Re Jennifer Elizabeth Low
[2023] WASC 489
•22 DECEMBER 2023
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE JENNIFER ELIZABETH LOW; EX PARTE JENNIFER ELIZABETH LOW [2023] WASC 489
CORAM: HILL J
HEARD: 15 NOVEMBER 2023
DELIVERED : 22 DECEMBER 2023
FILE NO/S: COR 60 of 2021
MATTER: IN THE MATTER OF JENNIFER ELIZABETH LOW
EX PARTE
JENNIFER ELIZABETH LOW
Plaintiff
Catchwords:
Corporations - Insolvency - Whether members of committee of inspection validly appointed - Whether committee of inspection validly authorised entry into funding arrangement and retainer with solicitors - Application for declaration under s 1322(4)(a) of the Corporations Act 2001 (Cth) - Where no substantial injustice if orders are made - Turns on own facts
Legislation:
Corporations Act 2001 (Cth) s 477(2B), s 1322(4)(a), s 1322(6)
Insolvency Practice Rules (Corporations) 2016 (Cth), r 80-5(6)
Result:
Application granted
Category:B
Representation:
Counsel:
| Plaintiff | : | W C J Zappia |
Solicitors:
| Plaintiff | : | Roe Legal |
Case(s) referred to in decision(s):
Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005; (2005) 55 ACSR 185
Gangemi v Osborne [2009] VSCA 297
Oil Basins Ltd v Bass Straight Oil Co [2012] FCA 1122
Re Bellevue Gold Ltd [2021] WASC 80
Tayeh v Commonwealth of Australia [2020] FCA 1323
HILL J:
By interlocutory process filed 4 September 2023, the plaintiff sought orders in relation to a litigation funding arrangement entered into on 13 January 2021 as varied on numerous occasions (Funding Arrangement), as well as a costs agreement and retainer with her solicitors (Retainer). The issue raised for determination on the interlocutory process was whether the committee of inspection gave approval for entry into these agreements and whether curative orders were required.
Initially, the plaintiff sought a declaration that her entry into the Funding Arrangement was validly approved by the Committee of Inspection of ACN 116 313 921 Pty Ltd (in liquidation) (formerly Titan Interactive Pty Ltd) (Company). However, shortly prior to the hearing of the application, the plaintiff filed an alternative set of orders. These orders sought relief under s 1322(4)(a) of the Corporations Act 2001 (Cth) (Act) that the approvals given by the Committee of Inspection to enter into these agreements were not invalid by reason of the failure to obtain approval at a meeting in person at which resolutions were formally passed.
At the time of the hearing, I made orders in terms of the alternative minute of orders and indicated I would subsequently publish reasons for my decision. These are those reasons.
Factual background
In support of the application, the plaintiff relied on two affidavits of herself (filed 4 September 2023 and 20 September 2023), as well as two affidavits of William Macdonald, a solicitor for the plaintiff (filed 4 September 2023 and 25 October 2023). This summary is taken from these affidavits.
The plaintiff is the liquidator of the Company, having previously been appointed as administrator on 20 December 2018 by a resolution of the directors, and then appointed liquidator on 6 February 2019 when the Company was voluntarily wound up by resolution of creditors.
On 29 January 2020, the Company's creditors resolved at a meeting to appoint a Committee of Inspection (COI).[1] The COI is composed of two members: the Fair Entitlements Guarantee branch of the Commonwealth Department of Employment and Workplace Relations (FEG) (who are owed $648,782.22 as a priority creditor of the Company), and the trustee for the Subiaco Development Unit Trust (the Company's former landlord) (Northerly Group).
[1] Affidavit of Jennifer Elizabeth Low filed 4 September 2023 [14], 'JEL-2'.
On 9 April 2021, the plaintiff commenced proceedings in this Court seeking orders for the conduct of public examinations and for the production of documents pursuant to ss 596A, 596B and 597(9) of the Act.[2] Following these examinations, the plaintiff commenced proceeding WAD 97 of 2023 in the Federal Court of Australia against the former directors of the Company and the Company's accountants, Pitcher Partners (WA) Pty Ltd (PPWA) and Pitcher Partners Accountants & Advisors WA Pty Ltd (PPAA). In these proceedings, the sum of $6,665,184 is claimed as a debt owing to the Company.[3]
[2] Affidavit of Jennifer Elizabeth Low filed 4 September 2023 [7].
[3] Affidavit of Jennifer Elizabeth Low filed 4 September 2023 'JEL-1'.
