FEDERAL COURT OF AUSTRALIA Goyal (liquidator), in the matter of OLI 1 Pty Ltd (in liq) [2020] FCA 450 File number: NSD 286 of 2020 Judge: MARKOVIC J Date of judgment: 7 April 2020 Catchwords: CORPORATIONS – application made by liquidators under s 477(2B) of the Corporations Act 2001 (Cth) for approval of entry into a funding agreement – whether it is a proper exercise of the liquidators' powers – application allowed Legislation: Corporations Act 2001 (Cth) s 477(2B) Federal Court of Australia Act 1976 (Cth) ss 37AF(1)(b), 37AG(1)(a), 37AJ Cases cited: Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) (No 2) [2017] FCA 755 Krejci (liquidator), in the matter of Community Work Pty Ltd (in liq) [2018] FCA 425 McGrath & Anor Re HIH Insurance Ltd [2005] NSWSC 731 Date of hearing: Determined on the papers Date of last submissions: 1 April 2020 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 40 Counsel for the Plaintiff: Mr D R Stack Solicitor for the Plaintiff: Bridges Lawyers ORDERS NSD 286 of 2020 IN THE MATTER OF OLI 1 PTY LTD (IN LIQUIDATION) ACN 139 622 763 MR RAHUL GOYAL IN HIS CAPACITY AS JOINT & SEVERAL LIQUIDATOR OF OLI 1 PTY LTD (IN LIQUIDATION) ACN 139 622 763 Plaintiff JUDGE: MARKOVIC J DATE OF ORDER: 7 April 2020 THE COURT ORDERS THAT: 1. Pursuant to s 477(2B) of the Corporations Act 2001 (Cth) (Act), approval is granted (to the extent necessary), nunc pro tunc, for Rahul Goyal and Jennifer Anne Nettleton (Liquidators), as joint and several liquidators of OLI 1 Pty Ltd (in liquidation) (Company), to accept the offer from Premier Litigation Funding Pty Ltd ACN 629 061 427 as trustee for the Premier Litigation Funding Trust #2 (Funder) set out in its letter dated 10 December 2019 (Offer Letter), a copy of which appears at pages 1 to 27 of exhibit "RG-1" to the affidavit of Rahul Goyal affirmed on 11 March 2020 (Goyal Affidavit). 2. Pursuant to s 477(2B) of the Act, approval is granted for the Liquidators to enter into, and to cause the Company to enter into, a litigation funding deed with the Funder in terms substantially similar to the draft litigation funding deed which is schedule 3 to the Offer Letter, a copy of which appears at pages 9 to 27 of exhibit "RG-1" to the Goyal Affidavit. 3. Subject to Order 4 of these Orders, pursuant to ss 37AF(1)(b), 37AG(1)(a) and 37AJ of the Federal Court of Australia Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice, the following documents (Documents) are to be marked "confidential" on the electronic Court file and are not to be published or accessed, except pursuant to an order of the Court, until such time as any litigation (including any appeal) arising out of the winding up of the Company is concluded: (a) the Goyal Affidavit and exhibit "RG-1" thereto; and (b) the plaintiff's written outline of submissions dated 23 March 2020. 4. Order 3 of these Orders does not prevent the plaintiff, the plaintiff's legal representatives or the plaintiff's servants, agents or employees from disclosing, publishing or accessing the Documents and the information contained therein. 5. Costs of this proceeding are costs in the liquidation of the Company. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MARKOVIC J: 1 This is an application made by Rahul Goyal in his capacity as joint and several liquidator of OLI 1 Pty Ltd (in liquidation) (OLI 1) under s 477(2B) of the Corporations Act 2001 (Cth) (Act) seeking approval for Mr Goyal and Jennifer Anne Nettleton (Liquidators) as joint and several liquidators of OLI 1 to accept the offer from Premier Litigation Funding Pty Ltd as trustee for the Premier Litigation Fund Trust #2 (Funder) of funding set out in its letter dated 10 December 2019 (Offer Letter) and to enter into and cause the Company to enter into a litigation funding deed with the Funder in substantially the same terms as the draft litigation funding deed which is schedule 3 to the Offer Letter. 2 Mr Goyal also seeks orders pursuant to ss 37AF(1)(b), 37AG(1)(a) and 37AJ of the Federal Court of Australia Act 1976 (Cth) (FCA Act) in relation to his affidavit affirmed on 11 March 2020 (Goyal Affidavit) and exhibit "RG-1" thereto and the written outline of submissions dated 23 March 2020 filed on his behalf (Submissions). 