New South Wales Supreme Court CITATION : Onefone Australia Pty Ltd & Ors v One.Tel Limited (In Liquidation) & Ors [2006] NSWSC 1447 HEARING DATE(S) : 20/12/06 JUDGMENT DATE : 20 December 2006 JURISDICTION : Equity Division Corporations List JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 12/20/2006 DECISION : See para 17 of judgment. CATCHWORDS : CORPORATIONS - Winding-up - Special purpose liquidator appointed to investigate renounceable rights issue by company - How expenses incurred by special purpose liquidator for legal costs and disbursements should be paid. CASES CITED : Burns Philp Investment Pty Ltd v Dickens (No. 2) (1993) 31 NSWLR 280 Onefone Australia Pty Ltd & Ors PARTIES : v One.Tel Limited (In Liquidation) & Ors FILE NUMBER(S) : SC 5291/03 COUNSEL : Applicant: N Cotman SC SPL: R Glasson SOLICITORS : Applicant: N/A SPL: N'OT Lawyers IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Wednesday, 20 December 2006 5291/03 Onefone Australia Pty Ltd & Ors v One.Tel Limited (In Liquidation) & Ors JUDGMENT 1 HIS HONOUR: I am presently dealing with paragraph 4 of an amended interlocutory process filed today by the special purpose liquidator of One.Tel Ltd (In Liquidation). In that paragraph the special purpose liquidator, Mr Weston, seeks the following relief: " An order that Peter Walker and Steven Sherman in their capacity as the Liquidators of One.Tel pay to Paul Gerard Weston, in his capacity as Special Purpose Liquidator of One.Tel, from the assets of One.Tel, such amounts as Mr Weston certifies are legal costs and disbursements properly incurred and payable by him in performing the functions required to be performed by him as Special Purpose Liquidator in conformity with orders of the Court, within seven days of notification by the Special Purpose Liquidator to the said Peter Walker and Steven Sherman of such certification. " 2 In his judgment of 15 August 2006 (Onefone Australia Pty Ltd v One.Tel Ltd (2006) 58 ACSR 466), Barrett J held that it was inappropriate that the general liquidators have any control over expenditure by the special purpose liquidator because the rationale for the appointment of the special purpose liquidator was a well grounded apprehension that the general liquidators were not in a position, or might not be in a position, to exercise fully dispassionate decision-making in respect of the particular matter which led to the appointment of Mr Weston. His Honour said (at 469) that: " It was with a view to placing that matter under the control and oversight of someone not affected by the possibility of self-interest in relevant decision-making that Mr Weston was appointed a special purpose liquidator. It would undermine the objective of the appointment if the principal liquidators could, by denying or threatening to deny funds, exercise influence over the conduct of the special purpose liquidator. " 3 Barrett J ultimately made an order for the provision of funds to be made available to the special purpose liquidator to enable him to pay expenses including, but not limited to, legal costs and disbursements. That fund was soon exhausted. 4 On 28 November 2006, I dealt with another application by the special purpose liquidator, which included his seeking a direction that the general liquidators of One.Tel would be justified in paying $990,000 for expenses, principally legal costs and disbursements which had been incurred up to that time and were budgeted to be incurred subsequently (see Onefone Pty Ltd v One.Tel (in liquidation) & 2 Ors [2006] NSWSC 1434). 5 I refused that application. In the course of my reasons I said that the interlocutory process then before me did not seek an order as to whether the general liquidators would be justified in paying the remuneration and the expenses of Mr Weston as claimed for the month of October 2006. Nor did it seek orders to establish a future regime to deal with his ongoing expenses and remuneration. I said (at [44]): "As I understood the submissions of senior counsel for Mr Weston, he contends that Mr Weston should be put in the same position as if he were the liquidator of the company, such that he could have recourse to the company's assets to pay expenses as they arise and the question of whether the expenses were properly and reasonably incurred should be dealt with, if it arises, on an application by an interested party seeking an assessment of the legal costs or challenging the reasonableness of his remuneration. That may well be the correct position, particularly having regard to the observations of Barrett J in his judgment of 15 August 2006, where his Honour said that it was inappropriate that general liquidators have any control over expenditures by the special purpose liquidator." 6 The order sought by the special purpose liquidator would seek to put him in a similar position to that of a liquidator in an ordinary winding-up. In such a case, the role of the Committee of Inspection is relevantly to approve of the liquidator's remuneration and is not, or at least not usually, to approve of the expenses incurred by the liquidator. 