Supreme Court New South Wales Medium Neutral Citation: In the matter of Mustang Marine Australia Services Pty Limited [2012] NSWSC 620 Hearing dates: 28 May 2012 Decision date: 28 May 2012 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Liquidator approval to enter into Deed of funding and Indemnity. Approved nunc pro tunc to retain solicitors to act and continue to act in connection with proposed proceedings. Certain documents ordered confidential. Costs of and incidental to application to be costs in the winding up. Catchwords: CORPORATIONS - Winding up - Court approval for liquidator's litigation funding arrangement - Ex parte hearing - confidentiality orders. Legislation Cited: - Corporations Act 2001 (Cth) ss 477(2B), 564 Cases Cited: - Deloughery v Weston [2010] NSWCA 148; (2010) 79 ACSR 180 - Empire (Aust) Nominees Pty Ltd v Vince (2000) 35 ACSR 167 - Kingsheath Club of the Clubs Ltd (in liq) [2003] FCA 1034 - Leigh; Re AP & PJ King Pty Ltd (in liq) [2006] NSWSC 315 - Re McGrath & Anor (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; (2010) 266 ALR 642; 78 ACSR 405 - Onefone Australia Pty Ltd v One.Tel [2010] NSWSC 498; (2010) 78 ACSR 163 - Re ACN 076 673 875 Ltd [2002] NSWSC 578; (2002) 42 ACSR 296 - Re HIH Insurance Group Ltd [2001] NSWSC 308; (2001) 19 ACLC 1102 - Re Mustang Marine Australia Services Pty Ltd (admin apptd) [2010] NSWSC 1429 Category: Interlocutory applications Parties: Mitchell Ball (Applicant) Mustang Marine Australia Services Pty Limited (Defendant) Representation: Counsel: S. Golledge (Applicant) Solicitor: Paul Bard Lawyers (Applicant) File Number(s): 10/249314 Judgment - EX TEMPORE 1This is an application by Mr Mitchell Ball as liquidator ("Liquidator") of Mustang Marine Australia Services Pty Ltd ("Company") for approval of his entry into a deed of funding and indemnity with Abacus Funds Management Limited ("Abacus") ("Funding Agreement") and for approval, or retrospective approval, of his entry into retainer agreements with Paul Bard Lawyers for them to act or continue acting as solicitors for the Liquidator in connection with proposed proceedings. 2The application is brought under s 477(2B) of the Corporations Act 2001 (Cth) which provides that, except with the court's approval, or the approval of the committee of inspection or a resolution of creditors, a liquidator must not enter into an agreement on a company's behalf if the term of that agreement may end, or obligations of a party to the agreement may be discharged by performance, more than three months after entry into the agreement. 3In granting approval for the entry of such an agreement, the court is not concerned with matters of commercial judgment but is concerned to be satisfied that if the entry into the agreement is a proper exercise of power and not ill advised or improper on the part of the liquidator: Empire (Aust) Nominees Pty Ltd v Vince (2000) 35 ACSR 167; Re McGrath & Anor (in their capacity as liquidators of HIH Insurance Ltd [2010] NSWSC 404; (2010) 266 ACR 642; 78 ACSR 405. Several previous decisions consider the question whether a litigation funding agreement should be approved under this section including Re HIH Insurance Group Ltd [2001] NSWSC 308; (2001) 19 ACLC 1102 and Leigh; Re AP & PJ King Pty Ltd (in liq) [2002] NSWSC 578; [2006] NSWSC 315. In the latter case, Austin J referred to his earlier decision in Re ACN 076 673 875 Ltd (2002) 42 ACSR 296 and summarised the relevant factors as including: * the liquidator's prospects of success in the litigation; * the interests of creditors other than the proposed defendant; * possible oppression in the bringing of the proceedings; * the nature and complexity of the cause of action; * the extent to which the liquidator has canvassed other funding options; * the level of the funder's premium; * the liquidator's consultations with creditors; and * the risks involved in the claim (including the amount of costs likely to be incurred in the proposed litigation, the extent to which the funder is to contribute to those costs, and the extent to which the funder is to contribute to the defendant's costs if the action is not successful, or towards any order for security for costs). 4The proposed Funding Agreement contemplates that Abacus would provide funding for the costs incurred in proposed proceedings against several directors of the Company and another entity which is alleged to have been the holding company or a de facto director of the company ("Insolvent Trading Proceedings") and proceedings to recover preferential payments to the Commissioner of Taxation ("COT Proceedings"). The Funding Agreement would also provide for Abacus to indemnify the liquidator against any adverse costs order made against the liquidator if the proceedings are unsuccessful. The Funding Agreement preserves the liquidator's control of the proceedings, subject to provision for consultation with Abacus, and the liquidator agrees to apply to the court for an order under s 564 of the Corporations Act granting Abacus special priority in respect of the payment of the debt owed to a fund managed by Abacus. 5The Liquidator expresses the view that the terms of the Funding Agreement are considerably better than the terms which would be available from a commercial litigation funder. That view appears to be correct, since the Funding Agreement does not contemplate that a percentage of the amount of any judgment would necessarily be paid to Abacus as the price of provision of funding of the proceedings. 6Approval is also sought for two retainer agreements with Paul Bard Lawyers in respect of the Insolvency Trading Proceedings and the COT Proceedings. The Liquidator expresses his satisfaction as to the terms and rates to be charged by Paul Bard and there is no reason to doubt the Liquidator's assessment of those matters. 