Re Octaviar Ltd (in liq)

Case [2019] QSC 235

SUPREME COURT OF QUEENSLAND

CITATION:

Re Octaviar Limited (in liq) [2019] QSC 235

PARTIES:

WILLIAM JOHN FLETCHER in his capacity as liquidator of OCTAVIAR LIMITED (IN LIQUIDATION)
ACN 107 863 436

(first applicant)

KATHERINE ELIZABETH BARNET in her capacity as liquidator of OCTAVIAR LIMITED (IN LIQUIDATION)
ACN 107 863 436

(second applicant)

FILE NO:

BS 4815 of 2019

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:


Supreme Court at Brisbane

DELIVERED ON:

23 September 2019

DELIVERED AT:

Brisbane

HEARING DATE:

30 May 2019

JUDGE:

Bradley J

ORDERS:

Orders made on 20 September 2019:

1. Pursuant to section 90-15(1) of Schedule 2 to the Corporations Act 2001(Cth), the applicants in their capacity as joint and several liquidators of Octaviar Limited (In Liquidation) ACN 107 863 436 (the “Company”) are advised in relation to the external administration of the Company that:

(a)       The applicants would be justified in rejecting the whole of the proofs of debt of Octaviar Investment Notes Limited (In Liquidation) ACN 122 141 986 dated 15 October 2009 and 7 September 2011 (including as amended by a document titled “Detail of OIN & OIB Proofs of Debt” dated 6 November 2017); and

(b)       The applicants would be justified in rejecting the whole of the proofs of debt of Octaviar Investment Bonds Limited (In Liquidation) ACN 126 878 608 dated 15 October 2009 and 7 September 2011 (including as amended by a document titled “Detail of OIN & OIB Proofs of Debt” dated 6 November 2017).

2.   The applicants’ costs of the proceeding are part of their costs in the winding up of the Company.

CATCHWORDS:

CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – APPLICATIONS TO COURT FOR DIRECTIONS OR ADVICE – where the applicants seek orders pursuant to s 90-15 of the Insolvency Practice Rules, schedule 2 of the Corporations Act 2001 (Cth), that they would be justified in rejecting certain proofs of debt lodged in the liquidation of Octaviar Limited, by reason of the rule against double proofs – where the prospective creditors contend that the rule against double proofs does not apply to their claims – whether it is appropriate for the court to issue directions pursuant to s 90-15 in the circumstances – whether the applicants would be justified in rejecting the proofs of debt

Corporations Act 2001 (Cth), s 588V, s 588W, sch 2, s 90-15, s 90-20

Barclays Bank Ltd v TOSG Trust Fund Ltd [1984] AC 626, cited
Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209, cited
Handberg v MIG Property Services Pty Ltd (2010) 79 ACSR 373; [2010] VSC 336, cited
Macedonian Orthodox Community Church St Petka Inc v Petar (2008) 237 CLR 66; [2008] HCA 42, applied
Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409; [2002] FCA 90, cited
Re Broens Pty Limited (in liq) [2018] NSWSC 1747, cited
Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674,…

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AGLC
Re Octaviar Ltd (in liq) [2019] QSC 235
Case
[2019] QSC 235
Decision Date

CaseChat Overview and Summary

The case of Re Octaviar Ltd (in liq) involved the liquidators of Octaviar Limited, who sought advice from the court regarding their rejection of certain proofs of debt. The proofs of debt were lodged by various creditors, including PTQ, Challenger, Colonial First State Investments Limited, Octaviar Investment Notes Limited, and Octaviar Investment Bonds Limited. The liquidators were concerned about the potential for future challenges regarding their decisions and sought judicial confirmation that they were acting appropriately. The key legal issue before the court was whether the liquidators would be justified in rejecting the proofs of debt due to the rule against double proofs.

The court considered whether it was appropriate to provide judicial advice to the liquidators regarding their decision on the proofs of debt. It was established that the decision of a liquidator to admit or reject a proof of debt is a quasi-judicial function, with no discretion involved if the debt is or is not a liability in law. The existence of a legal controversy or contested proceedings does not necessarily bar the court from providing advice. The court must assess whether the liquidator is justified in conducting the winding up in a particular way, considering the applicant's reasons and the decision-making process.