3 Mr Goyal invited me to deal with this application on the papers. In light of the current novel coronavirus (COVID-19) pandemic and the nature of the matter, described more fully below, I agreed to do so. I was satisfied that determination of the matter would not be significantly aided by an oral hearing. There is no real issue of fact relevant to the determination of the matter and the legal arguments raised by the plaintiff can and have been dealt with adequately by written submissions: see s 20A of the FCA Act. Background 4 OLI 1 was formerly known as Lyon Infrastructure Pty Ltd. Nicholas O'Day has been a director and secretary of OLI 1 since 23 September 2009 and Jeannene O'Day, who Mr Goyal understands to be Mr O'Day's wife or ex-wife, was a director of OLI 1 from 23 September 2009 to 1 September 2015. 5 OLI 1's sole shareholder is OLE 1 Pty Ltd (Deregistered) (OLE). Mr and Mrs O'Day were OLE's directors and its only shareholders. 6 OLI 1 was part of the Lyon Group, a group of companies concerned with providing "innovative and commercially sustainable solutions that address the inefficiencies in markets that are contributing to climate change". It carried on the business of providing "infrastructure advisory" services and had no employees. 7 On 30 September 2016, on the application of the Deputy Commissioner of Taxation (DCT), Mr Goyal and David Winterbottom were appointed by this Court as joint and several liquidators of OLI 1. On 31 August 2017 Mr Winterbottom was replaced by Ms Nettleton as liquidator. 8 The only asset of OLI 1 of any significance that Mr Goyal has been able to identify is a loan made by it to a related company, OLG 1 Pty Ltd (OLG) in the sum of $1,344,608.18 (Loan Amount). Mr and Mrs O'Day are the directors of OLG and OLE is its only shareholder. 9 Although he has not called for formal proofs of debt or adjudicated on claims received, Mr Goyal estimates that current creditor claims are in the vicinity of $650,000 of which approximately $400,000 is owed to the DCT and the balance is owed to what he describes as "related parties", I infer related to OLI 1, and "consultants to OLG", which I will refer to collectively as Related Party Creditors. Mr Goyal explains that, of the amount he estimates to be owing to Related Party Creditors, $215,333.30 relates to a purported debt to "Lyon Trust" which he understands to be related to Mr O'Day. However Mr Goyal says that, according to a questionnaire completed by Mr O'Day and provided to the Liquidators, the DCT is OLI 1's only creditor. If Mr Goyal does not receive supporting documentation for the alleged debt to "Lyon Trust" and the other Related Party Creditor claims he would consider not admitting those claims in the liquidation. 10 In July 2017 Mr Goyal caused OLI 1 to issue and serve a statutory demand on OLG for the Loan Amount (Demand). On 18 August 2017 OLG commenced a proceeding in the Supreme Court of New South Wales seeking to set aside the Demand. That proceeding was ultimately resolved by orders that the Demand be set aside and each party pay its own costs. 11 As a result of investigations undertaken by him and correspondence with OLG, Mr Goyal believes that there are reasonable prospects of recovering the Loan Amount. 12 The Liquidators have no funding available to them to recover the Loan Amount. A request for funding to the DCT was declined on 11 October 2019. However, on 10 December 2019 the Liquidators received the Offer Letter from the Funder which they subsequently accepted. The Liquidators have not yet entered into the Funding Deed and cannot do so until they obtain approval from either OLI 1's creditors or from the Court under s 477(2B) of the Act. 13 The Liquidators have not sought approval for entry into of the Offer Letter and Funding Deed from OLI 1's creditors because it is not practical to do so. Mr Goyal explains that: (1) the DCT is the only creditor of OLI 1 who is not related or a consultant to OLG and Mr and Mrs O'Day, the proposed defendants in any proceeding; (2) notwithstanding that the DCT is the majority creditor in terms of quantum, if no other creditors attend a meeting of creditors to vote on the resolution to approve entry into the Offer Letter and/or Funding Deed there would be no quorum at that meeting; (3) he does not wish to disclose the terms of the Funding Deed to parties that have any connection to OLG and Mr and Mrs O'Day; and (4) he is not satisfied that it would be appropriate for him to exercise a casting vote on the resolution for approval, assuming that the Related Party Creditors would vote against, and the DCT would vote in favour of, the resolution, in circumstances where there would be a greater likelihood that his remuneration would ultimately be paid if the Funding Deed was entered into because doing so would provide the opportunity for OLI 1 to make recoveries. Legal principles 14 Section 477(2B) of the Act provides: 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 (for example, but without limitation, a lease or an agreement under which a security interest arises or is created) if: (a) without limiting paragraph (b), the term of the agreement may end; or (b) obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance; more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months. 