Re Kirman & Anor as joint and several liquidator of Delta Resource Management Pty Ltd (in Liquidation)
[2024] WASC 334
•10 SEPTEMBER 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE KIRMAN & ANOR as joint and several liquidator of DELTA RESOURCE MANAGEMENT PTY LTD (IN LIQUIDATION); EX PARTE KIRMAN & ANOR as joint and several liquidator of DELTA RESOURCE MANAGEMENT PTY LTD (IN LIQUIDATION) [2024] WASC 334
CORAM: HILL J
HEARD: 19 JULY 2024
DELIVERED : 19 JULY 2024
PUBLISHED : 10 SEPTEMBER 2024
FILE NO/S: COR 104 of 2024
MATTER: IN THE MATTER OF KIRMAN & ANOR as joint and several liquidator of DELTA RESOURCE MANAGEMENT PTY LTD (IN LIQUIDATION)
BETWEEN: ROBERT MICHAEL KIRMAN as joint and several liquidator of DELTA RESOURCE MANAGEMENT PTY LTD (IN LIQUIDATION)
First Plaintiff
ROBERTY CONRY BRAUER as joint and several liquidator of DELTA RESOURCE MANAGEMENT PTY LTD (IN LIQUIDATION)
Second Plaintiff
Catchwords:
Corporations - External administration - Application for approval of the compromise of debts - Application for approval nunc pro tunc for entry into deeds of settlement and release - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 477(2A), s 477(2B)
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiff | : | Z Weng |
| Second Plaintiff | : | Z Weng |
Solicitors:
| First Plaintiff | : | Mendelawitz Morton Commercial Lawyers |
| Second Plaintiff | : | Mendelawitz Morton Commercial Lawyers |
Cases referred to in decision:
ASIC v Forestview Nominees Pty Ltd [2007] FCA 1985; (2007) 164 FCR 237
Elderslie Finance Corp Ltd v Newpage Pty Ltd (No 6) [2007] FCA 1030; (2007) 160 FCR 423
Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324; (2000) 35 ACSR 167
McLean v Elvapine Aberglasslyn Road Pty Ltd [2008] NSWSC 484
Re Bell Group Ltd (in liq); ex parte Woodings [2013] WASC 409
Re Emu Brewery Developments Pty Ltd (in liq) [2009] FCA 1212
Re HIH Insurance Ltd [2004] NSWSC 5
Re McDermott and Potts [2019] VSCA 23
Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83
Re United Medical Protection Ltd [2003] NSWSC 237; (2001) 46 ACSR 98
Vickers, Re York Street Mezzanine Pty Ltd (in liq) [2011] FCA 1028; (2011) 196 FCR 479
HILL J:
By originating process dated 28 June 2024, the plaintiffs, as joint and several liquidators of Delta Resource Management Pty Ltd (in liq) (Delta), applied for approval under s 477(2A) and s 477(2B) of the Corporations Act 2001 (Cth) (Act) to compromise certain debts and to enter into various deeds of settlement. Orders were also sought to maintain the confidentiality of information contained in the affidavit of the first plaintiff and the submissions that were filed.
In support of the application, the plaintiffs relied on an affidavit of Robert Michael Kirman filed 28 June 2024. I also had the benefit of detailed submissions filed 17 July 2024.
On 19 July 2024, I made orders in terms of the orders sought and indicated that I would subsequently publish reasons for my decision. These are those reasons.
Factual background
On 2 March 2006, Delta was incorporated as a proprietary limited company. It formed part of an informal group of companies associated with Michael Fotios and the Fotios family and provided mining and financial support services to a number of companies whose shares were listed on the Australian Securities Exchange.[1]
[1] Affidavit of Robert Michael Kirman filed 26 June 2024 [21].
On 21 April 2023, the plaintiffs were appointed joint and several liquidators of Delta.[2] Prior to this, between 15 February 2022 and 15 April 2023, the plaintiffs were provisional liquidators, voluntary administrators and deed administrators of Delta.
[2] Affidavit of Robert Michael Kirman filed 26 June 2024, 'RMK-6'.
Since February 2022, the plaintiffs have investigated the financial affairs of Delta, including undertaking an analysis of its financial records. As a result of these investigations, the plaintiffs believed that Delta may have claims against six different debtors (Debtors).[3] In order to resolve these claims, the plaintiffs engaged solicitors to issue letters of demand and assist in the debt recovery process.
[3] Affidavit of Robert Michael Kirman filed 26 June 2024 [43].
Between 7 May 2024 and 26 June 2024, the plaintiffs entered into six separate deeds of settlement and release with each of the Debtors (Deeds).[4] Each of these Deeds contains a confidentiality provision and is conditional upon orders being obtained from the court pursuant to s 477(2A) and s 477(2B) of the Act.
[4] Affidavit of Robert Michael Kirman filed 26 June 2024, 'RMK-18', 'RMK-19', 'RMK-20', 'RMK-21', 'RMK-22', 'RMK-23'.
On 25 June 2024, Mr Kirman issued a notice to creditors advising them of the plaintiffs' intention to bring this application. No creditor has indicated they oppose the application or appeared at the hearing to oppose the orders sought.
Legal principles
Under s 477 of the Act, a liquidator is granted broad powers. Section 477(2A) and s 477(2B) of the Act are a fetter on this broad power. Once these provisions are enlivened, as they are in this case, a liquidator cannot enter into a compromise without the approval of the court, the committee of inspection or a resolution of creditors.[5]
[5] Elderslie Finance Corp Ltd v Newpage Pty Ltd (No 6) [2007] FCA 1030; (2007) 160 FCR 423 [26].