7I am conscious that Mr Bard previously acted for Abacus, the proposed funder, in an earlier proceedings in which the Liquidator was appointed. However, this does not seem to me to create any obstacle to his retainer. First, as Mr Golledge, who appears for the Liquidator points out, there will be practical advantages and cost savings for the Liquidator so far as some of the factual matters raised in the earlier proceedings are also the basis of the Insolvent Trading Proceedings. Second, the Liquidator is an officer of the court and I can properly assume that he will be alert to his responsibilities in respect of maintaining the integrity of his role. Third, it is open to the Liquidator or Abacus to obtain independent advice if any issue arises where a conflict between their respective interests may emerge. Fourth, the potential defendants to the proceedings appear to have no particular interest in the question of Mr Bard's retainer. 8Turning now to the factors to which Austin J referred in ACN 076 673 875 and Leigh; Re AP & PJ King Pty Ltd, I can readily be satisfied, on the basis of the liquidator's affidavit and the draft Originating Process and draft Points of Claim which have been put before me, that the proceedings have at least a reasonable prospect of success. A similar view of the potential claims was expressed by Ward J in earlier proceedings in which a earlier deed of company arrangement in respect of the Company was terminated and the Liquidator was appointed: Re Mustang Marine Australia Services Pty Ltd [2010] NSWSC 1429 at [116]. 9It seems to me that the grant of approval is in the interest of creditors other than the proposed defendant. In this case, the largest creditor is a proposed defendant in the Insolvent Trading Proceedings; Abacus is the next largest creditor; and the third largest creditor is the Commissioner of Taxation which is a proposed defendant in the COT Proceedings. The commencement of the proceedings has the potential to deliver a recovery to the Liquidator and increase the funds which would be available in the liquidation to discharge debts owed to Abacus and creditors generally, including those unsecured creditors with smaller claims. There appears to be no disadvantage to smaller creditors where the question of any priority to Abacus in respect of its funding of the proceedings will be determined by the court on its merits at an appropriate time, and having regard to the outcome of any proceedings and whether they have augmented the assets available for distribution to creditors. The Liquidator has given evidence explaining why he has not extended the opportunity to fund the proceedings to remaining creditors and that explanation appears, on its face, to be commercially reasonable. There is nothing to suggest any oppression in bringing the proceedings. 10The most obvious alternative funding option would be funding by a commercial funder, but it is likely that, as the Liquidator notes in his evidence, the terms of such funding would be less attractive than those offered by Abacus, and the absence of a premium payable to Abacus is a factor which supports approval of the funding agreement in this case. The provision indemnifying the Liquidator for adverse costs orders in the funding agreement mitigates the risk to creditors from entry into the proceedings. As noted above, other creditors will also have opportunity to be heard as to the extent to which priority would ultimately be afforded to Abacus under s 564 of the Corporations Act. 11For completeness, two other issues arose in the course of argument before me. The solicitor who acts for the potential defendants is aware of the application being brought today and had requested that he be provided with a copy of the application. The Liquidator's solicitors responded that the Liquidator's position was that the potential defendants did not have a right to appear but the Liquidator, by his counsel, properly brought the relevant correspondence to the court's attention. The view expressed by the Liquidator, that the potential defendants do not have a right to be heard in such an application, and would not generally be granted leave to appear, is consistent with the authorities: Kingsheath Club of the Clubs Ltd (in liq) [2003] FCA 1034 at [18]-[22]. Adopting the test for a right to be heard which was identified in Deloughery v Weston [2010] NSWCA 148; (2010) 79 ACSR 180 at [36], it is difficult to see any relevant right, interest or expectation of the proposed defendants in the proceedings in the question of how those proceedings are to be funded by the Liquidator, at least unless the terms of the funding agreement could adversely affect the conduct of those proceedings. There is nothing to suggest that the proposed funding agreement in this case could have that consequence. In any event, the proposed defendants did not in fact seek to intervene or to be granted leave to appear before me, although they were aware that the application was to be brought today, and it is not necessary for me to take this question further in the absence of any application on the part of the proposed defendants to be heard. 12Second, the Liquidator has also sought confidentiality orders in respect of two documents which were tendered in the proceedings. I am satisfied that confidentiality orders should be made in respect of those documents, for the reasons put by the liquidator's counsel in submissions. The court's power to make such an order in an appropriate case is well established: Onefone Australia Pty Ltd v One.Tel [2010] NSWSC 498; (2010) 78 ACSR 163 at [5]. 13Accordingly, I make the following orders: 1. An order pursuant to section 477(2B) of the Corporations Act: (a) approving Mr Mitchell Ball, as official liquidator of Mustang Marine Australia Services Pty Ltd, entering into a Deed of Funding and Indemnity with Abacus Funds Management Limited in, or substantially in, the form reproduced in Exhibit MB1 commencing at page 36. (b) approving nunc pro tunc, the Liquidator entering into agreements retaining Paul Bard Lawyers to act and continue acting as the solicitors for the Liquidator in connection with proceedings proposed to be commenced by the Liquidator for an insolvent trading claim and recovery of preference claims against the Commissioner of Taxation. 2. The documents which are pages 46-79 of Exhibit "MB1" of the affidavit of Mitchell Ball, not be made available for inspection, and be treated as confidential, other than by further order of the court. 3. The costs of and incidental to this application be costs of the winding up of the company. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 June 2012