The court found that it was appropriate to provide advice to the liquidators. It confirmed that the liquidators would be justified in rejecting the proofs of debt from Octaviar Investment Notes Limited and Octaviar Investment Bonds Limited due to the rule against double proofs. The court noted that the liquidators were acting in a quasi-judicial capacity and had no discretion to admit claims that were not legally enforceable. The liquidators' costs of the proceeding were to be part of their costs in the winding up of the company.

In summary, the court provided judicial advice to the liquidators, confirming that they would be justified in rejecting certain proofs of debt. The liquidators' decision was based on the rule against double proofs, and the court's advice was directed at whether the liquidators were justified in conducting the winding up in a particular way. The court's decision ensures that the liquidators can proceed with their duties without fear of future challenges to their decisions.

Orders

Orders of the court

Orders made on 20 September 2019:

1. Pursuant to section 90-15(1) of Schedule 2 to the Corporations Act 2001 (Cth), the applicants in their capacity as joint and several liquidators of Octaviar Limited (In Liquidation) ACN 107 863 436 (the “Company”) are advised in relation to the external administration of the Company that:

(a) The applicants would be justified in rejecting the whole of the proofs of debt of Octaviar Investment Notes Limited (In Liquidation) ACN 122 141 986 dated 15 October 2009 and 7 September 2011 (including as amended by a document titled “Detail of OIN & OIB Proofs of Debt” dated 6 November 2017); and

(b) The applicants would be justified in rejecting the whole of the proofs of debt of Octaviar Investment Bonds Limited (In Liquidation) ACN 126 878 608 dated 15 October 2009 and 7 September 2011 (including as amended by a document titled “Detail of OIN & OIB Proofs of Debt” dated 6 November 2017).

