Re Windsor Development Co Pty Ltd (in liq) (No 2)
[2024] VSC 297
•7 June 2024 (First Revision 11 July 2024)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2022 00106
IN THE MATTER of WINDSOR DEVELOPMENT COMPANY PTY LTD
(IN LIQUIDATION) ACN 609 746 045
| MATHEW GOLLANT IN HIS CAPACITY AS LIQUIDATOR OF WINDSOR DEVELOPMENT COMPANY PTY LTD (IN LIQUIDATION) (ACN 609 746 045) | First Plaintiff |
| and | |
| WINDSOR DEVELOPMENT COMPANY PTY LTD (IN LIQUIDATION) (ACN 609 746 045) | Second Plaintiff |
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JUDGE: | Matthews J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5, 6, 7 February 2024 |
DATE OF JUDGMENT: | 7 June 2024 (First Revision 11 July 2024) |
CASE MAY BE CITED AS: | Re Windsor Development Co Pty Ltd (in liq) (No 2) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 297 (First Revision (11 July 2024): [44]) |
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CORPORATIONS – Liquidation – Corporations Act 2001 (Cth), ss 477(2B), 90‑15 of the Insolvency Practice Schedule, Schedule 2 – Liquidator seeking direction that they are justified in compromising claims of the company in liquidation – Liquidator has already entered into agreement to compromise subset of company’s claims and seeks nunc pro tunc relief in respect of that agreement in the alternative - Company in liquidation is bare trustee – Investor parties and creditors oppose the direction – Alternate proposal of investor parties to that of compromising claims – Adequacy of legal advice on settlement – Sufficiency of evidence as to the liquidator’s process – Re One.Tel Ltd (2014) 99 ACSR 247, Re McDermott and Potts (in their capacities as joint and several liquidators of Lonnex Pty Ltd (in liq)) (ACN 097 786 751) [2019] VSCA 23, considered.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiffs | Mr S Maiden KC Mr N Kotzman | Gadens Lawyers |
| For the first third party | Mr H Austin KC Mr A Roe | Mills Oakley |
| For the second third party | Mr J Kohn | Capstone Koroneos Legal |
| For the third and fourth third parties | Mr SR Horgan KC Mr J Leung | Dominic Esposito Solicitors & Attorneys |
Contents
A.. Introduction
B.. Background
B.1 The Company and the key protagonists
B.2 The liquidation of the Company
B.3 Disputes between the various protagonists
B.4 The value of the Company’s claims
B.5 The First Baker Deed and its subsequent variation, and the Plaintiffs’ original application
B.6 Hearing of the Original Application
B.7 Further negotiations involving Baker and Reindel
B.8 Further negotiations involving the Investor Parties
B.9 The Liquidator’s further amendment of his originating process
C.. Present applications
D.. Key questions for determination
E... Evidence
F... Relevant law in respect of the Primary Relief
F.1 Statutory provisions
F.2 Applicable principles
G.. Submissions in respect of the Primary Relief
G.1 Plaintiffs’ submissions
G.1.1 The Court’s jurisdiction and role
G.1.2 Legal advice and disclosure to the Court
G.1.3 The value of the Company’s claims
G.1.4 The Company’s right of indemnity
G.1.5 The Liquidator’s process
G.1.6 Indemnification of the Liquidator
G.1.7 Investor Parties’ loss or damage
G.2 Reindel’s submissions
G.2.1 The Court’s jurisdiction and role
G.2.2 The Liquidator’s process
G.2.3 Indemnification of the Liquidator
G.2.4 Investor Parties’ loss or damage
G.3 Baker’s submissions
G.4 Investor Parties’ submissions
G.4.1 The Court’s jurisdiction and role
G.4.2 Legal advice and disclosure to the Court
G.4.3 The value of the Company’s claims
G.4.4 The Company’s right of indemnity
G.4.5 The Liquidator’s process
G.4.6 Indemnification of the Liquidator
G.4.7 Investor Parties’ loss or damage
H.. Consideration in relation to Primary Relief
I.... Relevant law regarding the Facilitative Relief
I.1 Statutory provisions
I.2 Relevant principles
J.... Submissions in respect of the Facilitative Relief
J.1 Plaintiffs’ submissions
J.2 Reindel’s submissions
J.3 Baker’s submissions
J.4 Investor Parties’ submissions
K.. Consideration in relation to the Facilitative Relief
L... Conclusion
HER HONOUR:
A Introduction
This proceeding was commenced by Mr Mathew Gollant, in his capacity as liquidator (the Liquidator) of Windsor Development Company Pty Ltd (in liquidation) (the Company), and the Company (together, the Plaintiffs). The Plaintiffs bring applications in relation to various agreements entered into or contemplated by the Liquidator to compromise, and thereby realise value in respect of, potential claims of the Liquidator and/or the Company in connection with the liquidation.
Four sets of interested persons have participated in this proceeding, namely:
(a)a former director of the Company, Mr Glenn Reindel (Reindel);
(b)a director of a company which has lodged a proof of debt against the Company and a former consultant to the Company, Mr Anthony Baker (Baker); and
(c)two investor parties; Confreight Pty Ltd (Confreight) and Supply Chain Logistics Pty Ltd (SCL) (together, the Investor Parties). The Investor Parties are companies associated with one or both of Mr Dale Monson (Monson) and Mr Vincent Murone (Murone), who are former directors of the Company.
The Plaintiffs’ applications concern agreements the Liquidator has entered into or proposes to enter into with one or both of Reindel and Baker. The Plaintiffs seek a direction pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) (the IPS), being Schedule 2 to the Corporations Act 2001 (Cth) (the Corporations Act), that the Liquidator is acting reasonably and is justified in entering into an as-yet unexecuted deed of settlement and release regarding potential claims of the Company and/or the Liquidator with Baker and Reindel. In the alternative, they seek approval by the Court pursuant to s 477(2B) of the Corporations Act for a different and already-executed deed of release and assignment with Baker. In addition, the Plaintiffs seek ancillary orders that would facilitate arrangements contemplated by either of those deeds and the liquidation of the Company more broadly, under the Corporations Act, the Trustee Act 1958 (Vic) (Trustee Act), the Supreme Court Act 1986 (Vic) (the SCA) and the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (the SCR).
The Investor Parties oppose the Plaintiffs’ applications and seek alternative relief in the proceeding, which I will describe later.
B Background
B.1 The Company and the key protagonists
The Company was established on 9 December 2015 as a special purpose vehicle for developing a mixed residential and retail site in Windsor, Victoria. The directors of the Company until 12 November 2020 were Monson, Murone, and Reindel, each of whom held shares in the Company through related entities.[1] The Company was trustee of a unit trust named the Windsor Development Company Trust (the Trust) pursuant to a trust deed dated 25 January 2016. It appears that the Company acted only in its capacity as trustee of the Trust. Trust beneficiaries held units in the Trust in equal proportions to their shareholdings in the Company.
[1]Pursuant to the trust deed, Nicholson Brunswick East Pty Ltd atf the NBE Trust (an entity associated with Reindel) held 65 units in the Trust, Confreight held 10 units in the Trust and SCL held 25 units in the Trust. On around 12 November 2020, Monson, Murone, and Reindel resigned their directorships and the abovementioned shareholdings were transferred to a third party (Mr Radau) who is a stranger to the earlier affairs of the Company and is not involved in this proceeding. Mr Radau was then the sole director, secretary, and shareholder of the Company.
Baker and Reindel had prior business dealings with each other overseas, separate to the affairs of the Company. Baker acted as project manager for the Windsor development and is a former consultant to the Company. The detail of Baker’s management role is the subject of dispute, in terms of the capacity in which he worked and the validity of agreements pursuant to which services were provided by him and/or AB Property Consultancy Pty Ltd (AB Property). Baker is a director of AB Property, which asserts that it is a creditor of the Company. The claim that AB Property is a creditor of the Company has been disputed by the Investor Parties. In connection with a potential insolvent trading claim, it is alleged that Baker may have been a shadow (or de facto) director of the Company.[2]
[2]Re Windsor Development Co Pty Ltd (in liq) [2022] VSC 742, [6] (Elliott J) (Re Windsor Development Co).
B.2 The liquidation of the Company
On 16 November 2020, the Company was placed into voluntary liquidation by resolution of its sole shareholder Mr Radau and the Liquidator was appointed. From this time, the Company was ‘ipso facto’ removed from its position as trustee of the Trust, by operation of the deed of the Trust such that the Company became and remains a bare trustee.
After the Company was placed into liquidation, various entities lodged proof of debts against the Company, including the Victorian State Revenue Office (SRO), the Australian Taxation Office (ATO), Jaffe Lee & Associates Pty Ltd (Jaffe Lee),[3] and entities controlled by Monson, Murone, and Baker.[4]
[3]The principal and director of this company is Mr David Leslie Jaffe, an accountant engaged by Reindel with respect to the Company. A relatively small debt owed to this company as a result of that accountancy work was assigned to Reindel, such that Reindel is an interested person for the purposes of this proceeding: Re Windsor Development Co, [2]-[5] (Elliott J).
[4]I note that, as at the time of trial, the proofs of debt had not been subject of adjudication and the Liquidator’s investigations into the affairs of the Company were ongoing.
The Company’s only valuable assets are potential claims it may have against its former directors and consultants, and their respective related entities. The Liquidator’s evidence is that, upon his appointment as liquidator, he carried out investigations into the Company’s affairs, following which he sought to realise the value of the claims of the Company and/or the Liquidator, by seeking funding to prosecute the potential claims in his capacity as liquidator and by soliciting offers for the compromise and/or assignment of the potential claims.
B.3 Disputes between the various protagonists
The relationships between Baker, Reindel, Monson and Murone broke down around the time that the winding up of the Company commenced. Serious allegations of misconduct have been made and a number of proceedings have been filed by these protagonists. The proceedings relate to alleged unpaid loans and debts by Baker and Reindel as against each other, as well as claims by the Investor Parties against Reindel and others about the alleged ransacking of the Company and Trust’s assets prior to liquidation, through the transfer of some of the properties in the Windsor development to various protagonists and related parties without any adequate consideration or any consideration at all.
The various proceedings which have been filed are as follows:
(a)On 28 June 2021, Reindel, Blizzard Winds Pty Ltd (Blizzard Winds, an entity associated with Reindel), and another company associated with Reindel commenced Supreme Court proceeding S ECI 2021 02247 against Baker (the Reindel and Baker SCV Proceeding). In the Reindel and Baker SCV Proceeding, the plaintiffs seek payment of $1,997,161.30 in relation to an alleged 2014 loan agreement between Reindel and Baker. Baker filed a counterclaim in the Reindel and Baker SCV Proceeding seeking payment of $6,671,735.83 relating to an alleged 2016 loan agreement with Reindel and Blizzard Winds.
(b)On 9 March 2021, the Investor Parties lodged caveats over four properties at the Windsor development which had been transferred to Blizzard Winds. A further caveat was lodged by them on 30 June 2021 over a property transferred to Reindel personally. I will describe these properties which formed part of the Windsor development and are held by Reindel and/or Blizzard Winds as the Reindel Properties. AB Property also lodged caveats over the five Reindel Properties. On 28 July 2021, Reindel, his spouse Ms Anne Runhardt (Runhardt), and Blizzard Winds commenced proceeding S ECI 2021 02659 seeking, inter alia, removal of the caveats lodged by AB Property and the Investor Parties over the Reindel Properties (the Caveat Proceeding).
(c)On 24 August 2021, the Investor Parties commenced Supreme Court proceeding S ECI 2021 03051 against Reindel, Runhardt, Blizzard Winds, the Company, and others,[5] alleging breaches of trust and fiduciary duties connected with the Windsor development and the Trust (the Investor Parties’ Proceeding). On 10 September 2021, the Investor Parties issued a summons in the Investor Parties’ Proceeding, seeking, inter alia, injunctive relief restraining Reindel and Blizzard Winds from dealing with the Reindel Properties.
(d)On 24 August 2021, County Court proceeding CI-21-03584 was commenced by Reindel and Blizzard Winds against Baker and a related entity seeking payment of $271,500 (the Reindel Baker CCV Proceeding).
