FEDERAL COURT OF AUSTRALIA Naidenov, in the matter of AJW Interiors and Constructions Pty Ltd (in liq) [2024] FCA 25 File number: NSD 382 of 2022 Judgment of: CHEESEMAN J Date of judgment: 25 January 2024 Catchwords: CORPORATIONS — whether to grant approval pursuant to s 477(2A) of the Corporations Act 2001 (Cth) in respect of a Deed of Settlement and Release entered into by a liquidator on behalf of a company in liquidation — whether to grant approval nunc pro tunc pursuant to s 477(2B) of the Act in respect of a conditional costs agreement with a law firm entered into by a liquidator on behalf of a company in liquidation and as liquidator — Held: s 477(2A) approval given; s 477(2B) approval refused. Legislation: Corporations Act 2001 (Cth) ss 477(2A), 477(2B) Federal Court Act 1976 (Cth) ss 37AF, 37AG Corporations Regulations 2001 (Cth) r 5.4.02 Cases cited: Alfonso, in the matter of Pinnacle Fire Protection Pty Ltd (in liq) v Woods [2021] FCA 1402 Chamberlain v RG&H Investments Pty Limited, in the matter of Hardy Bros (Earthmoving) Pty Limited (in liq) [2009] FCA 1214; 74 ACSR 661 Chamberlain v RG&H Investments Pty Limited, in the matter of Hardy Bros (Earthmoving) Pty Limited (in liq) (No 2) [2009] FCA 153 Elderslie Finance Corporation Limited v Newpage Pty Ltd (No 6) [2007] FCA 1030; 160 FCR 423 Federal Commissioner of Taxation v Kassem [2012] FCAFC 124; 205 FCR 156 Frigger v Kitay (No 2) [2020] FCA 497; 143 ACSR 655 Generate Group Pty Ltd v Harris [2023] FCA 605 Hall v Poolman [2009] NSWCA 64; 75 NSWLR 99 Hayes, in the matter of Denham Constructions Pty Limited (in liq) [2018] FCA 2053 In the matter of Neil Robert Cussen as liquidator Total Hoarding Supplies Pty Ltd (in liquidation) [2019] NSWSC 887 In the matter of One.Tel Limited [2014] NSWSC 457; 99 ACSR 247 Jahani, in the matter of Ralan Property Services Pty Ltd (receivers and managers appointed) (in liq) [2023] FCA 738 Kogan, in the matter of Rogulj Enterprises Pty Ltd (in liq) [2021] FCA 856 Lewis (liquidator), in the matter of Concrete Supply Pty Ltd (in liq) [2020] FCA 841; 145 ACSR 459 Michell (Liquidator) v Fowler, re WITS Holdings Pty Ltd (In Liq) [2023] FCA 1231 Re Dudley (as liquidator of Freshwater Bay Investments Pty Ltd (in liq) (ACN 105 274 226)) [2021] FCA 608; 152 ACSR 53 Re Tracy (in their capacity as joint and several liquidators of Linchpin Capital Group Ltd) [2022] FCA 739 Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375 Thorn (liquidator), in the matter of South Townsville Developments Pty Ltd (in liq) [2022] FCA 143 Tracy, in the matter of Linchpin Capital Group Limited (in liq) [2022] FCA 739 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 149 Date of last submissions: 22 January 2024 Date of hearing: 4 July 2023 and 26 October 2023 Counsel for the plaintiffs: Mr G McDonald Solicitors for the plaintiffs: Gavin Parsons and Associates ORDERS NSD 382 of 2022 IN THE MATTER OF AJW INTERIORS AND CONSTRUCTIONS PTY LTD (IN LIQ) STEVE NAIDENOV First Plaintiff AJW INTERIORS AND CONSTRUCTION PTY LTD (IN LIQUIDATION) ACN 155 665 286 Second Plaintiff order made by: CHEESEMAN J DATE OF ORDER: 25 January 2024 THE COURT ORDERS THAT: 1. To the extent necessary, pursuant to s 477(2A) of the Corporations Act 2011 (Cth), the plaintiffs' entry into the compromise of debts the terms of which are set out in the Deed of Settlement and Release between the plaintiffs and Andrew John Wilson and Alexandra Marion Gordon, that forms part of Exhibit SN-16 to the affidavit of Steven Naidenov dated 2 June 2023 be approved. 2. The plaintiffs' application pursuant to s 477(2B) of the Corporations Act seeking approval nunc pro tunc of the first plaintiff's entry on behalf of the second plaintiff into the conditional costs agreement with Gavin Parsons and Associates Pty Limited, the terms of which are set out in the conditional Costs Disclosure and Costs Agreement dated 8 April 2022 that forms part of Exhibit SN-16 be dismissed. 3. Pursuant to ss 37AF and 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth) (the FCA Act), the following parts of the documents listed in (a) to (c) be suppressed and not be provided or disclosed to any person until the finalisation of the liquidation of the second plaintiff, unless otherwise ordered: (a) paragraph 56 of the first plaintiff's affidavit affirmed 2 June 2023; (b) pages 36-140, 188-201, 425-432, 453-455 and the bank account details on page 443 of Exhibit SN-16; and (c) paragraph 19 of the first plaintiff's affidavit affirmed 11 September 2023. 4. Within 7 days of the finalisation of the liquidation of the second plaintiff, the first plaintiff email the Associate to Cheeseman J to: (a) confirm the liquidation has been finalised; (b) submit proposed short minutes of order addressing any extant confidentiality and suppression orders; and (c) provide an affidavit (that must also be filed on the Court file) which addresses: (i) notification of the proposed short minutes given to any person with an interest in any extant confidentiality and suppression orders; and (ii) the attitude of any such person to the proposed short minutes. 5. The plaintiffs file copies of the documents referred to in Order 3, redacted to mask only those parts which are identified in Order 3, within 7 days of these orders. 6. The plaintiffs identify any additional redactions in accordance with the Court's guide to the anonymisation of personal and sensitive information by email to the Associate to Cheeseman J within 2 business days of the date of these orders. 7. The costs of and incidental to the plaintiffs' application pursuant to s 477(2A) of the Corporations Act be costs and expenses in the liquidation of the second plaintiff and paid out of the assets of the second plaintiff. 8. There be no orders as to costs in relation to the plaintiffs' application pursuant to s 477(2B) of the Corporations Act. 9. One third only of the costs of and incidental to the plaintiffs' application for orders pursuant to ss 37AF and 37AG(1)(a) of the FCA Act be costs and expenses in the liquidation of the second plaintiff and paid out of the assets of the second plaintiff. 10. Proceeding NSD515/2022 be listed for case management on 8 February 2024. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT CHEESEMAN J INTRODUCTION 1 By interlocutory application dated 6 June 2023, the first plaintiff, Steve Naidenov, the liquidator of AJW Interiors and Construction Pty Ltd (in Liquidation) ACN 155 665 286 seeks an order joining AJW as the second plaintiff to the proceeding and thereafter the liquidator and AJW seek relief pursuant to ss 477(2A) and 477(2B) of the Corporations Act 2001 (Cth) and an order pursuant to s 37AF of the Federal Court Act 1976 (Cth) (FCA Act) for the "suppression or non-publication" of certain materials relied on for the purpose of the application. At the inception of the liquidation, Mr Naidenov was one of two liquidators appointed on a joint and several basis. Upon the resignation of the other liquidator, he has continued as the sole liquidator of AJW. 2 On 15 June 2023, I made orders joining AJW as the second plaintiff to the proceeding and required that notice be provided to the Committee of Inspection of AJW (COI) and for any interested persons wishing to be heard on the balance of the application to inform my associate. Notice was given to the COI. The plaintiffs did not identify any other person interested in the application. No member of the COI sought to be heard on the application. 3 Applications by liquidators for approval under ss 477(2A) and (2B) are commonplace. Sections 477(2A) and (2B) condition the powers otherwise vested in liquidators under s 477 of the Act in that liquidators are prohibited from entering certain agreements unless to do so is sanctioned by the court or the committee of inspection or by a resolution of the creditors. Section 477(2A) prohibits a liquidator from compromising a debt to the company if the amount claimed by the company is more than the prescribed amount, presently $100,000: Corporations Regulations 2001 (Cth) r 5.4.02. Section 477(2B) prohibits a liquidator from entering into an agreement on behalf of a company under the liquidator's control where the term of the agreement or the obligations of a party to the agreement may end or be discharged by performance 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, except where the requisite approval has been obtained. 4 The principles in relation to the grant of approval are well-established. A consideration that is relevant to the court's consideration of whether to approve an application under both ss 477(2A) and (2B) of the Act is whether the proposal is consistent with the expeditious and beneficial administration of the winding up, the general expectation being that the winding up of a company will proceed expeditiously. In the context of s 477(2B) in particular, consideration of the impact of the agreement on the duration of the liquidation, and whether that is, in all the circumstances, reasonable in the interests of the administration, is a controlling, or main, consideration. 5 Although the proper course is for such applications to be brought on notice to creditors and any other interested persons, it is not uncommon for such applications to be determined without the intervention of any other interested person. In these circumstances and having regard to the particular status conferred on liquidators, the court relies on liquidators, and those appearing for them, to conduct such applications consistently with the obligations attendant on making an ex parte application. Applications for approval tend to turn on their own facts. While they require a close scrutiny of the evidence, these applications are usually capable of being disposed of with relatively short reasons for judgment, often delivered ex tempore. There are two disturbing features of the present application which have caused me to deliver more fulsome reasons than I would usually consider to be necessary. 6 First, the object of the present s 477(2A) application is a compromise of the debts the subject of Recovery Proceeding (NSD515/2022) effected by the Deed of Settlement and Release dated 5 April 2023 between the plaintiffs and Andrew John Wilson, AJW director, and Alexandra Marion Gordon, his spouse and an AJW employee. The Deed of Settlement includes a condition precedent which makes the Plaintiffs' entry into the Deed subject to approval under s 477(2A) of the Act if the liquidator holds the view that such approval is required. The settlement which has been agreed is informed by the liquidator's view that the prospect of recovery against the respondents does not warrant prosecuting the Recovery Proceeding save to the limited extent to which an insurance policy held by AJW will respond to the claim. 