Supreme Court New South Wales Medium Neutral Citation: In the matter of Equititrust Limited (in liquidation) (Receiver Appointed) (Receivers & Managers Appointed) [2016] NSWSC 1936 Hearing dates: 10 and 12 October 2016 Date of orders: 12 October 2016 Decision date: 12 October 2016 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Approves plaintiffs entering into the Haney Settlement Deed. The publication and disclosure of certain documents be placed in a sealed envelope and marked accordingly. Order applies throughout the Commonwealth of Australia, and until a date 90 days after final orders are made disposing of proceedings in the Federal Court. Costs. Catchwords: CORPORATIONS – winding up – liquidators – settlement deed between liquidators and director – where provisions in deed could be discharged by performance in more than three months after execution of deed – Court's approval under Corporations Act, s 477(2B) – impact of deed on duration of liquidation – whether reasonable in all circumstances in interests of administration Legislation Cited: (CTH) Corporations Act 2001, s 477(2A), s 477(2A), s 511 (NSW) Court Suppression and Non-publication Orders Act 2010, s 7 Cases Cited: Re One.Tel Ltd (1999) ACSR 247; Re Octavia Ltd (2015) NSWSC 1621 Category: Procedural and other rulings Parties: Blair Alexander Pleash (first plaintiff) Richard Albarum (second plaintiff) Equititrust Limited (in liquidation)(ReceiverAppointed)(Receivers & Managers Appointed)(third plaintiff) Representation: Counsel: C Withers (plaintiffs) Solicitors: Squire Patton Boggs (plaintiffs) File Number(s): 2016/278665 Judgment (ex tempore) 1. HIS HONOUR: The first and second plaintiffs, Blair Alexander Pleash and Richard Albarum, are the liquidators of the third plaintiff Equititrust Limited, which is the responsible entity of the Equititrust Income Fund, and in that capacity has brought proceedings in the Federal Court of Australia against, inter alia, its three former directors, Wayne McIvor, Mark McIvor and Thomas Haney, and its auditors, KPMG. On 27 April 2016, the liquidators concluded a settlement agreement with Mr Haney. That agreement was expressed to be subject to such court approvals, including under (CTH) Corporations Act 2001, s 477, and advice under Corporations Act, s 511, as the liquidators deemed appropriate. By originating process filed on 16 September 2016, the plaintiffs sought the Court's approval under Corporations Act, s 477(2A), and 477(2B), and judicial advice under Corporations Act, s 511, in respect of the settlement agreement. 2. The liquidators no longer press for an approval under s 477(2A), rightly taking the view that a claim for unliquidated damages against Mr Haney for alleged breach of his duties is not a "debt" such as to require approval under s 477(2A), nor do they any longer seek judicial advice under s 511. However, a number of provisions of the settlement deed, at least arguably, could be discharged by performance in more than three months after the execution of the deed and, accordingly, the liquidators seek approval under s 477(2B). 3. Section 477(2B) 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 the Court. Its rationale is 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. Thus, in considering giving approval under s 477(2B), the main consideration is the impact of the agreement on the duration of the liquidation – whether that is in all of the circumstances reasonable in the interests of the administration – and the attitude of the creditors thereto. [1] 4. The provisions of the settlement deed which may be discharged by performance more than three months after the agreement was entered into on 27 April 2016 are included in cl 2(b), which relates to obtaining court approval; cl 4, which relates to the discontinuance of the Federal Court proceedings; cl 4.2, which relates to the potential reinstitution of those proceedings; and cl 5, which relates to an obligation on Mr Haney to provide certain cooperation. Those provisions are not of the kind likely to protract the liquidation beyond the period which it will otherwise occupy. In particular, the proceedings against the other directors are likely to continue for at least the currency of those obligations. Moreover, if the proceedings against Mr Haney were not settled, they would not be resolved within the timeframe in which those obligations are likely to be discharged by performance. The provisions in question are not of the kind that would ordinarily incline the Court to think that approval should be withheld. As I have said, it is the impact of such provisions on the duration of the liquidation, and the reasonableness of incurring that impact that is the prime concern under s 477(2B). 5. In that respect, approval under s 477(2B) is different from an approval under s 477(2A) where the reasonableness of the compromise itself is a necessary consideration. Even less under s 477(2B) does the Court second-guess the liquidator's commercial judgment. To the extent however that the merits of the agreement are otherwise relevant to an approval under s 477(2B), it suffices to say that the evidence establishes that the liquidator has given careful consideration to the advantages and disadvantages of the proposed settlement, has taken advice from their counsel and solicitors – which advice is themselves carefully consider the advantages and disadvantages of the settlement – appears to have taken into account the relevant considerations, does not appear to have proceeded on any error of law, and there is no suggestion of their having acted otherwise, or there is no hint of their having acted otherwise than in good faith. There is in my judgment no reason in terms of the expeditious and beneficial administration of the liquidation to intervene in the liquidator's commercial judgment that this is an appropriate settlement. 6. Although entered into on 27 April this year, and thus in a sense already made, the settlement deed is expressed to be subject to the Court's approval, as I have mentioned. In those circumstances, s 477(2B) is not contravened, and the liquidator's power to enter into the agreement is completed when the order is made satisfying the condition precedent to the agreements taking effect. 7. The Court orders that: 1. Pursuant to Corporations Act, s 477(2B), the Court by order approves the plaintiffs entering into the Haney Settlement Deed referred to in the affidavit of Blair Alexander Pleash sworn 16 September 2016 notwithstanding the obligations that parties to the agreement may according to the terms of the agreement be discharged by performance more than 3 months after agreement is entered into 2. Pursuant to Court Suppression and Non-publication Orders Act 2010, s 7, upon the ground of s 8(1)(a) of that Act, being that such an order is necessary to prevent prejudice to the proper administration of justice, publication or other disclosure of the opinion of counsel dated 3 August 2016, the supplementary opinion dated 8 September 2016, the plaintiffs' submissions marked 'Plaintiffs' Confidential Submissions in Support of Approval of Haney Settlement', the exhibit to the affidavit of Blair Alexander Pleash marked 'Confidential Exhibit BAP-12', and the affidavit marked 'Confidential affidavit of Blair Alexander Pleash' sworn 16 September 2016' is prohibited, and those documents be placed in a sealed enveloped marked "Suppressed – not to be opened other than by a judge of the court". This order applies throughout the Commonwealth of Australia and until a date 90 days after final orders are made disposing of proceedings NSD 2028/2013 in the Federal Court of Australia. 3. The first and second plaintiffs' costs of these proceedings be the costs and expenses in the liquidation of the third plaintiff. ********** Endnote 1. See Re One.Tel Ltd (1999) ACSR 247 at [30] and Re Octavia Ltd (2015) NSWSC 1621 at [31]. 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 April 2018