[5]Not including Baker and his related parties.
On 14 September 2021, the Liquidator sought to be joined as an intervener in the Caveat Proceeding and, on 27 September 2021, the Liquidator notified the Court that he no longer wished to be joined to the Caveat Proceeding.
On 4 April 2022, Daly AsJ made orders in the Caveat Proceeding removing the caveats lodged by AB Property over the Reindel Properties held by Blizzard Winds but allowing the caveat over the property held by Reindel personally to remain.
In the period from August to October 2022, there were further developments in the other proceedings involving the protagonists, as follows:
(a)On 8 August 2022, Daly AsJ delivered a ruling in the Caveat Proceeding and the Investor Parties’ Proceeding, ordering that the caveats lodged by the Investor Parties over the Reindel Properties be removed and that Reindel and Blizzard Winds be restrained from dealing with the Reindel Properties until further order.[6]
(b)On 20 September 2022, the Investor Parties filed a summons by which they sought to amend the pleadings in the Investor Parties’ Proceeding, inter alia, to seek relief against Baker, his spouse Ms Jasmine Macfarlane (Macfarlane), and AB Property, to recover assets of the Trust.
(c)On 17 October 2022, Daly AsJ ordered that the hearing of the application to amend the pleadings in and join parties to the Investor Parties’ Proceeding be adjourned until after the determination of the relief sought in the Original Application. The practical effect of that order is that the Investor Parties’ Proceeding is stayed pending determination of this proceeding.
[6]Reindel v Confreight Pty Ltd (No 2) [2022] VSC 442, [138] (Daly AsJ) (Reindel (No 2)).
B.4 The value of the Company’s claims
The claims that are alleged as against the Baker parties and Reindel parties are listed in Annexure B to the 2023 Deed. The Investor Parties say that, although they do not wholly agree with the characterisation of the claims or the value ascribed to them, the claims listed in the annexure provide a basis for me to interrogate the Liquidator’s process in dealing with the parties. I have looked at the claims set out in the annexure, for the purpose of satisfying myself of the Liquidator’s process, in light of the submissions made by the parties as to these claims, the defences articulated by the Reindel and Baker parties in correspondence dated 4 April 2023, and the evidence of the Liquidator at the hearing in connection with those claims.
Claims as against the Baker parties concern:
(a)transfers of two properties in the Windsor development, giving rise to claims against Baker and MacFarlane, with claims regarding the first property estimated by the Liquidator to be valued at $1,299,999 to $300,000 against Baker, and between $300,000 and $600,000 against MacFarlane, and regarding the second property at valued at $800,000 against Baker, and against MacFarlane at $1,350,000;
(b)cash payments to either AB Property or Baker in the period from 28 September 2017 to 15 October 2020, estimated by the Liquidator to be valued between $2,025,126 and $2,739,809.30; and
(c)a breach of duty by Baker to prevent insolvent trading from 14 July 2020, or from 4 November 2020, with the value of the claim being described as the debts incurred from that time (should Baker be found to have acted as a shadow or de facto director of the Company).
Defences raised by Baker in respect of the claims at sub-paragraphs 16(a)-(b) above include that the claims have been released under the First Baker Deed, that cash payments were made with the approval of Reindel, and that the transfers of property were not for substantially less than market value. Specifically, the contract prices for the two properties totalled $1,020,000 and this is said to be the market value for the properties, noting that one was located above an electricity substation which had a material adverse effect on its valuation. With respect to payments to AB Property, the letter dated 4 April 2023 provides that as at the date of liquidation, AB Property was owed $472,500 plus GST.
With respect to the claim of insolvent trading at 16(c), it is denied that the Company traded when insolvent, and it is said that the Company did not become insolvent, but if it did, it was in early November 2020, and it is denied that Baker was a shadow or de facto director of the Company.
Claims as against the Reindel parties concern:
(a)the transfer of five properties in the Windsor development for undervalue, against Blizzard Winds or Reindel, for a total value estimated by the Liquidator of $2,449,800;
(b)cash payments to either Mondrian Developments Pty Ltd (Mondrian, another Reindel related company) or Blizzard Winds in the period from 12 April 2018 to 5 November 2020, estimated by the Liquidator to be valued between $0 and $3,636,204;
(c)payment of funds on 28 August 2020 to Runhardt, estimated by the Liquidator to be valued at $750,000; and
(d)a breach of duty by Reindel to prevent insolvent trading from 14 July 2020, with the value of the claim described as unfair preferential payments in the sum of $623,024.
Defences raised by Reindel in respect of the claims at paragraph 19(a)-(c) above include assertions that Reindel or his associated entities contributed financially to the Company which meant that the Company owed debts to the Reindel parties, and entitlements that Reindel or his associated entities had claims as against the Company for payment of debts accruing to them. The Reindel parties made historical cash contributions of more than $2,950,348.80 between 12 February 2016 and 3 November 2020; paid an ‘open space fee’ to the City of Stonnington of $230,000; had entitlements for invoice amounts of $302,500 and $785,400; had entitlements for services in connection with a unit in the development of $367,500; had paid wages to Baker directly for work for the Company of $526,797.19; and had an entitlement to remuneration for Reindel of $1,650,000. The Reindel parties claim a total amount of entitlements and historical contributions of $6,812,545.99. This is in excess of the total amount of claims which the Liquidator says he or the Company has as against the Reindel parties of $6,466,014.
The defences to the claim at 19(d) regarding the solvency of the company include an assertion that the Company was solvent at all material times, and if it became insolvent at any time, this was no earlier than 6 November 2020; and financial records and legal principles to which Reindel points as providing a strong basis for him to assert that, at all material times, he had no grounds to suspect the Company was insolvent, and which would result in the Liquidator being unable to establish that the Company was insolvent.
There were a number of criticisms and potential holes in Baker’s and Reindel’s defences raised by the Investor Parties. The cross-examination of the Liquidator elucidated his consideration of the Company’s claims, and it was clear that he and his team, as well as his legal advisers, had carefully considered the claims and potential defences, as well as their strengths and weaknesses. Further, these matters are all canvassed in the Legal Advice.
B.5 The First Baker Deed and its subsequent variation, and the Plaintiffs’ original application
On 10 December 2021, the Liquidator (on his own behalf and on behalf of the Company, in its own capacity and formerly as trustee of the Trust) entered into a deed of release and assignment with Baker (First Baker Deed). In brief, the First Baker Deed contained the following key terms:
(a)‘Deposit’ was defined as $700,000.
(b)As set out in clause 3.1, Baker was to pay a deposit comprised of (1) $200,000 to the Liquidator within seven days of entry into the deed and (2) a further $500,000 within seven business days of the Liquidator successfully making application to the Court to be appointed receiver of the Trust and obtain any order (if required) pursuant to s 477(2B) of the Corporations Act.
(c)The Liquidator and Company were to release and discharge claims against Baker and his related parties as set out in clause 2.1 of the First Baker Deed. Clause 2.1 relevantly provided:
2.1 In consideration of payment of the Deposit and subject to the terms of this Deed, the Liquidator and the Company hereby release and discharge [Baker] and his related parties from the Released Claims.
(d)The defined term ‘Released Claims’ were those claims identified in Annexure B to the deed.[7] The claims in Annexure B included potential claims for transfer of properties in the Windsor development for undervalue, voidable transaction claims under s 588FDA of the Corporations Act, and uncommercial transaction or receipt of funds claims under s 588FB of the Corporations Act.
(e)In consideration of payment of the deposit and subject to the terms of the deed, the Liquidator (as Liquidator of the Company and receiver of the Trust) and the Company were to assign to Baker absolutely all rights, title and interest in certain claims set out in Annexure A to the deed.[8] The claims in Annexure A were claims as against Reindel or entities and persons associated with him, including Blizzard Winds, including potential claims for transfer of properties in the Windsor development for undervalue, voidable transaction or receipt of funds claims under s 588FDA of the Corporations Act, and uncommercial transaction claims under s 588FB of the Corporations Act.
(f)The abovementioned assignment was expressed as conditional upon the Liquidator successfully making an application to be appointed receiver of the Trust and obtain any order (if required) pursuant to s 477(2B) of the Corporations Act.
(g)If the application was successful, the Liquidator was entitled to retain the Deposit in full. If the application was not successful and the assigned claims were not assigned to Baker, the Liquidator was required immediately to return $125,000 of the Deposit to Baker.
(h)Requirements for prosecution or settlement of the assigned claims by Baker and the distribution of any monies Baker might recover through prosecution or settlement of the assigned claims.
[7]The First Baker Deed also provided for the release of claims against Murone, Monson, and the Investor Parties in consideration of payment of the deposit by Baker and subject to those persons withdrawing any claims they have as creditors of the Company, including proofs of debt.
[8]‘Assigned Claims’ in the First Baker Deed was defined to mean ‘any claims against any party relating to each of the transactions and payments identified in Annexure A. For the avoidance of doubt, any other claims against Glenn Reindel for trading whilst insolvent or breach of director's duties in respect of the Company will not be assigned and remain with the Liquidator’: cl 1.1.
On 18 January 2022, the Plaintiffs commenced this proceeding in connection with the approval of the First Baker Deed, as follows (the Original Application):
(a)the Liquidator sought approval under section 477(2B) of the Corporations Act for his entry into the First Baker Deed on the Company’s behalf, such approval being required because the obligations of a party to the agreement might be discharged by performance more than three months after the parties entered into the agreement;
(b)orders were also sought under section 63 of the Trustee Act, and further or alternatively ss 90-15 or 90-20 of the IPS, to confer on the Company powers, nunc pro tunc, necessary to allow assets of the Trust to be dealt with, so that releases of certain causes of action might be given under the First Baker Deed; and
(c)in addition, orders were sought under section 37 of the SCA and rule 39.02 of the SCR for the Liquidator’s appointment as receiver and manager of the Trust.
Subsequent to the execution of the First Baker Deed, there was a dispute between the parties to that deed regarding whether the releases of Baker and his related entities were of immediate effect upon payment of $200,000 to the Liquidator, or whether the releases were effective only once the Liquidator had successfully made the application to be appointed receiver of the Trust and obtain any order pursuant to s 477(2B) of the Corporations Act. It was the position of Baker that the releases were immediately operative, whereas the Liquidator’s position was that the releases were not triggered until the condition precedent of Court approval was satisfied.
On 13 July 2022, the agreement between the Liquidator and Baker as set out in the First Baker Deed was varied by a further deed (Deed of Variation).
The Deed of Variation operated to amend the terms of the First Baker Deed as follows:
(a)Clause 2.1 was amended to include the word ‘Initial’ before the word Deposit.
(b)Clause 3.1 was amended to read:
3.1 The Assignee must pay the Deposit to the Liquidator as follows:
a) $200,000 by 17 December 2021 (Initial Deposit);
b) $500,000 within 7 Business Days of the Liquidator satisfying the conditions in Clause 3.3 and the parties otherwise being reasonably satisfied that there are no other matters to be undertaken by them to enable the Assignee to commence any proceeding relating to the Reindel Transfer Claim (Deposit Balance).
Payment of the Deposit is to be made at the direction of the Liquidator. Subject to the release at clause 2.1, the Initial Deposit may be used by the Liquidator for the payment of all costs and expenses incurred by on or behalf of the Liquidator, in respect of the Application.
(c)Clause 3.4, which read ‘[t]he parties acknowledge and agree that if the Application is not successful and the Assigned Claims are not assigned to the Assignee, the Liquidator shall immediately return $125,000 of the Deposit (without deduction) to the Assignee’, was deleted.
(d)Clause 6.3(a) was amended to remove the words ‘by 30 September 2022’ and the words ‘within 60 days of orders being made in the Application in favour of the Liquidator.’
The Deed of Variation purportedly amended the First Baker Deed to clarify that the releases of the claims against Baker and his related entities were intended by the parties to be effective from the payment of $200,000, rather than having as a condition precedent the Liquidator’s successful application to the Court for approval pursuant to s 477(2B) of the Corporations Act and appointment as receiver of the Trust, and the payment of the deposit total of $700,000. The Deed of Variation also had the effect that none of the $200,000 paid by Baker was refundable by the Liquidator.
