Tracy, in the matter of Linchpin Capital Group Limited (in liq)
[2022] FCA 104
•11 February 2022
FEDERAL COURT OF AUSTRALIA
Tracy, in the matter of Linchpin Capital Group Limited (in liq) [2022] FCA 104
File number: NSD 1329 of 2021 Judgment of: CHEESEMAN J Date of judgment: 11 February 2022 Date of publication of reasons: 15 February 2022 Catchwords: CORPORATIONS – application by liquidators pursuant to section 477(2A) of the Corporations Act 2001 (Cth) for approval of entry into a settlement deed – where the liquidators have formed the view that entry into the settlement deed is in the best interest of creditors – whether entry into the agreement is in the best interest of the administration – Held: application successful.
PRACTICE AND PROCEDURE – confidentiality order sought in respect of evidence supporting the application – where the evidence is directed to the negotiations undertaken by the plaintiffs to compromise the debt the subject of the settlement deed – where the liquidators are concerned the release of the evidence may prejudice future negotiations with other debtors and the conduct of the liquidation as a whole – whether confidentiality orders ought to be made – Held: confidentiality orders made.
Legislation: Corporations Act 2001 (Cth), s 477(2A)
Federal Court of Australia Act 1976 (Cth), s 37AF
Corporations Regulations 2001 (Cth), reg 5.4.02
Cases cited: Australian Competition and Consumer Commission v Air New Zealand Limited (No 3) [2012] FCA 1430
Australian Competition and Consumer Commission v Origin Energy Electricity Ltd [2015] FCA 278
Clark v Digital Wallet Pty Ltd [2020] FCA 877
In the matter of One.Tel Limited [2014] NSWSC 457; (2014) 99 ACSR 247
Onefone Australia Pty Ltd v OneTel Ltd [2010] NSWSC 498; (2010) 78 ACSR 163
Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in Liquidation) v Battaglia [2020] NSWSC 1617
Re HIH Insurance Ltd (in liquidation) [2004] NSWSC 5
Re Rubix Investments Group Pty Ltd (in liq) [2018] NSWSC 1184
Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 30 Date of hearing: 11 February 2022 Counsel for the Plaintiffs: Ms N Bailey Solicitor for the Plaintiffs: Maddocks ORDERS
NSD 1329 of 2021 IN THE MATTER OF LINCHPIN CAPITAL GROUP LIMITED (IN LIQUIDATION)
JASON TRACY AND DAVID ORR IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF LINCHPIN CAPITAL GROUP LIMITED (IN LIQUIDATION) IN ITS OWN RIGHT AND AS TRUSTEE FOR THE INVESTPORT INCOME OPPORTUNITY FUND (IN LIQUIDATION)
First Plaintiffs
LINCHPIN CAPITAL GROUP LIMITED (IN LIQUIDATION) IN ITS OWN RIGHT AND AS TRUSTEE OF THE INVESTPORT INCOME OPPORTUNITY FUND (IN LIQUIDATION)
Second Plaintiff
ORDER MADE BY:
CHEESEMAN J
DATE OF ORDER:
11 FEBRUARY 2022
THE COURT ORDERS THAT:
1.Pursuant to section 37AF of the Federal Court of Australia Act1976 (Cth), the Plaintiffs’ Outline of Submissions filed 8 February 2022, the affidavit of Jason Tracy sworn 16 December 2021 and the exhibit ‘JMT-1’ thereto be suppressed and not be provided or disclosed to any person, except with the express consent of the First Plaintiffs, until the earlier of:
(a)the finalisation of:
(i)
the liquidation of Linchpin Capital Group Limited (in Liquidation)
ACN 163 992 961;
(ii)
the liquidation of Endeavour Securities (Australia) Limited
(in Liquidation) ACN 079 988 819;
(iii)the winding up of the Investport Income Opportunity Fund (the IIOF Scheme); and
(iv)the winding up of the Investport Income Opportunity Fund ARSN 121 875 009; or
(b)further order of the Court.