Although s 477(2A) and s 477(2B) deal with different aspects of a liquidator's power, similar considerations apply under each provision.[6] These statutory provisions ensure that there is oversight of the liquidator's actions.[7]
[6] Re United Medical Protection Ltd [2003] NSWSC 237; (2001) 46 ACSR 98 [6].
[7] Re HIH Insurance Ltd [2004] NSWSC 5 [15].
In considering an application under s 477(2B), there is a particular focus on ensuring the winding-up proceeds as expeditiously as circumstances allow.[8] In considering whether to grant the approval sought by the liquidator, the usual approach taken by the court is that:[9]
[T]the court pays regard to the commercial judgment of the liquidator. That is not to say that it rubber stamps whatever is put forward by the liquidator but 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. (citations omitted)
[8] Re HIH Insurance Ltd [15].
[9] Re Spedley Securities Ltd(in liq) (1992) 9 ACSR 83, 85 (Giles J); cited with approval in numerous authorities including in Re McDermott and Potts [2019] VSCA 23 [72].
In controlling the liquidator's exercise of the power to enter into a compromise, the court 'looks to the interests of creditors' and asks whether the compromise is in their interests.[10] Where the major creditors have had an opportunity to consider the proposed compromise and do not oppose it, or support it, this will be a highly influential factor. This is because creditors, if properly informed, are in the best position to judge what is in their own commercial interests.[11]
[10] Re Spedley Securities Ltd, 85; Re McDermott and Potts [69].
[11] Re McDermott and Potts [93].
Other considerations that are relevant to the application include:
(a)whether the compromise is for the proper realisation of the company's assets and will assist the winding up;[12]
(b)the delay and uncertainty that is inherent in any alternative options;[13] and
(c)whether the settlement is the result of extensive and detailed negotiations.[14]
[12] Re HIH Insurance Ltd [15].
[13] Re Emu Brewery Developments Pty Ltd (in liq) [2009] FCA 1212 [19].
[14] Vickers, Re York Street Mezzanine Pty Ltd (in liq) [2011] FCA 1028; (2011) 196 FCR 479 [34].
Due regard must be paid to the commercial judgment of the liquidator and any legal advice received in relation to the deed of settlement. This is because the approval sought from the court is for permission by the liquidator to exercise his or her independent commercial judgment, and not an endorsement of the proposal.[15] That said, there must be a plausible evidentiary basis for the commercial judgment of the liquidator.[16]
[15] Re United Medical Protection Ltd [7].
[16] McLean v Elvapine Aberglasslyn Road Pty Ltd [2008] NSWSC 484 [6], [10].
Approval for entry into any settlement or compromise should normally be obtained prior to entry into the deed or agreement. However, there is no doubt that the court has power to give approval that operates from the date of entry into the agreement.[17]
[17] Re Bell Group Ltd (in liq); ex parte Woodings [2013] WASC 409 [34] and the authorities cited therein.
There is some divergence of opinion as to the precise basis as to how retrospective approval ought to be effected.[18] More recently, the approach of the court, where satisfied it is appropriate to give the approval, is to:[19]
(a)extend the time for making the application for approval, if and to the extent it is required, pursuant to s 1322(4)(d) of the Act;
(b)grant retrospective approval to enter into the compromise;
(c)declare that the relevant compromise is not invalid by reason of it having been entered into without prior approval of the court, pursuant to s 1322(4)(a) of the Act; and
(d)give an ancillary direction that the liquidator may act on the agreement as though it had been entered into with the prior approval of the court, pursuant to s 90-15 of sch 2 of the Act.
[18] Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324; (2000) 35 ACSR 167 [10]; cf ASIC v Forestview Nominees Pty Ltd [2007] FCA 1985; (2007) 164 FCR 237 [40] - [41].
[19] Vickers, Re; York Street Mezzanine Pty Ltd (in liq) [38]; Re Bell Group Ltd (in liq); ex parte Woodings [35].
Should the requested approvals be given?
Given that a significant part of the evidence that I have considered for the purposes of this application is confidential, I am somewhat constrained in the reasons I can give for the decision I made.
In considering the application, I have taken into account the following matters. First, the limited assets and income of several of the Debtors impacting on their ability to pay the full amounts claimed by Delta to be owed to it. Second, on the terms of the Deeds, each of the Debtors have admitted and acknowledged their respective debts. Third, the Deeds' saving of time and cost, as well as reduction of the inherent risks of litigation. I also note that a number of the Debtors have already made payments to Delta in accordance with the terms of their respective Deed. Each of these matters is relevant to the court's consideration of whether the plaintiffs are acting in good faith in entering into the Deeds and whether there is any error or other ground which may call the liquidators' decision into question.
On the material before me, I am satisfied that there is no basis to call into question the decision of the plaintiffs to compromise each of the Debts and enter into each of the Deeds.
In reaching this decision, I took into account the following key factors.
First, the settlement will provide certainty, avoid further legal costs being incurred and allow the winding up of Delta to occur sooner than would otherwise be the case if proceedings were required to be commenced against each of the Debtors.
Second, Mr Kirman has explained the commercial rationale for each of the proposed settlements, set out the considerations that were taken into account, and provided the reasons for the decision to enter into each of the Deeds.
Third, given these matters, I accept that compromising the debts and entering into the Deeds is reasonable and in the best interests of creditors.
Given this conclusion, I consider it is appropriate that approval to enter into the Deeds be granted retrospectively. This is primarily because the Deeds are conditional on court approval.
I also consider it is appropriate to make the ancillary orders sought by the plaintiffs, including that notice be sent to those claiming to be prejudiced by the making of these orders with liberty to apply, and that the costs of this application be costs in the liquidation of Delta.
Conclusion
For these reasons, at the conclusion 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.
KC
Associate to the Honourable Justice Hill
10 SEPTEMBER 2024
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