On 15 August 2022, the Plaintiffs filed an amended originating process which amended the Original Application in this proceeding. By the amended originating process, the Plaintiffs sought the same relief as set out above at paragraph 24, but in connection with the First Baker Deed, as varied by the Deed of Variation.
For the sake of clarity, I will call the arrangement between Baker, the Company and the Liquidator set out in the First Baker Deed, and as varied by the Deed of Variation, the Baker Agreement.
On 5 October 2022, Reindel filed an interlocutory process in this proceeding, seeking a declaration that the releases in the Baker Agreement do not operate so as to release the claims purported to be released under the agreement and/or an order setting aside the Baker Agreement ab initio.
B.6 Hearing of the Original Application
The Original Application (as amended) was heard by Justice Elliott in November 2022. The Liquidator’s case was supported by Baker but opposed by Reindel and the Investor Parties. In a ruling following the hearing, Elliott J stated that it was necessary for the Liquidator to provide to the Court his legal advice with respect to the relief sought, prior to his Honour making a final determination regarding the Original Application.[9] The Court ordered that the Plaintiffs file any affidavit evidence on which they seek to rely in respect of legal advice obtained by the Liquidator on a confidential basis by a set date, which was subsequently extended, and the proceeding was adjourned part heard.[10]
[9]Re Windsor Development Co, [2]-[5] (Elliott J).
[10]Orders made in this proceeding on 9 December 2022 by Elliott J. The Investor Parties argued that the proceeding was not adjourned part heard. I address this further below.
No affidavit evidence in respect of legal advice was filed by the Plaintiffs at that time.
B.7 Further negotiations involving Baker and Reindel
After the hearing of the Original Application, Reindel and Baker approached the Liquidator with a joint offer in respect of potential claims against them. Discussions between those parties ensued.
In January 2023, the Liquidator (in his capacity as Liquidator of the Company), Reindel, and Baker exchanged a non-binding heads of agreement (HOA) to negotiate a new set of agreements with respect to various claims. The HOA relates to proposed agreements between combinations of the Liquidator parties (being the Company in its own capacity and as trustee for the Trust and the Liquidator), the Reindel parties (being Reindel, Blizzard Winds (in its own capacity and as trustee for a Reindel family trust), Mondrian, and Runhardt), and the Baker parties (being Baker, AB Property and Macfarlane).
The upshot of the HOA was that the Company’s and Liquidator’s claims against Reindel, Baker and their respective related entities would be released; Baker, Reindel and their respective related entities would make two payments totalling $1.1 million to the Liquidator; the Baker Agreement would be rescinded; and Baker and Reindel (and their respective related entities) would settle their claims against each other. The agreements to give effect to this would be negotiated and finalised, and executed by Baker and Reindel (and their respective related entities), but not by the Liquidator or the Company until directions from the Court had been obtained.
The HOA contained the following terms:
(a)Any settlement is subject to:
(i)the Liquidator parties obtaining a direction from the Court pursuant to s 90 of the IPS that the Liquidator is acting reasonably and is justified in entering into a deed of settlement and release with the Reindel and Baker parties (HOA Deed A), and the Liquidator parties entering into the HOA Deed A, as well as a deed terminating the Baker Agreement (HOA Deed B), immediately following the granting of that Court direction;
(ii)the Reindel and Baker parties entering into a deed of release and settlement with each other on terms as set out in the HOA at paragraphs 25 to 33 (HOA Deed C). The Liquidator and the Company were not parties to HOA Deed C.
(b)The Liquidator parties are to obtain advice from counsel and make the application for directions as soon as practicable once the Liquidator parties have received the funding deposit (a defined term explained in greater detail below) and the terms of HOA Deeds A, B and C outlined above have been agreed to by the parties to those respective deeds.
(c)The Baker parties and the Reindel parties will not take any step to oppose the application for directions.
(d)Agreement to be reached on a form of HOA Deeds A and B to be tendered as confidential exhibits by the Liquidator in the application for directions, not to be executed by the Liquidator until the application is granted.
(e)HOA Deed A will be executed by:
(i)the Reindel and Baker parties on agreement as to its terms, and subject to conditions precedent set out in the HOA being met; and
(ii)the Liquidator parties upon the Court granting the application for directions.
(f)HOA Deed B will be executed by:
(i)the Baker parties on agreement as to its terms, and subject to conditions precedent set out in the HOA being met; and
(ii)the Liquidator parties upon the Court granting the application for a direction.
(g)HOA Deed C will be executed by the Baker and Reindel parties on agreement being reached as to its terms and subject to conditions precedent set out in the HOA being met.[11]
[11]The detail regarding HOA Deed C is set out at paragraphs 25 to 33 of the HOA. In brief, they outline payment from Reindel to Baker, mutual releases, and arrangements for releases, withdrawal of caveats, and consent orders with respect to the Reindel and Baker SCV Proceeding and the Caveat Proceeding.
(h)Each party relies on the parties paying their contribution to the deposit and settlement sum under the HOA and the Liquidator parties faithfully seeking counsel’s advice, making the directions application and executing HOA Deeds A and B upon the Court granting that application.
(i)The Baker parties and Reindel parties will make payment into trust of a non-refundable funding deposit of $200,000, comprised of $100,000 by the Reindel parties and $100,000 by the Baker parties, upon the terms of HOA Deeds A, B, and C being agreed.
(j)The order of application of the funding deposit will be first towards the Liquidator’s costs of the application, next to satisfy any adverse costs orders in the application, and third, to be retained by the Liquidator parties and applied as they see fit, unless counsel’s advice does not support the application or the Liquidator does not make the application. In either of those two circumstances, the funding deposit is to be paid towards the cost of obtaining the counsel advice and the residue returned to the Baker and Reindel parties.
(k)The Reindel parties will make payment into trust of the settlement sum of $900,000 upon the terms of HOA Deeds A, B, and C being agreed, to be held on trust pending the outcome of the application for directions. The settlement sum is to be paid by the Reindel parties, in addition to their contribution of $100,000 to the funding deposit, described above.
(l)The relevant parties will consent to interim orders:
(i)in the Reindel and Baker SCV Proceeding and the Caveat Proceeding, for adjournments sine die and the vacation of all outstanding timetabling directions;
(ii)for the adjournment of public examinations and production orders addressed to Reindel, Baker, and their related parties in a Supreme Court proceeding relating to public examinations, bearing proceeding number S ECI 2022 02576 (the Examination Proceeding);
(iii)in this proceeding, for a stay or adjournment of the application for relief in the Original Application pending the outcome of the application for directions;
(iv)in this proceeding, for a stay or adjournment of the interlocutory process brought by Reindel in opposition to the Original Application; and
(v)in this proceeding, for the application for the appointment of the Liquidator as receiver of the property of the Trust and/or orders under the Trustee Act, to proceed with the consent of the Baker and Reindel parties.
(m)Conditions precedent for HOA Deed A, which will be contained in a term of the deed, are that it be subject to the granting of the application for directions, execution of HOA Deed B, and the trust relief being granted. Once satisfied, the settlement sum is to be released to the Liquidator parties and, once that sum is released, mutual releases are operative as to any claims the Company or Liquidator may have against the Reindel parties, any claims regarding costs in any of the proceedings, and any claims arising from the caveats lodged by the Liquidator in respect of properties formerly owned by the Company, and any claims that the Liquidator, Company or Reindel parties have or may have had against each other, whether known or not known.
(n)HOA Deed A will contain a term that mutual releases are to be granted as to any claims the Company or Liquidator may have against the Baker parties, any claims regarding costs in any of the proceedings, any claims arising from the caveats lodged by the Liquidator in respect of properties formerly owned by the Company, and any claims that the Liquidator, Company or Baker parties have or may have had against each other, whether known or not known. The mutual releases in respect of the Baker parties are in consideration for the Baker parties agreeing to terminate the Baker Agreement, contributing to the funding deposit, waiving any claim the Baker parties may have had in respect of the monies paid to the Liquidator under the Baker Agreement, and waiving any right to receive a dividend in respect of the proof of debt lodged by AB Property.
(o)HOA Deed A will contain a term that, on release of the settlement sum, the Liquidator will withdraw the caveats lodged by him.
(p)Subject to HOA Deed A, the Baker and Reindel parties which are Company creditors will prove in the liquidation but waive any right to a dividend and vote in favour of resolutions approving the Liquidator’s remuneration.
(q)Other terms in HOA Deed A are specified in respect of the progress of the Original Application and the Examination Proceeding.
(r)HOA Deed B will contain a term that it is subject to the granting of the application for directions, and the execution of HOA Deeds A and C, and once satisfied, that the Liquidator parties and Baker parties agree that the Baker Agreement be rescinded ab initio.
Following entry into the HOA, negotiations between the relevant parties and their solicitors occurred, with in-principle agreement being reached by the Liquidator, Reindel, and Baker, as to the terms of the three deeds contemplated by the HOA.
The two deeds now involving the Liquidator parties were:
(a)a deed of settlement and release between the Liquidator, the Company, Reindel, and Baker (along with associated entities and relatives of Reindel and Baker), with terms along the lines of HOA Deed A (the 2023 Deed); and
(b)a deed of rescission between the Liquidator, the Company, and Baker, to rescind the Baker Agreement, with terms along the lines of HOA Deed B (the Baker Agreement Deed of Rescission)
(together, the Proposed 2023 Agreement).
As noted above and as contemplated by the HOA, these deeds have not yet been executed by the Liquidator parties. To reiterate, the execution of the Proposed 2023 Agreement is contingent upon the Liquidator receiving legal advice that he would be acting reasonably and would be justified in entering into the 2023 Deed, and on relief from the Court in the form of a direction pursuant to s 90-15 of the IPS.
It is the Proposed 2023 Agreement which is the subject of the Plaintiffs’ current application.
The 2023 Deed include the following conditions precedent (at cl 4):
(a)the execution of the 2023 Deed by the Liquidator parties and the exchange of the 2023 Deed between the Liquidator parties, the Reindel parties, and the Baker parties;
(b)the execution and exchange of the Baker Agreement Deed of Rescission by the Liquidator parties and the Baker parties; and
(c)the appointment of the Liquidator as receiver of the property of the Trust and/or for orders under the Trustee Act that the Company be conferred with any powers necessary to deal with the property of the Trust.
Provisions of the 2023 Deed which clarify aspects of the HOA or are different to the HOA include the following:
(a)Clause 6, regarding the non-refundable ‘Funding Deposit’ to be paid by the Baker and Reindel parties to be applied first towards the Liquidator’s costs of the application for a direction, secondly to satisfy any adverse costs order in that application against the Liquidator parties, and thirdly (should any balance remain), as property of the Company in the winding up.
(b)Clause 10, regarding action available on default of any party to the 2023 Deed (including the ability of parties to commence proceedings to secure a judgment against Reindel in favour of the Liquidator parties for the Settlement Sum, should Reindel fail to pay it, and for specific performance and indemnity costs in respect of other events of default by the parties).
(c)Clause 11, providing for agreement of the parties that the releases in clause 9 may be pleaded as a bar to any action, suit or proceeding regarding the claims released under the 2023 Deed, a covenant not to bring any action suit or proceeding based on the released claims, and clarification that this bar and covenant does not affect the Liquidator’s rights to examine or seek production of documents in the Examination Proceeding, in accordance with the terms of the 2023 Deed.
(d)Clause 12, concerning confidentiality of the terms of the 2023 Deed and permitted disclosures of all parties (in circumstances of prior written consent, to limited groups of persons where necessary to give effect to the 2023 Deed, or where compelled by law) and of the Liquidator (who is able to include the 2023 Deed as a confidential exhibit in the proceeding, to disclose the 2023 Deed to statutory creditors of the Company to ascertain their views on it, and to disclose a redacted version of the 2023 Deed to the legal representatives of the Investor Parties).
