Sheahan, in the matter of B.C.I. Finances Pty Limited (in liq)
[2020] FCA 1411
•1 October 2020
FEDERAL COURT OF AUSTRALIA
Sheahan, in the matter of B.C.I. Finances Pty Limited (in liq) [2020] FCA 1411
File number: SAD 74 of 2020 Judge: CHARLESWORTH J Date of judgment: 1 October 2020 Catchwords: CORPORATIONS – application for orders under s 90‑15(2) of the Insolvency Practice Schedule (Corporations) approving a proposed course of action in the winding up of 13 related companies – where plaintiffs are joint and several liquidators of all of the entities – where plaintiffs have an apparent conflict of duties in their capacities as liquidators of both debtor and creditor companies in respect of claimed intercompany debts – where plaintiffs have obtained an independent opinion as to those debts that should be lodged, admitted or rejected in the winding up of the companies – whether plaintiffs are justified in acting in accordance with the independent opinion – whether the requirement to serve a supporting affidavit on creditors and ASIC should be dispensed with in whole or in part
PRACTICE AND PROCEDURE – application for suppression order over the whole of an affidavit – where only some parts of the affidavit are shown on the evidence to be confidential – whether a broad order should be made on the basis that the order may be varied should any person apply to inspect the affidavit – considerations of open justice – plaintiffs afforded a further opportunity to state with more precision how the requirements for a suppression order are fulfilled in relation to that part of the evidence that does not appear to be inherently confidentialLegislation: Corporations Act 2001 (Cth) ss 479, 511, Sch 2 ss 90-15, 90-20
Federal Court of Australia Act 1976 (Cth) ss 20A, 37AE, 37AF, 37AG, 37AI, 37AJ
Insolvency Law Reform Act 2016 (Cth)
Federal Court (Corporations) Rules 2000 (Cth) rr 1.8, 2.7, 2.8
Federal Court Rules 2011 (Cth) r 2.32
Conveyancing Act 1919 (NSW)
Trustee Act 1925 (NSW) s 63
Cases cited: Australian Executor Trustees Ltd v Provident Capital Ltd, in the matter of Provident Capital Ltd (receivers and managers appointed) (in liq) [2013] FCA 1461
BCI Finances Pty Limited (in liq) v Binetter (No 4) (2016) 348 ALR 227
BCI Finances Pty Limited (in liq) v Binetter (No 5) [2017] FCA 1524
BCI Finances Pty Limited (in liq) v Binetter (No 6) [2018] FCA 500
BCI Finances Pty Limited (in liq) v Binetter (2018) 362 ALR 597
HIH Casualty & General Insurance Ltd v Building Insurers’ Guarantee Corporation (2004) 51 ACSR 21
Hird (Liquidator), in the matter of Allmine Group Limited (in liq) [2018] FCA 781
In the matter of Octaviar Administration Pty Ltd (in liquidation) [2014] NSWSC 344
Krejci (liquidator), in the matter of Community Work Pty Ltd (in liq) [2018] FCA 425
Pascoe (Liquidator), in the matter of Matrix Group Ltd (in liq) (Trustee) [2019] FCA 1844
Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed) [2017] FCA 486
Warner (liquidator), in the matter of Sakr Bros Pty Ltd (in liq) [2019] FCA 547
Date of hearing: Determined on the papers Date of last submissions: 14 July 2020 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 49 Counsel for the Plaintiffs: Mr L Wicks Solicitor for the Plaintiffs: Sheahan Lock Partners ORDERS
SAD 74 of 2020 IN THE MATTER OF B.C.I. FINANCES PTY LIMITED
BETWEEN: JOHN SHEAHAN AND IAN RUSSELL LOCK IN THEIR CAPACITY AS LIQUIDATORS OF B.C.I. FINANCES PTY LIMITED (IN LIQUIDATION) & OTHERS NAMED IN THE SCHEDULE
First Plaintiff
B.C.I. FINANCES PTY LIMITED (IN LIQUIDATION) ACN: 055 988 531
Second Plaintiff
B & I FINANCES PTY LIMITED (IN LIQUIDATION) ACN: 095 761 452 IN ITS APACITY AS TRUSTEE FOR THE B & I INVESTMENTS TRUST (and others named in the Schedule)
Third Plaintiff
JUDGE:
CHARLESWORTH J
DATE OF ORDER:
1 OCTOBER 2020
THE COURT ORDERS THAT:
1.On or before 15 October 2020 the first plaintiff is to serve these orders and the reasons for judgment published today on each person entitled to be served with the originating process in accordance with r 2.7 and r 2.8 of the Federal Court (Corporations) Rules 2001 (Cth).
2.Subject to these orders, pursuant to s 90-15(1) of Sch 2 to the Corporations Act 2001 (Cth) and s 63 of the Trustee Act 1925 (NSW), the first plaintiff is justified in:
(a)lodging the proofs of debt as set out in Annexure 1 to these orders;
(b)not lodging the proofs of debt as set out in Annexure 2 to these orders;
(c)withdrawing the proofs of debt as set out in Annexure 3 to these orders; and
(d)admitting the proofs of debt lodged pursuant to order 2(a) above.
