Supreme Court New South Wales Medium Neutral Citation: In the matter of Accord Pacific Land Pty Limited (in liquidation) [2013] NSWSC 728 Hearing dates: 11 April 2013 Decision date: 11 April 2013 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Approval granted for entry into funding agreement. Approval granted for entry into costs agreement. Liquidator's costs of and incidental to the application be costs of the winding up. Catchwords: CORPORATIONS - winding up - liquidators - liquidator seeks directions approving entry into a funding agreement and a costs agreement - whether entry into the agreement is a proper exercise of power - whether entry into the funding agreement is in the interests of creditors - whether there is a risk of duplication with other proceedings where litigation has been commenced by the proposed funder against the proposed defendant to the proceedings. Legislation Cited: Corporations Act 2001 (Cth) ss 477, 477(2B), 506, 511 Cases Cited: - Deloughery v Weston [2010] NSWCA 148; (2010) 79 ACSR 180 - Empire (Aust) Nominees Pty Ltd v Vince (2000) 35 ACSR 167 - Fortress Credit Corporation (Aust) II Pty Ltd v Fletcher [2011] FCAFC 89 - Pascoe; Re Matrix Group Ltd (in liq) [2011] FCA 1117 - Re Addstone Pty Ltd (in liq) (1997) 25 ACSR 357 - Re Ansett Australia Ltd (admins appt) v Korda [2002] FCA 90; (2002) 49 ACSR 433 - Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 - Re Harris Scarfe Ltd (in liq) [2007] SASC 209 - Re Leigh, A P and P J King Pty Ltd (in liq) [2006] NSWSC 315 - Re McGrath & Anor (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; (2010) 78 ACSR 405 Category: Interlocutory applications Parties: Bruce Gleeson (Applicant) Accord Pacific Land Pty Limited (in liquidation) (Respondent) Representation: Counsel: S. Golledge (Applicant) Solicitors: Gillis Delaney Lawyers (Applicant) File Number(s): 11/85485 Judgment - EX TEMPORE 1By interlocutory process dated 8 March 2013, the applicant, Mr Bruce Gleeson, as liquidator of Accord Pacific Land Pty Limited (in liq) ("Company") seeks directions that, in effect, he would be justified in entering into a funding agreement with Hyperion Property Syndicates Limited ("Hyperion") in a specified form and that he would be justified in entering into a costs agreement with the firm of Gillies Delaney in respect of the provision of certain legal services. 2The application is framed as an application for approval of the funding agreement and costs agreement under s 477(2B) of the Corporations Act 2001 (Cth), although Mr Golledge, who appeared for the applicant, noted in submissions that, since the Company is in voluntary administration, reliance is also placed on s 511 of the Corporations Act which provides that, in a voluntary winding up, the liquidator may apply to the Court to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court. 3Section 477(2B) of the Corporations Act in turn provides that, except with the Court's approval, or the approval of a committee of inspection or 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 it may be discharged by performance, more than three months after entry into the agreement. The obligations of the liquidator, the funder and the solicitors under the agreements in issue in this application may be discharged more than three months after the entry into them by reason of the time before the proceedings would go to hearing and the time likely to complete them. 4It is at least arguable that the requirement for Court approval, under s 477(2B) of the Corporations Act, of entry into agreements with a term of greater than three months applies in a creditor's voluntary winding up, since s 506 of the Corporations Act allows the liquidator, in a creditors' voluntary winding up, to exercise the powers that the Act confers on a liquidator in a winding up in insolvency or by the Court, and the powers conferred on a liquidator under s 477 in that situation are arguably confined by s 477(2B). In Re Harris Scarfe Ltd (in liq) [2007] SASC 209, Debelle J appears to have proceeded on that basis, while not directly addressing the question, in granting approval under s 477(2B) to entry into a litigation funding agreement in respect of several companies which had passed from voluntary administration to a creditors' winding up. It is ultimately not necessary to decide whether approval under s 477(2B), operating through ss 506 and 511, is required in this case. Even if it is not, as Mr Golledge points out, it is plainly appropriate for the liquidator to seek a direction from the Court under s 511 where allegations of bias and applications for his removal have previously been made by the potential defendant, Accord Pacific Holdings Pty Limited ("APH"). 5I turn now to the principles applicable for the approval into entry with a funding agreement, which are well established. The Court is not concerned, in giving such an approval, with matters of commercial judgment but is concerned to be satisfied that the entry into the agreement is a proper exercise of power and not ill-advised or improper on the part of the administrator: 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) 78 ACSR 405. 