As noted above, Annexure B to the 2023 Deed is a table listing the Liquidator’s claims. There is evidence that the Liquidator sought, as part of his consideration process and for the benefit of his counsel when they were preparing the Legal Advice, responses from each of Reindel and Baker as to the claims against them. The Liquidator sought information from them about what their defences to such claims were. By letters dated 4 April 2023, Mills Oakley on behalf of Reindel, Blizzard Winds and Mondrian, and Capstone Koroneos Lawyers on behalf of Baker and MacFarlane separately wrote to the Liquidator’s solicitors. Those letters each set out, in some detail, the positions of those persons in respect of the claims against them. As part of this proceeding, the Investor Parties sought to inspect these two letters. This was initially refused by Reindel and Baker but, ultimately, they agreed to provide copies to the Investor Parties.
The Baker Agreement Deed of Rescission provides for the rescission of the First Baker Deed and Deed of Variation ab initio, upon satisfaction of the following conditions precedent:
(a)the Court granting the direction pursuant to s 90-15;
(b)the execution and exchange of the 2023 Deed by the Liquidator parties, Reindel parties, and Baker parties; and
(c)the execution and exchange of the Reindel/Baker Deed by the Reindel Parties and Baker Parties.
The Baker Agreement Deed of Rescission also provides that, in the event that the conditions precedent are not satisfied (by 1 March 2024 or such later date as agreed by the Liquidator parties, Reindel parties and Baker parties), the rescission set out above does not come into effect and all rights, obligation and terms of the Baker Deed of Rescission which have come into effect shall be rescinded ab initio (cl 4.2).
A draft deed of settlement and release, corresponding to HOA Deed C, was negotiated between Reindel and Baker and concluded on or around 6 March 2023.
B.8 Further negotiations involving the Investor Parties
The Liquidator informed the Investor Parties that a new agreement was being negotiated, partly in order to solicit from them a competing offer with respect to the liquidation of the Company and the resolution of its possible claims.
On 13 February 2023, the Liquidator received a competing proposal from the Investor Parties (the Investor Parties’ Proposal).
The Investor Parties’ Proposal involved the assignment of claims and rights against Reindel, Baker, and their associated entities from the Liquidator and/or the Company to a new entity to be incorporated by the Investor Parties, Roswind Pty Ltd (Roswind), and for that entity to acquire claims and rights to sue conferred on the Liquidator as at that time known and identified.[12] In respect of some claims (such as for breach of directors’ duties or insolvent trading) which the Investor Parties acknowledged could not be assigned, the Investor Parties’ Proposal stated that, ‘[s]ubject to what further investigations may uncover, [the Investor Parties] will want the right to fund any recovery proceedings that the liquidator has standing to bring.’
[12]These claims are described as not limited to (a) property transfers for less than market value to Reindel, Baker or their related entities, (b) unauthorised payments from the Company account to Reindel and his related entities, (c) transactions which indicate that Baker or AB Property received over and above their entitled payments pursuant to agreements with the Company, and any other claims against Reindel, Baker, or their related entities that are uncovered in further forensic investigations to the extent that such claims can be assigned. The claims did not extend to any potential claims against the Investor Parties.
In exchange, the Investor Parties would make a lump sum payment of $1.4 million to the Liquidator. The lump sum payment was proposed to be applied towards the satisfaction of the ATO and SRO as creditors of the Company and the liquidator’s professional fees incurred, including remuneration and legal fees ‘which are to be taxed’. As part of the Investor Parties’ Proposal, the Investor Parties would support the Liquidator’s appointment as receiver and manager of the Trust, whereupon the Liquidator would agree to sell all Trust assets to the Investor Parties (with the consideration being $1 million out of the lump sum payment). The Investor Parties’ Proposal also required the Liquidator to give the Investor Parties access to copies of the books and records of the Company and the Trust.
The Investor Parties’ Proposal was expressed to be conditional on:
(a)the Court’s refusal to approve the Baker Agreement or the Proposed 2023 Agreement;
(b)the appointment of the Liquidator as receiver and manager of the Trust;
(c)the Liquidator warranting that he has not agreed to provide any releases to the Reindel or Baker entities or related parties for Trust claims or compromised any contingent or other claims;
(d)the Liquidator introducing an agreement embodying the Investor Parties’ Proposal into the proceeding by way of an application, presenting it as one of the three options available for the Court’s consideration, supported by legal advice as required by the Court in respect of the Baker Agreement to date; and
(e)any necessary Court approvals or ratification of the agreement embodying the Investor Parties’ Proposal.
The Liquidator conveyed the Investor Parties’ Proposal to Baker and Reindel, with the aim of eliciting a better counter-offer from Baker and Reindel.
The Liquidator also sought clarification from the Investor Parties about aspects of their offer and raised some concerns he had about it. The Liquidator sought to negotiate an indemnity for himself in respect of any claim for breach of the Baker Agreement that might arise from accepting the Investor Parties’ Proposal, however, the Investor Parties did not agree to provide an indemnity.
On 2 March 2023, the Liquidator’s solicitors wrote to the Investor Parties’ solicitors to make or reiterate observations as to inconsistencies or matters in the Investor Parties’ Proposal which required clarification or which concerned him. In this letter, amongst other things, the Liquidator:
(a)noted that the Investor Parties sought a warranty that the Liquidator had not agreed to provide any releases to Baker or Reindel, in circumstances where the Investor Parties were aware of the Baker Agreement which provided for releases of Baker and his related parties. The Liquidator sought clarification of whether this warranty was to include that release or whether it was only in respect of further releases. The Liquidator stated that if the Investor Parties’ condition requiring this warranty included the Baker release contained in the Baker Agreement, then the warranty could not be given and this condition in the offer could not be satisfied;
(b)re-agitated his requirement for an indemnity from the Investor Parties in respect of breaching the Baker Agreement if the Investor Parties’ Proposal was accepted. In this regard, the Liquidator set out a number of arguments in respect of the indemnity, including that:
(i)any agreement is subject to obtaining directions from the Court, which will require counsel’s opinion which will need to address whether the Liquidator is justified and acting reasonable in entering into an agreement along the lines of the Investor Parties’ Proposal;
(ii)an assessment of the reasonableness of the Liquidator’s proposed course of conduct must be carried out in the context of other courses of conduct available to him, which will involve (at the very least), a comparison of the Investor Parties’ Proposal with the Proposed 2023 Agreement;
(iii)in the absence of an indemnity, acceptance of the Investor Parties’ Proposal involves the Liquidator exposing himself to a claim by Baker for breach of the Baker Agreement, whereas acceptance of the Proposed 2023 Agreement does not;
(iv)in those circumstances, the true value of the Investor Parties’ Proposal is equal to the amount of consideration received by the Liquidator less his liability to Baker for breach of the agreement with him; and
(v)in circumstances where the Liquidator’s liability to Baker may be equal to the value of the releases from which Baker would have benefited, and the value of the claims against Reindel (of which Baker would have taken an assignment), the true value of the Investor Parties’ Proposal is likely to be substantially discounted;
(c)stated that the offer was not presently capable of acceptance;
(d)noted that there is no time for acceptance and asked how long it was open for;
(e)noted inconsistencies in the terms of the offer:
(i)the Investor Parties were purporting to purchase all Trust assets, but then referred to assets of the Trust remaining with the Liquidator; and
(ii)there was reference to an assignment of rights which appeared interchangeable with a purchase of Trust assets;
(f)noted a vague reference to the Investor Parties being ‘minded to consider, subject to further discussions, additional payments to satisfy any other creditors still owing at the time.’ The Liquidator requested clarity about this, stating that if further funds were to be paid by the Investor Parties then it would impact the value of the offer;
(g)stated that the condition that the Investor Parties would want the right to fund any recovery proceedings was vague, and asked whether they intended that some funding arrangement would be included in any documentation of the offer and, if so, what the proposed terms of that arrangement would be;
(h)sought clarification of what was proposed by ‘the liquidator’s professional fees incurred (including legal fees, which are to be taxed)’ meant, in particular:
(i)were the Liquidator’s fees (ie remuneration) to be subject to a taxation, or some other review;
(ii)were legal fees incurred throughout the liquidation to date to be taxed, or only in respect of this proceeding; and
(iii)how the costs of undertaking a taxation or some other review of the Liquidator’s remuneration and legal fees were to be treated in terms of this requirement;
(i)sought clarification as to whether:
(i)the payment of $1.4 million, which they had already clarified would be paid within 10 business days, was within 10 business days of execution of a mutually agreeable deed or satisfaction of the conditions contained in the offer;
(ii)the statement that causes of action against the Investor Parties’ unitholding entities will remain with the receiver/manager of the Trust involved the individuals being released from any causes of action the Company has against them and, if not, were those claims to be part of the Trust assets to be purchased by Roswind;
(iii)any part of the consideration was repayable if the conditions precedent (eg obtaining court orders) could not be satisfied; and
(j)referred to a confusion regarding whether the Investor Parties’ Proposal had been intended as an open offer or a confidential and/or without prejudice offer. The Liquidator stated that further communications regarding the Investor Parties’ Proposal would be kept confidential unless marked as open.
On 17 March 2023, the Investor Parties’ representatives wrote to the Liquidator’s representatives in reply to the letter dated 2 March 2023. The letter further clarified the Investor Parties’ Proposal, as follows:
(a)Regarding review/taxation of the Liquidator’s remuneration and legal costs:
It is proposed that all the professional costs incurred in the liquidation be taxed/reviewed. The necessity of undertaking a taxation or review would depend firstly on whether the parties can meet the appropriate test to avoid a taxable bill under Chapter 5 of the Supreme Court (Corporations Rules) 2018. There are, as you would appreciate, steps required to have this assessed and given that your client will have to apply for approval of remuneration, the costs of this exercise should, in our view, be reserved for later.
(b)The warranty sought from the Liquidator would include that he had not provided any releases to Baker and his related parties. The Investor Parties were prepared to carve out the Baker release in the Baker Agreement, but this would fall away if their proposal was accepted by the Court over the Baker Agreement or a new proposal from Baker and Reindel.
(c)The Investor Parties also confirmed that they would not provide the Liquidator with an indemnity with respect to breach of the Baker Agreement, and that they did not agree that the lack of indemnity was a matter which substantially discounted the value of the Investor Parties’ Proposal.
(d)Their offer was open for as long as the parties were able and willing to negotiate, with a view to agreeing on a final form of a deed.
(e)The Investor Parties would acquire all of the Liquidator’s rights apart from those which cannot under statute be assigned, and once the Liquidator was appointed as receiver and manager of the Trust, all assets of the Trust would be the subject of a separate asset sale and rights deed with Roswind.
(f)In respect of the query referred to at paragraph 55(f) above, this was no more than an indication that the Investor Parties were prepared to consider additional payments to creditors that may still be owing should there be successful recoveries in litigation in excess of the costs/entitlements of Roswind and the unitholders, all of which was speculative;
(g)In respect of the query referred to at paragraph 55(g) above, the Investor Parties want the right to fund further recovery proceedings on behalf of the Liquidator for causes of action which cannot be assigned, should investigations uncover further claims. The Investor Parties do not intend for a specific or separate funding offer to be included in the deed, and the $1.4 million lump sum payment is in full consideration for that right.
(h)The lump sum payment would be paid within 10 business days of the conditions of the offer being met, Court approval, execution of the deed, and the subsequent asset sale and rights deed being executed or agreed to in writing.
B.9 The Liquidator’s further amendment of his originating process
In May 2023, the Liquidator obtained a memorandum of legal advice in respect of the Baker Agreement, the Proposed 2023 Agreement and Investor Parties’ Proposal (Legal Advice).[13] Following receipt of that Legal Advice, the Liquidator and the Company applied to the Court for leave to amend their originating process to include a further application, which I detail at paragraph 62 below.
[13]The Legal Advice is that referred to in paragraph 6 of the Seventh Gollant Affidavit (defined below).
I granted the Plaintiffs’ application for leave to amend on 12 July 2023. At that time, I indicated that it would be necessary for the Court to receive a copy of the Legal Advice, in order to consider that further application. Pursuant to those orders, on 13 July 2023, the Plaintiffs filed the further amended originating process (FAOP).
The Investor Parties filed an interlocutory process in the proceeding on 29 November 2023 (Investor Parties’ IP). The Investor Parties’ IP is detailed below at paragraph 63.