7 The settlement sum which has been agreed is modest. The liquidator's remuneration claims for the period from the commencement of the liquidation to the completion of the liquidation (as projected but not, on the evidence, as yet approved in whole) approximate the settlement sum agreed. If the administrators' remuneration is added to the liquidator's remuneration claim, the combined remuneration claims exceed the settlement sum. Separately to the remuneration claims, the legal costs (fees and disbursements) incurred by the liquidator under the conditional costs agreement which is the subject of the s 477(2B) application exceed the settlement sum that has been agreed by a significant margin. The sum is insufficient to cover the remuneration claims. The sum is also insufficient to cover the legal costs incurred by the liquidator. In these circumstances, the plaintiffs submit that the settlement will not provide any return to creditors. 8 The liquidator has convened two meetings of the COI seeking to pass a resolution to approve the settlement in accordance with one of the available mechanisms under s 477(2A) of the Act. On each occasion, the COI has voted against the resolution and the resolution has failed to pass. The present application was heard across two dates following an adjournment to enable the plaintiffs to address deficiencies in their evidence amongst other things. The first hearing followed the COI meeting where the relevant approval resolution was first rejected. The second hearing followed the COI meeting at which the relevant approval resolution was voted down a second time. The vote against the approval resolution was more emphatic at the second meeting. 9 The second feature of the present application relates to the s 477(2B) application. That application is directed to approving entry by the liquidator on behalf of AJW into a conditional costs agreement with Gavin Parsons and Associates, solicitors for the plaintiffs in respect of both this proceeding (NSD382/2022) and the Recovery Proceeding. The costs agreement was executed on 8 April 2022. The costs agreement is not expressed to be conditional on approval being obtained under s 477(2B) of the Act. The present application for approval was filed on 6 June 2023, over a year after entry into the costs agreement. The liquidator seeks to have any order under s 477(2B) take effect nunc pro tunc. Despite affirming three affidavits related to this application, Mr Naidenov does not explain his delay in seeking approval under s 477(2B) of the Act. Rather, there is a bare assertion in the plaintiffs' written submissions that "[i]n this case, unless there was any recovery of funds from the proceedings, there would have been no utility in making an application to the Court for approval of [the cost agreement]." I will return to that submission. Suffice to say at this point that this submission advanced on behalf of Mr Naidenov reflects a failure to grasp a fundamental purpose served by s 477(2B) of the Act as a constraint on the power of liquidators. EVIDENCE 10 This application was heard on the 4 July 2023 and 26 October 2023. At the first hearing, the plaintiffs obtained interim confidentiality orders and relied upon the affidavits of: (1) Mr Naidenov affirmed on 2 June 2023 (Naidenov 1) and Exhibit SN-16 thereto; and (2) Ruby Jackson (in respect of service) affirmed on 3 July 2023. 11 In the course of the first hearing, I raised with the liquidator's counsel my concern that matters relevant to the application had not been addressed in the evidence which should have been. Those factual matters included, for example: (1) when the liquidator was first provided with a copy of the relevant Directors and Officers' Insurance Policy (D&O Policy); (2) the basis for the liquidator's view that as at the time of commencing the Recovery Proceeding there were good prospects of the claim succeeding and some prospect of recovering funds which would have enabled a return to creditors after the costs associated with this proceeding and the Recovery Proceeding were deducted; and (3) the breakdown of legal costs incurred as between this proceeding and the Recovery Proceeding. In addition, the scope of the material over which confidentiality orders were sought had not been refined with an eye to demonstrating that it was necessary to make such orders over the whole of the material identified. 12 As a result, I adjourned the hearing to allow the plaintiffs to put on further evidence. In the second hearing, the plaintiffs relied upon two further affidavits of Mr Naidenov affirmed on 11 September 2023 (Naidenov 2) and 17 October 2023. They also tendered a file note prepared by James White, a member of the liquidator's staff, dated 20 October 2023 in respect of conversations with the priority unsecured creditors of AJW regarding this application. An additional document was provided by counsel which set out the pinpoint page references to the documents in Exhibit SN-16 which the plaintiffs relied on, which I will treat as a submission. BACKGROUND Events leading to appointment of liquidators 13 Prior to being placed in liquidation, AJW undertook project management work for fit out and construction work in the commercial, industrial, and retail sector throughout NSW. 14 On 12 September 2018, AJW obtained a D&O Policy with Chubb Insurance Australia Limited. 15 On 9 July 2019, a creditor filed a winding up application against AJW. 16 On 24 July 2019, Anthony Elkerton and Justin Holzman were appointed as joint and several administrators of the plaintiff. 17 On 5 August 2019, Mr Naidenov and Mr Pirina were appointed as joint and several administrators of AJW by resolution at a meeting of creditors of AJW (replacing Mr Elkerton and Mr Holzman). The creditors also elected the COI. 18 On 28 August 2019, Mr Naidenov and Mr Pirina were appointed as joint and several liquidators of AJW by resolution at a meeting of creditors of AJW. 19 On 4 June 2020 Mr Pirina resigned as liquidator of AJW and Mr Naidenov continued as the sole liquidator. 20 At the time of the liquidator's appointment, Mr Wilson was the director of AJW and at all material times Ms Gordon was involved in the business of AJW as an employee. Subject to its terms, the D&O Policy afforded cover to both Mr Wilson and Ms Gordon in respect of certain liabilities. Conduct of the liquidation 21 On 19 August 2019, the liquidators received a copy of the D&O Policy. 22 On 20 August 2019, the liquidators issued a report to creditors raising, inter alia, the possibility of receiving funding for any recovery actions. This report included the following statement (as written): Creditors should note that any recovery of a trading whilst insolvent claim will attract substantial accounting and legal fees. This would require substantial third-party funding and any liquidator would be unlikely to commence any action based on the defences without an indemnity for costs. 23 In the 20 August 2019 report to creditors, the liquidators described AJW's financial position as having approximately $626,000 in assets, $5.2 million in liabilities and being approximately $4.6 million in deficit. In a report to creditors dated 28 November 2019, the liquidators' assessment of AJW's financial position had been revised such that its total assets were of an undetermined value with liabilities of approximately $5.4 million. 24 On 27 August 2019, the liquidator wrote to Mr Wilson demanding payment of monies. 25 In around October 2019, the liquidators sought legal advice from Timothy McGrath of Argyle Lawyers regarding the D&O Policy and the letter of demand which had been sent to Mr Wilson. Mr Naidenov states that "for some reason" he did not receive a reply and in early 2020 the effects of COVID impacted on his firm's work on the file. Although, it is somewhat unclear, the advice sought from Mr McGrath does not appear to have been received by Mr Naidenov. 26 In the 28 November 2019 report the liquidators sought to ascertain whether creditors wished to provide funding for any further investigations/recovery actions. Mr Naidenov deposes that he did not receive any response from any creditor offering to fund such actions. 27 The 28 November 2019 report to creditors also noted that on 18 October 2019, the liquidators had lodged a report with ASIC in accordance with s 533 of the Act and that on 21 October 2019 ASIC advised that they did not intend to investigate the matters raised in the liquidators' report to ASIC. 28 Mr Naidenov deposes that in the period after November 2019 he instructed his staff to make enquires of litigation funding companies and litigation funding brokers. As a result of the feedback he received from his staff he formed the view that he would not be able to secure litigation funding. His view was informed by the strong denials issued by the legal representatives of Mr Wilson and Ms Gordon and what he describes as "the emerging uncertainty about the cover provided under the D&O Policy". 29 On 18 December 2019, the liquidators sent Ms Gordon a letter of demand. Correspondence ensued between the liquidators and Ms Gordon's representatives in the period to 24 April 2020. 30 In a report to creditors, the liquidators refer to having on 13 February 2020, submitted an application for funding from ASIC's Assetless Administration Fund to prepare a supplementary report under s 533(2) of the Act directed to a banning order being made against Mr Wilson. ASIC rejected this application. ASIC informed the liquidators that it still required a supplementary report from the liquidators and recommended that the liquidators file another funding application for "matters other than banning". 31 As mentioned, on 4 June 2020, Mr Pirina resigned as liquidator of AJW. 32 In around March 2021, Mr Naidenov received preliminary advice from Andrew Lacey of McCabe Lawyers in respect of the D&O Policy. Mr Naidenov deposes that Mr Lacey opined as follows (as written): "Our preliminary view is that D&O policy largely responds to the above causes of action against Mr Wilson. However, we note the exclusions…." 