6Previous decisions concerning whether litigation funding agreements should be approved under s 477(2B) include Re Leigh, A P and P J King Pty Ltd (in liq) [2006] NSWSC 315, to which Mr Golledge referred in submissions. In that case, Austin J summarised relevant factors as including the liquidator's prospects of success in the liquidation; the interests of creditors other than the proposed defendant; possible oppression in bringing the proceedings; the nature and complexity of the cause of action; the extent to which the liquidator had canvassed other funding options; the level of the funder's premium; the liquidator's consultation with creditors; and the risk involved in the claim, including specified matters. Those factors were in turn referred to by the Full Court of the Federal Court in Fortress Credit Corporation (Aust) II Pty Ltd v Fletcher [2011] FCAFC 89 at [24] and by Jacobson J in Pascoe; Re Matrix Group Ltd (in liq) [2011] FCA 1117, where his Honour noted that the question for the Court, in determining whether to approve the funding of claims by a party associated with the company, was whether: "The liquidator's judgment in this regard has been infected by a lack of good faith or an error of law or principle, and whether there are real or substantial grounds for doubting the prudence of the liquidator's conduct in seeking to enter into the funding agreement". 7In the present case, the funding agreement has been tendered on a confidential basis. That agreement is plainly more favourable than could have been obtained from a third party funder. The liquidator sought, but was unable to obtain, approval for that agreement from a meeting of creditors, which lapsed without a quorum where one of the two creditors is a proposed defendant to the proposed proceedings. 8I can readily be satisfied as to the basis of the prospects of success for the proceedings, where a direction has previously been made by Brereton J that the liquidator would be justified in bringing them. It seems to me that the grant of approval is in the interests of creditors other than the proposed defendant, since a successful result would secure assets for distribution to creditors. Subject to a question of duplication with other proceedings, which I will now address, there is nothing to suggest any possible oppression in the conduct of the proceedings. 9I should now turn to that question of oppression and, specifically, the question of duplication arising from other proceedings. By letter dated 13 March 2013, the liquidator's solicitors gave notice of the application for approval to the solicitors acting for the proposed defendant to the proceedings, APH. By letter dated 21 March 2013, expressly written "without instructions", APH's solicitors drew attention to litigation commenced by the proposed funder and a major creditor of the company, Hyperion, against APH and contended that those proceedings were material to the orders sought and should be disclosed to the Court, as they have been. That letter contended that the allegations made against APH in those proceedings are the allegations made in the liquidator's foreshadowed claim, and the parties to those proceedings are the two creditors to the company, APH and Hyperion. 10The existence of the other proceedings raised questions, potentially, as to the utility of the proceedings to be brought by the liquidator which might, at least in an extreme case, be relevant to whether a funding agreement should be approved, and as to whether the proceedings gave rise to a question of oppression of the kind to which Austin J referred in Re Leigh above. The application was adjourned so the liquidator could lead evidence as to those issues. 11The liquidator has now read a further affidavit of the liquidator's solicitor in respect of those issues, and tendered further documentation in respect of them, including a copy of what he understands is the latest version of the Amended Commercial List Statement filed by Hyperion in its proceedings against, inter alia, Accord Pacific Properties Pty Limited, and the draft originating process in respect of the liquidator's proceedings against Accord Pacific Properties Pty Limited and APH and draft points of claim in respect of those proceedings. The liquidator has also tendered an advice of senior counsel, which had been also provided to the Court in respect of the earlier application before Brereton J. 12Mr Golledge properly acknowledges that there is a degree of factual overlap in Hyperion's claim and the liquidator's proposed claim. He points out, however, that the legal foundation of those claims differ and that the relief sought differs. In particular, Hyperion brings a claim for, inter alia, misleading and deceptive conduct, claiming damages for capital loss which it claims to have suffered by paying an allegedly inflated price to acquire a relevant property; consequential loss of profits; and loss of rent payable by the Company in respect of the property. 13By contrast, the liquidator's claim relates to the Company's affairs, rather than dealings between Hyperion and the Accord Pacific entities, and involves claims for breach of duty by the Company's directors, claims for knowing involvement against its holding company and a real estate agent involved in the transaction, and claims under Pt 5.7B of the Corporations Act and for insolvent trading against the Company's directors and its holding company. In particular, the liquidator claims that the entry by the Company into a lease at an inflated value caused it to incur liabilities which were unjustified in the relevant circumstances. The relief sought is directed to loss suffered by the Company, albeit its recovery would advantage the Company's creditors, and Hyperion as a creditor. 