2. The applicants’ costs of the proceeding are part of their costs in the winding up of the Company.

Background

Background to the litigation

At the hearing, I indicated to the parties that, in the circumstances, I proposed to provide advice to the applicants. The facts The applicants disclosed to the court what they proffered as the material facts in a series of affidavits with exhibits. Without reciting the whole of those facts, it is convenient to identify some of the most relevant. The applicants have accepted a proof of debt lodged by PTQ for $384,710,657.65 for the amounts guaranteed by Octaviar in relation to certain notes issued by Notes where the right to payment under the notes was primarily vested in PTQ. For that debt, Notes is the principal debtor and each of Octaviar and Bonds is a guarantor. The applicants have also accepted proofs of debt lodged by Challenger for $107,363,895 and by Colonial First State Investments Limited (Colonial) for $8,081,153 in relation to certain bonds issued by Bonds where the right to payment under the bonds was primarily vested in Challenger or Colonial respectively. For those debts Bonds is the principal debtor and each of Octaviar and Notes is a guarantor. In its proof of debt, Notes claimed to be owed $360,484,683.00 because Octaviar is liable for the obligation Notes incurred in issuing the notes to PTQ. Notes says: it was insolvent at the time; Octaviar was its holding company; there were sufficient indicators of Notes’ insolvency to place Octaviar in contravention of section 588V of the Act; PTQ suffered loss in relation to the notes; Notes is being wound up; and therefore Notes has a claim against Octaviar pursuant to section 588W of the Act. Notes also claims to be owed $104,057,527 because Octaviar is liable in relation to the obligation Notes incurred in guaranteeing the bonds. Notes says: it was insolvent at the time; Octaviar was its holding company; there were sufficient indicators of Notes’ insolvency to place Octaviar in contravention of section 588V; Challenger and Colonial suffered loss in relation to the bonds; Notes is being wound up; and therefore Notes has a claim against Octaviar pursuant to section 588W. Alternatively, Notes claims to be owed $445,775,030 by Octaviar as an accessory liable for a breach of duty by the directors of Notes causing the notes to be issued and the proceeds lent to another company in the Octaviar group, Octaviar Administration Pty Ltd (Administration), and causing Notes to guarantee the bonds. In its proof of debt, Bonds claimed to be owed $104,057,527 because Octaviar is liable in relation to the obligation Bonds incurred in issuing the bonds to Challenger and Colonial. Bonds says: it was insolvent at the time; Octaviar was its holding company; there were sufficient indicators of Bonds’ insolvency to place Octaviar in contravention of section 588V; Challenger and Colonial suffered loss in relation to the bonds; Bonds is being wound up; and therefore Bonds has a claim against Octaviar pursuant to section 588W. Bonds also claims to be owed $360,508,685 because Octaviar is liable for the obligation Bonds incurred in guaranteeing the notes. Bonds says: it was insolvent at the time; Octaviar was its holding company; there were sufficient indicators of Bonds’ insolvency to place Octaviar in contravention of section 588V; PTQ suffered loss in relation to the guarantee; Bonds is being wound up; and therefore Bonds has a claim against Octaviar pursuant to section 588W.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Mr McKenna QC, who appeared with Mr May for the applicants, identified their concern that the challenge to the applicants’ view of the legal questions and their intended course of action with respect to the proofs of debt had been expressed with such vehemence that it presaged other challenges – for example to the applicants recovering their costs or remuneration for dealing with the proofs. In these circumstances, the applicants explained that they came to the court seeking the court’s confirmation that they were:“acting appropriately and properly in dealing with this difficult question, and so that as between all the people, between whom we are seeking to keep being even-handed, there is no doubt that we are acting in an appropriate and proper way.”Consideration of whether to give judicial advice The liquidators opposed the court giving advice to the applicants on the basis that it was unnecessary. Mr O’Donnell QC urged that the applicants ought to make a decision on each proof of debt without judicial advice and then deal with the likely challenges to their decisions.[13] [13]It appears their submissions to that effect were raised for the first time at the hearing, without any prior notice to the applicant liquidators. As noted above, the applicants seek advice about a decision on a legal question and not a commercial decision. No question arises about the appropriateness of the request.[14] As Ipp J explained in Westpac Banking Corp v Totterdell:“the decision of a liquidator to admit or reject a proof of claim is not a discretionary management decision; it is a decision taken by the liquidator acting in a quasi-judicial capacity while discharging an adjudicatory function … The liquidator has no discretion to admit claims which are not legally enforceable; and has no discretion to reject claims which are legally enforceable … The prospects of success in regard to both an appeal against a decision by a liquidator rejecting a proof of debt and an appeal against a decision admitting a proof of debt, are dependent solely on whether the debt in question is a liability in law owing by the company. No element of discretion is involved.”[15] [14]Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 at 428 [65] (Goldberg J); Handberg v MIG Property Services Pty Ltd (2010) 79 ACSR 373 at 380 [19] (Warren CJ).[15](1998) 20 WAR 150 at 158. The existence of a legal controversy, even of contested proceedings, about the subject matter for advice is not an automatic bar to the court giving advice. Nor is it a factor of such weight that it would generally cause the court to decline to do so. Indeed, in adversarial situations an external administrator may well be assisted by judicial advice. The extent to which judicial advice may determine substantive rights in contested proceedings is relevant to the exercise of the discretion, because that is not its purpose. The court’s advice should not be directed to deciding disputes between interested parties.[16] It ought to be directed to whether the external administrator is justified in conducting a winding up in a particular way. The court deals with an application in the same way as an application by a trustee for advice. This requires the court to consider an applicant’s reasons and the process by which the foreshadowed decision has been reached.[17] As Young AJA observed in Re Westnet WA Infrastructure Holdings Ltd: “What the Court does is require the liquidator or trustee to obtain advice from competent counsel in the area. The Court then considers counsel’s advice and, unless the Court can see that further material is required, or that there is a real problem with counsel’s advice, the usual course that the court takes is to advise the liquidator, or direct the liquidator that he or she would be justified in acting on counsel’s advice.”[18][16]Re Mento Developments (Aust) Pty Ltd (in liq) (2009) 73 ACSR 622 at 633 [49] (Robson J), applying Macedonian Church at 89 [54] - 95 [76].[17]Re One.Tel Ltd (2014) 99 ACSR 247 at [36] (Brereton J).[18](2015) 106 ACSR 583 at [7].