FEDERAL COURT OF AUSTRALIA Hamilton, in the matter of ACN 101 634 146 Pty Ltd (in liq) [2014] FCA 687 Citation: Hamilton, in the matter of ACN 101 634 146 Pty Ltd (in liq) [2014] FCA 687 Parties: BARRY KENNETH HAMILTON AS LIQUIDATOR OF ACN 101 634 146 PTY LTD (IN LIQUIDATION) File number(s): TAD 7 of 2014 Judge(s): KERR J Date of judgment: 13 June 2014 Catchwords: CORPORATIONS – Winding up – Liquidators – Application for retrospective approval of agreements for litigation funding and solicitors' costs which may end more than three months after the agreement is entered into – Application for declaration that agreements were not invalid by reason of contravention of Corporations Act 2001 Legislation: Corporations Act 2001 (Cth), ss 477(2)(b), 477(2B), 479(3), 1322(4)(a), 1322(6)(a) Cases cited: Re Ausam Resources Ltd [2004] FCA 823 Re Read [2007] FCA 1985; 164 FCR 237 Date of hearing: 13 June 2014 Place: Hobart Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 12 Counsel for the Plaintiff: Mr G O'Rafferty IN THE FEDERAL COURT OF AUSTRALIA TASMANIA DISTRICT REGISTRY GENERAL DIVISION TAD 7 of 2014 IN THE MATTER OF ACN 101 634 146 PTY LTD (IN LIQUIDATION) BETWEEN: BARRY KENNETH HAMILTON AS LIQUIDATOR OF ACN 101 634 146 PTY LTD (IN LIQUIDATION) Plaintiff JUDGE: KERR J DATE OF ORDER: 13 JUNE 2014 WHERE MADE: HOBART THE COURT ORDERS THAT: 1. Pursuant to s 477(2B) of the Corporations Act, the liquidator's entering into a litigation funding agreement on 27 June 2012, and a solicitors' costs agreement dated 30 June 2012 is approved nunc pro tunc. 2. Pursuant to s 479(3) of the Corporations Act, the liquidator may act on the agreements as though he had entered into them with the approvals necessary to accord with s 477(2B) of the Corporations Act. THE COURT DECLARES THAT: 3. Pursuant to s 1322(4)(a) of the Corporations Act, the liquidator's entry into the agreements is not invalid, and the agreements themselves are not invalid by reason of any contravention of s 477(2B) of the Corporations Act. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA TASMANIA DISTRICT REGISTRY GENERAL DIVISION TAD 7 of 2014 IN THE MATTER OF ACN 101 634 146 PTY LTD (IN LIQUIDATION) BETWEEN: BARRY KENNETH HAMILTON AS LIQUIDATOR OF ACN 101 634 146 PTY LTD (IN LIQUIDATION) Plaintiff AND: JUDGE: KERR J DATE: 13 JUNE 2014 PLACE: HOBART REASONS FOR JUDGMENT 1 This is an application by Barry Kenneth Hamilton as liquidator of ACN 101 634 146 Pty Ltd (In Liquidation) for orders or directions that: 1. Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), the liquidator's entering into a litigation funding agreement on 27 June 2012 and a solicitors' costs agreement dated 30 June 2012 ("the agreements") is approved nunc pro tunc; 2. Pursuant to s 479(3) of the Corporations Act, a direction that the liquidator may act on the agreements as though he had entered into them with the approvals necessary to accord with s 477(2B) of the Corporations Act. 3. Pursuant to s 1322(4)(a) of the Corporations Act, an order declaring the liquidator's entry into the agreements is not invalid and the agreements themselves are not invalid, despite any contravention of s 477(2B) of the Corporations Act. 2 The plaintiff also seeks any other order or direction the court deems fit. The originating process filed on 4 April 2014 stated that the plaintiff intended to serve a copy of the originating process on the following: the Australian Securities and Investments Commission, Derrick Proprietary Limited, Rachael Weeks, the Australian Tax Office, Wellington Capital Ltd, and Crossborder Investments Pty Ltd. On the morning of these proceedings, the plaintiff deposed to the fact that all known creditors were sent a copy of the application by prepaid post on 13 May 2014 and that he has not received a response from any creditor concerning this application. 3 He also advises the replacement trustee, Wellington Capital Ltd and the company members, Crossborder Investments Pty Ltd were sent a copy of this application by email and that Jennifer Hutson who is a director for both companies has confirmed there is no objection to the orders being sought. An email to that effect was annexed. Also annexed to that affidavit and filed earlier as exhibit A is a letter from ASIC to the plaintiff's solicitors referring to correspondence confirming the receipt of the copy of the originating application filed on 4 April 2014 and a copy of Mr Hamilton's affidavit sworn on 3 April 2014 including the exhibits. 4 In that letter ASIC advised that it considers this is a matter properly left for the determination of the court and that it did not propose to intervene in the proceedings or seek leave to appear in the next hearing. I am satisfied that the relevant parties have been appropriately advised and do not intend to oppose the application. The relevant sections of the Corporations Act are as follows. Section 477(2) permits a liquidator to bring or defend any legal proceedings in the name or behalf of the company and to appoint a solicitor to assist them in their duties. Section 477(2B) provides that except with the approval of the court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf, which, if I can summarise it, extends for more than three months after the agreement is entered into even if the term may end or the obligations may be discharged within those three months. Section 479(3) permits a liquidator to apply to the court for directions in relation to any particular matter arising under the winding up. But innocent errors which occasion no harm and which are in the interests of the creditors may be retrospectively forgiven. 