15 The principles concerning the role of the Court in granting approval under s 477(2B) are well settled. In Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) (No 2) [2017] FCA 755 (DCT v ACN 154 520 199) at [22]-[26] Gleeson J summarised those principles as follows: 22 The Court's role in considering an application under s 477(2B) is to determine whether it is a proper or bona fide exercise of the liquidator's powers. In Re 7 Steel Distribution Pty Ltd (in liq) (recs and mgrs apptd) [2013] NSWSC 669; (2013) 31 ACLC 13-021 at [17], Black J said: The Court is not concerned, in granting an approval under s 477(2B) of the Corporations Act, with matters of commercial judgment but is concerned to be satisfied that the entry into the agreement is a proper exercise of power and not ill-advised or improper on the part of the liquidator ... In Pascoe; Re Matrix Group Limited (in liq) [2011] FCA 1117 at [14], Jacobsen J [sic] noted that the question for the Court in such an application was whether the liquidator's judgment had been infected by a lack of good faith, or an error of law or principle, and whether there was a real or substantial ground for doubting the prudence of the Liquidator's conduct in seeking to enter into the funding arrangement. That question arises, in the context of s 477(2B), in the context of entry into a longer term agreement, the performance of which might otherwise delay the completion of the winding-up. 23 In Stewart, re Newtronics Pty Ltd [2007] FCA 1375 ("Newtronics"), Gordon J, at [26(4)], cited with approval Austin J's statement in Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109 at 118 that, in reviewing the liquidator's proposal, the task of the Court is not "to reconsider all of the issues which have been weighed up by the liquidator in developing the proposal, and to substitute its determination for his in....a hearing de novo", but rather the task of the Court is: … simply to review the liquidator's proposal, paying due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, satisfying itself there is no error of law or ground for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene in terms of the "expeditious and beneficial administration" of the winding up … 24 The standard imposed under s 477(2B) concerns an assessment by the Court as to whether entry into the agreement is a proper exercise of power and not ill-advised or improper on the part of the liquidator, rather than involving the exercise of commercial judgment: Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257 at [11] per Black J citing McGrath re HIH Insurance Ltd [2010] NSWSC 404; (2010) 266 ALR 642. 25 In Pascoe; re Matrix Group Ltd (in liq) [2011] FCA 1117 at [7], Jacobson J cited with approval the following statement by Austin J of the relevant test in Leigh re King Bros [2006] NSWSC 315 at [23]: Although the court has the statutory task [under s 477(2B)] of giving "approval" to a liquidator's agreement that may end more than three months after it is entered into, the case law shows that the court undertakes something less than a complete "merits review". As Giles J said in Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-6: "... 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 of law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct." 26 In Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89; (2011) 85 ACSR 38 at [24], the Full Court endorsed the following list of factors (identified by Austin J in Leigh re King Bros at [25] and Re ACN 076 673 875 Ltd [2002] NSWSC 578; (2002) 42 ACSR 296 at [17]-[34]) relevant to the Court's assessment of a litigation funding agreement: (1) the prospects of success of the proposed litigation; (2) the interests of creditors other than the proposed defendant; (3) possible oppression; (4) the nature and complexity of the cause of action; (5) the extent to which the liquidator has canvassed other funding options; (6) the level of the funder's premium; (7) consultations with creditors; and (8) the risks involved in the claim. 