33 Mr Naidenov does not give evidence as to what, if anything, Mr Lacey said in his advice by way of elaboration in respect of the policy exclusions. It is therefore unclear, what advice was received in respect of the exclusions. Given that Mr Naidenov has quoted from the advice but not adduced it, I infer that the balance of the advice does not assist the plaintiffs in relation to this application. As an officer of the Court, Mr Naidenov should have tendered the advice on this application. That could have been done under the cover of an appropriate application for confidentiality orders. Although he has had opportunity to do so, he has not explained why the advice has not been placed before the Court. 34 In May 2021, Mr Naidenov received a cost estimate of $30,000 from McCabe Lawyers in relation to providing detailed advice. Mr Naidenov deposes that he did not have sufficient funds to commission that advice based on the cost estimate and then to take any actions which may have been recommended in that advice. 35 On 21 July 2021, Mr Naidenov issued a report to the COI for the purpose of holding a meeting on 29 July 2021 to discuss the outcome of his investigations and recommended actions to be taken regarding any available claims. Mr Naidenov does not depose as to whether the meeting was held and if so what occurred at the meeting. The minutes of the meeting do not appear to be in evidence and were not referred to by the plaintiffs in submissions. 36 Mr Naidenov deposes to entering into a conditional cost agreement with Gavin Parsons in March 2022. The only version of the costs agreement that is in evidence is dated 8 April 2022 and has been signed on behalf of Gavin Parsons but is not signed by Mr Naidenov. The execution pages of the costs agreement provide for Mr Naidenov to execute the agreement on behalf of AJW and separately himself "in his capacity as liquidator". The two designated spaces for Mr Naidenov to sign are blank on the copy of the costs agreement that Mr Naidenov includes in his exhibit. Notwithstanding this, Mr Naidenov deposes to signing and entering into the cost agreement on 8 April 2022. The discrepancy as to the date is not addressed in the evidence. I do not think anything turns on the precise date of entry into the cost agreement as to whether it was in March or April 2022, the salient fact is that Mr Naidenov's evidence on affirmation is that he signed and entered the costs agreement on 8 April 2022 and the evidence demonstrates that Gavin Parsons has done work purportedly in accordance with the costs agreement. The costs agreement contains a clause which expressly states that the document must be signed and returned and that no work will be undertaken until that is done. 37 Drawing these discrete matters together, I infer that Mr Naidenov signed the costs agreement on behalf of AJW and in his capacity as liquidator on or about 8 April 2022. In signing the costs agreement on behalf of AJW, Mr Naidenov did not seek s 477(2B) approval. Despite affirming three affidavits he has not explained why he did not seek approval. 38 Mr Naidenov deposes that on or about 9 March 2022, he instructed Gavin Parsons "to conduct [this proceeding] and thereafter to commence and pursue the [Recovery Proceeding]". It is not clear at what point in time, Mr Naidenov instructed Gavin Parsons to commence the Recovery Proceeding, which was in fact commenced on 7 July 2022, immediately prior the expiration of the limitation period applicable to the claims made against Mr Wilson. 39 I have already mentioned that the Deed of Settlement included a somewhat curious condition precedent, the effect of which is that Mr Naidenov's entry into it on behalf of AJW is conditional on s 477(2A) approval being obtained if Mr Naidenov considers such approval is required. The relevant clause provides that "to the extent that the Liquidator considers that he requires creditor or Court approval to enter into the deed, the Plaintiffs' entry into the Deed is subject to approval under s 477(2A) of the Act". The making of the present application is testament to the fact that Mr Naidenov holds the requisite state of mind that enlivens the condition precedent. 40 The cost agreement is a conditional costs agreement premised on a successful outcome being obtained in the proceedings. Under its terms, the solicitors are not entitled to receive payment of "Legal Costs" (as defined) unless a successful outcome, which includes a settlement, is obtained, in which case a 25% uplift applies to all fees charged under the agreement, including those of paralegals and legal clerks. 41 The "Scope of Work" is described as follows: You have instructed us to: Court Examinations: a) File an Originating Process and confidential Affidavit in Support in the Federal Court; b) Attend first return date and/or obtain orders in chambers; c) Obtain sealed Summons for Examination (and orders for production) in respect of: i. Andrew Wilson; ii. Alexandra Gordon; iii. other possible examinable persons (to be confirmed); d) Arrange for service of summons and orders and conduct money; e) Attend return of production court date(s); f) Obtain orders for access and uplift of documents; g) Review documents produced and advise; h) Prepare Examination Bundles; i) Develop examination strategy/ list of questions/ topics; j) Appear at Examinations; k) Meet to discuss the evidence from the Examinations and any rights which arise therefrom; l) Arrange for transcript and other procedural matters. There is some hope that, after stage (d) above is reached, there shall be settlement negotiations. If that occurs, then the costs of those negotiations are estimated to be the same as the cost of carrying out items (e) to (l) above, which is effectively conducting the examinations in full. 42 The costs agreement includes provision for fee rates to be reviewed on a regular basis and discloses that in relation to lengthy matters that such revisions may impact fee estimates, which will be regularly updated. The costs agreement does not expressly refer to the commencement of proceedings if a settlement is not reached after service of examination summonses. Mr Naidenov has not adduced any revised or updated fee estimates provided under the costs agreement. Mr Naidenov's evidence is to the effect that the work undertaken by his legal representatives has been done under the terms of the costs agreement. 43 The term of the costs agreement and the performance of obligations under it was clearly likely to exceed the three month period specified in s 477(2B) of the Act, even though it was possible that the term might end, or the obligations might be discharged, within those three months. Mr Naidenov does not suggest that at the time he entered into the costs agreement he believed its duration would be less than three months. 44 In the cost agreement, Gavin Parsons provided the following estimates referrable to the anticipated stages of work set to occur in and around the examination process: Stage Subtotal Estimate Price (excl GST) 1. Preliminary review and Originating Process $9.909.05 2. Summons for Examination $3,163.62 3. Attend return of production court date(s) $3,163.62 4. Examinations $22,181.76 5. General conduct, offers and correspondence $7,963.80 6. Counsel's Fees associated with Stages 1-5 $23,200.00 Total (exl GST and counsel fees) $46,381,67 Total (including GST but excluding counsel fees) $51,019.81 Grand Total (including disbursements and GST but excluding counsel fees) $53,974.81 Grand Total including (including disbursements, GST and counsel fees) $79,494.81 45 The cost agreement provided that if the liquidator on behalf of AJW obtained a successful outcome, Gavin Parsons will charge an additional 25% "uplift" on their fees. That uplift was estimated to be $12,754.95 (including GST) based on estimated professional fees of $51,019.80 (excluding counsel's fees). 46 On 24 May 2022 the liquidator commenced this proceeding (the Examination Proceeding) against Mr Wilson and Ms Gordon and thereafter conducted examinations of Mr Wilson, Ms Gordon and another person. Examinations appear to have taken place in the period August to November 2022, with Gavin Parsons acting for the liquidator. 47 On 7 June 2022, Mr Naidenov submitted the requested supplementary report to ASIC on matters other than banning. In that report, he alleged misconduct on the part of Mr Wilson and Anthony David Harris in respect of "conducting illegal phoenixing activities; providing falsified statutory declarations; and breaching of various director duties". 48 On 7 July 2022, prior to examinations being undertaken and presumably in view of the impending expiration of the limitation period, Mr Naidenov commenced the Recovery Proceeding against Mr Wilson (claiming approximately $5.4m in respect of alleged breaches of his duty under s 588G of the Act and unreasonable director-related transactions) and Ms Gordon (claiming approximately $360,000 in respect of unjust enrichment, uncommercial transactions and unreasonable director-related transactions). The essence of the claim against Mr Wilson is for insolvent trading and the essence of the claim against Ms Gordon is the payment of monies for no consideration or in the alternative for the difference in the value of the monies paid and the duties performed by Ms Gordon. The Recovery Proceeding was commenced on the eve of the expiry of the relevant three year period under s 588FF(3) of the Act. Gavin Parsons acted as solicitor for the plaintiffs. 49 Mr Naidenov deposes that at the time of commencing the Recovery Proceeding he held the opinion that there were good prospects of success and that there was some prospect of recovering funds which would enable a return to creditors, after meeting the costs associated with the Recovery Proceeding and this proceeding. Mr Naidenov does not reveal the basis upon which he formed this opinion. 