14I am satisfied that in these circumstances there is no element undercutting the utility of the proceedings in respect of the overlap, because, for example, the recovery of damages by Hyperion would not exhaust, subject to the Accord Pacific entities' assets, the ability of the liquidator to recover the Company's loss. I am also satisfied that there is no element of oppression in the fact that the Accord Pacific entities are exposed to claims by separate entities, Hyperion and the Company, for different losses arising from the alleged breach of different duties and statutory provisions. Although there is a degree of overlap in the factual substratum of the claims, those claims would necessarily be brought in separate proceedings where they have separate legal origins and are brought by different entities. 15To the extent that the overlap in issues may lead to a duplication in costs, Mr Golledge rightly points out that that could well be avoided, or substantially minimised by an order that the proceedings be heard together, and there is nothing preventing Hyperion, the liquidator or the Accord Pacific entities seeking such an order. 16Those matters do not, in my view, lead to a conclusion that the existence of the proceedings brought by Hyperion undercuts the basis for the liquidator bringing the proceedings on behalf of the Company or gives rise to any oppression in his doing so, and therefore provides no reason not to approve the funding agreement as sought. 17I turn now to the question of approval for entry into a Costs Agreement with Gillis Delaney. The liquidator points to certain advantages from retaining that firm, and in particular Mr Michael Hayter, a partner of that firm, who has previously acted for the liquidator in other aspects of the matter, and expresses the view that the firm's charge-out rates are reasonable. The affidavit discloses that Mr Hayter had a limited involvement with Hyperion in respect of one aspect of the matter and Mr Golledge, properly, drew the Court's attention to APH's reliance on Mr Hayter's involvement in a previous, and unsuccessful, application for the liquidator's removal which had been heard before Ward J. APL did not appear to pursue that attack in this application. 18There is, on the evidence before me, no reason to think that the entry into the retainer and costs agreement is not a proper exercise of the liquidator's power. The Court's role is not to second-guess the liquidator's judgment as to that matter and there would be no reason to doubt that judgment on the evidence before me. There is nothing to suggest that the liquidator's entry into the agreement is not a proper exercise of his powers or is ill-advised or is in any way inappropriate. 19I should note that the liquidator's application, so far as it relied on s 511 of the Corporations Act, also sought a direction that the liquidator would be justified in entering into the proposed agreements. A direction of that kind was given by Jacobson J in Pascoe; Re Matrix Group Ltd (in liq) to which I have referred above. 20The function of a liquidator's application for directions is to give the liquidator advice as to the proper course of action for him to take in a liquidation. While the Court will typically not give such a direction in respect of matters which involve the making and implementation of commercial decisions, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision, it may do so where a legal issue or an attack on the propriety of the decision is raised or is likely to be raised: Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 686-687; Re Ansett Australia Ltd (admins apptd) v Korda [2002] FCA 90; (2002) 49 ACSR 433 at [46]; Re Addstone Pty Ltd (in liq) (1997) 25 ACSR 357 at 363. 21In the present case, it seems to me appropriate to give such a direction, given the history of previous disputes which have arisen in the liquidation, and the findings which I have reached above that the liquidator would be justified in entering the relevant agreements. 22I should note that there is evidence before me that APH, which is in an adverse interest in the proposed proceedings, has been notified of the application. That was a prudent course, although it is generally the case that potential defendants would not have a right to appear in an application of this kind, and APH has not sought to be heard in the application: compare Deloughery v Weston [2010] NSWCA 148; (2010) 79 ACSR 180 at [36]. 23I will, in this matter, slightly amend the orders that I propose to make from those which were sought in the interlocutory process, since I think it is preferable to frame the orders sought as approvals rather than in terms of whether it is "appropriate" to take particular steps. 24I make the following orders: 1. Direct that the applicant would be justified in, and grant such approval as is necessary for, the applicant's entry into a Funding Agreement with Hyperion Property Syndicates Ltd in accordance with the agreement set out in Exhibit BG tab 2 to the affidavit of Bruce Gleeson. 2. Direct that the applicant would be justified in, and grant such approval as is necessary for, the applicant's entry into a Costs Agreement with Gillis Delaney which is set out in Exhibit BG tab 6 to the affidavit of Bruce Gleeson. 3. The liquidator's costs of and incidental to this application be costs of the winding up. 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: 11 June 2013