2.Pursuant to section 477(2A) of the Corporations Act2001 (Cth), the Court approves the First Plaintiffs’ compromise of the debt owed to the Second Plaintiff in its capacity as trustee of the IIOF Scheme by Secured Business Equity Pty Ltd ABN 31 087 016 153 and Brian David Perrin (Debtors), the terms of such compromise being set out in the Deed of Settlement and Release between the First Plaintiffs, the Debtors and the Second Plaintiff that forms part of Confidential Exhibit JMT-1.
3.The costs of and incidental to this application be costs and expenses in the liquidation and paid out of the assets of the Second Plaintiff.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(Revised from transcript)CHEESEMAN J:
OVERVIEW
This is an application by liquidators seeking the Court’s approval under s 477(2A) of the Corporations Act 2001 (Cth) in respect of the compromise of a debt claimed by the company in liquidation.
The liquidators also seek confidentiality orders under s 37AF of the Federal Court of Australia Act 1976 (Cth) (FCA Act) in respect of certain materials relating to the application.
I am satisfied that it is appropriate to make orders substantially in the form sought by the liquidators for the following reasons.
EVIDENCE
The liquidators, Mr Tracy and Mr Orr, rely on an affidavit of Mr Tracy sworn
16 December 2021, Exhibit JMT-1 thereto and an affidavit of Mr Ng, solicitor (which goes to notification of this application to the relevant debtors). Confidentiality orders are sought in respect of Mr Tracy’s affidavit, Exhibit JMT-1 and the liquidators’ outline of written submissions.
Mr Tracy is a registered liquidator and partner at Deloitte Financial Advisory Pty Ltd and has been practising in the restructuring and insolvency sector for over 20 years. Mr Tracy is also a member of Chartered Accountants Australia and Turnaround Management Association (Australia). Mr Orr is also a registered liquidator and a partner at Deloitte. Mr Tracy has for the purpose of his affidavit conferred with Mr Orr and is authorised to make his affidavit jointly on behalf of the liquidators.
THE DEBT IN ISSUE
Pursuant to orders of this Court made on the application of Australian Securities and Investments Commission, the liquidators were appointed as the joint and several liquidators of, inter alia, Linchpin Capital Group Limited (in liquidation), and as the persons responsible for the winding up of an unregistered managed investment scheme, known as the Investport Income Opportunity Fund (the IIOF Scheme) and a registered management investment scheme of the same name. Linchpin acted as the trustee of the IIOF Scheme.
The liquidators have identified that the property of the IIOF Scheme includes a debt jointly and severally owed by Secured Business Equity Pty Ltd ABN 31 087 016 153 (SBE) and Brian David Perrin (together the Debtors).
The principal amount of the debt, together with interest and costs (Outstanding Debt) is identified in the liquidators’ evidence. The liquidators’ evidence also details the payment into the liquidators’ solicitors’ trust account of an amount of money by the Debtors.
THE COMPROMISE
The liquidators have entered into a deed of settlement and release (Settlement Deed) dated
30 June 2021 with the Debtors which provides, inter alia, for the payment by the Debtors of a Settlement Sum to the liquidators in compromise of the Outstanding Debt.
The Settlement Deed became binding upon execution. However, the release of the Settlement Sum and the operation of the mutual releases are contingent upon the liquidators obtaining the approval which is the subject of the present application.
The Settlement Sum has been paid into the liquidators’ solicitors’ trust account pending the determination of this application.
I note that the Settlement Deed includes provision for the liquidators to, in effect, take steps to void the releases if specified information provided by the Debtors to the liquidators is false or misleading.
Mr Tracy deposes to the detail of the negotiations between the liquidators and Debtors regarding the payment of the Outstanding Debt, the detail of which it is not necessary to recite, suffice to say that the liquidators have negotiated to better the offer initially made by the Debtors and have satisfied themselves that having regard to the financial position of the Debtors, the compromise is in the interests of the unitholders in the IIOF Scheme.
