Supreme Court New South Wales Medium Neutral Citation: In the matter of Banksia Securities Limited (in liquidation) (receivers and managers appointed) [2018] NSWSC 228 Hearing dates: 19 February 2018 Decision date: 19 February 2018 Jurisdiction: Equity - Corporations List Before: Black J Decision: The receivers and managers of Banksia Securities Ltd (recs and mgrs apptd) (in liq) ordered to release $6 million to the special purpose receivers for payment of the special purpose receivers' future remuneration costs and expenses incurred in continuing to conduct the Banksia Proceedings. Catchwords: PROCEDURE – where, in accordance with previous order made, special purpose receivers may apply to Court for further funds held by the general purpose receivers – where special purpose receivers have applied to the Court for further moneys to meet adverse costs orders and continue to conduct proceedings – whether application for further funds should be granted and in what quantity. Category: Procedural and other rulings Parties: The Trust Company (Nominees) Limited (Plaintiff) John Ross Lindholm and Peter Damien McCluskey (Special Purpose Receivers) Representation: Counsel: J Redwood/P Bindon (Applicants - Special Purpose Receivers) Solicitors: Maddocks (Applicants - Special Purpose Receivers) File Number(s): 2015/252832 Judgment – ex tempore 1. By Interlocutory Process filed on 15 January 2018, Mr John Lindholm and Mr Peter McCluskey, as special purpose receivers ("special purpose receivers") of Banksia Securities Ltd (in liq) (recs and mgrs apptd) ("Banksia"), sought, first, an order that their remuneration for the period 1 April 2017 to 30 September 2017 be approved and fixed in a specified amount. The evidence in respect of that application has been led, and I have heard submissions from Mr Redwood, who appears with Ms Bindon for the special purpose receivers in respect of that application, and I will reserve my judgment in respect of that application. 2. The special purpose receivers also seek an order that the general purpose receivers of Banksia release $6 million to the special purpose receivers for payment of the special purpose receivers' future remuneration, costs and expenses incurred in continuing to conduct the "Banksia Proceedings". The Banksia Proceedings relevantly involve a continued claim against Banksia's professional indemnity insurer, although a settlement has been reached in respect of that claim which is subject to an application for Court approval which is yet to be heard, and a third party claim brought against Banksia's insurance brokers, Insurance House Australia, which has not been settled. A substantial claim that was previously brought by the special purpose receivers against The Trust Company (Nominees) Limited ("Trust Co") has previously been settled, and that settlement has been approved by the Supreme Court of Victoria. 3. By way of background, the structure of this application reflects a funding mechanism which was addressed in my judgment delivered on 1 April 2016 ([2016] NSWSC 357). I there observed (at [30]) that it was necessary for orders to be made by the Court, if the special purpose receivers were to be appointed to conduct the relevant proceedings, in a form that provided them with sufficiency of funds, immediate access to those funds, and independence from Trust Co, which was then the trustee for debenture holders, and the general purpose receivers in respect of such access. I noted that that necessity reflected the fact that the special purpose receivers would be appointed to conduct the relevant proceedings and could not be expected to do so unless they were funded to do so. I also noted that once it was accepted, as all parties then accepted and as events seem to have demonstrated, that it was in the interests of debenture holders that the special purpose receivers conduct the relevant proceedings, then it was necessarily also in the interests of debenture holders that the special purpose receivers be adequately funded to conduct the proceedings, because the former could not occur without the latter. 4. I ordered that the special purpose receivers be funded in a specified amount, by a payment made by the general purpose receivers, and, by Order 6 of the orders that I made in February 2016, that the special purpose receivers may apply to the Court, upon fourteen days' notice to the general purpose receivers, for further moneys from the fund held by the general purpose receivers to be made available for meeting adverse costs orders in the Banksia Proceedings (or security for costs in respect thereof) and further funding to conduct those proceedings if the SPR Litigation Fund (as defined) has been exhausted or was likely to be exhausted within the following six months. I noted that that order recognised the possibility of such an application, leaving its merits to be determined if it was ultimately brought. 5. That application is now made, being the first such application since the relevant fund was constituted in early 2016. The general purpose receivers are on notice of the application and have, by letter to the special purpose receivers, indicated that they have no objection to the order that is sought. That is a relevant matter for the purposes of the application but it is, of course, also necessary to have regard to the evidence which supports the application. 6. By his affidavit dated 9 January 2018, Mr John Lindholm, who is one of the special purpose receivers, sets out the expenditures which have been incurred in prosecuting the Banksia Proceedings, under several broad categories. I note that the relevant fund, the SPR Litigation Fund, was originally constituted by funding of $10 million from receivers and managers, and at least one amount has been secured and paid into that fund by way of settlement funds of $8,050,000, which in turn have been distributed to debenture holders. Other costs and disbursements have been incurred, including, not surprisingly, significant legal fees and disbursements, a matter which would be expected, given the complexity of the proceedings that have been involved. Fees have also been paid to the general purpose receivers, and legal fees and legal disbursements have been paid to the legal representatives of the general purpose receivers. That is again understandable, where it had been contemplated, when the special purpose receivers were appointed, that they would continue to receive assistance from the general purpose receivers and their legal representatives, who had previously had conduct of the relevant proceedings. That was, of course, essential to a transition of very complex proceedings from their then carriage by the general purpose receivers and their legal advisers to the special purpose receivers and their different legal advisers, and the costs of that transition are plainly proper costs of the conduct of the proceedings. Amounts have also been set aside by way of any potential GST liability, although I have been informed that whether such a liability exists is currently being addressed. It is not my role, in dealing with this application, to conduct any form of audit of the expenditures to date, but I have had regard to the general categories of those expenditures, on the basis that I should at least be satisfied that the general categories of expenditures incurred are appropriate, before further funds are ordered to be paid into the SPR account. Nothing arises from the information before me to raise any concern as to the appropriateness of those expenditures. 