50 Mr Naidenov says that during the course of the Examination Proceeding and as a result of issuing an order for production, he formed the opinion that Mr Wilson did not have any legal interest in any real property. In another unsatisfactory aspect of Mr Naidenov's evidence, he deposes that a property search "confirmed" that Mr Wilson did not have property registered in his name in New South Wales. He asserts that the relevant property search is in the exhibit to his affidavit. The document to which he refers and exhibits is dated 9 April 2021, over a year before proceedings were commenced and on its face records: Status: Error Status Description: 82: This search is subject to an excessive data. Please contact Info Track helpdesk or submit a manual service request Fee summary Your completed search will be emailed to [email address] 51 The completed property search is not in evidence. The document which Mr Naidenov has exhibited does not provide a basis for his conclusion that Mr Wilson did not have any legal interest in real property in NSW. The evidence relied on does not reveal whether Mr Naidenov has attempted to ascertain if Mr Wilson holds property in states other than NSW. 52 On 22 March 2023, ASIC confirmed that the conduct in Mr Naidenov's supplementary report filed on 7 June 2022 would be recorded and contribute to any future action that ASIC might take. 53 On 5 April 2023, the parties to the Recovery Proceeding attended a mediation before a Registrar of the Court. Chubb also participated in the mediation. Mr Naidenov, AJW, Mr Wilson and Ms Gordon entered the Deed of Settlement. Mr Naidenov gives evidence of communications he had with Chubb's solicitors in the course of the mediation, which I will not recount here because I expect that the communications are covered by mediation privilege even though the plaintiffs do not now seek confidentiality orders over this part of Mr Naidenov's affidavit. 54 The relevant insuring clause in the D&O Policy is as follows: I. Insuring Clauses A. D&O Liability Coverage The Company shall pay, on behalf of each Insured Person, Loss for which the Insured Person is not indemnified by an Organisation on account of any D&O Claim first made during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act occurring before or during the Policy Period. 55 An Insured Person includes a director of the Organisation as well as an employee of the Organisation. 56 D&O Claim is defined as follows: D&O Claim means, with respect to Insuring Clauses (A),and (B) only: (a) a written demand for monetary damages, non-pecuniary relief or any request to waive or suspend a statute of limitations; (b) civil proceeding; (c) an arbitration, mediation, conciliation or alternative dispute resolution proceeding; (d) a criminal proceeding; (e) a formal administrative or formal regulatory proceeding commenced by the filing of a notice of charges, formal investigative order or similar document, against any Insured Person, individually or otherwise, for a Wrongful Act, including any appeal there from; or (f) an Extradition proceeding. 57 The D&O Policy contains the following exclusion: IV. Exclusions A. Exclusions Applicable to All Insuring clauses The Company shall not be liable for Loss in respect of any Claim: … (vii) Financial Impairment based upon, arising from or in consequence of Financial Impairment. 58 Financial Impairment is relevantly defined as follows: Financial Impairment means the insolvency, liquidation, bankruptcy, winding-up, receivership or administration of the Organisation or its actual or alleged inability to meet any or all of its debts as and when they fall due. 59 Counsel for the plaintiffs acknowledged during the second hearing that the plaintiffs' claims against Mr Wilson were excluded by the Financial Impairment exclusion. Cover in respect of the claim against Ms Gordon, or at least that part of it generally related to payments she received as an employee to which she was allegedly not entitled, is not excluded by the financial impairment exclusion. 60 On 17 April 2023, Mr Naidenov issued a report to the COI for the purposes of obtaining their approval of the compromise embodied in the Deed of Settlement in accordance with s 477(2A) of the Act. 61 On 28 April 2023, Mr Naidenov received an advice from Geoffrey McDonald, barrister, who also appeared on the present application, in which Mr McDonald addressed the resolution to approve the Deed of Settlement to be put to the COI. The advice given by Mr McDonald is exhibited to Naidenov 1 and is subject to the application for confidentiality and suppression orders. Mr McDonald provided the advice on the basis that it would be circulated to creditors under the veil of common interest privilege. 62 On 17 May 2023, Mr Naidenov held a COI meeting where he put the proposed resolution to a vote. The resolution was not passed (3 (against): 2 (for) – one of whom was Mr Wilson, who appears not to have abstained from voting). During the meeting, Mr Naidenov offered his time on a "speculative" basis to assist the creditors in writing to ASIC, the Australian Taxation Office and a Senator to express the COI's disappointment in "how the proceedings were viewed" which I take to mean viewed by ASIC. 63 As mentioned, on 4 July 2023, the present application first came before the Court for hearing and was adjourned to enable the plaintiffs to address the gaps in their evidence and put on further evidence. I also directed the plaintiffs to refine their confidentiality application having regard to the principle of open justice, identifying with an appropriate level of precision the parts of the evidence and materials over which suppression orders were sought and justifying the necessity for the suppression orders sought. 64 On 21 August 2023, Mr Naidenov issued a further report to the COI and called a further meeting. 65 On 5 September 2023, at the further COI meeting, the resolution to approve the settlement under s 477(2A) was again put to a vote. Again, the resolution was not passed (5 (against): 0 (for), 1 abstention (Mr Wilson)). Mr McDonald addressed the meeting. 66 On 20 September 2023, Mr Naidenov received an email from Mr John Cowles, a member of the COI, who requested that Mr Naidenov call him to discuss "alternatives and the process of the court applications in an attempt to resolve this matter prior to any court proceedings". 67 On 21 September 2023, Mr Naidenov called Mr Cowles during which they discussed various matters including the plaintiffs' application in this proceeding, why a director penalty notice could not be issued to the director of AJW and allegations raised by Mr Cowles against Mr Naidenov and his legal counsel. 68 As mentioned above, on 20 October 2023, James White, a member of the liquidator's staff, held several conversations with the Department of Employment and Workplace Relations and the ATO, being the priority unsecured creditors of AJW regarding resumption of the hearing of this application. The priority unsecured creditors were told that the COI had not passed the resolution seeking approval of the Deed of Settlement and that the settlement sum would not result in a return to creditors. 69 The hearing of this application resumed on 26 October 2023. 70 Before turning to address the legal principles, I will address the evidence in relation to the time cost charges for work done by the liquidator's firm and by Gavin Parsons purportedly under the costs agreement. In doing so I make no findings in relation to the reasonableness, or otherwise, of those charges. The present relevance is to demonstrate the scope of the work purportedly done notwithstanding approval had not been obtained under s 477(2B) of the Act. 71 Mr Naidenov deposes that the time cost charges of his firm from 1 March 2023 are as follows (inclusive of GST): Examination Proceeding $17,435.00 [Recovery] Proceeding $46,126.85 Approval of Settlement $35,185.70 Other work $106,431.028 (as written) Total $205,178.58 72 Mr Naidenov deposes to his intention to tender a long spreadsheet which "contains the calculations of the time cost charges for my firm and an allocation of those charges into the categories.". No such spreadsheet was tendered in the second hearing. 73 Mr Naidenov deposed in Naidenov 1 as follows at [53]: [Gavin Parsons] have not yet rendered any invoices to me, but have informed me, to the effect, that their unbilled WIP charges are $250,000.00 to date plus a costs estimate of $30,000.00 for future work and that Counsel's unbilled WIP charges are $155,000.00 to date plus a costs estimate of $15,000.00 for future work. 74 Mr Naidenov deposes that he does not have any funds to pay any legal fees and has not requested an invoice from the legal practitioners for the Examination Proceeding, the Recovery Proceeding or the costs associated with this application. 75 Mr Naidenov, in Naidenov 2, deposes to requesting and receiving a time costs summary on 11 September 2023 from Gavin Parsons in which the work performed to date was broken down as follows (inclusive of GST and counsel fees and based on the "premium rate"): Examination Proceeding $251,588.76 [Recovery] Proceeding $133,314.52 Approval of Settlement $94,818.26 Other work $7,048.11 Total $486,769.65 76 As noted above, the documents / spreadsheet upon which this summary is based have not been placed before the Court. The amounts claimed, even allowing for the application of the 25% uplift are even at a headline level high relative to the initial estimates and considering difficulties associated with the potential recovery which had been on the radar since before the Recovery Proceeding was commenced. An illustration of the high costs is the amount claimed in respect of "Approval of Settlement" which represents a substantial proportion of the agreed settlement sum. 77 Mr Naidenov further deposes that subject to his further discussions with his legal representatives, he expects that the legal representatives will recover from the proposed settlement only 66.1% of their time cost charges, after an allowance of say $50,000 for payment of some fees to his firm and repayment of the disbursements which have been incurred (e.g. filing fees, copying charges) of about $13,000, but excluding any future time charges. 78 Mr Naidenov's expectation is presumably dependent on "further discussion" with his legal representatives because the cost agreement provides: In the event that the monies recovered in part or whole from the successful outcome are insufficient to pay all of your costs and the legal costs of our firm in full, the recovery proceeds are to be allocated in the following manner: a) Firstly, in payment of our disbursements and expenses including Counsel's Fees; b) Next, your disbursements incurred after our engagement which are connected with the subject matter of which we were engaged; c) Next, pro-rata between the outstanding remuneration of our firm and your outstanding remuneration in connection with the subject matter of which we were engaged; and d) Finally, all other remuneration of you and your firm in connection with your appointment as Liquidator, Administrator, Receiver or Trustee which predicated this engagement. 