Re Whitby Land Company Pty Ltd (in Liquidation) (Receivers And Managers Appointed)
[2024] WASC 350
•20 SEPTEMBER 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE WHITBY LAND COMPANY PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED); EX PARTE WHITBY LAND COMPANY PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) [2024] WASC 350
CORAM: HILL J
HEARD: 20 SEPTEMBER 2024
DELIVERED : 20 SEPTEMBER 2024
FILE NO/S: COR 142 of 2024
MATTER: IN THE MATTER OF WHITBY LAND COMPANY PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED)
BETWEEN: WHITBY LAND COMPANY PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED)
First Plaintiff
ROBERT MICHAEL KIRMAN as joint and several liquidator of WHITBY LAND COMPANY PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED)
Second Plaintiff
WILLIAM JAMES HARRIS as joint and several liquidator of WHITBY LAND COMPANY PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED)
Third Plaintiff
Catchwords:
Corporations - External administration - Application for approval for entry into indemnity deeds - Turns on own facts
Legislation:
TBA
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiff | : | S Giunta |
| Second Plaintiff | : | S Giunta |
| Third Plaintiff | : | S Giunta |
Solicitors:
| First Plaintiff | : | Allens |
| Second Plaintiff | : | Allens |
| Third Plaintiff | : | Allens |
Cases referred to in decision:
Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89; (2011) 85 ACSR 38
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 Stewart; Newtronics Pty Ltd [2007] FCA 1375
Re United Medical Protection (No 4) [2002] NSWSC 516; (2002) 20 ACLC 1647
Whitby Land Company Pty Ltd (In Liquidation) (Receivers and Managers Appointed) v 89 Burswood Road Pty Ltd (ACN 130 015 619) [2022] WASC 387
HILL J:
(This judgment was delivered extemporaneously and has been edited from the transcript to include references, headings and to correct matters of grammar and expression.)
By originating process dated 12 September 2024, the second and third plaintiffs, as liquidators of the first plaintiff, Whitby Land Company Pty Ltd (Company), apply for approval under s 477(2B) of the Corporations Act 2001 (Cth) (Act) to enter into two deeds of indemnity (Deeds) on behalf of the Company with a party.
In support of the application, the plaintiffs have filed a confidential affidavit of Robert Michael Kirman, filed 12 September 2024. I have also had the significant benefit of a detailed confidential outline of submissions of the same date.
Factual background
From 27 July 2005 to 22 August 2017, the Company was the trustee of a trust.[1] On 27 September 2017, the Company was wound up in insolvency and the second and third plaintiffs appointed as liquidators of the Company (Liquidators).[2]
[1] Confidential affidavit of Robert Michael Kirman filed 12 September 2024 [11] - [12], 'RMK-5'.
[2] Confidential affidavit of Robert Michael Kirman filed 12 September 2024 [5], 'RMK-3'.
After being appointed, the Liquidators investigated the affairs of the Company. On the basis of these investigations, the Liquidators formed the belief that the Company may have a potential claim against GHT(WA) for amounts remitted from the sale of the Company's properties to a third party in satisfaction of GHT(WA)'s liability under a facility agreement, under which the Company was guarantor (Claim).[3]
[3] Confidential affidavit of Robert Michael Kirman filed 12 September 2024 [40].
The Liquidators have obtained written legal advice in relation to the Claim.[4]
[4] Confidential affidavit of Robert Michael Kirman filed 12 September 2024 [50] - [52], 'RMK-37'.
On 5 December 2022, following an unsuccessful application to be appointed as receivers and managers over the trust assets,[5] the Liquidators commenced proceedings in this court in respect of the Claim (CIV 2281 of 2022) (Proceedings).[6] These Proceedings have been served, a memorandum of appearance filed, and a statement of claim filed. To date, a defence has not yet been filed.
[5] Whitby Land Company Pty Ltd (In Liquidation) (Receivers and Managers Appointed) v 89 Burswood Road Pty Ltd(ACN 130 015 619) [2022] WASC 387.
[6] Confidential affidavit of Robert Michael Kirman filed 12 September 2024 [57], 'RMK-40'.
Since commencing the Proceedings, the Liquidators have approached the funder who has agreed to fund the Claim.[7]
[7] Confidential affidavit of Robert Michael Kirman filed 12 September 2024 [68] - [82], 'RMK-45', 'RMK-47'.
On 18 July 2023 and 15 May 2024, the Liquidators were provided with the Deeds, under which they will obtain funding for specific scopes of work to be undertaken in relation to the Proceedings. Each of the Deeds is conditional upon orders being obtained from this court pursuant to s 477(2B) of the Act. At this stage, the Liquidators have not executed either Deed.