3.Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) and on the grounds specified in s 37AG, annexure IRL9 to the affidavit Ian Russell Lock sworn on 12 May 2020 is suppressed.
4.Pursuant to s 37AI of the Federal Court of Australia Act 1976 (Cth) that part of the affidavit of Ian Russell Lock sworn on 12 May 2020 that is not suppressed as provided for in para 3 of these orders is suppressed until:
(a)if no application is made under para 5 of these orders, 5pm on 15 October 2020; or
(b)if an application is made under para 5 of these orders, the date on which the application is determined;
5.At or before 5pm on 15 October 2020 the first plaintiff may apply for an additional suppression order in respect of the affidavit of Ian Russell Lock sworn on 12 May 2020, such application to be supported by an affidavit identifying those parts of the affidavit to which the application applies and specifying the factual basis for the order sought.
6.The requirements of r 2.7 and r 2.8 of the Federal Court (Corporations) Rules 2001 (Cth) are dispensed with in respect of that part of the affidavit of Ian Russell Lock sworn on 12 May 2020 that is not the subject of:
(a)the suppression order in para 3 of these orders;
(b)any suppression order made on an application commenced in accordance with para 5 of these orders.
7.On or before 12 November 2020 the first plaintiff is to:
(a)serve the affidavit of Ian Russell Lock in accordance with r 2.7 and r 2.8 of the Federal Court (Corporations) Rules 2001 (Cth), redacted to the extent that para 6 applies;
(b)lodge a copy of the affidavit so redacted in the South Australia District Registry.
8.Any person entitled to be served in accordance with r 2.7 and r 2.8 of the Federal Court (Corporations) Rules 2001 (Cth) has liberty to apply to vary these orders, such liberty to be exercised not later than 14 days after being served with the affidavit of Ian Russell Lock sworn on 12 May 2020 in accordance with para 7(a).
9.Subject to these orders, the costs of and incidental to the originating process filed on 12 May 2020 be costs in the winding up of the plaintiff companies as set out in Annexure 4 to these orders.
10.The order in para 2 and the order in para 9 are to have effect as and from 27 November 2020, provided that:
(a)the requirements of para 7 of these orders are satisfied; and
(b)no application is made in accordance with para 8 of these orders.
11.In the event that an application is made in accordance with para 8 of these orders, the application is to be set down for hearing on a date to be fixed by the South Australia District Registrar.
12.The first plaintiff has liberty to apply to vary the dates specified in these orders, such liberty may be exercised by transmitting minutes of the proposed varied orders by email to [email protected].
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANNEXURE 1
Proofs of Debt to be Lodged and Admitted
Debtor Creditor Amount $ B.C.I. Finances Pty Limited (in Liquidation) Ligon 158 Pty Limited
(in Liquidation)396,004.50 E.G.L. Development (Canberra) Pty Limited
(in Liquidation)Binqld Finances Pty Limited
(in Liquidation)208,402.06 Ligon 158 Pty Limited
(in Liquidation)Ligon 159 Pty Limited
(in Liquidation)5,480,905.00 Milgerd Nominees Pty Limited (in Liquidation) 1,059,687.50 Ligon 159 Pty Limited
(in Liquidation)Milgerd Nominees Pty Limited (in Liquidation) 2,439,645.00 Ligon 268 Pty Limited
(in Liquidation)Binqld Finances Pty Limited (in Liquidation) 324,136.79 ANNEXURE 2
Proofs of Debt not to be Lodged
Debtor Creditor Amount $ B & I Finances Pty Limited (in Liquidation) Ligon 268 Pty Limited
(in Liquidation)955,134.63 B.C.I. Finances Pty Limited (in Liquidation) Ligon 159 Pty Limited
(in Liquidation)159,693.00 Erbin Finances Pty Limited (in Liquidation) Erma Nominees Pty Limited (in Liquidation) > 1,000,000.00 Erma Nominees Pty Limited (in Liquidation) B.C.I. Finances Pty Limited (in Liquidation) 396,004.50 Ligon 158 Pty Limited
(in Liquidation)> 1,000,000.00 Gerobin Finances Pty Limited (in Liquidation) Erma Nominees Pty Limited (in Liquidation) > 2,050,000.00 Ligon 158 Pty Limited
(in Liquidation)Erbin Finances Pty Limited (in Liquidation) > 1,000,000.00 Marbin Finances Pty Limited (in Liquidation) > 5,000,000.00 Rawbin Finances Pty Limited (in Liquidation) > 1,000,000.00 Gerobin Finances Pty Limited (in Liquidation) > 1,000,000.00 Marbin Finances Pty Limited (in Liquidation) Erma Nominees Pty Limited (in Liquidation) > 5,000,000.00 Rawbin Finances Pty Limited (in Liquidation) Erma Nominees Pty Limited (in Liquidation) > 1,000,000.00 ANNEXURE 3
Proof of Debt to be Withdrawn
Debtor Creditor Amount $ B & I Finances Pty Limited (in Liquidation) Gerobin Finances Pty Limited (in Liquidation) 1,034,027.03 ANNEXURE 4
Entities Liable for the Costs of the Plaintiffs’ Application1.B.C.I. Finances Pty Limited (in Liquidation) ACN 055 988 531.