7. The special purpose receivers in turn explain the basis on which they seek orders for the transfer of a further amount of $6 million as funding for the finalisation of the Banksia Proceedings and the special purpose receivership. As Mr Redwood pointed out, in one sense the question of that transfer is of limited economic significance for debenture holders, in circumstances that the general purpose receivership is close to completion; the litigation has been substantially advanced and a number of settlements have been achieved; a claim against another party has settled, subject to Court approval; and only one remaining claim of substance remains to go to trial. As Mr Redwood points out, it is on one view a matter of indifference to debenture holders whether the special purpose receivers or the general purpose receivers hold the relevant funds. The matters that are of concern to debenture holders are no doubt that the funds are properly applied to advance the debenture holders' interests in respect of the conduct of the proceedings, and that any recoveries and any remaining balance are ultimately distributed to debenture holders. 8. The application is supported by evidence which indicates how the estimate of funds has been prepared, recognising, of course, that there is always a significant degree of uncertainty in such estimates. First, Mr Lindholm indicates that he anticipates the special purpose receivers will continue to accrue claims for remuneration in conducting the claims against Insurance House Australia, and the other proceeding if the settlement of it is not approved, and finalising the special purpose receivership. The orders which I previously made permit the special purpose receivers to fund that remuneration, as it is incurred, subject to the Court's approval at regular intervals for those payments, and an undertaking to repay if those amounts are not approved. Mr Lindholm's estimate is that that further remuneration is likely to be in the order of $300,000 to $400,000 and there is no reason to question that estimate, given the scale of the proceedings, the fact that they have required a significant degree of strategic input from the special purpose receivers, and the likelihood that they will continue at least for a part, or substantial part, of the rest of this year, and possibly longer if appeals are brought. 9. Mr Newman, who is a partner of the firm which has conduct of the proceedings on behalf of the special purpose receivers, provides an estimate of future legal costs and expenses of the proceedings, supported by a spreadsheet providing a budgeting of those costs in broad categories. The expenses which are likely to be incurred are calculated, not surprisingly, on the basis that both junior and senior counsel will be involved, given the complexity of the proceedings, and that a trial will ultimately be twelve to sixteen days in duration, and there is a potential for appeals. 10. An allowance is made in that budget for the cost of appeals, and I raised the question, in the course of submissions, whether it was premature to transfer funds against the potential cost of appeals which may not arise, at least if the proceedings are ultimately settled. On balance, I am satisfied that it is not premature to take that course where, as I have noted above, there seems to be no particular advantage in funds remaining with the general purpose receivers rather than the special purpose receivers, where they may ultimately be required for the conduct of appeals, and there is a benefit in reducing the need for a further application for additional funding, and the costs attached to such an application, by allowing funds to be transferred now, on the basis that they will ultimately be distributed to the debenture holders if they are not required. I have no reason to question Mr Newman's estimate of the costs incurred, given the complexity of the proceedings, and notwithstanding the extent of work which has plainly already been done in bringing them to the stage which they now have reached. 11. The third aspect of the transfer that is sought is to provide for the special purpose receivers' costs exposure arising from the remaining claims of the proceedings. That costs exposure is likely to be reduced if the proposed settlement with one remaining party is approved, and also now does not need to take into account the possibility of any cross-claim brought by another remaining party against Trust Co, where it appears that that party has indicated that such a cross-claim will not be brought. Nonetheless, Mr Newman's estimate of the amount of that costs exposure is a substantial amount, and that again is not surprising in very complex proceedings with a long history, and anticipating a trial of 12 to 16 days. There is plainly a degree of uncertainty in that amount, but it seems to me that the special purpose receivers are in that area entitled to be protected against the adverse costs exposure of the proceedings, both for their own benefit, and indeed, for the benefit of any party which may be seeking such costs, if it is ultimately successful in a defence of the proceedings. There is no disadvantage to debenture holders in allowing a conservative estimate for that adverse costs exposure at this point, on the basis that surplus funds will again be distributed to the debenture holders if proceedings are ultimately successful and it is not necessary to call upon that reserve for costs. 12. For these reasons, it seems to me that the order for the transfer of further funds to the special purpose receivers, from moneys held by the general purpose receivers, is consistent with the structure of the orders which I had previously made, and that the proposed amount of $6 million, while possibly conservative, is appropriate in the circumstances. For completeness, I have not been taken to evidence of substance as to the merits of the proceedings against Insurance House Australia, but that seems to me a matter properly left to the special purpose receivers and their legal advisors, where this application is directed to the funding of ongoing proceedings. There is no reason to doubt that the claims may have merit, given the results which the special purpose receivers have achieved in other broadly related proceedings. 13. Accordingly, I order that Anthony Gregory McGrath, Joseph David Hayes, Matthew Wayne Caddy, and Robert Michael Kirman of McGrathNicol, in their capacity as the joint and several receivers and managers of Banksia Securities Ltd (recs and mgrs apptd) (in liq) release $6 million to the special purpose receivers for payment of the special purpose receivers' future remuneration costs and expenses incurred in continuing to conduct the Banksia Proceedings. ********** 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: 01 March 2018