16 Although liquidators should ordinarily seek approval before entering into a long term agreement, the Court can give approval nunc pro tunc in appropriate circumstances: see DCT v ACN 154 520 199 at [27] and the cases cited therein. Consideration 17 Based on the evidence before me and having regard to the factors identified in DCT v ACN 154 520 199 at [26] (see [15] above), I am satisfied that the Liquidators' acceptance of and entry into the Offer Letter and their proposed entry into the Funding Deed was, in the case of the Offer Letter, and is, in the case of the Funding Deed, a proper exercise of their powers and not an ill-advised or improper act on their part in either case. Accordingly, the orders sought by Mr Goyal for approval of the Liquidators' acceptance of the Offer Letter nunc pro tunc and for entry into the Funding Deed should be made. My reasons follow. 18 First, in relation to the prospects of success of the proposed litigation, which concerns a claim for recovery of the Loan Amount from OLG and Mr and Mrs O'Day, Mr Goyal has carried out investigations, exchanged correspondence with OLG and taken advice. He has formed the view, based on those matters, that there are reasonable prospects of recovering the Loan Amount. 19 Secondly, in relation to the interests of creditors other than the defendants to the proposed litigation, the evidence before me establishes that only the DCT is not a Related Party Creditor and its debt exceeds the combined debt of the Related Party Creditors. The evidence also establishes that the Loan Amount is the only substantial asset of OLI 1 and that the proposed litigation is the only mechanism for recovery of that amount. 20 Thirdly, in relation to possible oppression, I accept Mr Goyal's submission that it is difficult to envisage a claim for oppression arising from the acceptance of the Offer Letter and execution of the Funding Deed. 21 Fourthly, as to the nature and complexity of the cause of action, based on the draft statement of claim that was in evidence before me it is apparent that the claim is not overly complex. 22 Fifthly, in relation to the extent to which the Liquidators have canvassed other funding options, Mr Goyal sought to obtain funding from the DCT, the only creditor which is not a Related Party Creditor, but that request was unsuccessful. 23 Sixthly, in relation to the level of the funder's premium, Mr Goyal's evidence is that the premium which the Funder will be entitled to receive is "in the usual range" of premiums obtained by litigation funders. 24 Seventhly, in relation to consultation with creditors, on 29 November 2019 Mr Goyal sent a letter to the DCT, the only creditor of OLI 1 which is not a Related Party Creditor, informing the DCT about the proposed funding, that he did not intend to hold a creditors' meeting to consider obtaining approval for entry into the funding arrangements and of his intention to make this application to the Court to obtain approval. As at 11 March 2020, the date on which Mr Goyal affirmed his affidavit, he had not received any response to that letter. 25 Finally, in relation to risks involved in the claim, as Mr Goyal has formed the view that the proposed litigation has reasonable prospects of success, it seems that there are limited risks involved with it. Confidentiality 26 As noted above Mr Goyal also seeks an order pursuant to s 37AF(1)(b) and s 37AJ of the FCA Act that, until such time as any litigation (including any appeal) arising out of the winding up of OLI 1 is concluded, the Goyal Affidavit and the Submissions not be disclosed to any other person and a related order. 27 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). 28 Mr Goyal seeks the order upon the ground referred to in s 37AG(1)(a) of the FCA Act which relevantly provides that the Court may make a suppression order or non-publication order on the ground that the order is necessary to prevent prejudice to the proper administration of justice. 29 Section 37AJ provides, among other things, that a suppression order or non-publication order operates for the period decided by the Court and specified in the order and that the Court is to ensure that any order made operates for no longer than is reasonably necessary to achieve the purpose for which it is made. 30 Mr Goyal is concerned that if the proposed defendants to any proceeding are made aware of the commercial terms of the Funding Deed it would provide them with an unfair forensic advantage in relation to how they conduct any proceeding and/or any negotiations for the resolution of any proceeding. 31 The Goyal Affidavit refers in detail to the Offer Letter and the Funding Deed and the way in which the funding would operate including its effect on recoveries in certain scenarios and exhibit "RG-1" thereto includes the Offer Letter and Funding Deed. The Submissions also refer to the terms of the Offer Letter and the Funding Deed, although in less expansive terms. 