Supreme Court New South Wales Medium Neutral Citation: In the matter of Golden Sands Hospitality Pty Ltd (in liquidation) (No 2) [2017] NSWSC 450 Hearing dates: 13 April 2017 Date of orders: 13 April 2017 Decision date: 13 April 2017 Before: Gleeson JA Decision: (1) Direct that Mark Robinson and David Webb be added as plaintiffs in place of Stephen John Parbery. (2) Direct the new plaintiffs to file an amended originating process within 7 days. (3) Pursuant to the s 477(2B) of the Corporations Act 2001 (Cth) approval be given to the liquidators of the defendant, Mark Robinson and David Webb entering into a deed of indemnity and funding in or substantially to the effect of the deed that is annexure A to the affidavit of Sophie Jeliba sworn 13 April 2017. (4) The liquidators' costs of the proceedings be costs in the winding up of the defendant. (5) Direct these orders be entered forthwith. Catchwords: CORPORATIONS – external administration – application by liquidators for approval of entry into contract potentially of more than three months duration under Corporations Act s 477(2B) – where proceedings now properly constituted by current liquidators – whether appropriate to allow liquidators to enter into deed of indemnity and funding with creditor, shareholder and director of the company. Legislation Cited: Corporations Act 2001 (Cth), s 477, 477(2B), 564, 556 Cases Cited: Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 Re HIH Insurance Ltd [2004] NSWSC 5 Re HIH Overseas Holdings Ltd (in prov liq) [2001] NSWSC 426 Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 State Bank (NSW) v Turner Corporation Ltd (1994) 14 ACSR 480 at 483 Category: Principal judgment Parties: Mark Robinson (First Plaintiff) David Webb (Second Plaintiff) Golden Sands Hospitality Pty Ltd (in liq) (Defendant) Representation: Counsel: A D'Arville (Plaintiff) Solicitors: Mills Oakley Lawyers (Plaintiff) File Number(s): 2017/96820 Judgment 1. GLEESON JA: Before the Court is an application by Mark Robinson and David Webb as liquidators of the defendant Golden Sands Hospitality Pty Limited (In Liq) (the company) for approval under s 477(2B) of the Corporations Act 2001 (Cth) of a proposed deed of indemnity and funding between Jianzong He, Mark Robinson and David Webb as liquidators and the defendant company. 2. Mr He is a creditor of the company as well as a shareholder and director. The company operates a Chinese restaurant from leased premises at Hurstville. The company employs about 69 staff. Mr Robinson and Mr Webb were appointed liquidators of the defendant on 11 April 2017 following the resignation of Mr Parbery as liquidator on that day. The original liquidator, Mr Parbery, and the replacement liquidators, Mr Robinson and Mr Webb, have continued to operate the restaurant business with a view to maximising the value of the business for sale. A new manager has been appointed. 3. Mr He has agreed to indemnify the liquidators in respect of, in essence, two matters. One relates to the costs of proceedings in the Supreme Court brought by the company against the landlord of the restaurant premises, Wuhan Investments Pty Limited, for relief against forfeiture. Those proceedings have now been finalised in favour of the company, by orders made by the Court on 24 February 2017. However, there is a costs order against the company in favour of the landlord. The other aspect of the proposed deed of indemnity and funding is the costs of the liquidation generally and trading-on the restaurant business until it is sold. 4. Mr Webb has given an affidavit in which he expressed his opinion that it may take more than 3 months to effect a sale of the restaurant business. 5. The funder agrees (by cl 1.1) to indemnify the liquidators against all liability for debts, expenses and remuneration properly incurred by the liquidators in the Supreme Court proceedings, any adverse costs against the liquidators or the company in those proceedings, or legal costs incurred by the liquidators in relation to those proceedings, and any obligation on the company or the liquidator to pay rent for the leased premises and trading the business of the company from those premises. 6. The indemnity also includes any loss to the liquidators including, but not limited to, all expenses and remuneration incurred by the liquidators arising out of any defect in the appointment of the liquidators. 7. Clause 1.6 deals with termination of the funding arrangements. It provides that the funder may terminate the agreement by giving 14 days' notice in writing to the liquidators. In such event, upon expiry of any such notice, the funder remains liable to indemnify the liquidators under cl 1.1 for debts, expenses and remuneration properly incurred by the liquidators prior to that date. 8. The proposed deed of indemnity and funding contains an acknowledgment by the liquidators in cl 2.2(a) that the Supreme Court proceedings were necessary to obtain relief against forfeiture and to allow the liquidators to continue trading the company's business. 