5 Section 1322(4)(a) provides that subject to certain further provisions, the court may on application make any or all of the following orders, including an order declaring that any act, matter or thing purporting to have been done or any proceedings purporting to have been instituted or taken under the Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation. It may make such consequential or ancillary orders as the court thinks fit. There are, however, preconditions in s 1322(6)(a) for making those orders. The court must not make an order under the section unless satisfied that the act, matter or thing or the proceeding is essentially of a procedural nature, that the persons concerned to the contravention acted honestly, that it is just and equitable the order be made and in every case that no insubstantial injustice has been or is likely to be caused by any person. It is clear, as French J said in Re Read (2007) 164 FCR 237 at 247: The general power of the Court to give directions to a liquidator under s 479(3) of the Act will, in my opinion, also allow the Court to approve the liquidator proceeding under an agreement made without the requisite prior approval under s 477(2B). […] In this case the court has an express power to declare entry into an Agreement and the Agreement itself not invalid despite the absence of the requisite prior approval. Such a declaration is not a declaration of an existing state of affairs, but rather a declaration which has the legal effect that any relevant invalidity covered by the declaration is cured. In my opinion the Court also has power under section 479(3) of the Act, or by virtue of its implied incidental power (and if need be s 23 of the Federal Court Act), to approve the Agreement by reference to the criteria in s 477(2B) prior to declaring it, under s 1322(4)(a), to be not invalid. 6 Re Ausam Resources Ltd [2004] FCA 823 at [19] establishes that the criteria in s 1322(6)(a) are disjunctive. In my opinion, in this instance there is no doubt that the litigation funding and costs agreements Mr Hamilton entered into were agreements that should have been identified as having the potential to have ongoing consequences more than three months after they were entered into. This morning, the plaintiff gave oral evidence to the effect that as an experienced liquidator, he ought to have turned his mind to that possibility, but, in the circumstances, with haste, he fixed his mind on the fact that the proceedings in the Supreme Court of Victoria before Sifris J in Proceeding No. 6858 of 2009 were likely to take only seven days. 7 Whilst it may be the subject of legitimate criticism of the liquidator that he failed in those circumstances to anticipate the unlikelihood that the proceedings would entirely be completed within a three month period, given what he has deposed to regarding the urgency of the matter, that is not unforgiveable. It displays no dishonesty, and it has been explained. It is not something that this court considers should prevent the exercise of the powers it has to give the agreements retrospective approval. 8 As to the inconsistency between the dates and the periods where the plaintiff has indicated his expectation in which the matters would be completed in his report to a committee, and then in his affidavit where periods of 14 days and seven days were respectively referred to, a satisfactory explanation has been provided for that discrepancy. I am satisfied that the creditors were given notice of the liquidator's intention to enter into these agreements, and that they informally provided encouragement, or certainly no opposition was expressed to the course that the liquidator proposed to take. I am also satisfied that, after the action had been undertaken, there was a formal meeting of creditors which purported to approve retrospectively the agreement. That purported retrospective approval was of no legal effect. That is why these proceedings have been taken in this court. 9 I am satisfied that the motivation for Mr Hamilton, as liquidator, for entering into a funding agreement which enabled the company in liquidation to defend legal proceedings against it, was entirely proper, and he did so to protect the interests of the creditors. Had he not done so, there was a potential judgment of some considerable amount that might have been entered against the company in liquidation, which, on the evidence as I apprehend it, would have interfered with the proper management of the liquidation, and also potentially prevented the liquidator assisting ASIC with its investigations. 10 I am also satisfied that the terms of the legal agreement that was entered into with the litigation funder were proper, and the evidence of the plaintiff has satisfied me that there was no prospect that any of the funds held to the account of the creditors was placed at risk by the terms of that agreement or its implementation. The liquidator's fees and/or costs that might be obtained under the funding agreement were to be paid out of any costs order obtained, and the agreement indemnified the plaintiff in case of circumstances where there may be an adverse liability. 11 In all the circumstances I am satisfied that there was a breach of what is essentially a matter of a procedural nature; that the liquidator acted honestly; that it is just and equitable that the order be made; and that no substantial injustice has been, or is likely to be, caused to any person. Indeed, I might go further and say that, had the action not been taken, the circumstances of the creditors might have been significantly damaged. I take into account that it is the Court's duty not simply to act on the basis of submissions put to it, but to satisfy itself as to the propriety of the decision, and to examine in close terms what has been done. I have undertaken that task, and I am satisfied that not only do the submissions that have been put to me by Mr O'Rafferty justify the making of the orders sought, but also the evidence of Mr Hamilton confirms the circumstances in such terms as I am entitled to make those orders. 12 For those reasons I propose to make the orders and declarations sought, with one small amendment. I think the proper terms of the declaration should reflect the terms of the statute, and so the word "despite" in the passage "despite any contravention of s 477(2B)" should be replaced by the words "by reason of". Accordingly, I order that: 1. Pursuant to s 477(2B) of the Corporations Act, the liquidator entering into a litigation funding agreement on 27 June 2012, and a solicitors' costs agreement dated 30 June 2012 is approved nunc pro tunc. 2. Pursuant to s 479(3) of the Corporations Act, the liquidator may act on the agreements as though he had entered into them with the approvals necessary to accord with s 477(2B) of the Corporations Act. I declare that: 3. Pursuant to s 1322(4)(a) of the Corporations Act the liquidator's entry into the agreements is not invalid, and the agreements themselves are not invalid by reason of any contravention of s 477(2B) of the Corporations Act. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kerr. Associate: Dated: 27 June 2014