79 It is plain on Mr Naidenov's evidence that the fees incurred by the legal representatives are well in excess of the cost estimate provided in the cost agreement. Mr Naidenov deposed that he has received updated cost estimates since 8 April 2022 but does not otherwise describe them. The "updated cost estimates" are not exhibited to his affidavits on this application and are not otherwise in evidence. LEGAL PRINCIPLES Approval under s 477(2A) 80 The relevant provision is as follows: (2A) 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 compromise a debt to the company if the amount claimed by the company is more than: (a) if an amount greater than $20,000 is prescribed—the prescribed amount; or (b) otherwise--$20,000. 81 I set out the principles applicable to a s 477(2A) application in Tracy, in the matter of Linchpin Capital Group Limited (in liq) [2022] FCA 739 at [15] to [20]. I adopt those principles. The principles are well established and it is not necessary to recite them here. Approval under s 477(2B) 82 Section 477(2B) provides: (2B) 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. 83 I set out the principles to a s 477(2B) application in Alfonso, in the matter of Pinnacle Fire Protection Pty Ltd (in liq) v Woods [2021] FCA 1402 at [13] to [15]. I adopt those principles here without reproducing them. 84 In the present context, it is appropriate to emphasis the following observations on the purpose served by s 477(2B) of the Act. 85 The rationale for s 477(2B) is directed to protecting the general objective that the winding up of a company be completed expeditiously. As observed by Brereton J in In the matter of One.Tel Limited [2014] NSWSC 457; 99 ACSR 247 (at [30]): 30 Section 477(2B), on the other hand, is concerned with long-term agreements which might protract the liquidation, and has the effect that the liquidator cannot enter such agreements without the approval of the committee of inspection, the creditors, or of the Court. Its rationale is that that the interests and wishes of those affected, particularly creditors, should be highly influential in determining whether the liquidator should assume a contractual obligation that could interfere with the expeditious completion of the winding up: Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308; CIC Insurance; HIH Insurance Ltd at [15]]. Thus in considering giving approval under s 477(2B), the main consideration is the impact of the agreement on the duration of the liquidation, and whether that is, in all the circumstances, reasonable in the interests of the administration: Re Opel Networks Pty Ltd [2013] NSWSC 1245. 86 More recently, Stewart J made observations to similar effect in Generate Group Pty Ltd v Harris [2023] FCA 605, emphasising that liquidators' powers are to be exercised in a way that is conducive to an "expeditious and beneficial administration": 36 In Hundy (liquidator), in the matter of 3 Property Group 13 Pty Ltd (in liq) [2022] FCA 1216 at [23]- [24], Wigney J explained that the reason that approval is required in respect of agreements which may operate or involve obligations that extend beyond three months is that such agreements tend to cut across the general expectation that the winding up of a company will proceed expeditiously. The requirement to obtain approval of such agreements affords some protection against ill-advised or improper actions on the part of the liquidator, but the court's task is not to second guess the liquidator's commercial judgment; it is rather to determine whether there are grounds for suspecting a lack of good faith, or some error of law or principle, or some other good reasons to intervene. 37 There is ample authority for the proposition that the requirement of approval is concerned with ensuring that liquidators' powers are not exercised in such a way as to be unconducive to an expeditious and beneficial administration: Read, in the matter of Forestview Nominees Pty Ltd [2007] FCA 1985; 164 FCR 237 at [43]- [44] per French J, citing, amongst other authority, Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109 at 117 per Austin J. 38 In In the matter of Golden Sands Hospitality Pty Ltd (in liq) (No 2) [2017] NSWSC 450 at [18], Gleeson JA identified that the "controlling consideration" is the interests of creditors concerned in the winding up. 39 In In the matter of Kevin Jacobsen Pty Ltd (in liq) [2016] NSWSC 538 at [74], Black J explained that the jurisdiction under s 477(2B) is directed to promoting the interests of the liquidation and the creditors, not the exercise of disciplinary functions over liquidators who delay in seeking approvals under the section. Thus, even if a liquidator's failure to seek approval prior to an assignment were open to criticism, it does not follow that creditors should be deprived of the potential benefit of the assignment which is otherwise in their interests. 87 The assessment of whether entry into a long term agreement is conducive to an expeditious and beneficial administration is not confined to consideration of the monetary interests of creditors but extends to the proper administration of the winding up. Thus, a liquidator's pursuit of assets of the company in liquidation may be a legitimate exercise of the liquidator's powers under s 477 even if those assets can only go towards paying the liquidator's expenses where it is in the interests of the administration: Hall v Poolman [2009] NSWCA 64; 75 NSWLR 99 at [149] to [150] (Spigelman CJ, Hodgson JA and Austin J); Federal Commissioner of Taxation v Kassem [2012] FCAFC 124; 205 FCR 156 at [83] to [87] (Jacobson, Siopis and Murphy JJ); Generate Group at [59]. 88 It is well established that in an appropriate case, notwithstanding that the proper course is for a liquidator to seek approval in advance, approval can be given under s 477(2B) nunc pro tunc. In Re Dudley (as liquidator of Freshwater Bay Investments Pty Ltd (in liq) (ACN 105 274 226)) [2021] FCA 608; 152 ACSR 53 in a similar context as the present context, McKerracher J observed (at [8]): 8. It is well settled that approval under s 477(2B) can be given nunc pro tunc, or under s 1322(4)(d) of the Act which allows the Court generally to extend the period for doing any act, matter or thing. The powers under s 477(2B) are directed to promoting the interests of the liquidation and the creditors, not the exercise of disciplinary functions over liquidators: Re Kevin Jacobsen Pty Ltd (in liq) (2016) 113 ACSR 277; [2016] NSWSC 538 (at [74]). This being said, the proper course is for approval to be sought in advance, and the Court will be cognisant of the explanation given by the liquidator as to why the approval was not sought prior to entering the agreement. As Markovic J stated in Re Denham Constructions Pty Ltd (in liq) [2018] FCA 2053 (at [31]): 31 There is no doubt that the Liquidator ought to have sought earlier approval. A liquidator has certain duties and obligations imposed on him or her by the Act and in discharging his or her office should not only be aware of those duties but ensure that he or she acts diligently to fulfil them. That said, in this instance, the Liquidator's inaction was not a result of dishonesty and is not sufficient in itself to prevent the Court's exercise of its powers to give the agreements retrospective approval: see also, for example, Hamilton, Re ACN 101 634 146 Pty Ltd (in liq) [2014] FCA 687 at [6]–[7]. 89 The court's ability in an appropriate case to grant approval nunc pro tunc does not relieve a liquidator from their obligation to exercise his or her powers consistently with the statutory prohibition in s 477(2B). Where a liquidator fails to exercise his or her power in accordance with s 477(2B) it is incumbent on the liquidator to provide a fulsome and an adequate explanation to the court. The explanation, or lack thereof, is a relevant consideration in the court's assessment of whether approval should be given under s 477(2B). In Chamberlain v RG&H Investments Pty Limited, in the matter of Hardy Bros (Earthmoving) Pty Limited (in liq) [2009] FCA 1214; 74 ACSR 661 Lindgren J was faced with a decision as to whether to grant approval pursuant to s 477(2B) nunc pro tunc for entry into litigation funding agreements: 71 Mr Chamberlain submits that the present case is a strong one for the giving of approval under s 477(2B) because as at the dates when both Indemnities were entered into the DCT was the only creditor that had proved in the winding up and could have resolved to approve Mr Chamberlain's making of the two agreements with itself. 72 However, Mr Chamberlain's explanation for his delay in seeking approval is quite unsatisfactory. He says that although he was aware of the necessity of seeking the Court's approval, the DCT requested that he defer making the application as "it was conducting a review of all funding agreements entered into with liquidators and ... required time to carry out that review". 73 This is a poor explanation, and a troubling one. 74 First, Mr Chamberlain was aware of the prohibition yet contravened it knowingly – twice! 75 Second, Mr Chamberlain seems to have treated the DCT's direction as overriding the statutory mandate which he accepted was not rendered inapplicable by reason of the DCT's being the only known creditor. 76 Third, Mr Chamberlain has not explained the length of the delay until this proceeding was commenced on 10 August 2009. 77 Fourth, it is difficult to understand how the explanation proffered could apply to both the First Indemnity and the Second Indemnity. If Mr Chamberlain was aware on both occasions of the prohibition contained in s 477(2B), it is unlikely that he would have accepted at face value a statement by the DCT on or before the date of the Second Indemnity, that it was carrying out a second review or that the DCT was still carrying out the review that it had been carrying out some eleven months earlier. 78 I will not grant the approval sought until I am satisfied that the original failure to seek approval and the delay in seeking to remedy that omission are adequately explained. The proceeding will be stood over to give Mr Chamberlain the opportunity of supplementing his explanation by further affidavit evidence from himself, an officer of the DCT, or otherwise as he may be advised. 90 Following a subsequent explanation by Mr Chamberlain, Lindgren J granted the relief sought: Chamberlain v RG&H Investments Pty Limited, in the matter of Hardy Bros (Earthmoving) Pty Limited (in liq) (No 2) [2009] FCA 153. 