On 13 January 2021, the plaintiff proposed to the COI by email that approval be given for entry into the Funding Arrangement, pursuant to s 477(2B) of the Act.[4] On 15 January 2021, the plaintiff proposed to the COI by email that approval be given for entry into the Retainer.[5] By email responses on 14 and 18 January 2021, FEG advised that it would abstain from voting on the proposals, but indicated its support for the proposal. By email response of 19 January 2021, the Northerly Group advised that it agreed to the plaintiff entering into the Funding Arrangement and the Retainer.[6]
[4] Affidavit of Jennifer Elizabeth Low filed 4 September 2023 'JEL-3'.
[5] Affidavit of Jennifer Elizabeth Low filed 4 September 2023 'JEL-4'.
[6] Affidavit of Jennifer Elizabeth Low filed 4 September 2023 'JEL-5'.
The plaintiff deposes that by September 2021, it became apparent that the amount in the Funding Arrangement would be insufficient. On 8 September 2021, the plaintiff sent a further email to the COI seeking approval to enter a deed of variation with the Funder to increase the funding available under the Funding Arrangement (First Variation). On 8 September 2021, the Northerly Group advised the plaintiff by email that it approved of the First Variation, and on 9 September 2021, FEG advised it would abstain from voting.[7]
[7] Affidavit of Jennifer Elizabeth Low filed 4 September 2023 'JEL-6'.
A further approval to increase to the amount of funding in the Funding Arrangement was sought by the plaintiff on 17 October 2022 (Second Variation). On 18 October 2022, the Northerly Group replied by email advising it agreed to the Second Variation, and FEG indicated it would abstain but had no objection to the Second Variation.[8]
[8] Affidavit of Jennifer Elizabeth Low filed 4 September 2023 'JEL-7'.
On 5 May 2023, the plaintiff sent an email to the COI seeking approval to enter into another deed of variation (Third Variation) and to enter into a new retainer with the plaintiff's solicitors.[9] On 9 May 2023, Northerly Group replied by email advising of its approval of entry into the Third Variation and the retainer. On 11 May 2023, FEG once again advised that it would abstain from voting.[10]
[9] Affidavit of Jennifer Elizabeth Low filed 4 September 2023 'JEL-8'.
[10] Affidavit of Jennifer Elizabeth Low filed 4 September 2023 'JEL-9'.
A copy of the Funding Arrangement (including the deeds of amendments) was in evidence before me.[11]
[11] Confidential affidavit of Jennifer Elizabeth Low filed 4 September 2023 'JEL-1'.
In June 2023, the solicitors for the PPWA and PPAA requested a copy of the Funding Arrangement as well as the approval under s 477(2B) of the Act. Following this request, a redacted copy of the Funding Arrangement was provided and correspondence exchanged as to whether a COI had been validly formed and whether there had been compliance with s 477(2B) of the Act.
On 4 September 2023, an interlocutory process was filed seeking a declaration that the entry into the Funding Arrangement, as well as its variations, and the Retainer were validly approved by the COI, notwithstanding the COI did not convene a meeting to approve the Funding Arrangement.
Orders were made on 15 September 2023 providing leave to a number of interested parties to be heard in relation to proposed orders of the interlocutory process.[12] Correspondence was received from each of these parties indicating they did not wish to be heard in relation to the orders sought.
[12] Orders of Hill J dated 15 September 2023.
Shortly prior to the hearing before me on 15 November 2023, the plaintiff provided an alternative set of orders and sought leave to amend its interlocutory process to include an application in terms of the alternate orders. Prior to or during the hearing, each of the interested parties advised the court that they did not wish to be heard in relation to the amended orders sought. On this basis, I granted leave to the plaintiff to amend the interlocutory process.
Legal principles
Section 1322 relevantly provides:
(4)Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:
(a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation;
(b)an order directing the rectification of any register kept by ASIC under this Act;
(c)an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);
(d)an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;
and may make such consequential or ancillary orders as the Court thinks fit.
...
(6)The Court must not make an order under this section unless it is satisfied:
(a)in the case of an order referred to in paragraph (4)(a):
(i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;
(ii)that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii)that it is just and equitable that the order be made; and
(b)in the case of an order referred to in paragraph (4)(c)—that the person subject to the civil liability concerned acted honestly; and
(c) in every case—that no substantial injustice has been or is likely to be caused to any person.