On 5 February 2024, I made further procedural orders:
(a)extending the time for compliance with Order 1 of the Orders of Elliott J on 9 December 2022, requiring the Plaintiffs to file any affidavits on which they seek to rely in respect of instructions given and legal advice sought by the Liquidator, materials and information provided by him in connection to advice sought, advice obtained by the Liquidator and reliance on all, or any part of, the legal advice (Advice Affidavit);
(b)reserving the question of whether the Court will take account of the Advice Affidavit to when the Court considers and gives its reasons for decision on the FAOP and the Investor Parties’ IP; and
(c)directing that the Plaintiffs provide to my Chambers a copy of a supplemental memorandum of advice referred to in the 11th Gollant Affidavit (defined in paragraph 71 below) (the Supplemental Advice) on a confidential basis and without waiving privilege, in accordance with the principles set out in Vickers v Australian Securities and Investments Commission.[14]
[14][2011] FCA 1028; (2011) 196 FCR 479 (Gordon J) (Vickers v ASIC).
Copies of the Legal Advice and the Supplemental Advice have been provided to my Chambers on a confidential basis. The Advice Affidavit (sworn by the Liquidator on 6 February 2024) was also provided to my Chambers on a confidential basis.[15]
[15]All of these were provided following the procedure set out in Vickers v ASIC, [48].
C Present applications
By their FAOP, the Plaintiffs relevantly seek:
(a)in relation to the agreements with Baker and Reindel, and with Baker:
(i)a direction pursuant to s 90-15 of the IPS, that the Liquidator, as liquidator of the Company, is acting reasonably and is justified in entering into the Proposed 2023 Agreement (the Primary Relief), a deed of settlement and release between the Liquidator, the Company, Reindel, and Baker (along with associated entities and relatives of Reindel and Baker), with terms along the lines of HOA Deed A (the 2023 Deed); and
(ii)in the alternative and absent such direction, approval pursuant to s 477(2B) of the Corporations Act, for the Liquidator to enter into the Baker Agreement (the Secondary Relief);[16] and
[16]The Plaintiffs also sought in the FAOP that this application for Secondary Relief be stayed or adjourned pending determination of the application for Primary Relief, however, the filing of the Investor Parties’ IP meant that this part of the application effectively fell away; in the event I did not grant the Primary Relief as sought by the Plaintiffs, the application for Secondary Relief was to be determined.
(b)various ancillary orders, such as orders to facilitate the assignment and/or releases under the Proposed 2023 Agreement or the Baker Agreement and to wind up the Trust, being:
(i)Trustee Orders, being:
(A)an order pursuant to s 63 of the Trustee Act conferring on the Company the necessary powers to wind up the Trust (including, inter alia, powers to carry on the business of the Trust, sell Trust assets, pay creditors of the Trust, and compromise claims against the Company in its capacity as trustee or against Trust property), with such order to be expressed nunc pro tunc in the event that the Court opts to provide the Secondary Relief;
(B)orders pursuant to s 90-15 and/or s 90-20 of the IPS, that the Liquidator is:
(1)able to rely on his statutory powers as liquidator pursuant to s 477 of the Corporations Act to take all necessary steps to wind up the Trust; and
(2)justified in paying from Trust property creditors of the Trust and his own costs, expenses and remuneration in respect of his work as liquidator or receiver of the Trust assets;
(ii)Receivership Orders, being:
(A)an order pursuant to s 37 of the SCA and/or r 39.02 of the SCR appointing the Liquidator without security as receiver and manager of the Trust;
(B)an order dispensing with the need for the receiver to file a guarantee under r 39.05 of the SCR;
(C)an order that the receiver is authorised to have possession of, call in, preserve, maintain and sell the assets comprising the Trust property;
(D)an order providing the receiver with powers:
(1)to do all things necessary or convenient to effect the sale or realisation of the Trust property, with the powers that a liquidator has in respect of property of a company pursuant to s 477(2) of the Corporations Act;
(2)to apply the proceeds from the sale or realisation of Trust property to discharge the liabilities of the Second Plaintiff (all of which were incurred by it in its capacity as trustee) in accordance with the priorities set out in s 556 of the Corporations Act; and
(3)to distribute any surplus proceeds from the sale of the Trust property to a new trustee of the Trust or, if there is no new trustee, to the unitholders of the Trust,
(together, the Facilitative Relief).
The combination of ancillary orders sought by the Plaintiffs, as set out in sub‑paragraph 62(b) depends on whether the Court is minded to grant the Primary Relief, Secondary Relief, or the alternative relief sought by the Investor Parties. Specifically, in the event that:
(a)the Court grants the Primary Relief, the Plaintiffs seek orders to facilitate the releases contemplated in the Proposed 2023 Agreement, being either:
(i)orders pursuant to s 63 of the Trustee Act and ss 90-15 and 90-20 of the IPS, that is, the Trustee Orders; or
(ii)orders pursuant to s 37 of the SCA and/or r 39.02 of the SCR appointing the Liquidator as receiver of the assets of the Trust, that is, the Receivership Orders;
(b)the Court grants the Secondary Relief, the Plaintiffs seek both the Trustee Orders and the Receivership Orders, on a nunc pro tunc basis, because giving effect to the Secondary Relief involves actions which have already been taken, whereas the Primary Relief does not; or
(c)the Court grants the alternative relief sought by the Investor Parties’ IP, the Plaintiffs press their application for ancillary Facilitative Relief, but accept that the appropriate form of this relief could depend on the Court’s findings.
In the event that the Court does not grant the Primary Relief or Secondary Relief sought by the Plaintiffs in the FAOP, the Investor Parties seek by the Investor Parties’ IP:[17]
(a)declarations and orders pursuant to s 90-15 of the IPS and/or the Court’s inherent jurisdiction, that the releases in clause 2 of the Baker Agreement are not enforceable, or alternatively, ought to be set aside ab initio (the Baker Deed Relief); and
(b)orders:
(i)that a person to be nominated by the Investor Parties be appointed as trustee of the Trust (pursuant to s 48(1) of the Trustee Act and that the Trust property and assets be vested solely in that trustee; or
(ii)alternatively, that a person to be nominated by the Investor Parties be appointed, pursuant to s 37 of the SCA and/or r 39.02 of the SCR, without security, as receiver and manager of the Trust; and
(iii)ancillary orders, such as orders allowing the receiver to have possession of, call in, preserve, maintain and sell the assets comprising the Trust property, and empowering the receiver to do all things necessary or convenient to effect the sale or realisation of the Trust property,
(the Alternative Appointment Relief).
[17]Two additional matters were raised in the Investor Parties’ IP. The first of those matters was that the Investor Parties had sought the production of letters over which Reindel and Baker claimed confidentiality. This matter was resolved between those interested parties. Secondly, the Investor Parties sought the production of the Legal Advice. I heard from the parties in respect of the production of the Legal Advice to the Investor Parties on 14 December 2023. At that time, I declined to order the production of the Legal Advice and ordered that the Investor Parties pay the Plaintiffs’ costs of an incidental to this paragraph of the Investor Parties’ IP (see Order of Matthews J in Re Windsor Development Co Pty Ltd (in liq) (Supreme Court of Victoria, S ECI 2022 00106, 14 December 2023) and Transcript of Proceedings, Re Windsor Development Co Pty Ltd (in liq) (Supreme Court of Victoria, S ECI 2022 00106, Matthews J, 14 December 2023).
Due to the way that the FAOP is framed, the Plaintiffs’ Primary Relief claim falls to be determined first. Should I refuse to grant the Primary Relief, I must decide on the Secondary Relief application.
The Investor Parties clarify in their submissions that the Baker Deed Relief and the Alternative Appointment Relief are sought in the event that the Plaintiffs fail in respect of their Primary Relief and Secondary Relief. This path is consistent with the way in which the Investor Parties’ IP was expressed; they seek the relief described at paragraph 64 above in the event that the Court does not grant the Plaintiffs’ FAOP.
The Investor Parties seek that one aspect of the determination of the Alternative Appointment Relief be stood over until the determination of the Plaintiffs’ Primary and Secondary Relief. The person nominated by the Investor Parties to be appointed as trustee and/or receiver of the Trust is, as the Plaintiffs point out, not able to be appointed to the role of receiver as he is not a registered liquidator.[18] The Investor Parties accept this and say that if the Court decides not to grant any of the Primary, Secondary or Facilitative Relief, then the question of who would be appointed receiver under the Investor Parties’ IP would be determined later. The Plaintiffs do not cavil with this.
[18]By operation of s 418 of the Corporations Act.
D Key questions for determination
The questions before me can be distilled as follows:
(a)Should the Primary Relief be granted?
(b)If yes to (a), should the Facilitative Relief be granted?
(c)If no to (a), should the Secondary Relief be granted?
(d)If yes to (c), should the Facilitative Relief be granted?
(e)If no to (a) and (c), should the Facilitative Relief be granted?
(f)If no to (a), (c), (d) and (e), should the Baker Deed Relief and the Alternative Appointment Relief be granted?
Depending on the answers, some of these questions may not need to be addressed.
E Evidence
The evidence before me in this proceeding was aptly described by counsel for the Plaintiffs as a ‘thicket’. In total, 28 affidavits were filed by the parties. Thirteen of those affidavits were filed in respect of the Original Application.
In the proceeding, the Plaintiffs filed the following affidavits:
(a)twelve affidavits of Gollant, namely:
(i)an affidavit of sworn on 17 January 2022 (First Gollant Affidavit);
(ii)a confidential affidavit sworn on 17 January 2022;[19]
(iii)affidavits sworn on 26 July 2022, 9 September 2022 (Fourth Gollant Affidavit), 18 October 2022 (Fifth Gollant Affidavit), 8 November 2022, 31 May 2023 (Seventh Gollant Affidavit), 31 May 2023 (Eighth Gollant Affidavit), 6 December 2023, 25 January 2024 and 3 February 2024 (11th Gollant Affidavit);[20] and
(iv)the confidential Advice Affidavit, sworn on 6 February 2024.
(b)three affidavits of Cassie Ann O’Bryan (a solicitor at Gadens acting for the Plaintiffs), sworn on 23 February 2022, 7 June 2022, and 1 February 2024.[21]
[19]As at the time of trial, a claim for confidentiality over this affidavit was no longer pressed except in relation to certain parts of the exhibit to that affidavit.
[20]Counsel for the Plaintiffs confirmed during the hearing that prior claims for confidentiality were not pressed in respect of the Fourth Gollant Affidavit, the Fifth Gollant Affidavit and the Eighth Gollant Affidavit.
[21]Confidentiality claims over the affidavit of Ms O’Bryan sworn on 23 February 2022 were not pressed by counsel for the Plaintiffs, however, confidentiality over certain of the exhibits to the other two affidavits of Ms O’Bryan Affidavit were maintained.
In respect of the Secondary Relief, the Plaintiffs rely on the evidence adduced before Elliott J at the hearing in November 2022, in addition to the Advice Affidavit. This evidence is also relied upon in respect of the Primary Relief, insofar as it provides relevant background information (such as to the qualifications and experience of the Liquidator and investigation conducted into the affairs of the Company) and additionally because the Liquidator considered the advice as to the Proposed 2023 Agreement in the context of the Baker Agreement. Accordingly, the materials relied on in respect of the Secondary Relief may also be relevant to the application for the Primary Relief. The materials before Elliott J are also relied on for the Facilitative Relief.
In the proceeding, Reindel filed:
(a)confidential affidavits of Reindel affirmed on 14 April 2022 and 28 September 2022; and
(b)an affidavit of David Leslie Jaffe (an accountant who was engaged by Reindel to provide accountancy services to the Company and is the director and principal of Jaffe Lee) affirmed on 14 April 2022.
While Reindel opposed the Original Application, he has subsequently changed his position and no longer opposes the Secondary Relief. In his support of the Primary Relief, Reindel relies on his written submissions dated 27 October 2023, reply submissions dated 11 December 2023, and submissions in opposition to the Investor Parties’ IP dated 2 February 2024.