91 Drawing together the cases canvassed above, the additional principles which should be emphasised in the present context are as follows: (1) the rationale or reason for requiring approval pursuant to s 477(2B) of agreements which might protract the liquidation is that such agreements tend to cut across the general expectation that the winding up of a company will proceed expeditiously; (2) the purpose of s 477(2B) is therefore to afford some protection against ill-advised or improper actions on the part of the liquidator, but the court's task is not to second guess the liquidator's commercial judgment; it is rather to determine whether there are grounds for suspecting a lack of good faith, or some error of law or principle, or some other good reasons to intervene; (3) the proper course is for a liquidator to seek approval in advance of entering into agreement to which s 477(2B) applies; (4) the court will be cognisant of the explanation given by the liquidator as to why the approval was not sought prior to entering into the agreement. The court will be hesitant to grant approval nunc pro tunc, or at all, where there is some substantial delay in seeking approval which is not adequately explained; and (5) the main or controlling consideration is the impact that the performance of the agreement will have on the duration of the administration, and whether that is, in all the circumstances, reasonable in the interests of the administration, not the exercise of disciplinary functions over liquidators. 92 The purpose of s 477(2B) of the Act, which extends to the court intervening by declining to give approval where there is good reason to do so, is undermined where the liquidator delays in bringing the application for approval and does not proffer an explanation for that delay. 93 Finally, I note that there is an unresolved issue raised in recent single judge decisions of this Court as to whether s 477(2B) applies to an agreement between a liquidator in that capacity and a firm of solicitors: Jahani, in the matter of Ralan Property Services Pty Ltd (receivers and managers appointed) (in liq) [2023] FCA 738 at [36] to [37] Stewart J referring to Frigger v Kitay (No 2) [2020] FCA 497; 143 ACSR 655 at [47] to [51], (Charlesworth J); cf Lewis (liquidator), in the matter of Concrete Supply Pty Ltd (in liq) [2020] FCA 841; 145 ACSR 459 at [20] (White J). The plaintiffs did not raise this issue on this application and proceeded on the basis that approval was required, and that it should be granted nunc pro tunc. I will approach this application with a view to framing any orders made under s 477(2B) with the qualification that such orders, if made, are made to the extent necessary. On the approach taken by the plaintiffs, it is not necessary to determine whether entry into the costs agreement requires approval under s 477(2B) of the Act. 94 For completeness, I note that the plaintiffs referred generally to the following authorities in their written submissions in respect of s 477(2B) approval: Thorn (liquidator), in the matter of South Townsville Developments Pty Ltd (in liq) [2022] FCA 143 (Stewart J), Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375 (Gordon J), Kogan, in the matter of Rogulj Enterprises Pty Ltd (in liq) [2021] FCA 856 at [15] to [20] (Cheeseman J) and Michell (Liquidator) v Fowler, re WITS Holdings Pty Ltd (In Liq) [2023] FCA 1231 (Halley J). Confidentiality 95 I set out the legal principles applicable to a confidentiality application in the context of a s 477(2A) application in Re Tracy (in their capacity as joint and several liquidators of Linchpin Capital Group Ltd) [2022] FCA 739 at [21] to [22]: 21 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). 22 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; 78 ACSR 163 at 164 [2] - [5] (Barrett J as his Honour then was). 96 I adopt and apply these principles here. CONSIDERATION Should approval under s 477(2A) be granted in respect of the Deed of Settlement? 97 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 reviewing the liquidator's proposal, the court pays due regard to the liquidator's 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. 98 Subject to satisfaction of the condition precedent, the Deed of Settlement releases Mr Wilson and Ms Gordon from claims in connection with the Recovery Proceeding in exchange for the payment of a relatively modest settlement sum. 99 The Court's task is not to assess the commercial judgment of Mr Naidenov or the competence of those advising him. Rather, what falls to be considered is whether at the time the application is determined, the approval sought is in the interests of the administration. Bearing that in mind, I turn to consider whether approval should be given under s 477(2A) of the Act. 100 The settlement will well and truly be exhausted by the costs of the administration and liquidation. There will be no return to creditors. Even if the whole of the settlement sum was distributed to creditors, on a pro-rated basis the return would be minimal. 101 The evidence reveals that significant costs, including large legal costs, have been incurred. Those costs are well in excess of the costs estimate provided by Gavin Parsons in the costs agreement, noting that the liquidator has not put any more recent estimates into evidence. The liquidator opines that the legal practitioners will recover about two-thirds of their time cost charges based on the agreed settlement sum. The plaintiffs submit that if there was a reasonable opportunity to obtain a better result than the settlement being offered, the liquidator and the legal practitioners have an incentive to pursue that opportunity. 102 There is no funding available to Mr Naidenov to further pursue the Recovery Proceeding. 103 Mr Naidenov obtained legal advice to support his decision to accept the settlement from Mr McDonald. Mr McDonald appears to have an interest in the settlement being approved as it appears that the settlement fund is intended to be applied to the payment of a proportion of his fees as well as those of Gavin Parsons. 104 The claim against Mr Wilson represents the substantial part of the relief claimed in the Recovery Proceeding. The settlement is framed by reference to the minor part of the relief claimed, namely that claimed against Ms Gordon. That reflects the position in relation to cover under the D&O Policy as outlined above. 105 The evidence in relation to the potential for recovery against Mr Wilson is unsatisfactory. The liquidator's opinion that Mr Wilson does not hold any legal interest in real property is not supported by the limited and dated property search which has been undertaken and which search was affected by an error. The result is that there is no probative evidence before the Court as to Mr Wilson's ability, if any, to satisfy a judgment. 106 The prospect of any recovery against Mr Wilson must be considered poor given the nature of the claim, the terms of the relevant exclusion under the D&O Policy in respect of the claim and the dearth of information about Mr Wilson's ability to satisfy a judgment. The evidence does not address when the liquidator first appreciated the likelihood that the D&O Policy would not respond to the claim against Mr Wilson but it appears that it was before the Recovery Proceeding was commenced. As noted above, the relevant exclusion is expressed in plain language and the liquidator has selectively quoted from the pre-commencement legal advice he obtained but has not put the whole of that advice in evidence. A review of counsel's advice on the Deed of Settlement, which is before the Court but which is subject to the confidentiality application, supports the conclusion I have drawn as to the lack of cover in respect of the claim against Mr Wilson being an issue that had been appreciated for some time. For the purpose of approval under s 477(2A) of the Act, the key point is that the prospect of recovery under the D&O Policy for the substantial part of the claim is very poor and there is no evidence that Mr Wilson otherwise has the ability to meet a judgment. 107 The settlement sum agreed represents a significant percentage of the total amount claimed against Ms Gordon (taking into account interest and costs) in circumstances where it would be appropriate to make some allowance for litigation risk (including the risk of proving the claim made against her for the whole of the period alleged). 108 If the Recovery Proceeding is continued and the plaintiffs fail, there is the real risk that the plaintiffs will suffer an adverse costs order. 109 In these circumstances, continuation of the Recovery Proceeding is unlikely to result in a better outcome than the settlement that has been agreed. Continuation of the Recovery Proceeding would be attended by serious risks of a lesser or worse outcome. 110 I am mindful that the COI has twice refused to vote in favour of the resolution that has been put to them in relation to the Deed of Settlement, however taking into account the other factors I have outlined above, I am satisfied that it is in the interests of the administration to approve entry into the Deed of Settlement. 111 Having regard to all of these matters I am satisfied that it is in the interests of the administration to grant approval under s 477(2A) of the Act even though the settlement will not result in a return to creditors: In the matter of Neil Robert Cussen as liquidator Total Hoarding Supplies Pty Ltd (in liquidation) [2019] NSWSC 887 at [13] to [17] (Black J). 112 In light of my conclusion, it unnecessary to address the plaintiffs' submissions in relation to their contention that the COI's opposition to approving the Deed of Settlement being driven by emotion and on that basis ought to be disregarded. 113 The plaintiffs also made submissions as to the anterior issue of whether approval under s 477(2B) of the Act is required. Counsel for the plaintiffs submitted that the plaintiffs "accepted that the claims made against Mr Wilson and Ms Gordan (sic) may fall within the category of claims which do not require approval under s 477(2A) of the Act" citing Pinnacle Fire Protection at [26], but then submitted that the Court should err on the side of treating the claim as a debt rather than decline to grant approval under s 477(2A) relying on Elderslie Finance Corporation Limited v Newpage Pty Ltd (No 6) [2007] FCA 1030; 160 FCR 423 at [26] (Lindgren J) and the authorities noted therein, particularly where the claimed debt to the company is one of several, perhaps many, claims that are all the subject of a single comprehensive compromise (Elderslie at [27]). 