2.B & I Finances Pty Limited (in Liquidation) ACN 095 761 452 as trustee for the B & I Investments Trust.
3.Binqld Finances Pty Limited (in Liquidation) ACN 119 243 220.
4.E.G.L. Development (Canberra) Pty Limited (in Liquidation) ACN 008 517 646.
5.Erbin Finances Pty Limited (in Liquidation) ACN 138 259 800 as trustee for the Erbin Investments Trust.
6.Erma Nominees Pty Limited (in Liquidation) ACN 000 957 040 as trustee for the Erwin Binetter Family Trust.
7.Gerobin Finances Pty Limited (in Liquidation) ACN 140 586 410 as trustee for the Gerobin Investments Trust.
8.Ligon 158 Pty Limited (in Liquidation) ACN 003 464 015 as trustee for the Caringbah Investment Trust.
9.Ligon 159 Pty Limited (in Liquidation) ACN 003 464 024 as trustee for the EBC Investments Trust.
10.Ligon 268 Pty Limited (in Liquidation) ACN 051 824 081 as trustee for the Bankstown Eye Trust.
11.Marbin Finances Pty Limited (in Liquidation) ACN 140 572 970 as trustee for the Marbin Investments Trust.
12.Milgerd Nominees Pty Limited (in Liquidation) ACN 000 957 059 as trustee for the Emil Binetter Family Trust.
13.Rawbin Finances Pty Limited (in Liquidation) ACN 140 576 549 as trustee for the Rawbin Investments Trust.
REASONS FOR JUDGMENT
CHARLESWORTH J:
Mr John Sheahan and Mr Ian Lock are joint and several liquidators of 13 corporate entities (Liquidated Companies). They apply for orders pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS) contained in Sch 2 to the Corporations Act 2001 (Cth) and directions pursuant to s 63 of the Trustee Act 1925 (NSW).
The Liquidated Companies are associated with a family known as the Binetter family. Some of the companies are corporate trustees. There are intercompany debts between the Liquidated Companies giving rise to an apparent conflict of duties in Mr Lock and Mr Sheahan in their capacities as liquidators of both debtor and creditor entities.
The liquidators seek orders that they are justified in lodging, not lodging, withdrawing and admitting proofs of debts in the discharge of their duties under the Corporations Act. In making their judgments as to the most appropriate course, the liquidators have obtained and propose to rely on an independent report as to the merits of the claimed intercompany debts (Phillips report).
The liquidators also seek confidentiality orders to avoid prejudice to ongoing litigation and to keep confidential the terms of a deed of settlement.
For the reasons that follow, I am satisfied that the course proposed by the liquidators is appropriate and will make the substantive orders sought. Whilst I am satisfied that a suppression order should be made over some of the evidentiary materials, I do not consider it appropriate to make an order in the broad terms presently sought by the liquidators. The liquidators will be provided an opportunity to apply for a more confined order and to explain how the circumstances fulfil the requirements for an order under s 37AF of the Federal Court of Australia Act 1976 (Cth) (FCA Act).
Principles
An officer of a company (including a liquidator of a company in liquidation) may apply for an order under s 90-15 of the IPS: IPS, s 90-20(1)(d). Section 90-15 relevantly provides:
90‑15 Court may make orders in relation to external administration
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):
…
(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;
…
(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;
…
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.
…
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 90-15 of the IPS replaced s 479(3) and s 511 of the Corporations Act: Insolvency Law Reform Act 2016 (Cth). The former provisions enabled a liquidator to apply to the Court for directions or to determine any question in relation to a winding up. As Griffiths J said in Warner (liquidator), in the matter of Sakr Bros Pty Ltd (in liq) [2019] FCA 547 at [18], the principles affecting the Court’s powers under s 90-15 of the IPS are the same as those applicable under the former regime:
… The relevant principles were recently summarised by Black J in Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556, where his Honour observed:
[7]I summarised the scope of the Court’s power to give directions under s 479(3) of the Corporations Act in Re MF Global Australia Ltd (in liq) [2012] NSWSC 994; (2012) 267 FLR 27 at [7] as follows:
Section 479(3) of the Corporations Act allows a liquidator to apply to the court for directions in relation to a matter arising under a winding up. The function of a liquidator’s application for directions under this section is to give the liquidator advice as to the proper course of action for him or her to take in the liquidation: The liquidation of the Company is an ‘ongoing external administration’: s 1551, Corporations Act and reg 10.25.02 (2), Corporations Regulations. Div 90, IPS applies to ongoing external administrations: s 1615, Corporations Act. Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117; (1986) 4 ACLC 114; Re Ansett Australia Ltd (admins apptd) and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433 at [46]. The court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion but will typically not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision: Sanderson v Classic Car Insurances Pty Ltd above at 117; Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 686–7; 5 ACSR 673; 9 ACLC 1291; Re Ansett Australia Ltd above at [65]; Re One.Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83 at [32].