Baker filed an affidavit sworn by him on 13 May 2022.
The Investor Parties filed the following affidavits:
(a)an affidavit of Vincent Murone sworn on 9 September 2022;
(b)affidavits sworn by Matthew Thomsen (a solicitor at Dominic Esposito Solicitors acting for the Investor Parties), on 14 June 2023 and 6 July 2023;
(c)affidavits sworn by Dominic Esposito (principal solicitor at Dominic Esposito Solicitors), on 19 September 2023, 27 September 2023, 30 November 2023 (Third Esposito Affidavit), and 17 January 2024;
(d)an affidavit of John McKenzie (an accountant for the Investor Parties) sworn on 19 September 2023; and
(e)an affidavit of Michael Pianta (a solicitor at Dominic Esposito Solicitors) sworn on 18 January 2024.
The parties also rely on documentary evidence received by Justice Elliott and contained within the application book prepared for the hearing before his Honour, as well as oral evidence given during that hearing, from Reindel and the Liquidator. Transcripts of that evidence are included in the application book.
At the trial in February 2024, the Liquidator was cross-examined.
I found the Liquidator to be an honest witness. He answered questions openly and directly, and consistently with the contemporaneous documentary material.
As will be appreciated from the list of affidavits, the evidence is voluminous. I do not intend to summarise it here. The key background facts, much of which are not in dispute, are set out earlier in these reasons. Where necessary, I will refer to other or more detailed aspects of the evidence below.
F Relevant law in respect of the Primary Relief
F.1 Statutory provisions
Section 90-15 of the IPS provides:
Court may make orders
(1) The Court may make such orders as it thinks fit in relation to the external administration of a company.
Orders on own initiative or on application
(2) The Court may exercise the power under subsection (1):
(a) on its own initiative, during proceedings before the Court; or
(b) on application under section 90‑20.
Examples of orders that may be made
(3) Without limiting subsection (1), those orders may include any one or more of the following:
(a) an order determining any question arising in the external administration of the company;
(b) an order that a person cease to be the external administrator of the company;
(c) an order that another registered liquidator be appointed as the external administrator of the company;
(d) an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company;
(e) an order in relation to any loss that the company has sustained because of a breach of duty by the external administrator;
(f) an order in relation to remuneration, including an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company.
Matters that may be taken into account
(4) Without limiting the matters which the Court may take into account when making orders, the Court may take into account:
(a) whether the liquidator has faithfully performed, or is faithfully performing, the liquidator’s duties; and
(b) whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and
(c) whether an action or failure to act by the liquidator is in compliance with an order of the Court; and
(d) whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and
(e) the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.
Costs orders
(5) Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include an order that:
(a) the external administrator or another person is personally liable for some or all of those costs; and
(b) the external administrator or another person is not entitled to be reimbursed by the company or its creditors in relation to some or all of those costs.
Orders to make good loss sustained because of a breach of duty
(6) Without limiting subsection (1), an order mentioned in paragraph (3)(e) in relation to a loss may include an order that:
(a) the external administrator is personally liable to make good some or all of the loss; and
(b) the external administrator is not entitled to be reimbursed by the company or creditors in relation to the amount made good.
Section does not limit Court’s powers
(7) This section does not limit the Court’s powers under any other provision of this Act, or under any other law.
Section 90-20 of the IPS clarifies which persons may apply for an order under s 90-15. The Liquidator is such a person.
F.2 Applicable principles
The principles with respect to judicial directions have been expounded in a number of decisions and are summarised in brief below.
The power conferred on the Court by s 90–15 of the IPS is broad and is indeed more extensive than the powers which were formerly available under ss 479(3) and 511 of the Corporations Act.[22] The principles which applied to the exercise of the powers under those prior provisions inform the exercise of the power under s 90-15, at least insofar as it concerns a direction sought by an external administrator.[23]
[22]See, for example, Re Mandeville Group Pty Ltd (In Liq) [2020] VSC 293, [140] (Sloss J) (Re Mandeville Group), One T Development Pty Ltd v Peter Krejci in his capacity as liquidator of ENA Development Pty Ltd [2023] NSWCA 120, [33]-[34] (Ward P, Leeming and Mitchelmore JJA) (One T Development), Re Murray & Roberts Pty Ltd (administrators appointed) [2022] FCA 1506, [81] (Banks-Smith J).
[23]See, for example, Re Hawden Property Group Pty Ltd (In Liq) (2018) 125 ACSR 355,[7]-[8] (Gleeson JA) (Re Hawden Property Group).
A liquidator is clearly a person who may apply for directions under s 90–15.[24]
[24]See section 90–20(1)(d) of the IPS and the definition of ‘officer’ in s 9 of the Corporations Act.
The authorities require that judicial directions sought under s 90-15 of the IPS ‘must be just and beneficial to the liquidation or administration’,[25] in other words, the directions must be of advantage in the liquidation.[26]
[25]El-Saafin & Anor v Franek & Ors (No 2) [2018] VSC 683, [111] (Lyons J) (El-Saafin (No 2)).
[26]Lewis v LG Electronics Australia Pty Ltd (2016) VR 450, [70] (Sifris J) (Lewis).
Courts will not make orders merely because a liquidator ’wants reassurance about a commercial decision; some such issue as a question of law or procedure, of power, propriety or reasonableness, is required to justify approaching the court for directions’.[27]
[27]Re AWA Ltd (administrators appointed) (receivers and managers appointed) [2014] NSWSC 249, [14] (Brereton J) (Re AWA Ltd), citing Re Ansett Australia Limited and Korda (2002) 115 FCR 409, [65] (Goldberg J) (Re Ansett and Korda).
There must be something more at stake than the making of a business or commercial decision before a court will give directions in relation to a liquidator’s decision.[28] As noted by the Court of Appeal in Re McDermott and Potts (in their capacities as joint and several liquidators of Lonnex Pty Ltd (in liq)) (ACN 097 786 751):[29]
Courts recognise that they are generally unqualified and ill-equipped to make or approve of business and commercial decisions. Thus, courts are loath to interfere with the commercial judgment of liquidators on matters within their powers, and will not give directions to liquidators on such matters where no issue arises in relation to a legal matter or in relation to the propriety or reasonableness of the decision. This does not inhibit courts from giving directions to liquidators in relation to the compromise of legal proceedings. The compromise of legal proceedings invariably raises legal issues, although it also usually requires the exercise of commercial judgment. As will be seen, liquidators often seek directions concerning the compromise of legal proceedings, and the courts give such directions when persuaded it is appropriate to do so.
[28]Re Ansett and Korda, [65].
[29][2019] VSCA 23, [65] (Whelan AP, McLeish and Hargrave JJA) (Re McDermott and Potts).
The courts have also found applications by a liquidator to be justified where there are two competing offers before a liquidator and the liquidator seeks the direction to avoid a subsequent allegation that they have acted improperly in choosing one option over the other.[30] It is sufficient that there is a mere prospect of an attack on the propriety of the decision.[31]
[30]Re AWA Ltd, [14]-[15] (Brereton J), citing Re Ansett and Korda, [65] (Goldberg J) and Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115, 117 (Young J).
[31]Re 7 Steel Distribution Pty Ltd (in liq) (recs and mgrs apptd) [2013] NSWSC 669, [20] (Black J) (Re 7 Steel Distribution).
The court’s function is not to reconsider every factor that has informed a liquidator’s decision, to develop alternatives, or to decide whether it would have made the same decision.[32] However, before making a direction, the court must be satisfied that the decision is proper and reasonable.[33] This will usually require consideration of the liquidator’s reasons and the process by which they reached their decision.[34] The liquidator seeking directions under s 90-15 bears the onus of proof in relation to the matters said to justify the making of the direction sought.[35]
[32]Re One.Tel Ltd and Others (2014) 99 ACSR 247, [36] (Brereton J) (Re One.Tel).
[33]Re One.Tel, [36] (Brereton J).
[34]Re One.Tel, [36] (Brereton J).
[35]In the matter of ACN 091 518 302 Pty Ltd (In Liquidation) (formerly Pinnacle Investments Pty Ltd) [2019] VSC 699, [185] (Connock J) (ACN 091 518 302), citing Re ACN 096 281 542 Ltd (In Liq) [2018] VSC 425, [6] (Randall AsJ).
Directions are not given in respect of a liquidator’s past acts.[36] The jurisdiction is concerned with affording protection in connection with proposed future action, not with ratifying action already taken.[37] Retrospective exoneration must be sought via alternative remedies.[38]
[36]Re Octaviar Ltd (in liq) [2016] NSWSC 16, [14] (Brereton J).
[37]Re One.Tel, [55] (Brereton J).
[38]For example, via ss 1318(2) and 1322(4) of the Corporations Act.
Because a direction will have the effect of exonerating a liquidator from personal liability, the cases suggest the court will require positive persuasion that the decision of the liquidator is a proper one before making a direction.[39] It is expected that the liquidator will make full and fair disclosure of the material facts when seeking an order in the nature of judicial advice.[40]
[39]Re McDermott and Potts, [92] (Whelan AP, McLeish JA, and Hargrave JA).
[40]McCabe, in the matter of McCabe his capacity as deed administrator of Comlek Group Pty Ltd [2023] FCA 1415, [24] (Cheeseman J), citing Hill, in the matter of Autocare Services Pty Ltd (administrators appointed) [2021] FCA 167, [43] (Farrell J).
As far as I am aware, no proceeding had yet been commenced by the Liquidator against Baker, Reindel and their related parties. Absent an agreement with them such as the Proposed 2023 Agreement, the Liquidator was a long way off achieving a resolution of the Plaintiffs’ claims against them, and he was without funding to do so. A long and uncertain path therefore awaited him. Now the Investor Parties argue that he had an alternative in the Investor Parties’ Proposal. However, that too involved a long and uncertain path, and was not worth a great deal more in dollar terms (unless further recovery action subsequently ensued). More importantly, the Investor Parties’ Proposal carried increased levels of risk for the Liquidator given he would have had to renege on the Baker Agreement in order to accept it. This risk was manifest, in that Baker had already threatened to sue the Liquidator if he did so. Accepting the Investor Parties’ Proposal in those circumstances was also potentially costly, given that the Liquidator would incur legal costs defending Baker’s proceeding, together with a risk of an adverse costs order and a damages award if Baker was successful. Even if Baker was not successful in the long run, it would still be a significant cost for the Liquidator and in the liquidation, which could result in a possible diminution of amounts available to creditors and investors.
In my view, in those circumstances the Liquidator was acting properly and reasonably when he ascribed considerable weight to the Investor Parties’ refusal to indemnify him in respect of those risks when comparing the offers. Much time before me was spent in argument about whether the releases in the Baker Agreement were operative, along with a trustee’s right of indemnity for actions taken without power as a bare trustee, including the matters discussed in Break Fast. These matters all go to whether or not the Liquidator was justified in placing the emphasis he did on an indemnity from the Investor Parties should he accept their proposal. None of these matters were straightforward or productive of a simple answer. Ironically, the argument before me on this topic is illustrative of the risks this issue posed for the Liquidator, suggesting that he was justified in concentrating on it. For the sake of completeness, I should note that while the evidence before me shows that the Liquidator regarded the lack of an indemnity as particularly important, I do not accept the Investor Parties’ contention that this was all he took into account. It is readily apparent from the correspondence between the Liquidator and the Investor Parties that several matters concerning the Investor Parties’ Proposal were taken into account.[95] The Liquidator had a great deal of certainty about the terms of the deal with Reindel and Baker, given the existence of the HOA and the drafting of HOA Deeds A and B. The Liquidator sought greater certainty as to the terms of the Investor Parties’ Proposal, but was left unsatisfied as to those, both in terms of clarification and whether they were acceptable to him.
[95]This correspondence is set out in detail earlier in these reasons.
Accordingly, the compromise of the Plaintiffs’ claims against Baker and Reindel, and their related parties, for the settlement sum to be paid by them (together with the deposit) via entry into the Proposed 2023 Agreement, is a course that is proper and justifiable for the Liquidator to take.