114 This case is somewhat different in that the Deed of Settlement is expressed to make the plaintiffs' entry into it conditional on s 477(2A) approval if Mr Naidenov considers that approval is required, regardless of whether as a matter of law, approval is required. I infer that Mr Naidenov having instituted this application considers that approval is required — he gives evidence that he is obliged to obtain the approval. He does not give any evidence to the contrary. For that reason, because of the way the condition precedent is expressed, approval under s 477(2A) is necessary before the plaintiffs' entry into the Deed of Settlement becomes unconditional. 115 On the approach taken by the plaintiffs, and having regard to the terms of the condition precedent, it is not necessary to determine whether entry into the present Deed of Settlement in fact requires approval under s 477(2A) of the Act. In these circumstances, I will qualify the orders made under s 477(2A) to note that the orders are made to the extent necessary. 116 In relation to this part of the application, it is appropriate to order that the costs of the s 477(2A) application be costs in the liquidation of AJW and paid out of the assets of AJW. Should approval under s 477(2B) be granted in respect of the cost agreement? 117 I now turn to consider the separate and distinct issue of whether approval to enter the costs agreement should be granted under s 477(2B) and if so, whether that approval should be given nunc pro tunc. 118 In considering this issue, it is important to pay due regard to the statutory context in which the power to grant approval is conferred on the court. The approval mechanism operates as a check on the power otherwise conferred on liquidators under s 477 of the Act. The requirement to obtain approval before entering agreements which exceed the statutory period operates to give primacy to the objective that administrations are conducted expeditiously and beneficially. Before a liquidator can enter into an agreement which exceeds the statutory period the liquidator must have entry into the agreement sanctioned by either the court, the COI or creditors. The effect of this constraint on the liquidator's power is that the liquidator must establish to the satisfaction of the creditor stakeholders or the court that entry into long-term agreement is justified in the interests of the administration, even though it will, in all likelihood, prolong the duration of the administration. The court must be assiduous to guard against the potential for its capacity to grant approval nunc pro tunc to be used, whether wittingly or not, to circumvent the statutory purpose. The present application is a stark illustration of that risk manifesting. 119 The statutory purpose is defeated where liquidators do not seek such approval until substantial delay has already been occasioned, particularly where the reason for such delay is not, or is not adequately explained. If approval were to be granted nunc pro tunc in such circumstances, the supervisory protection provided by s 477(2B) in guarding against the prospective improper or ill-advised extensions of the winding up process is effectively rendered nugatory. This is why the proper course of conduct is for liquidators to obtain approval prior to entering in agreements caught by s 477(2B). The text of s 477(2B) is clear and unambiguous in commanding that approval must be obtained prospectively. 120 In considering whether to grant approval, the court must assess whether there are grounds for suspecting a lack of good faith, or some error of law or principle, or some other good reason to intervene by refusing to grant approval. In this application, where there was no contradictor, the evidence does not support making a finding of a lack of good faith or dishonesty. I make no such finding. That said, I have concluded that there are other good reasons for the Court to refuse to grant approval nunc pro tunc. My reasons for refusing to grant approval are as follows. 121 The costs agreement was executed in April 2022. Work was performed under it and presumably according to its terms. The agreement became binding upon execution. Having regard to the nature of the obligations created by, and the scope of the work contemplated under, the costs agreement, it was clear that the term of the agreement would likely exceed the period prescribed by s 477(2B) of the Act and that Mr Naidenov's power to enter into the agreement on behalf of AJW was subject to obtaining approval under s 477(2B) of the Act. 122 That the agreement was a conditional costs agreement where payment of fees was premised on a "successful" outcome does not in any way detract from the fact that the parties to the cost agreement assumed obligations under it from the date it was executed and engaged in conduct under the agreement that prolonged the duration of the administration. The submission advanced by the plaintiffs' counsel to the effect that there was no "utility" in seeking s 477(2B) approval until a favourable settlement was achieved is rejected. It is wholly misconceived. It reflects a profound misapprehension of the purpose to which s 477(2B) is directed and its importance as a limit on the power conferred on liquidators under s 477. A liquidator in discharging his or her office should be aware of the powers conferred under the Act, the limits of those powers, and the rationale for the constraints imposed on those powers, and act accordingly. 123 If Mr Naidenov had taken steps to obtain s 477(2B) approval, as he was required to do, he would have had to take steps to justify to either the creditor stakeholders or the court, why it was in the interests of the administration to prolong the administration by entering the costs agreement. He did not do so. Instead, he executed the costs agreement without obtaining such approval (in circumstances where the costs agreement was not subject to a condition precedent requiring s 477(2B) approval). In doing so, on the assumption that s 477(2B) applies to a costs agreement of this type as a matter of law, the liquidator exceeded the power conferred on him by s 477 of the Act. 124 The result was that the administration was prolonged without the liquidator ever seeking to justify that it was in the interests of the administration to enter the agreement and the expeditious and beneficial conduct of the administration was impacted by the liquidator incurring, on behalf of AJW, significant and substantial obligations to Gavin Parsons under the costs agreement over a period of approximately 14 months. 125 The liquidator has not exposed in his evidence any basis upon which he could reasonably have held an opinion that it was in the interests of the administration to cause the Recovery Proceeding to be commenced and for liabilities to be incurred under the costs agreement in actively progressing that proceeding. While I appreciate that the Court's task is not to second guess the liquidator's commercial judgement, that does not mean that the Court is bound to accept a bald assertion by the liquidator, as to the liquidator's commercial judgement, in circumstances where that opinion cannot be reconciled with the evidence. The liquidator's evidence as to the opinion he says he held is not supported by the material he has exhibited to his affidavit. He does not in any way substantiate the basis upon which he reasonably could have concluded as at 7 July 2022 that there was some prospect of recovering funds which would have enabled a return to creditors, after meeting the costs associated with the two proceedings. That is particularly so when there appears to have been no effective investigation of Mr Wilson's ability to satisfy a judgment. The significance of the absence of such investigation is compounded by the fact that after November 2019 Mr Naidenov acknowledges that the "emerging" issue of coverage under the D&O Policy in respect of the claim against Mr Wilson was a factor in him not being able to obtain litigation funding for the Recovery Proceeding. 126 The evidence reveals that Mr Naidenov caused the Recovery Proceeding to be commenced on the eve of the expiration of the limitation period in the following circumstances: the liquidation had been on foot for 2 years, 10 months (since August 2019); the liquidator had reported to creditors that there was a substantial deficit in the company's net asset position and that any recovery proceedings would be time consuming and expensive; funding options had been explored without success; and examinations had yet not occurred. In these circumstances, subject to there being information available to demonstrate that there was a reasonable basis to bring the proceeding, it may have been appropriate for a liquidator in Mr Naidenov's position to take steps to commence proceedings in order to preserve the cause of action and thereafter act so as to keep costs to a minimum until such time as the investigative process, including examinations, had progressed. It is not unusual for that approach to be taken in Corporations List matters. However, Mr Naidenov does not suggest that he took this approach. 127 Had Mr Naidenov brought the present application promptly and prospectively, before entering into the cost agreement, it is likely that the critical issues of the prospects of success and the likelihood of recovery would have had to have been addressed in persuading the court or the COI that it was in the interests of the administration for Mr Naidenov to enter into the costs agreement on behalf of AJW. Instead, by failing to obtain approval, Mr Naidenov has thwarted the objective intended to be served by s 477(2B) of the Act, and now seeks to cure that mischief by urging the Court to grant approval nunc pro tunc. The scant evidence that has been adduced as to the information available to Mr Naidenov at the relevant time does not imbue any confidence that had the application for approval been properly brought prospectively, as it should have been, that approval would have been granted, whether by the court or the COI. I do not accept the plaintiffs' submission that there has been no prejudice to any creditor caused by Mr Naidenov's delay in bringing this application. The prejudice suffered includes that creditors have not had the benefit of the protective oversight of Mr Naidenov's purported exercise of power on a prospective basis as is contemplated by s 477(2B). 128 The next issue of concern is that the liquidator has not provided any explanation as to why he did not seek approval under s 477(2B) prior to entering into the cost agreement: cf. Hayes, in the matter of Denham Constructions Pty Limited (in liq) [2018] FCA 2053 at [39], Markovic J; and Generate Group where Stewart J was satisfied that the delay by the liquidator in seeking approval was "modest" (about three months). The delay here is of a different order of magnitude and is unexplained by Mr Naidenov's evidence. The submission made on his behalf as to the supposed lack of utility of bringing the application is misconceived for the reasons I have already given. In any event, Mr Naidenov in his evidence does not purport to have delayed bringing the application for that reason. The lack of any explanation is troubling. It weighs heavily against granting approval. 