[8]I also referred to the scope of the Court’s powers under s 511 of the Corporations Act in that decision and observed (at [8]) that:
Section 511 of the Corporations Act provides an alternative source of power to give such a direction and the Liquidators also rely on that section. The principles applicable to an application under that section were recently reviewed by Ward J in Re Purchas [2011] NSWSC 91 … Applications made under this section in a voluntary winding up are determined in a similar manner to applications in a court ordered winding up under s 479(3) of the Corporations Act notwithstanding that section does not expressly require that it be ‘just and beneficial’ to give the relevant direction. The court may give such a direction where it will be ‘of advantage in the liquidation’ Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212; Handberg v MIG Property Services Pty Ltd (2010) 79 ACSR 373 at [7]. The effect of a determination under the section is to sanction a course of conduct on the part of the liquidator so that he or she may adopt that course free from the risk of personal liability for breach of duty: Handberg v MIG Property Services Pty Ltd at [7].
[9]I also recognise that the Court’s powers to give judicial advice and give directions under these sections are intended to facilitate the performance of a liquidator’s functions and should be interpreted widely to give effect to that intention, and the Court may give such advice or give such a direction where it is advantageous to the liquidation to do so: Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212; Handberg v MIG Property Services Pty Ltd [2010] VSC 336; (2010) 79 ACSR 373 at [7]; Re One.Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83; Re One.Tel Ltd [2014] NSWSC 457; (2014) 99 ACSR 247 at [32]; Re Octaviar Ltd (in liq) and Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1005…
See also Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed) [2017] FCA 486 at [41].
As an officer of the Court, a liquidator must be independent and seen to be so. Where a liquidator apprehends a potential conflict arising in the discharge of his or her duties, the liquidator is obliged to promptly apply to the Court for assistance and directions in relation to that potential conflict: Australian Executor Trustees Ltd v Provident Capital Ltd, in the matter of Provident Capital Ltd (receivers and managers appointed) (in liq) [2013] FCA 1461 at [11] – [12] (Rares J). It is the Court’s responsibility to determine what needs to be done in relation to any such conflict of interest or duty: Australian Executor Trustees at [14].
Background
The winding up of the Liquidated Companies has involved complex investigations and a long history of litigation, some of which is ongoing. The following summary of that activity is drawn from the affidavit of Mr Lock sworn on 12 May 2020 (Lock affidavit).
Following an audit and investigation process between 2006 and 2009, the Deputy Commissioner of Taxation (DCT) concluded that a number of the Liquidated Companies were involved in a tax evasion scheme. The DCT issued revised assessments to a number of the Liquidated Companies, each in excess of $10 million. The revised assessments rendered those entities insolvent.
Mr Sheahan and Mr Lock were appointed as liquidators of BCI Finances Pty Ltd on 23 April 2014. Following an application to this Court, orders were made on 27 August 2014 for BCI to be wound up in insolvency.
The liquidators commenced proceedings on 14 January 2015 against certain members of the Binetter family for alleged breaches of director’s duties (SAD 5 of 2015).
On 2 March 2015 the Supreme Court of New South Wales ordered that Binqld Finances Pty Ltd (in liquidation), E.G.L. Development (Canberra) Pty Ltd (in liquidation) and Ligon 268 Pty Ltd (in liquidation) be wound up in insolvency. The liquidators’ investigations into those companies resulted in their joinder as plaintiffs in proceedings SAD 5 of 2015. Judgment on liability was delivered in those proceedings on 18 November 2016: BCI Finances Pty Limited (in liq) v Binetter (No 4) (2016) 348 ALR 227 (Gleeson J). The Court found that the defendants (with the exception of Gary and Margaret Binetter in their personal capacity) had breached duties owed to the plaintiffs. Damages were awarded in amounts ranging from $11.1 million to $72.2 million: BCI Finances Pty Limited (in liq) v Binetter (No 5) [2017] FCA 1524, BCI Finances Pty Limited (in liq) v Binetter (No 6) [2018] FCA 500.
On 3 December 2015 the liquidators caused four of the Liquidated Companies to commence a separate claim against 13 entities controlled by one or more members of the Binetter family (NSD 1600 of 2015), and a claim under the Conveyancing Act 1919 (NSW) against Israel Discount Bank (IDB). A confidential settlement was reached with two of the respondents to that action in September 2016.
Four separate appeals were lodged against the orders of the Court in proceedings SAD 5 of 2015. The appeals were heard and judgment was reserved, however settlement was reached in all but one of the appeals prior to judgment being delivered: BCI Finances Pty Limited (in liq) v Binetter (2018) 362 ALR 597 at [35]. The settlement also resolved the claims against the remaining respondents in NSD 1600 of 2015, except IDB. The terms of the settlement are recorded in a settlement deed dated 5 October 2018 forming annexure IRL9 to the Lock affidavit. It contains a provision that obliges the parties to preserve its confidentiality.
Milgerd Nominees Pty Ltd (in liquidation) and Ligon 159 Pty Ltd (in liquidation) did not appeal the primary judgment, and the liquidators applied to the Court for winding up orders. Orders were granted on 16 May 2018, appointing the liquidators to those companies.
Following the settlement the liquidators were appointed as liquidators of Erbin Finances Pty Ltd (in liquidation), Gerobin Finances Pty Ltd (in liquidation), Marbin Finances Pty Ltd (in liquidation) and Rawbin Finances Pty Ltd (in liquidation) on 9 October 2018 and as liquidators of Erma Nominees Pty Ltd (in liquidation), Ligon 158 Pty Ltd (in liquidation) and B & I Finances Pty Ltd (in liquidation) on 12 November 2018.