In considering an application under s 1322 of the Act, the essential principles are:[13]
(a)the prescriptive requirements of the wording in s 1322(4) and the pre-conditions in s 1322(6) need to be satisfied;[14]
(b)the court retains a discretion under s 1322(4) as to whether it makes the orders sought;
(c)the broad powers reflect a legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements where such non-compliance is the product of honest error or inadvertence and where the court can avoid its effects without prejudice to third parties or to the public interest in compliance with the law;[15]
(d)limitations to the broad powers in s 1322 will not be readily implied.[16] Section 1322 is remedial in character and should be applied broadly;
(e)the court can make orders under s 1322(4)(a) on conditions and make such consequential and ancillary orders as it thinks fit; and
(f)an order can be made under s 1322(4)(a) notwithstanding that the contravention or failure concerned resulted in the commission of an offence.[17]
[13] Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174 [20].
[14] Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 [43], [53] and [64].
[15] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418 [29].
[16] Weinstock v Beck [43], [55] - [56], [60], [64].
[17] Corporations Act2001 (Cth) s 1322(5).
Disposition
I accept that the plaintiff is an interested person who may seek relief under s 1322 of the Act.
While an issue was raised in correspondence as to whether the COI had been validly appointed, none of the interested parties appeared at the hearing to press this issue. In my view, there is no substance to the complaint that was raised.
The minutes of the meeting of creditors record that the creditors unanimously resolved to appoint a COI as well as to appoint the 'Department of Jobs and Small Business, Fair Entitlements Guarantee Branch, or their representative' together with Northerly Group or their representative as members of the COI.[18]
[18] Affidavit of Jennifer Elizabeth Low filed 4 September 2023 'JEL-2'.
Pursuant to s 80-5 of the Insolvency Practice Rules (Corporations) 2016 (Cth), a representative of the Commonwealth is entitled to be appointed as a member of a committee of inspection. In my view, it is clear from the resolution passed at the creditors' meeting that FEG or its representative was appointed to the COI as a representative of the Commonwealth consistent with this rule. This can be contrasted with the factual position considered by Jagot J in Tayeh v Commonwealth of Australia in which this position was not clear.[19]
[19] Tayeh v Commonwealth of Australia [2020] FCA 1323 [56] – [57].
As such, I am satisfied that a COI was validly established and that approval was able to be sought from the COI under s 477(2B) of the Act for entry into the Funding Arrangement and Retainer.
Application under s 1322(4)
The plaintiff seeks a declaration that the approvals given by the COI of the Company for the plaintiff to enter into the Funding Arrangement and Retainer is not invalid by reason of the failure to obtain approval at a meeting in person at which resolutions were formally passed.
The proposed order is framed in a declaratory form and identifies the act which is said to be a contravention of the Act. The question as to whether the contravention was procedural or substantive depends on the identification of the 'thing to be done'. As was stated by Palmer J in Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd:[20]
[T]he following general proposition may be formulated for the purposes of the application of … s 1322:
what is a “procedural irregularity” will be ascertained by first determining what is “the thing to be done” which the procedure is to regulate;
if there is an irregularity which changes the substance of “the thing to be done”, the irregularity will be substantive;
if the irregularity merely departs from the prescribed manner in which the thing is to be done without changing the substance of the thing, the irregularity is procedural.
The application of such a proposition in any particular case will depend upon the starting point, ie, defining “the thing to be done”. Different answers to the question will be found depending on how broadly or narrowly one defines “the thing to be done”.
[20] Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005; (2005) 55 ACSR 185 [103] – [104].
In this case, the starting point for consideration of what is 'the thing to be done' is s 477(2B) of the Act. This section provides that:
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.
In my view, the 'thing to be done' is the obtaining, for entry into an agreement by the liquidator on behalf of the company, of one of the following:
(a)approval of the Court;
(b)approval of the committee of inspection; or
(c)a resolution of the creditors.
My preliminary view is that to obtain approval of the committee of inspection, it is necessary for a meeting to be called, a resolution put to the meeting, and for a majority of creditors to vote in favour of the resolution. This is consistent with r 80-5(6) of the Insolvency Practice Rules (Corporations) 2016 (Cth) which provides that a committee of inspection may act by a majority of its members present at a meeting but must not act unless a majority of members are present. If my preliminary view is correct, I consider that the irregularity in this case in failing to call a meeting of the COI is a substantive and not a procedural irregularity.
Ultimately, however, it is not necessary for me to conclusively determine this matter. In my view, given the issues raised in the correspondence by solicitors for PPWA and PPAA, it is appropriate for the court to grant the declaration sought so as to put the matter beyond doubt, subject to satisfaction of the pre-conditions in s 1322(6) of the Act.
Pre-conditions in s 1322(6)(a) of the Act
The court may only grant relief under s 1322(4) of the Act in circumstances where at least one of the pre-conditions in s 1322(6)(a) is satisfied.