129 The plaintiffs made several additional submissions in respect of the delay in bringing the s 477(2B) application and the COI's attitude to the liquidator's entry into the costs agreement which I will address in turn. 130 In addition to the overarching submission as to the supposed lack of utility in making the application, which I have already addressed, the plaintiffs submitted: It is accepted that the Liquidator could have sought the approval from the Committee of Creditors, but in the circumstances and with hindsight, it appears that they may not have been disposed to give any approval to any request of the liquidator. 131 This submission conflicts with Mr Naidenov's evidence that: (1) in the period shortly before commencing this proceeding, Mr Naidenov spoke with members of the COI and that they each said words to him to the effect that "I want you to pursue the director" and "I want you to take proceedings against Wilson"; and (2) in deciding to commence this proceeding and the Recovery Proceeding, he was influenced by the consistent comments of the COI members to the effect that they wanted him to pursue the director. 132 In light of Mr Naidenov's evidence set out above, I do not accept that the COI would necessarily have been disposed not to grant approval under s 477(2B) for the liquidator to enter into the cost agreement in around April 2022 had a resolution been put to them. That said, the process of obtaining approval may have resulted in steps being taken to address Mr Wilson's ability to satisfy a judgment and perhaps resulted in a requirement that work done under the costs agreement be staged to assess the likelihood of recovering against Mr Wilson when the investigative phase was complete. In any event, the requirement for the liquidator to obtain approval from the COI or the court, as a condition on the power to enter an agreement of the type specified in s 477(2B), is not qualified or contingent on the liquidator being confident that such approval will be forthcoming. 133 To the extent that the liquidator places reliance on the statements of the COI members said to have influenced his decision to engage legal representatives, those statements do not appear to have been made on an informed basis and the position of the COI was not revisited and updated against events as they had occurred: (1) in the plaintiffs' submissions, they point to the fact there is a 'warning" in the report to creditors of 20 August 2019 that "any recovery of a trading whilst insolvent claim will attract substantial accounting and legal fees". This appears to be the basis for the submission that "[t]he creditors have been made well aware that the Liquidator was contemplating litigation and that there would be significant costs from any proceedings." The "warning" was made in 2019 and is untethered to any estimates as to the legal costs of the proceedings commenced in mid-2022 or the estimates in the cost agreement entered into in April 2022; (2) on the evidence before me, it does not appear that the cost agreement or the "updated cost estimates" said to have been provided by Gavin Parsons to Mr Naidenov were ever provided, or disclosed, to the COI; and (3) in the report to creditors dated 17 April 2023, circulated for the purpose of, inter alia seeking approval pursuant to the s 477(2A) for entry into the Deed of Settlement, it states that final invoices for legal fees and disbursements had not been received with initial counsel fees and legal expenses of $22,919 already incurred and an expectation that a "large portion" of the settlement will be allocated to the payment of legal costs. Mr Naidenov deposes that the unbilled WIP from his legal representatives as at 2 June 2023 was in fact $405,000, and that he holds the view that there are not sufficient assets to enable a dividend distribution to any class of creditor. 134 In any event, vague expressions of support, even if made on an informed basis, do not satisfy the approval requirement in s 477(2B) of the Act. Here the supposed support expressed by creditors does not provide a proper basis to grant approval nunc pro tunc. 135 For these reasons, the plaintiffs' application for approval to be granted nunc pro tunc pursuant to s 477(2B) must be dismissed. To make such an order in the circumstances of this application would be inconsistent with the statutory purpose of the provision. 136 The plaintiffs seek the cost of this application to be costs of the liquidation. Taking into account the timing of the application, the lack of an explanation for the delay in bringing the application and the way in which the application has been conducted, I am not satisfied that it is appropriate to order that the costs of the s 477(2B) application be costs of the liquidation. I will order that there be no order as to costs on that part of the application which related to approval under s 477(2B). Interim confidentiality order 137 In the application, the liquidator sought the following order (as written): An Order, pursuant to section 37AF of the Federal Court of Australia Act 1976 (Cth), that the Affidavit of Steve Naidenov dated 2 June 2023 and the exhibit thereto and any outline of submissions for the Plaintiffs, or such parts as the Court so determines, be suppressed and not be provided or disclosed to any person, except with the express written consent of the Plaintiffs, until the finalisation of the liquidation of AJW Interiors and Construction Pty Ltd (in Liquidation) ACN 155 665 286 or further order of the Court. 138 During the 4 July 2023 hearing I made the following orders: … 2. The following documents are to be kept confidential until further order: a. the affidavit of Steve Naidenov dated 2 June 2023; b. the exhibit to that affidavit; c. the outline of submissions filed by the plaintiff on 28 June 2023; and d. any documents referred to in Order 3 and subsequently filed with the Court. 3. By no later than 4pm, 5 July 2023, the plaintiffs are to email the Associate to Cheeseman J with the date by which the plaintiff proposes to file further evidence and in the 1-month period after the first aforementioned date, the dates for which counsel is available. 139 At this time, I indicated that the plaintiffs should clarify with precision those parts of the materials over which a confidentiality order ought properly be made on the basis of necessity. 140 Prior to the second hearing, the plaintiffs provided short minutes of orders which refined the scope of the material from Exhibit SN-16 over which orders were sought (to pages 36-140, 188-201, 425-432 and 453-455) but otherwise proposed blanket orders over the affidavits and submissions. 141 Despite the opportunity afforded to them by the adjournment of the first hearing, the plaintiffs failed to undertake a similar review to the affidavits and submissions. The approach taken by the plaintiffs is not acceptable. Confidentiality orders are an exception to the fundamental principle of open justice. Although such orders are regularly made, an applicant for orders of this nature must demonstrate that such orders are necessary, and if made, such orders should endure for only so long as is necessary. 142 On 19 January 2024, I again required the plaintiffs to refine their confidentiality application. I ordered the plaintiffs to provide by 22 January 2024, submissions identifying with precision the parts of the affidavits and outlines of submissions over which suppression orders are sought and the reasons as to why it is necessary to suppress those parts. 143 The plaintiffs provided their further submissions on 22 January 2024. The plaintiffs now seek confidentiality orders over only those pages of Exhibit SN-16 specified at paragraph 140 above and two paragraphs of Mr Naidenov's affidavits. 144 I am satisfied that it is appropriate to grant the confidentiality order in respect of the pages of Exhibit SN-16 identified above as they contain commercially sensitive material and / or material which would otherwise be privileged, subject to one additional redaction which is required. 145 Although, the plaintiffs have not identified any relevant identifying details that should be redacted in accordance with the Court's guide to the anonymisation of personal and sensitive information, there are bank account details which appear on page 443 of Exhibit SN-16 that should be kept confidential. I will also order the plaintiffs to inform the Court promptly if any similar identifying details have been included in the materials on which they rely and which are not otherwise subject to the confidentiality orders I make today. 146 Turning to the two paragraphs over which orders are sought, those paragraphs disclose legal advice received by the liquidator and should be kept confidential on that basis: paragraph 56 of Naidenov 1 and paragraph 19 of Naidenov 2. I accept it is appropriate to make the order sought over those paragraphs. 147 The orders I will make will be subject to further order and otherwise limited to the period until the liquidation of AJW is finalised. 148 As to the costs of this part of the application, the manner in which this part of the application was conducted resulted in unnecessary costs being incurred. The plaintiffs should be limited to recovering one third of their costs related to the confidentiality application as part of the costs and expenses of the liquidation of AJW. I will order accordingly. CONCLUSION 149 For the reasons given I will make orders granting approval under s 477(2A) in respect of the compromise in the Deed of Settlement. I will dismiss the application for approval under s 477(2B) of the Act. I will otherwise make limited confidentiality orders and costs orders as I have indicated. In the interests of clarity, I note that no part of the applications before me concerned assessing whether the costs and disbursements of the liquidators and the legal representatives were reasonable and no evidence was led upon which such an assessment could properly be made. I certify that the preceding one hundred and forty-nine (149) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman. Associate: Dated: 25 January 2024