A number of potential intercompany debts have been identified through the process of reviewing the Liquidated Companies’ books and records. The potential debts did not arise as a result of the Liquidated Companies ongoing activities or the conduct of the liquidations.
On 5 November 2019 the liquidators procured the services of Mr Anthony Phillips of Heard Phillips Lieberenz for the purpose of seeking Mr Phillips’ opinion in relation to:
(1)whether proofs of debt should be lodged in relation to potential intercompany debts identified between the Liquidated Companies; and
(2)what claims should be admitted to rank for dividend in the liquidation of the debtor companies.
The Phillips report expressed conclusions about claims under three categories: claims that should be withdrawn, claims that were not supported by sufficient evidence, and claims that should be admitted. The liquidators have accepted the analysis, conclusions and recommendations made in the Phillips report. Mr Lock has conveniently summarised the effect of Mr Phillips’ opinion as to the appropriate adjudication of the claims as follows:
Potential debtor Potential creditor Amount
$Action B&I Gerobin 1,034,027.03 Reject Ligon 268 955,134.63 Request further
informationBCI Ligon 158 396,004.50 Admit Ligon 159 159,693.00 Request further
informationEGL Binqld 208,402.06 Admit Erbin Erma > 1,000,000.00 Reject Erma BCI 396,004.50 Request further
informationLigon 158 > 1,000,000.00 Reject Gerobin Erma > 2,050,000.00 Reject
Ligon 158 Erbin > 1,000,000.00 Reject Ligon 159 5,480,905.00 Admit Marbin > 5,000,000.00 Reject Milgerd 1,059,687.50 Admit Rawbin > 1,000,000.00 Reject Gerobin > 1,000,000.00 Reject Ligon 159 Milgerd 2,439,645.00 Admit Ligon 268 Binqld 324,136.79 Admit Marbin Erma > 5,000,000.00 Reject Rawbin Erma > 1,000,000.00 Reject
The sole or primary creditor in relation to the Liquidated Companies is the DCT. Where there are other creditors of a company, the consequences for admitting debts in the liquidations of the debtor company is (at least at present) unable to be expressed in dollar terms. That is because the recovery of assets is contingent on the outcome of ongoing litigation and the quantum of any recovery (and the apportionment of the recovered amount as between the Liquidated Companies) remains unclear. All of that will affect the amount of property that is ultimately available for distribution to the unsecured creditors. However, the liquidators have caused a table to be prepared which sets out the claims of the creditors in the debtor companies and the size of those claims expressed as a percentage of the total claims admitted. The table then expresses the effect on the creditors’ of the proposed adjudication expressed as a percentage of each of the creditor’s claims. Mr Lock gave the following evidence (which I accept) in relation to the outcome of that exercise:
101.Whilst the table referred to in paragraph 100 records the effect upon individual creditors, this must also be considered in the context of the claims by the DCT, who is the ultimate beneficiary of the vast majority of the Liquidated Companies. By way of example:
101.1.the DCT has the sole admitted claim in the liquidation of EGL (in the amount of $40,767,456.58 representing 100% of admitted clams);
101.2.the proposed adjudications would see Binqld admitted as a creditor of EGL in the amount of $208,402.06;
101.3.the DCT’s claim would therefore represent approximately 99.49% of admitted claims, with Binqld’s claim representing 0.51 %;
101.4.the sole creditor and ultimate beneficiary of Binqld is the DCT;
101.5.the DCT is therefore (albeit indirectly) the ultimate beneficiary as to 100% of funds that might be distributed to creditors from the liquidation of EGL.
The liquidators have tracked through each of the claims using the methodology described above. They have given an estimation of the DCT’s interest as “ultimate beneficiary of each of the Liquidated Companies” and contrasted the pre-adjudication position and post-adjudication position. Having undertaken that exercise, the liquidators have expressed the view that acting in accordance with the Phillips report will (to their best estimation) render no creditor worse off. The fact that no creditor has sought to be heard in opposition to the present application tends to support to that view. However, my conclusion in that regard is tempered by the fact that the creditors were served with the originating process in this action, but not with the supporting evidentiary material, over which the liquidators make a claim of confidentiality.
CONSIDERATION
These proceedings were commenced on 12 May 2020. The substantive relief sought on the originating application is an order determining that the liquidators are justified in taking the course of action proposed in the Phillips report.
The originating process was served on the Australian Securities and Investments Commission (ASIC) and on each of the creditors of the Liquidated Companies: affidavits of Mr Sheahan affirmed on 22 June 2020, 23 June 2020 and 13 July 2020. Neither ASIC nor any creditor has sought to be heard.
As has been mentioned, the liquidators did not serve the supporting affidavit of Mr Lock upon ASIC or upon the creditors, as required by r 2.7 and r 2.8 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules), although they did make the existence of that affidavit known to each creditor in the email by which the originating process was served.
I consider it appropriate to express the grant of substantive relief conditional upon the liquidators serving the Lock affidavit upon the creditors and upon ASIC in a redacted form that reflects the suppression order to be made. I am otherwise satisfied that the requirements of r 2.7 and r 2.8 may be dispensed with in part in accordance with r 1.8 of the Corporations Rules in relation to that part of the affidavit that is properly the subject of a suppression order.