LEGAL PRINCIPLES
Section 477(2A)
Section 477(2A) of the Act provides that, except with the approval of the court, the committee of inspection or a resolution of the creditors, a liquidator of a company must not compromise a debt to the company if the amount claimed by the company is more than, relevantly, the prescribed amount. Approval is required in this instance as the Outstanding Debt exceeds the current prescribed amount of $100,000: regulation 5.4.02 of the Corporations Regulations 2001 (Cth).
The principles which the court applies when considering an application for approval are well settled. Section 477(2A) is concerned to ensure that the court exercises some oversight of the liquidator’s actions, and the court’s assessment must be made in light of the purposes for which liquidator’s powers exist: Re HIH Insurance Ltd (in liquidation) [2004] NSWSC 5 at [15] (Barrett J); Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in Liquidation) v Battaglia [2020] NSWSC 1617 at [18] (Gleeson J); Re Rubix Investments Group Pty Ltd (in liq) [2018] NSWSC 1184 at [26] (Gleeson J).
The essential purpose of the requirement for approval under s 477(2A) is to ensure that the interests and wishes of those affected by a compromise, chiefly the creditors, are a major consideration in making such a compromise: In the matter of One.Tel Limited [2014] NSWSC 457; (2014) 99 ACSR 247 at 254 [28] (Brereton J as his Honour then was).
The court does not concern itself with the commercial desirability of the transaction. As
Giles J explained in Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85:
… [T]he court pays regard to the commercial judgment of the liquidator (Re Chase Corporation (Australia) Equities Ltd (1990) 8 ACLC 1118). That is not to say that it rubber stamps whatever is put forward by the liquidator, but, as is made clear in Re Mineral Securities Australia Ltd [1973] 2 NSWLR 207 at 231-2, the court is necessarily confined in attempting to second-guess the liquidator in the exercise of his powers, and generally will not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator’s conduct.
Similarly, in One.Tel Limited, Brereton J said at 253 [26]:
The role of the court is to grant or deny approval to the liquidator's proposal, not to reconsider every issue considered by the liquidator, nor to develop some alternative proposal which might seem preferable. In reviewing the liquidator's proposal, the court pays due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, but satisfies itself that there is no error of law or ground for suspecting bad faith or impropriety, and evaluates whether the proposal is consistent with the expeditious and beneficial administration of the winding up.
Thus, in deciding whether to approve a settlement, it is not necessary for the court to consider the commerciality of the settlement that has been struck by the liquidator or to ‘second guess’ his or her judgement. Rather, the court will be concerned to ensure that the proposed settlement is in the interests of creditors and there is no absence of good faith, error in law or principle or any real or substantial ground for doubting the prudence of the liquidator’s conduct.
Confidentiality
Section 37AF of the FCA Act provides:
(1)The Court may, by making a suppression order or non-publication order on grounds permitted by this Part, prohibit or restrict the publication or other disclosure of:
(a)information tending to reveal the identity of or otherwise concerning any party to or witness in a proceeding before the Court or any person who is related to or otherwise associated with any party to or witness in a proceeding before the Court; or
(b)information that relates to a proceeding before the Court and is:
(i)information that comprises evidence or information about evidence; or
(ii)information obtained by the process of discovery; or
(iii)information produced under a subpoena; or
(iv)information lodged with or filed in the Court.
(2)The Court may make such orders as it thinks appropriate to give effect to an order under subsection (1).
It is well established that commercial sensitivity can be an appropriate basis for making a suppression or non-publication order: Clark v Digital Wallet Pty Ltd [2020] FCA 877 at [21] – [22] (Abraham J); see also Australian Competition and Consumer Commission v Air New Zealand Limited (No 3) [2012] FCA 1430 at [35] (Perram J); Australian Competition and Consumer Commission v Origin Energy Electricity Ltd [2015] FCA 278 at [148] (Katzmann J). Further the clear public interest in the due and beneficial administration of the estates of insolvent companies for the benefit of creditors is a relevant consideration in favour of granting an order under s 37AF: see Onefone Australia Pty Ltd v OneTel Ltd [2010] NSWSC 498; (2010) 78 ACSR 163 at 164 [2] - [5] (Barrett J as his Honour then was).