32 It has been generally accepted that it is "conventional" or "appropriate" to make orders of the nature sought by Mr Goyal in relation to material relied on in support of an application by a liquidator for approval of a funding deed for the prosecution of litigation for the benefit of creditors: see, for example, Hird (Liquidator), in the matter of Allmine Group Limited (in liq) [2018] FCA 781 at [47]; Vickers, in the matter of JM Kelly Builders Pty Ltd (in Liquidation) [2019] FCA 2141 at [20]; Pogroske, in the matter of Bower Projects Australia Pty Ltd (in liq) [2019] FCA 1688 at [22]-[23]. 33 The rationale for that approach was explained by Barrett J in McGrath & Anor Re HIH Insurance Ltd [2005] NSWSC 731 at [10]-[13] and, in particular, at [12] where his Honour relevantly said: The administration of justice is, in my view, very likely to be prejudiced in two ways by availability to the potential defendants of (and any public airing of) the information concerning the liquidators' proceedings that will inevitably be divulged by the adducing of evidence and the making of submissions on the hearing of the s.447(2B) [sic] applications. There is a likelihood of a real and negative impact upon the due and orderly conduct of the proposed proceedings themselves, in that the defendants in them will have access to information that, in the ordinary course, a plaintiff is entitled to keep confidential in the plaintiff's own interests. Any such access would produce an undue distorting effect in relation to the due conduct of those proceedings themselves. … 34 In DCT v ACN 154 520 199 at [40]-[41] Gleeson J made the following observations in considering an application for confidentiality orders pursuant to s 37AF of the FCA Act in connection with affidavits relied on by the plaintiff in that case: 40 In previous cases which are substantially similar to this case, including Re Ambient Advertising Pty Ltd (in liq) [2015] NSWSC 1079, Victoria v Goulburn Administration Services (In Liq) [2016] VSC 654 and Victoria v CTM Training Solutions Pty Ltd (In Liq) [2017] VSC 47, the proposed funding deeds were kept confidential as between the special purpose liquidators and the funder. There is no reason why this matter should be any different. 41 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 a s 37AF order in this case. I was satisfied that an order pursuant to s 37AF should be made to protect commercially confidential information provided in support of the application. 35 I am satisfied that it is appropriate to make the order sought by Mr Goyal for confidentiality of the Goyal Affidavit, exhibit "RG-1" thereto and the Submissions for the following reasons. 36 First, the evidence relied on by Mr Goyal establishes the relationships between various parties and that, other than the DCT, all creditors are related in some way to the proposed defendants. 37 Secondly, Mr Goyal has, in seeking approval for the Liquidators' acceptance of the Offer Letter nunc pro tunc and for entry into the Funding Deed, relied on evidence that is commercially sensitive and confidential including, as noted above, the Offer Letter and the Funding Deed. If they were ordinary litigants, the Liquidators would not be required to disclose that information. 38 Thirdly, Mr Goyal gives evidence of his concern that if the evidence over which he seeks the order becomes available to the proposed defendants they will gain an unfair forensic advantage in any proceeding. 39 I am also satisfied that the order sought by Mr Goyal which seeks to protect from disclosure the entirety of the Goyal Affidavit, exhibit "RG-1" thereto and the Submissions is appropriate. In that regard, the observations of Gleeson J in Krejci (liquidator), in the matter of Community Work Pty Ltd (in liq) [2018] FCA 425 at [64] apply equally here: In my respectful view, the approach taken by Black J in Re Octaviar Administration Pty Ltd (in liq) [2014] NSWSC 344 at [14]–[21] is a useful guide in cases of this kind. That is, in my view, it would not serve the interests of justice to require the liquidator to expend time and money in identifying particular material within his affidavits that should be redacted because it is confidential, recognising that this may be necessary in the event that an application is made by a person with sufficient interest for access to materials presently within the scope of the s 37AF order. Conclusion 40 For those reasons the orders sought by Mr Goyal should be made. I will make orders accordingly. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic. Associate: Dated: 7 April 2020