The liquidators do not ask the Court to assess the correctness of the opinions expressed in the Phillips report. Rather, they submit, it is sufficient that the Court be satisfied that the liquidators are acting reasonably in adopting its recommendations, given their conflict of duties. I consider that approach to be appropriate. The Court will not second guess the content of the report insofar as it expresses opinions involving the exercise of commercial judgment.
The Phillips report enables a limited assessment to be made on the impact of lodging, admitting or rejecting proofs of debt upon other creditors’ claims. As I have already observed, the impact may be expressed in percentage terms, but cannot presently be measured in monetary amounts. The consequences are summarised in the liquidators’ written submissions in the following terms, which I accept to be correct:
14.The Liquidators are not currently in a position to estimate the amount of funds that will be available for distribution to creditors of the Liquidated Companies as the funds available for distribution will be dependent on the outcome of litigation that is currently on foot and any other claims that the Liquidators may identify in the course of the liquidations. However, the Liquidators are able to demonstrate the impact in percentage terms that the recommendations of the Phillips Report will have on creditors’ claims.
15.The ultimate impact of the Phillips Report on third party creditors is minimal because the DCT is the major creditor of the majority of the Liquidated Companies, there are very few other third party creditors, and the size of those other third party creditors’ claims is proportionately small relative to the size of the DCT’s claims. Accordingly, irrespective of how the intercompany claims are adjudicated, the DCT will ultimately receive the majority of the funds available for distribution to creditors of the Liquidated Companies. By way of examples:
15.1 EGL:
(a)the DCT is at present the sole admitted creditor of EGL and thereby entitled to 100% of the funds available for distribution to creditors of EGL;
(b)if the Liquidators adopted the recommendations in the Phillips Report, they would admit Binqld as a creditor of EGL;
(c)if Binqld is admitted as a creditor of EGL, the DCT would no longer be entitled to 100% of the funds available for distribution to creditors of EGL in the first instance, as 0.51% of the available funds would be distributed to Binqld;
(d)however, the DCT is the sole creditor of Binqld, so any funds that flow from EGL to Binqld will ultimately flow to the DCT, i.e., irrespective of whether Binqld’s claim is admitted, the DCT receives all of the funds available for distribution to creditors of EGL;
15.2 BCI:
(a)the DCT is at present the sole admitted creditor of BCI and thereby entitled to 100% of the funds available for distribution to creditors of BCI;
(b)if the Liquidators adopted the recommendations in the Phillips Report, they would admit Ligon 158 as a creditor of BCI;
(c)if Ligon 158 is admitted as a creditor of BCI, the DCT would be entitled to 97.26% of the funds available for distribution to creditors of BCI in the first instance and Ligon 158 would be entitled to the other 2.74%;
(d)the DCT is a creditor of Ligon 158 and also a creditor of other of the Liquidated Companies which are creditors of Ligon 158, such that a significant proportion of the funds that would flow from BCI to Ligon 158 would:
(i)flow to the DCT directly by way of a distribution from Ligon 158; and
(ii)flow to the DCT indirectly by way of distributions from other of the Liquidated Companies which receive distributions from Ligon 158 (e.g. Binqld, of which the DCT is the sole creditor),
the end result being that the DCT would ultimately receive 99.95% of the funds available for distribution to creditors of BCI (instead of 100% if Ligon 158’s claim was not admitted).
(footnotes omitted)
On the material before me, I am satisfied that:
(1)The liquidators are in a position of (at least) potential conflict in relation to the potential intercompany debts by reason of their opposing duties owed as liquidators of both creditor and debtor entities.
(2)The existence of a potential for conflict gives rise to a duty in the liquidators to seek the approval of the Court to act in the manner they have proposed.
(3)The intercompany debts did not arise as a result of the conduct of the liquidations.
(4)The liquidators do not stand to benefit personally by the resolution of the debtor company claims.
(5)The procurement of the Phillips report was appropriate, both to minimise the expenses of the liquidations and to ensure that an independent assessment was made of the intercompany claims. In exercising their commercial judgment and in the performance of their duties, it is reasonable for the liquidators to rely upon the opinions expressed in it.
(6)In the circumstances, it is neither necessary nor appropriate for this Court to make a different commercial decision in respect of the proof or rejection of intercompany debts to that proposed in the Phillips report: Warner at [18], HIH Casualty & General Insurance Ltd v Building Insurers’ Guarantee Corporation (2004) 51 ACSR 21 at [19].
(7)The DCT is the sole or primary creditor for each of the Liquated Companies and would be entitled to nearly all of the funds available for distribution in the liquidations. The effect of the orders sought would be to attribute debts to some companies in a manner that would not affect the total tax liabilities of the group as a whole. The financial position of the companies is such that the attribution of the debts in the manner recommended in the Phillips report would have no practical effect on the interests of other creditors in the ranking of claims, or at least no effect in respect of which any creditor presently seeks to be heard.
(8)The orders sought on this application are in accordance with the recommendations set out in the Phillips report and the liquidators are justified in adopting that course in all of the circumstances I have described.