9. Clause 2.2(b) provides that the liquidators agree that if in the course of the winding up they recover property or expenses in excess of the amounts necessary to meet the liquidators' expenses, referred to in s 556(1)(a) of the Corporations Act, they will apply to the Supreme Court of New South Wales for an order under s 564 of the Corporations Act that the funder be repaid certain amounts in priority to the debts and claims of any other person. Those amounts comprise the amounts provided by the funder to the former liquidator Mr Parbery between 13 April 2017 and 11 April 2017 and amounts provided by the funder to the current liquidators under the terms of the proposed deed. 10. Clause 2.2(c) provides that the liquidators and the funder agree that they will consult with each other about the timing of any application under s 564 and that such an application will be made prior to the liquidator paying any debt or claim of any other person (other than the liquidators' expenses referred in s 556(1)(a)). 11. The deed of indemnity and funding also includes provisions dealing with the liquidators keeping the funder informed regarding the conduct of the liquidation (cl 3). 12. Under s 477(1)(a), a liquidator of a company may carry on the business of the company so far as is, in the opinion of the liquidator, required for the beneficial disposal or winding up of that business. 13. Under s 477(2)(g), a liquidator of the company may obtain credit, whether on the security of property of the company or otherwise. 14. However, under s 477(2B), except with the approval of the Court, of the committee of inspection or a resolution of creditors, a liquidator of a company must not enter into an agreement on the company's behalf if the term of the agreement may end, or obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance, more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months. 15. As indicated, the liquidators anticipate that the funding arrangement with Mr He may last longer than 3 months, having regard to the time anticipated to achieve a sale of the restaurant business 16. No committee of creditors has been appointed. Mr Webb has given evidence that no meeting of creditors has yet been called for a number of reasons including that the directors have not yet provided a report as to affairs setting out all the creditors of the company, and that there appear to be disputes between at least two of the directors of the company, and Mr Webb believes that calling a meeting of creditors to obtain approval of the proposed deed would not be practical. Legal principles – s 477(2B) 1. The object of the approval process under s 477(2B) is to ensure that contractual provisions as to timing do not cut across the general expectation that the winding up will proceed in an expeditious fashion as circumstances allow: Re HIH Insurance Ltd [2004] NSWSC 5 at [15] (Barrett J); Re HIH Overseas Holdings Ltd (in prov liq) [2001] NSWSC 426 at [5] (Barrett J). 2. The following propositions can be derived from the authorities when deciding whether to grant approval under s 477(2B): 1. the controlling consideration is the interests of creditors concerned in the winding up; 2. the court pays regard to the commercial judgment of the liquidator; 3. although the court is not a rubber stamp for whatever the liquidator puts forward, it is not the role of the court to independently appraise the commercial desirability and commercial terms of the transaction, 4. the court will generally not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or some real and substantial ground for doubting the prudence of the liquidator's proposal. See Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-6; State Bank (NSW) v Turner Corporation Ltd (1994) 14 ACSR 480 at 483; Re HIH Insurance Ltd [2004] NSWSC 5 at [15] and Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 at 311. 1. I am satisfied that it is appropriate that the liquidators enter into an arrangement to fund the liquidation on terms in or substantially to the effect of the proposed deed of funding and indemnity annexed to the affidavit of Ms Sophie Jeliba sworn 13 April 2017. 2. One further matter should be mentioned. When these proceedings were originally commenced, the plaintiff was Mr Parbery, the then liquidator. As noted, Mr Parbery has since resigned as liquidator, and Mr Robinson and Mr Webb have been appointed liquidators in his place. It is appropriate that the new liquidators be joined to the proceedings as plaintiffs in place of Mr Parbery who no longer has any interest in the proceedings. 3. The orders I will make will address the necessary formal steps that should be taken to properly constitute the proceedings. 4. For the above reasons, I make the following orders: 1. Direct that Mark Robinson and David Webb be added as plaintiffs in place of Stephen John Parbery. 2. Direct the new plaintiffs to file an amended originating process within 7 days. 3. Pursuant to the s 477(2B) of the Corporations Act 2001 (Cth) approval be given to the liquidators of the defendant, Mark Robinson and David Webb entering into a deed of indemnity and funding in or substantially to the effect of the deed that is annexure A to the affidavit of Sophie Jeliba sworn 13 April 2017. 4. The liquidators' costs of the proceedings be costs in the winding up of the defendant. 5. Direct these orders be entered forthwith. ********** 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: 21 April 2017