Legal principles
Section 477(2B) of the Act is a fetter on the broad powers of a liquidator and ensures that there is oversight of a liquidator's actions before they enter into any long-term agreement.[8] In granting approval under s 477(2B) of the Act, the court is exercising a discretion in which the overriding consideration is whether entry into the agreement is a proper or bona fide exercise of the liquidator's powers. A particular focus under this subsection is on ensuring the winding up proceeds as expeditiously as circumstances allow.[9]
[8] Re HIH Insurance Ltd [2004] NSWSC 5 [15] (Barrett J).
[9] Re HIH Insurance Ltd [15] (Barrett J).
In considering whether or not to grant the approval sought, the court considers whether the terms of the agreement are clear and pays particular regard to the commercial judgment of the liquidator.[10] 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 or her powers. Generally, the court 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.[11]
[10] Re United Medical Protection (No 4) [2002] NSWSC 516; (2002) 20 ACLC 1647.
[11] Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83, 85 (Giles J); cited with approval in numerous authorities including recently in Re McDermott and Potts [2019] VSCA 23 [72] (Whelan AP, McLeish and Hargrave JJA).
As Gordon J stated in Re Stewart; Newtronics Pty Ltd, in reviewing the liquidator's proposal, the task of the court is not:[12]
[T]o reconsider all of the issues which have been weighed up by the liquidator in developing the proposal, and to substitute its determination for his in … a hearing de novo [but] … simply to review the liquidator's proposal, paying due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, satisfying itself there is no error of law or ground for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene in terms of the "expeditious and beneficial administration" of the winding up. The Court's approval is not an endorsement of the proposed agreement but is merely a permission for the liquidator to exercise his or her own commercial judgment in the matter. (citations omitted)
[12] Re Stewart; Newtronics Pty Ltd [2007] FCA 1375 [26(4)].
The courts have considered that there are a number of factors of particular relevance in assessing a proposed litigation funding agreement, namely:[13]
(a)the prospects of success of the proposed litigation;
(b)the interests of creditors other than the proposed defendant;
(c)whether there is any evidence of possible oppression;
(d)the nature and complexity of the cause of action;
(e)the extent to which the liquidator has canvassed other funding options;
(f)the level of the funder's premium;
(g)consultations with creditors; and
(h)the risks involved in the claim.
[13] Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89; (2011) 85 ACSR 38 [24] (Emmett, Nicholas and Robertson JJ).
Disposition
The details of much of the evidence that I have considered for the purposes of application is confidential. For that reason, I do not propose to outline the relevant terms of the Deeds.
In considering whether or not to grant the application, I have taken into account the evidence of Mr Kirman in his confidential affidavit, as well as the terms of the Deeds. These matters are relevant to the court's consideration of whether the approval sought by the plaintiffs should be given, whether the plaintiffs are acting in good faith in entering into the agreements, and whether there is any error or other ground which may call into question the decision of the Liquidators.
On the material before me, I do not consider there is any error or ground on which the Liquidators' decision can be called into question and I am satisfied that approval should be given to the Liquidators to enter into the Deeds.
In reaching this decision, I have taken into account the following matters.
First, I am satisfied that the Deeds do not confer any benefit on the funder which is disproportionate to the other creditors.
Second, notwithstanding the fact that the Liquidators have not approached alternative funders, I accept the evidence of Mr Kirman that the terms of the Deeds are likely to be more favourable than those that could be obtained from other means.[14]
[14] Confidential affidavit of Robert Michael Kirman filed 12 September 2024 [85].
Third, I am satisfied on the basis of Mr Kirman's confidential affidavit that the Liquidators have properly considered the strength of the Claim, including by obtaining written legal advice, and have carefully weighed in their decision the likely defences and possible conduct of the litigation, as well as the potential outcomes for the creditors of the Company.[15]
[15] Confidential affidavit of Robert Michael Kirman filed 12 September 2024 [50].
Fourth, Mr Kirman has explained the commercial rationale for the various Deeds and the considerations that have been taken into account in assessing the proposed funding and the reasons for the decision to enter into the Deeds.[16]
[16] Confidential affidavit of Robert Michael Kirman filed 12 September 2024 [84].
Fifth, while the Liquidators have not ascertained the views of the Company's creditors in relation to the Deeds, I accept that it is appropriate in the circumstances of this case, namely, that the creditors include a number of related parties of the Company.
Conclusion
In my view, it is in the interests of the creditors of the Company for the Liquidators to enter into the Deeds.
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
26 SEPTEMBER 2024
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