The above conclusions are drawn in the absence of opposition from any creditor and otherwise without a contradictor. Whilst I am satisfied that relief should be granted, that relief will be expressed to take effect from a specified date. The Court will grant liberty to apply within that time to any creditor or ASIC to vary or revoke the orders for relief within 28 days of service of the Lock affidavit, redacted in accordance with any final suppression orders that may be made.
SUPPRESSION ORDERS
Part VAA of the FCA Act confers power on the Court to make suppression orders and non-publication orders. In deciding whether to make a suppression order under s 37AF, the Court must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice: FCA Act, s 37AE. The grounds for making such an order are contained in s 37AG. Relevantly, an order may be made on the ground that it is necessary to prevent prejudice to the proper administration of justice: s 37AG(1)(a).
Section 37AJ provides that the Court must ensure that a suppression order operates for no longer than is reasonably necessary to achieve the purpose for which it is made.
The liquidators seek a suppression order in relation to the whole of the Lock affidavit. Whilst this application has been determined on the papers in accordance with s 20A of the FCA Act, the principles of open justice nonetheless apply, such that the papers relied upon by a party ought in the ordinary course to be made available to the public. Subject to orders preserving its confidentiality, the Lock affidavit is to be regarded as having been read in these proceedings in circumstances equivalent to Mr Lock’s evidence being given in open court.
Section 37AE of the FCA Act gives expression to the fundamental principle that justice be administered in open court. Consistent with that principle, where proceedings are heard on the papers in accordance with s 20A of the FCA Act, there is a strong public interest favouring public access to documents on the Court record so as to enable the reasons of the Court to be understood and public confidence in the administration of justice to be maintained.
The liquidators submit, and I accept, that they are bound by a confidentiality clause in the settlement deed (forming annexure IRL9 to the Lock affidavit) to keep the terms of the settlement affected by that deed confidential. I am satisfied that there is a proper basis for making a suppression order in relation to the settlement deed.
The factual grounds for making a suppression order in relation to the remainder of the Lock affidavit are not so apparent. The proposed basis is explained in the liquidators’ written submissions as follows:
…
40.3the Liquidators’ investigations into the affairs of the Liquidated Companies are ongoing, which may result in further claims being brought for the benefit of creditors – the Court may infer that disclosure of the settlement deed and Mr Phillips’ and the Liquidators’ analysis of the Liquidated Companies’ affairs and transactions may compromise those investigations and provide potential defendants with a forensic advantage;
40.4there is litigation on foot arising out of the interconnected affairs of the Liquidated Companies, which the Court may also infer may be prejudiced by the disclosure of the settlement deed and Mr Phillips’ and the Liquidators’ analysis of the Liquidated Companies’ affairs and transactions;
40.5given the size of the Lock Affidavit and its annexures, the process of reviewing the Lock Affidavit and its annexures line by line for the purpose of identifying which aspects of it are confidential and considering the implications of disclosure of that material on the various aspects of the liquidations would be time consuming and impose what in the circumstances would be an unnecessary and avoidable cost to creditors;
…
The liquidators propose that if any person was to seek to access the suppressed material in the future, the interested person may apply for access to the document and, in that event, it may be appropriate for the liquidators to undertake the task of identifying that material within the affidavit and its annexures that should be treated as confidential and that which should not.
On the material presently before me, it is not clear precisely how an order suppressing the whole of the Lock affidavit is necessary to prevent prejudice to the proper administration of justice within the meaning of s 37AG of the FCA Act. The inferences invited by the liquidators’ submissions are not supported by particulars of the litigation or any ongoing investigation that would be prejudiced by the disclosure of particular information to any particular person, and how so. Much of the background to the litigation and the liquidators’ investigations would appear to be material that is in the public domain, or at least known to those who may seek to make forensic or other use of it.
The Lock affidavit itself refers only to the settlement deed as involving obligations of confidence on the part of the liquidators but does not otherwise claim that any other annexure or deposition is inherently confidential. I cannot presently identify anything inherently sensitive about the commercial reasoning behind the liquidators’ decision to adopt the recommendations in the Phillips report per se.
The originating process is not to be suppressed and nor is there an application for the orders made on the substantive application to be kept confidential. Those orders will reveal to all the world which of the claimed debts will be lodged, admitted, not lodged or rejected as the case may be. The creditors of all of the Liquidated Companies (and ASIC) have been served with the proceedings (although not the Lock affidavit), and are aware of the manner in which the liquidators intend to act.
It may be accepted that the preparation of a further affidavit addressing the criteria for a suppression order is an exercise that may cause the liquidators to incur expenses in the liquidations of the Liquidated Companies. However, it is not correct to describe that expense as unnecessary or avoidable.
The liquidators draw the Court’s attention to other cases the Court has, as a matter of pragmatism, made orders suppressing the whole of an affidavit in circumstances where it is plain that there could be no prejudice to the proper administration of justice caused by the publication of some of the suppressed material. See for example Pascoe (Liquidator), in the matter of Matrix Group Ltd (in liq) (Trustee) [2019] FCA 1844 at [60] (Gleeson J); Krejci (liquidator), in the matter of Community Work Pty Ltd (in liq) [2018] FCA 425 at [64] (Gleeson J). See also In the matter of Octaviar Administration Pty Ltd (in liquidation) [2014] NSWSC 344 at [17] (Ball J).