Section 1322(6)(a)(i)
For the reasons set out above, my preliminary view is that the failure of the Committee of Inspection to convene a meeting and formally pass resolutions relating to the Funding Arrangement is not a procedural irregularity.
However, ultimately, it is unnecessary for me to finally resolve this because it is only necessary for the plaintiff to establish one of the pre-conditions in s 1322(6)(a). For the reasons set out below, I am satisfied that the other two pre-conditions have been satisfied.
Section 1322(6)(a)(ii)
In Re ICandy Interactive Ltd, Banks-Smith J undertook a comprehensive review of the relevant principles in respect of whether there is no failure of the persons concerned or the company to act honestly.[21] Relevantly, Banks-Smith J considered that:
[21] Re ICandy Interactive Ltd [2018] FCA 533; (2018) 125 ACSR 369 [54] - [104].
(a)when determining whether someone has acted honestly for the purposes of s 1322, the courts look to absence of evidence of dishonesty and prompt action to remedy the error;[22]
(b)the concept of acting honestly can embrace:[23]
(i)inadvertence or failure to turn one's mind to an issue;
(ii)active but incorrect consideration of a legal issue;
(iii)failure to consider an issue at all; or
(iv)failure to understand or appreciate the significance of non-compliance; and
(c)when testing for honesty, the authorities reveal that the courts look at the company itself, the directors, the company secretary and others as may be concerned.[24]
[22] Re ICandy Interactive Ltd [54], [106] - [107].
[23]Re ICandy Interactive Ltd [55].
[24] Re ICandy Interactive Ltd [60] - [104].
In this case, I accept that Ms Low, as the person who was party to the contravention, acted honestly. It is clear from the evidence before the court that the plaintiff did not turn her mind to the question as to whether s 477(2B) required a formal meeting to be convened and a resolution passed by the COI, or whether it was sufficient compliance with this section for informal approval to be obtained by email exchanges with the members of the COI.
On this basis, I accept that the plaintiff acted honestly for the purposes of s 1322(6) of the Act.
Section 1322(6)(a)(iii)
I am also satisfied that it would be just and equitable to make the orders sought. Section 1322(6)(a)(iii) gives the court a wide discretion in exercising its powers under s 1322 of the Act.[25]
[25] Re Bellevue Gold Ltd [2021] WASC 80 [64] and the authorities cited therein.
In this case, I consider that it is just and equitable for the order to be made to give effect to the wishes of the members of the COI which have been expressed informally.
No substantial injustice (s 1322(6)(c) of the Act)
The reference to 'no substantial injustice' in s 1322(6)(c) has been held to refer to a real and not insubstantial or theoretical prejudice.[26] Whether there is real injustice requires a weighing of any prejudice if the order is made against the prejudice which would be suffered by other members and creditors of the company if an order was not made.[27]
[26] Oil Basins Ltd v Bass Straight Oil Co [2012] FCA 1122.
[27] Gangemi v Osborne [2009] VSCA 297 [62] citing Re Compaction Systems Pty Ltd & the Companies Act [1976] 2 NSWLR 477, 493.
I find there is no basis for inferring that substantial injustice has been or is likely to be caused to any person by the making of the proposed orders. In fact, I accept there could be quite substantive and substantial prejudice if the orders are not made. This is because it will impact, among other things, the Federal Court proceedings and the issue of security for costs in those proceedings as, without the Funding Arrangement, the plaintiff does not have sufficient assets to fund the legal costs of WAD 97 of 2023.
This view is reinforced by the position adopted by the interested parties. I accept that these parties were informed of the alternate orders sought prior to the hearing of the application and that each communicated that they did not wish to be heard in relation to the orders. In these circumstances, the parties most directly affected by the orders did not highlight any prejudice they would suffer if the orders sought by the plaintiff were made.
No other discretionary reason to withhold relief
I accept and find there is no evidence of any substantial misconduct, serious wrongdoing or flagrant disregard of the Act to warrant refusal of the relief sought.[28]
[28] Re Wave Capital Ltd [29].
Confidentiality orders
I also considered it appropriate to make confidentiality orders sought by the plaintiff in relation to the affidavits of the plaintiff filed 1 September 2023 and Mr Macdonald filed 4 September 2023. I accept these affidavits contain information that is confidential, commercially sensitive, and subject to legal professional privilege.
Conclusion
For these reasons, at the end of the hearing I made orders in terms of 'Annexure A'.
ANNEXURE A
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
FD
Associate to the Honourable Justice Hill
22 DECEMBER 2023
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