2 September 2022, until such date that all the third plaintiff’s current customers have either
(a)had their contracts with the third plaintiff (‘Company’) novated to Comms Australia Pty Ltd, trading as Connecting Now (ACN 652 798 313) (‘Connecting Now’); or
(b) confirmed they do not consent to the novation of their contracts to Connecting Now.
3. The costs of this application be the costs in the liquidation of the Company.
4. Liberty to apply.
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