CORPORATIONS – Liquidation – Corporations Act 2001 (Cth) ss 477(2B), 511 – Liquidators seeking direction that they are justified in compromising proceeding and approval under s 477(2B) – All significant creditors opposing settlement of proceeding – Creditors’ views an important consideration – Role and adequacy of legal advice on settlement – Liquidators personally at risk of adverse costs if proceeding is discontinued – Relationship between ss 477(2B) and 511 – Re Spedley Securities Ltd (in liq)(1992) 9 ACSR 83, Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109, Re One.Tel Ltd (2014) 99 ACSR 247, Re Great Southern Managers Australia Ltd (in liq); Ex parte Jones (2014) 9 BFRA 555, considered.
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APPEARANCES:
Counsel
Solicitors
For the Applicants
Mr M J Galvin QC with Mr M A Black
WMB Lawyers
For the Federal Commissioner of Taxation
Mr G J Davies QC with Mr S Rosewarne
ATO Review & Dispute Resolution
WHELAN AP
McLEISH JA HARGRAVE JA:
The applicants, Ross John McDermott and John Stuart Potts, are the joint and several liquidators of Lonnex Pty Ltd (‘Lonnex’). Before the appointment of Mr Potts, Mr McDermott as sole liquidator caused Lonnex to commence a proceeding against Lonnex & Millennium Management Holdings Pty Ltd (‘LMMH’). Lonnex sought, among other things, declarations that a release of debts which it gave to LMMH was an uncommercial transaction under s 588FB of the Corporations Act 2001 (Cth) (‘the Act’) and an unreasonable director-related transaction under s 588FDA, and judgment in the sum of $22,000,000.
Following a mediation, the applicants made applications under ss 477(2B) and 511 of the Act for orders directing that they are justified in compromising the proceeding and approving their entry into terms of settlement accordingly. An associate judge refused that application.[1] The applicants seek leave to appeal, principally on the basis that the associate judge’s exercise of discretion miscarried. The Federal Commissioner of Taxation (‘the Commissioner’), being the largest creditor in the liquidation, appeared in opposition to the liquidators’ application, both before the associate judge and in this Court. In broad overview, the applicants say that the proposed settlement is a reasonable commercial outcome and that they have not been put in funds to contest the proceeding. The Commissioner disputes the wisdom of accepting the settlement and wishes to have a different liquidator appointed to pursue the litigation.
[1]Re Lonnex Pty Ltd (in liq)[2017] VSC 734 (‘Reasons’).
For the reasons that follow, while leave to appeal should be granted, the appeal should be dismissed.
Factual background
Before…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Re McDermott and Potts [2019] VSCA 23
Case
[2019] VSCA 23
Decision Date
CaseChat Overview and Summary
The matter before the court involved liquidators of a corporation, seeking direction that they were justified in compromising a proceeding and approval to enter into the compromise under section 477(2B) of the Corporations Act 2001 (Cth). The liquidators had proposed to settle the proceeding by entering into a compromise, which was opposed by all significant creditors. The court was required to determine whether the liquidators were justified in compromising the proceeding, given the opposition of all significant creditors.
The court considered the importance of the creditors' views in determining whether the liquidators were justified in compromising the proceeding. The court also examined the role and adequacy of legal advice provided to the liquidators in relation to the proposed compromise. Additionally, the court considered the personal risk of adverse costs faced by the liquidators if the proceeding was discontinued. The court found that the creditors' views were an important consideration, but not determinative, in deciding whether the liquidators were justified in compromising the proceeding. The court also found that the liquidators had received adequate legal advice in relation to the proposed compromise.
The court concluded that the liquidators were justified in compromising the proceeding, as the settlement offered a reasonable prospect of resolving the proceeding in the best interests of the corporation and its creditors. The court also found that the liquidators were not personally at risk of adverse costs if the proceeding was discontinued. The court noted that the relationship between sections 477(2B) and 511 of the Corporations Act 2001 (Cth) was such that the court's approval under section 477(2B) was not required if the liquidators were not personally at risk of adverse costs. The court's approval was therefore granted, and the compromise was approved.
The court ordered that the liquidators be and were justified in compromising the proceeding and that the compromise be and was approved under section 477(2B) of the Corporations Act 2001 (Cth). The court also ordered that the liquidators' costs of the proceeding be paid from the assets of the corporation, to the extent that they were not personally at risk of adverse costs.