I am not bound to follow the same approach in the present case and I do not consider it appropriate to do so. Whilst the power to make a suppression order is discretionary, the discretion is only enlivened once the essential criteria for the order are fulfilled. The onus of demonstrating that the criteria are fulfilled rests with the liquidators. Whilst the expense of making a more particular application for a suppression order may be a relevant consideration, I afford that factor little weight given the magnitude of the liquidators’ task in the several liquidations viewed as a whole.
I take into account that the primary creditor is the DCT. Whilst its dividend may be reduced should the liquidators be put to the expense of applying for a more appropriately targeted order, I do not consider the expense of the exercise would significantly reduce the benefits ultimately flowing to the DCT in the final result.
In addition, the liquidators have made the present application in their capacities as liquidators and officers of the Court. There is a strong prima facie interest in public access to information about the manner in which they have discharged their responsibilities under the Corporations Act and, more specifically, about the appropriate manner in which they have dealt with the conflict of duties arising in the liquidations.
The suppression the whole of the Lock affidavit has the consequence that a member of the public who would ordinarily face no real obstacle on an application to access and inspect the material on the Court record would be put to the trouble and expense of preparing an application to have a too-widely expressed suppression order varied or revoked. In my view, the very fact that the Court had made a suppression order would discourage applications to access and inspect the document. It would present an unwarranted barrier to an application to inspect the document made in accordance with r 2.32 of the Federal Court Rules 2011 (Cth).
Whilst I accept that there is a public interest in ensuring that liquidators can effectively perform their role for the benefit of creditors (see Hird (Liquidator), in the matter of Allmine Group Limited (in liq) [2018] FCA 781 at [48]) it is presently unclear how the refusal of a suppression order would undermine that particular aspect of the public interest.
The liquidators should be afforded another opportunity to identify those parts of the evidence that they submit fulfil the statutory criteria for a suppression order and to provide minutes of order directed to the suppression of that material, and no more. It is appropriate to make a suppression order in relation to the settlement deed, and to make a further interim suppression order, expressed to remain in force for 28 days, over the remainder of the Lock affidavit, as to preserve the subject matter in the interim. The liquidators will be granted liberty to apply, by affidavit, to have any part of the Lock affidavit remain suppressed upon the expiry of the interim order.
In the event that no application is made, the interim order will lapse in time, so rendering the remainder of the Lock affidavit available to be inspected by members of the public on an application made under r 2.32 of the Rules.
I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Charlesworth. Associate:
Dated: 1 October 2020
SCHEDULE OF PARTIES
SAD 74 of 2020 Plaintiffs
Fourth Plaintiff:
BINQLD FINANCES PTY LIMITED (IN LIQUIDATION) ACN: 119 243 220
Fifth Plaintiff:
E.G.L. DEVELOPMENT (CANBERRA) PTY LIMITED (IN LIQUIDATION) ACN: 008 517 646
Sixth Plaintiff:
ERBIN FINANCES PTY LIMITED (IN LIQUIDATION) ACN: 138 259 800 IN ITS CAPACITY AS TRUSTEE FOR THE ERBIN INVESTMENTS TRUST
Seventh Plaintiff:
ERMA NOMINEES PTY LIMITED (IN LIQUIDATION) ACN: 000 957 040 IN ITS CAPACITY AS TRUSTEE FOR THE ERWIN BINETTER FAMILY TRUST
Eighth Plaintiff:
GEROBIN FINANCES PTY LIMITED (IN LIQUIDATION) ACN:140 586 410 IN ITS CAPACITY ASTRUSTEE FOR THE GEROBIN INESTMENTS TRUST
Ninth Plaintiff:
LIGON 158 PTY LIMITED (IN LIQUIDATION) ACN:003 464 015 IN ITS CAPACITY AS TRUSTEE FOR THE CARINGBAH INVESTMENT TRUST
Tenth Plaintiff:
LIGON 159 PTY LIMITED (IN LIQUIDATION) ACN 003 464 024 IN ITS CAPACITY AS TRUSTEE FOR THE EBC INVESTMENTS TRUST
Eleventh Plaintiff:
LIGON 268 PTY LIMITED (IN LIQUIDATION) ACN: 051 824 081 IN ITS CAPACITY AS TRUSTEE FOR THE BANKSTOWN EYE TRUST
Twelfth Plaintiff:
MARBIN FINANCES PTY LIMITED (IN LIQUIDATION) ACN: 140 572 970 IN ITS CAPACITY AS TRUSTEE FOR THE MARBIN INVESTMENTS TRUST
Thirteenth Plaintiff:
MILGERD NOMINEES PTY LIMITED (IN LIQUIDATION) ACN: 000 957 059 AS TRUSTEE FOR THE EMIL BINETTER FAMILY TRUST
Fourteenth Plaintiff:
RAWBIN FINANCES PTY LIMITED (IN LIQUIDATION) ACN: 140 576 549 IN ITS CAPACITY AS TRUSTEE FOR THE RAWBIN INVESTMENTS TRUST
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