There are two further matters I should address before turning to the Facilitative Relief, being:
(a)the question of the effect of granting the Primary Relief on the Investor Parties’ Proceeding; and
(b)the impact of an ‘open offer’ by the Investor Parties.
The relevance of the Investor Parties’ Proposal to the application before me appeared to be twofold. First, it was said to be an action capable of producing a better result for creditors and investors than the Proposed 2023 Agreement, which relates to the question of the appropriateness of that agreement being entered into and approved by the Court. Secondly, it was said that granting the Primary Relief would have a deleterious effect on the Investor Parties as it would extinguish their proceeding. The issues raised by the first of these have been considered and dealt with above, by considering whether the Liquidator is justified in entering into the Proposed 2023 Agreement rather than accepting the Investor Parties’ Proposal.
Much of the discussion of the principles regarding instances where beneficiaries of a trust have rights of action against the trustee, in particular instances where beneficiaries can institute proceedings against a trust debtor or to recover trust property in the beneficiaries’ own names or in the name of the trustee, seemed to concern whether the Investor Parties were justified in initiating their proceeding, or whether they were likely to obtain leave to bring the action in the name of the trustee, or whether their proceeding would ultimately succeed. There can be no doubt that, in the Investor Parties’ Proceeding, the Investor Parties would have to establish that the trustee was refusing or was unable to take action and that there were special or exceptional circumstances. The test they would be required to meet has two elements: the trustee’s refusal or inability to take action; and the presence of special or exceptional circumstances.[96] Whatever may have been the case at the time the Investor Parties’ Proceeding was commenced, there can be no sensible suggestion now that the Liquidator is refusing or is unable to take steps to recover Trust property, since he seeks the Primary and Facilitative Relief so as to enable him to realise the assets of the Trust through entry into the Proposed 2023 Agreement. Whether special or exceptional circumstances existed then, or exist now, is not a matter for me to determine but, where the Liquidator is actively seeking to deal with the trustee’s claims, it may not be easy for the Investor Parties to pass the required threshold.
[96]Deutsch, [40] (Hargrave J).
I accept that granting the Primary Relief may impact substantially upon the claims the Investor Parties can successfully make in the Investor Parties’ Proceeding. It may also leave the Investor Parties exposed in respect of their undertaking as to damages. I have taken these matters into account, whether they are covered by s 90-15(4)(d) of the IPS or not. I am not particularly persuaded that these circumstances fall within s 90-15(4)(d), as the notion that the alleged loss or damage the Investor Parties may suffer was caused by an action or failure to act by the Liquidator was under-developed. On this point, I accept the Plaintiffs’ submissions as to how s 90-15(4) is to be regarded: it lists matters I may take into account when making orders or directions under s 90-15, but it does not mandate consideration of one or all of those matters or fetter my discretion. Nonetheless, I consider this matter to be validly raised by the Investor Parties and I have given due consideration to it.
However, I do not consider this to be a sufficient reason to refuse the Primary Relief. The Liquidator has a duty to realise the assets of the Company and to conduct the liquidation of the Company, which may include pursuing statutory recovery actions. Where the Company is a trustee, this may also involve recovering Trust property, even if the Company has been reduced to the status of bare trustee and a new trustee has not been appointed. The Liquidator taking the steps that he has, including initiating the current application for Primary and Facilitative Relief, is part of that process. A compromise of the Company’s (ie the trustee’s) claims against Baker, Reindel and their related entities for valuable consideration is one way of recovering Trust property. Approving the Liquidator’s entry into that compromise (ie the Primary Relief) and making orders providing the machinery for him to do so (ie the Facilitative Relief) would mean that the trustee’s claims against Baker, Reindel and their related entities would be released. That may well have the effect of meaning that other persons are unable to pursue those claims, but there is nothing surprising or unorthodox about that.
The Investor Parties chose to initiate their proceeding, seek interlocutory injunctive relief, and give an undertaking as to damages. The outcome of that process is not certain and involves risks and the potential for loss. While granting the Primary Relief and the Facilitative Relief may leave the Investor Parties exposed to potential loss or damage in this regard, I am not persuaded that I should refuse that relief.
I turn now to the second matter referred to above, being the impact of an open offer made by the Investor Parties.
The Investor Parties submitted that the question before the Court is not a contest between the offers in front of the Liquidator. They said that the evidence about the offer of the Investor Parties is just to show what was available in February/March 2023 when the Liquidator was deciding which course to adopt and that the offer that’s been made to the Court is to show what is available now. This latter offer was said to be referred to in the Third Esposito Affidavit and written submissions, and repeated by senior counsel in Court on behalf of the Investor Parties. The Third Esposito Affidavit states that Mr Esposito is instructed by Monson and Murone and believes that the Investor Parties are willing and able to progress the Investor Parties’ Proceeding for the benefit of the trust estate, including Trust creditors. That offer was described by senior counsel as a standing offer that the Investor Parties would pay the Company’s creditors, pay the Liquidator’s properly incurred fees and costs (to be taxed), and prosecute the claims against Reindel and Baker in the Investor Parties’ Proceeding for the benefit of the Trust at the Investor Parties’ cost.
It was said that since the Court is being asked to approve the Liquidator’s future conduct, that conduct being to enter into the Proposed 2023 Agreement, the Court must assess the situation based on what is available now. Senior counsel submitted that it was not proper and reasonable for the Liquidator to enter into the Proposed 2023 Agreement because the Investor Parties’ Proposal was a better offer, and because a better offer is made to the Court.
In response, senior counsel for the Plaintiffs disputed that this ‘standing offer’ was an offer capable of acceptance, and submitted that it has always been open to the Investor Parties to make such an offer in a form capable of acceptance, but they have not.
I was taken to all of the materials relied on by the Investor Parties for the conveying of this ‘standing offer’, and in my view none of those materials amount to an offer in the form described by senior counsel for the Investor Parties that is capable of acceptance. It is not evident what the proposed terms are.
Further, I consider it very odd that this is being described as an offer made to the Court, which is how senior counsel for the Investor Parties put it. Despite this oddity, I do not consider this ‘standing offer’ to be a proper basis for me to refuse the Primary Relief sought by the Liquidator. Even if it were an offer to the Liquidator, it is insufficiently clear as to what the Liquidator would be agreeing if he accepted this ‘standing offer’, and therefore this potential ‘standing offer’ does not mean that the Liquidator is not acting reasonably and is not justified in pursuing the Proposed 2023 Agreement.
For all of these reasons, the Primary Relief will be granted. Thus, the answer to question (a) in paragraph 68 above is ‘yes’. That being the case, the next question which must be answered is whether the Facilitative Relief should be granted.
Relevant law regarding the Facilitative Relief
I.1 Statutory provisions
Section 63 of the Trustee Act provides as follows:
63 Power of Court to authorize dealings with trust property
(1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument (if any) or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose on such terms and subject to such provisions and conditions (if any) as the Court thinks fit and may direct in what manner any money authorized to be expended, and the costs of any transaction are to be paid or borne as between capital and income.
(2) The Court may from time to time rescind or vary any order made under this section, or may make any new or further order.
(3) An application to the Court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust.
Section 37 of the SCA relevantly provides:
37 Injunctions and receivers
(1) The Court may by order, whether interlocutory or final, … appoint a receiver if it is just and convenient to do so.
(2) An order made under subsection (1) may be made either unconditionally or on such terms and conditions as the Court thinks just…
Rule 39.02 of the SCR provides as follows:
39.02 Appointment of receiver
(1) The Court may appoint a receiver at any stage of a proceeding or, in the circumstances referred to in Rule 4.08, before the commencement of a proceeding.
(2) In an urgent case, the Court may appoint a receiver on application made without notice.
I.2 Relevant principles
Orders to confer upon a company the power of sale of the assets of a trust, pursuant to s 63 of the Trustee Act, have been found to be appropriate in circumstances where:[97]
(a)the company has become a bare trustee of the assets of the trust upon the appointment of the liquidator;
(b)the company had acted only as trustee of the trust and in no other capacity, and all assets owned by the company were held by it as trustee and all liabilities incurred by it were incurred in its capacity as trustee; and
(c)no new trustee has been appointed.
[97]Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677, [35]-[36] (Gordon J) (Caterpillar Financial Australia Ltd).
These criteria have been applied on numerous occasions.[98]
[98]For example, see In the Matter of Urban Property Melbourne Pty Ltd [2021] VSC 847, [35] (M Osborne J); Re Windows on the World Steel Windows Pty Ltd (in administration) [2020] VSC 880, [89] (Sloss J).
The power under s 63 depends on what the Court determines is expedient to the trust. The cases emphasise that this is a wide and flexible term.[99] Expediency has been said to mean advantageous, desirable, and suitable to the circumstances of the case.[100] In this context, expediency relates to what is expedient in the interests of the trust, meaning the beneficiaries.[101]
[99]Royal Melbourne Hospital v Equity Trustees Ltd (2007) 18 VR 469, [154] (Bell AJA).
[100]Ibid.
[101]Ibid, [155].
The courts have used the power in s 90-15 of the IPS to authorise or confirm a liquidator’s reliance on their statutory powers as liquidator of a company to deal in assets held by that company in its capacity as trustee.[102]
[102]See, for example, Re Mandeville Group (Sloss J).
When considering whether to appoint the liquidator as receiver and manager of the assets of the trust under the SCA and/or the SCR, the ‘general ground upon which the Court appoints a receiver is the protection or preservation of property for the benefit of persons with an interest in it’.[103] The Court may appoint a receiver if trust property is in jeopardy, and that is the basis for the jurisdiction.[104]
[103]QBE Insurance (Australia) Ltd v WA Metals Recycling Pty Ltd, in the matter of WA Metal Recycling Pty Ltd [2016] FCA 238, [13] (Farrell J), citing Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd [2011] FCA 600, [15] (Besanko J) (Sapphire (SA) Pty Ltd). See also Martyniuk v King [2000] VSC 319, [14]-[15] (Warren J); Yunghanns v Candoora No 19 Pty Ltd (No 2) [2000] 35 ACSR 34, [64] (Warren J) (Yunghanns); University of Western Australia v Gray (No 6) [2006] FCA 1825, [71]–[72] (French J).
[104]Yunghanns, [64]-[67].
Receivers may be appointed including in circumstances where a liquidator holds such property on bare trust as a result of an ipso facto clause that has removed the company in liquidation from its role as trustee.[105] Where a trustee company is removed from its role in those circumstances, ‘the outgoing trustee retains a right of indemnity from the trust assets, secured by an equitable charge over them, for its liabilities incurred by reason of acting as trustee’.[106] The right of indemnity continues to exist even after the trustee company has been removed from its trustee role.[107] The right can be secured by appointing a receiver and manager over the underlying trust property.[108] The receiver and manager appointed is often the liquidator of the company.[109]
[105]See Re Empire Plant Hire Pty Ltd (in liq) (2021) 64 VR 1, [26] (Gardiner AsJ), citing Rohrt, in the matter of Rose Guerin and Partners Pty Ltd (in liq) (2021) 151 ACSR 270, [59]–[69] (Anderson J).
[106]Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) 291 FLR 17, [10] (Brereton J), citing, among others, Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226, 247 (Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ). See also Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524, [29]-[33] (Keifel CJ, Keane and Edelman JJ).
[107]Caterpillar Financial Australia Ltd, [18]-[27] (Gordon J).
[108]See, for example, Re Gramarker Pty Ltd [2014] NSWSC 243, [6]–[7] (Brereton J).
[109]Ibid.
In circumstances such as those before me, where the trustee company has been removed from its role because it has been put into liquidation, the appointment of the liquidator as receiver of trust assets may pre-empt potential difficulties arising. As noted by Delany J in Re Waratah Group Pty Ltd (in liq):[110]
[110][2020] VSC 523, [50]-[57] (Delany J) (Re Waratah). Citations have been omitted.
50Pursuant to s 37 of the Supreme Court Act, the Court may by order, appoint a receiver and manager where it is ‘just and convenient’ to do so. The principles to be applied on an application under the section were discussed by Warren J (as her Honour then was) in Yunghanns v Candoora No 19 Pty Ltd (No 2). The circumstances in which an appointment might be made include where to do so is necessary for the protection or preservation of trust property for the benefit of persons who have an interest in that property. It seems to me that both of those considerations are either present, or potentially present in this case.