CONSIDERATION
Approval under s 477(2A)
The Settlement Deed falls within the ambit of s 477(2A) of the Act given that the Outstanding Debt sought to be compromised exceeds $100,000 (as prescribed by the regulations). The sole question for this Court to determine therefore is whether to exercise its discretion to approve the liquidators’ entry into the compromise as set out in the Settlement Deed.
The liquidators’ evidence sets out the investigations undertaken by the liquidators and which inform the opinion that they have formed as to the appropriateness of the settlement in the specific context of the circumstances pertaining to the Debtors. In this respect I note the investigations undertaken by the liquidators in relation to the financial position of each of the Debtors, and extending to Mr Perrin’s wife. I further note the liquidators’ evidence in respect of Mr Perrin’s chronic and serious health issues.
Based on their investigations, the liquidators have formed the view that the compromise is in the best interests of creditors. Mr Tracy deposes to three reasons; first, that the liquidators believe it is unlikely that pursuing the Debtors in formal recovery proceedings will result in a higher settlement or payment of the Outstanding Debt in full, given the Debtors’ financial position (including substantial business and personal accrued expenses and diminution of
Mr Perrin’s earning capacity), and deteriorating poor health, militating against any expected increase in work and capacity to derive revenue; second, there is a risk that Mr Perrin may himself face action by creditors which would make a distribution to the IIOF Scheme unitholders unlikely, or in event of such a distribution, very minimal; and third, the costs to pursue the Debtors for recovery of the Outstanding Debt would not be commercial.
Against this background, I am satisfied that there is no suggestion that the liquidators’ entry into the agreements is not a proper exercise of the liquidators’ powers or is otherwise
ill-advised. In any event, approval under s 477(2A) of the Act does not operate as an endorsement of the proposed agreement, but merely as permission for the liquidators to exercise their commercial judgment in the matter. Importantly, any such approval does not exonerate the liquidators from any liability they may have in respect of the transaction: One.Tel Limited at 254 [26].
Accordingly, I will make an order under s 477(2A) of the Act approving the liquidators’ entry into the Settlement Deed nunc pro tunc.
Confidentiality orders
The liquidators also seek confidentiality orders pursuant to s 37AF of the FCA Act as described above. The basis for the order is the liquidators’ concerns about the disclosure of sensitive and commercial information regarding, inter alia, the position of the Debtors and the course of the negotiations, including the factors which informed the liquidators’ decision to accept the compromise and execute the Settlement Deed.
Mr Tracy’s evidence is that the liquidations of various companies and schemes is ongoing, including investigations directed to securing assets and recovery for the benefit of the creditors of Linchpin. Disclosure of information regarding the liquidators’ negotiations and compromise of one debt may provide an unfair advantage to other debtors of Linchpin. The liquidators submit that Linchpin’s creditors (and, indeed, creditors of the entities in the broader Linchpin group of companies) may be prejudiced in two ways. First, by the potential reduction of value of the recoveries the liquidators are able to negotiate with other creditors. Secondly, by the risk of increased costs associated with additional steps that may be required by the liquidators to recover assets if commercial settlements cannot be achieved.
The liquidators also submit that the public interest in the due and beneficial administration of the estates of insolvent companies for the benefit of creditors weighs in favour of an order being made under s 37AF of the FCA Act as sought. Further that making a suppression order in these circumstances is also consistent with the proposition that the Court will aid the proper efforts of liquidators to negotiate settlements of claims in the interests of creditors.
I accept the liquidators’ submissions as to confidentiality and am satisfied that an order should be made in respect of the evidence and submissions on the application.
I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman. Associate:
Dated: 15 February 2022
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