7 A liquidator is entitled to be indemnified from the assets of the company for expenses properly incurred. In the usual case, the liquidator has control of the company's assets and can pay the expenses incurred without requiring the approval of a third party. However, in an ordinary liquidation, the liquidator will have to consider all of the claims on the funds under his administration. In the ordinary course, a liquidator will have to, for example, weigh up a variety of potential recovery actions and make a decision as to how the funds are deployed in pursuing one or more, or perhaps none, of such possible recoveries. He or she will have to consider the likely prospects of success of all potential causes of action and make a decision as to whether it is in the interest of creditors that one or more or none of such causes of action be pursued. 8 The special purpose liquidator is not in that position. He does not have the same perspective of the overall administration of One.Tel as do the general liquidators. He is therefore not in as good a position as would be a liquidator in the usual course of administration to decide whether moneys spent on legal costs and disbursements in investigating potential causes of action relating to the cancellation of the renounceable rights issue would be moneys well spent. 9 On the other hand, for the reasons given by Barrett J, it is not appropriate that the general liquidators be in a position to exercise influence over the course taken by Mr Weston by exercising control over his expenditures. 10 As a matter of practice, the special purpose liquidator has been providing the members of the Committee of Inspection with at least summaries of the legal expenses incurred, and has provided the members of the Committee with a budget of future expenditure on legal costs. The Committee has de facto assumed a greater role in overseeing such expenditures than would normally be the case. 11 It is not appropriate that the special purpose liquidator be required to make repeated applications to the Court for approval of his funding. Such applications themselves carry costs. Nor is the Court in a position to make an informed assessment as to the appropriateness of the expenses. 12 It appears to me that, by default, the Committee of Inspection should perform the role, in the particular circumstances of this case, of considering the appropriateness of the special purpose liquidator's expenditure on legal costs. 13 I propose to make an order that the general liquidators would be justified in paying to Mr Weston amounts, which he certifies are properly incurred and payable by him for legal expenses, provided that the Committee of Inspection has approved such payments. I think it entirely appropriate that members of the Committee be provided with copies of the solicitors' bills of costs or counsels' memoranda of fees for which payment is sought. 14 A question may arise concerning a potential waiver of privilege if such bills of costs or memoranda of fees include information to which legal professional privilege or client legal privilege attaches. In such a case, the special purpose liquidator would be justified in redacting such information until arrangements were put in place to ensure that any such disclosure did not involve a waiver of privilege. Such procedures have already been implemented in relation to other material supplied by the special purpose liquidator to the members of the Committee of Inspection, to ensure that there is no waiver of privilege in relation to legal advice obtained by him. I see no reason why a similar course could not be taken if an issue of waiver of privilege otherwise arose. 15 I also think it appropriate that the general liquidators be directed that they would be justified in paying such expenses from the assets of One.Tel, if the expenses have been approved by a majority of the Committee. It may well not be possible, on all occasions, to obtain the attendance of all members of the Committee. In any event, if there were dissent by a minority of the Committee in relation to the payment of expenses, it would be open to such persons to take appropriate steps to have such expenses moderated or assessed (Burns Philp Investment Pty Ltd v Dickens (No. 2) (1993) 31 NSWLR 280). 16 The regime should also cater for the possibility that some members of the Committee, whilst not objecting to the payment of legal costs, might not be prepared to give express approval of payment, or, whilst satisfied with the overall level of expense, may have queries in relation to particular items. To deal with such possibilities it is appropriate that the order provide for the majority of the Committee to either approve, or not object to, payment of the legal costs for which payment is sought. 17 For these reasons, I order that Peter Walker and Steven Sherman, as liquidators of One.Tel, would be justified in paying to Paul Gerard Weston, in his capacity as special purpose liquidator of One.Tel, from the assets of One.Tel, such amounts as Mr Weston certifies: (a) are legal costs and disbursements properly incurred and payable by him in performing the functions required to be performed by him as special purpose liquidator, in conformity with orders of the Court; and (b) have been approved for payment or not objected to by a majority of the Committee of Inspection, after the provision to all members of the Committee of the bills of costs or memoranda of fees for which payment is sought (not including disclosure of information to which client legal privilege or legal professional privilege attaches), and such other information as the Committee required, within seven days of notification by the special purpose liquidator to Messrs Walker and Sherman of such certification. 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