51 As identified by Rees J in Parkway One, the appointment of the liquidator now, as receiver and manager of the trust assets, serves to address in advance difficulties that may arise if a replacement trustee were to be appointed to the Trust at an unknown time in the future.
52 Counsel for the liquidators has made clear in her submissions that there is no suggestion of any of steps being taken by the unit holders to appoint a replacement trustee. Nevertheless, there are a number of unit holders. On a practical level, those persons who stand behind the unit holders may be the target of recovery actions instituted by the liquidators for insolvent trading or for breaches of directors duties, whether as director or as a de facto director. Should such events come to pass, those who are the target of action on the part of the liquidators may be motivated to take steps to appoint a new trustee.
53 It is by no means clear that sufficient funds will be recovered by the liquidators to cover the priority creditors and their own costs and expenses. If a new trustee were to be appointed the liquidators would be faced with a very real problem, due to conflicting authority, as to whether they would have power to retain trust property as against the new trustee in order to enforce their right to be indemnified.
54The competing authorities were carefully reviewed by McDonald J in Pitard Consortium …
…
55 Having carefully reviewed the relevant authorities, McDonald J determined that if a new trustee is appointed the former trustee does not have the right to retain trust assets as security for an accrued right of indemnity. Whilst unnecessary for me to decide on this application, it seems to me that the considered view expressed by his Honour is correct If no appointment as receivers and managers is made and a new trustee is appointed, for whatever reason, the trust property will not have been preserved for the benefit of the liquidators and trust creditors (including former Company employees) as persons interested in that property. Attempts by the liquidators to fulfil their statutory obligation to get in and take possession of the assets may be frustrated, as would the objectives of the Act.
57The appointment of the liquidators as receivers and managers pre-empts any such potential difficulties. In circumstances where the trustee is in liquidation and where there may be insufficient resources to meet the liquidator’s remuneration and expenses all that can be done to minimise future costs and disputes and to aid the conduct of the administration in insolvency should be done. It is just and convenient that an order be made appointing the Liquidators as joint and several receivers and managers.
The appointment of a liquidator of a former corporate trustee to be appointed by the Court as receiver to enable it to sell trust assets has been described by Moshinsky J as the ‘common course’, including in circumstances where the insolvent former corporate trustee is a bare trustee.[111]
[111]Re Cremin, [50].
Receivers are ordinarily required to provide security unless the Court otherwise orders.[112] It is usual for the courts to dispense with this requirement in circumstances where the receiver to be appointed is a registered liquidator and so is subject to statutory obligations under the Corporations Act.[113]
[112]SCR, r 39.05.
[113]Re Waratah, [59] (Delany J), citing Sapphire (SA) Pty Ltd, [4] (Besanko J) and Re Pires Consulting Holding Pty Ltd (in liq) [2019] VSC 384, [48]-[49] (Kennedy J).
J Submissions in respect of the Facilitative Relief
For completeness, I note that submissions with respect to the Facilitative Relief were also made before Elliott J, and I have read and taken into account those submissions. The below summary focuses on those submissions made in respect of relief to facilitate the Primary Relief.
J.1 Plaintiffs’ submissions
The Plaintiffs submit that the criteria for appointing the Liquidator as trustee, as set out in paragraph 233 above, have been met. The Company is a bare trustee, it only acted in its capacity as trustee of the Trust, and no replacement trustee has been appointed.
It is also submitted that the Court can make orders pursuant to s 37 of the SCA or r 39.02 of the SCR to appoint the Liquidator as receiver and manager of the assets of the Trust. This is because it is ‘just and convenient’ to do so in circumstances where the Company has been removed from its office of trustee and the Liquidator cannot otherwise realise the Company’s assets in the liquidation or secure the Company’s right of indemnity from the assets of the Trust.
The Plaintiffs submit that the appointment of a receiver is required to protect the Trust assets, as the circumstances of the case are said to be analogous to those in Re Waratah. These circumstances are said to be that the Trust Deed allows for the appointment of a replacement trustee and some beneficiaries of the Trust or persons standing behind them are subjects of claims to be assigned. Those persons might be motivated to interfere by replacing the Company as trustee, such that Trust assets will not be preserved. Accordingly, it is said to be just and equitable, as well as practical, to appoint a receiver. The Liquidator is submitted to be the most appropriate candidate due to his familiarity with the affairs of the Company, which will assist in minimising expenses of the liquidation of dealing with Trust assets and administering the Trust.
The Plaintiffs submit that the Liquidator’s past dealings with Trust assets, including the decision to vary the terms of the First Baker Deed, do not provide a basis to deny the Liquidator the Facilitative Relief.[114]
[114]The Liquidator’s evidence was that the variation of the terms of the deed with Baker compromised the dispute between the parties as to the effect of the releases (which Baker argued were unconditional and the Liquidator had believed were conditional), while providing the Liquidator with funds to continue with this proceeding (at that time, only in respect of the Original Application), which had become protracted.
Lastly, in response to a criticism made during trial regarding the absence of a claim for relief under s 1318 of the Corporations Act (in respect of the Liquidator’s involvement in the Baker Agreement), the Plaintiffs submit that the Liquidator’s approach in seeking relief nunc pro tunc pursuant to the Trustee Act, should it be necessary, rather than relief under s 1318 is perfectly orthodox.[115]
[115]Re Waratah Group at [60].
J.2 Reindel’s submissions
Reindel submits that the Company, being a corporate trust in liquidation, warrants the Liquidator’s appointment as trustee and receiver of the Trust. It is submitted that it is orthodox for such an appointment to be made on an appropriate application.[116] Reindel submits that liquidators have special qualities that make them particularly suitable to be appointed as trustees or receivers. It is said that the Liquidator’s appointment would be simpler, aid with vindication of the Company’s right of indemnity, reduce costs and potential for disputation, avoid frustrating the Liquidator’s statutory obligations in the liquidation, and mean that the receiver and trustee is a person subject to a regulatory regime and who maintains professional indemnity insurance.[117]
[116]Re Mali Nominees Pty Ltd (in liq) [2022] VSC 28, [33], citing Re Cremin, [50].
[117]Re Waratah, [56]-[57]; Re Goldeagle Nominees Pty Ltd (in liq) [2023] WASC 7, [14]-[19].
In their oral submissions, counsel for Reindel referred to caselaw discussing functional problems which can arise where the roles of liquidator and receiver are split. Departure from this common course is said to require a strong basis that is not present in this case.
J.3 Baker’s submissions
Baker’s submissions before me did not extend to the Facilitative Relief for the facilitation of the Primary Relief.
J.4 Investor Parties’ submissions
The Investor Parties submit that the Liquidator is conflicted and in a compromised position. His appointment as receiver of Trust assets is opposed by the Investor Parties. They submit that the Liquidator’s prior dealings with Trust assets (by entering into the Baker Agreement) suggests that the Liquidator was ‘either acting in a cavalier manner… or simply was ignorant of the nature of his role, rights and obligations’. The Investor Parties submit that either of these is a strong basis to decline to grant the Facilitative Relief and that the Company does not have a ‘special quality’ which requires the Liquidator to become trustee.
The Investor Parties also submit that the Liquidator’s refusal to provide his legal advice to Elliott J would preclude a finding that his actions with respect to the Baker Agreement were honest and reasonable. In choosing to compromise claims against Baker and Reindel, the Liquidator is said to have acted contrary to the interests of creditors and to the winding up as a whole, such that the Liquidator should not be given access to and control over Trust assets.
As discussed above, in their closing submissions, the Investor Parties assert that the Liquidator has been dishonest and failed in his obligations by not disclosing a payment from Baker of $80,000 in connection with the Liquidator’s public examinations.
They say that there is no need for orders to be made appointing the Liquidator as receiver of Trust assets, as there is no jeopardy to the causes of action which are the Trust’s only assets. They also suggest that the appointment of the Liquidator as receiver is a ‘device’ by which he seeks to secure his fees of costs, due to the difficulties faces in respect of the Company’s right of indemnity (as discussed earlier in these reasons).
K Consideration in relation to the Facilitative Relief
In light of the findings made above in respect of the Primary Relief, it is appropriate and necessary that I make orders facilitating the entry into the Proposed 2023 Agreement and the further conduct of the Liquidator by granting the Facilitative Relief.
The Liquidator cannot give effect to all of his obligations under the Proposed 2023 Agreement without being granted the Facilitative Relief. It would be futile to grant the Primary Relief without also granting the Facilitative Relief.
Further, I do not accept the Investor Parties’ submissions as to why I should not grant the Facilitative Relief. Their submissions in this regard were difficult to divorce from their opposition to the Primary Relief. As I have noted elsewhere, I have reviewed the submissions before Elliott J with respect to the Facilitative Relief, and I have taken those into account where relevant in reaching my decision.
With respect to the suggestion that the assets of the Trust are in jeopardy, and that a receiver cannot be appointed as a result, it is the case here that the assets cannot otherwise be recovered and so they are relevantly at risk.
The Investor Parties’ submissions as to the conduct, honesty and propriety of the Liquidator cannot be accepted. In this regard:
(a)There is simply no basis in the evidence for them.
(b)The Liquidator did not seek to conceal his arrangement with Baker for some funding towards the public examinations, as alleged by the Investor Parties.
(c)It is misconceived to characterise the Liquidator as refusing to provide his legal advice to Elliott J, as the Investor Parties sought to do. True it is that he did not provide it at the time, stating a concern about waiving legal professional privilege, but this all happened at a time when he was giving oral evidence before his Honour. Even if he did refuse at the time, I do not accept the Investor Parties’ submission that this precludes a finding that his actions regarding the Baker Agreement were honest and reasonable.
(d)I do not accept the Investor Parties’ submission that the Liquidator had acted contrary to the interests of creditors and to the winding up such that he should not be given access to and control over Trust assets, or that his prior dealings with Trust assets by entering into the Baker Agreement evinced a basis to decline the Facilitative Relief. The Investor Parties might not like the Liquidator’s actions or decisions, but that does not mean that he should not be appointed trustee or receiver.
(e)The Investor Parties’ submission as to the Liquidator’s failure to seek relief pursuant to s 1318 of the Corporations Act does not tell against granting the Facilitative Relief.
Most of the Investor Parties’ submissions in this regard were made in the context of advocating for the Alternative Appointment Relief, rather than in respect of the Facilitative Relief per se. However, given the possible relevance of these submissions to the Facilitative Relief and in the interest of completeness, I have considered it necessary to address this here.
For these reasons, the answer to question (b) in paragraph 68 above is ‘Yes’.
L Conclusion
Since I have concluded that both the Primary Relief and the Facilitative Relief should be granted, the remaining questions in paragraph 68 above do not need to be answered. This also means that it is not necessary for me to consider the Advice Affidavit, since this arises only if I contemplate the grant of the Secondary Relief.
The parties are directed to confer regarding a form of orders to give effect to this judgment, including as to costs. By 1 July 2024, the parties are to either:
(a)provide an agreed form of orders to my Chambers; or
(b)if there is no agreement as to the form of orders, then each party should provide my Chambers with their proposed form of order and a short submission of no more than 5 pages in support of those orders (including as to costs).
Subject to any further order, I will then deal with the orders and costs on the papers.
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SCHEDULE OF PARTIES
| S ECI 2022 00106 | |
| BETWEEN: | |
| MATHEW GOLLANT IN HIS CAPACITY AS LIQUIDATOR OF WINDSOR DEVELOPMENT COMPANY PTY LTD (IN LIQUIDATION) (ACN 609 746 045) | First Plaintiff |
| WINDSOR DEVELOPMENT COMPANY PTY LTD (IN LIQUIDATION) (ACN 609 746 045) | Second Plaintiff |
| GLENN REINDEL | First Third Party |
| ANTHONY BAKER | Second Third Party |
| CONFREIGHT PTY LTD (ACN 005 729 457) | Third Third Party |
| SUPPLY CHAIN LOGISTICS PTY LTD (ACN 118 543 196) | Fourth Third Party |
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