Supreme Court New South Wales Medium Neutral Citation: In the matter of Neil Robert Cussen as liquidator Total Hoarding Supplies Pty Ltd (in liquidation) [2019] NSWSC 887 Hearing dates: 17 April 2019 Decision date: 17 April 2019 Jurisdiction: Equity - Corporations List Before: Black J Decision: Orders made approving entry into Deed of Funding and Indemnity and solicitors' retainer agreement nunc pro tunc; and compromise of a debt. Catchwords: CORPORATIONS – winding up – liquidators – application for approval of a deed of funding and indemnity nunc pro tunc under s 477(2B) of the Corporations Act 2001 (Cth). CORPORATIONS – winding up – liquidators – application for approval of compromise of debt under s 477(2A) of the Corporations Act 2001 (Cth) – where settlement will not generate any or any substantial further return to creditors – where largest creditor favours compromise. Legislation Cited: - Corporations Act 2001 (Cth) ss 477(2A), 477(2B) - Court Suppression and Non-publication Orders Act 2010 (NSW) Cases Cited: - Hall v Poolman [2009] NSWCA 64; (2009) 71 ACSR 139 - Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as liquidator of the Bell Group Ltd (in liq) [2013] WASC 409; (2013) 97 ACSR 117 - Re Blue Mountains Helicopters Pty Ltd (in liq) [2013] NSWSC 1630 - Re HIH Insurance Ltd [2004] NSWSC 3 - Re Idoport Pty Ltd (in liq) [2015] NSWSC 1423 - Rinehart v Welker [2011] NSWCA 345 Category: Procedural and other rulings Parties: Neil Robert Cussen as liquidator of Total Hoarding Supplies Pty Ltd (in liquidation) (First Plaintiff) Total Hoarding Supplies Pty Ltd (in liquidation) (Second Plaintiff) Total Hoardings Pty Limited (First Defendant) Integrated Growth Solutions Pty Ltd (Second Defendant) Grace Christine Kunz (Third Defendant) Andre Kunz (Fourth Defendant) Representation: Counsel: P G Sharp (Plaintiffs) G D McDonald (Defendants) Solicitors: TurksLegal (Plaintiffs) Cambridge Law (Defendants) File Number(s): 2016/330479 (003) Judgment – ex tempore (revised 18 april 2019) 1. By Interlocutory Process filed 11 April 2019, Mr Neil Cussen, as liquidator of Total Hoarding Supplies Pty Ltd (in liq) ("THS"), seeks orders under s 477(2B) of the Corporations Act 2001 (Cth) approving entry nunc pro tunc into a Deed of Funding and Indemnity in respect of the conduct of certain proceedings. He also seeks orders under s 477(2B) of the Corporations Act approving the entry, nunc pro tunc, into a retainer agreement with the solicitors acting in the proceedings. He seeks approval, under s 477(2A) of the Act, of the compromise of a debt owed to THS by one of the Defendants, Integrated Growth Solutions Pty Ltd ("IGS"), which is one aspect of a more complex deed of settlement and release affecting several parties to the proceedings. He also seeks orders under the Court Suppression and Non-publication Orders Act 2010 (NSW) in respect of several aspects of the evidence relied upon in the proceedings. Affidavit evidence 1. By his first, non-confidential, affidavit dated 11 April 2019, Mr Cussen refers to the circumstances in which he was appointed as liquidator of THS and these proceedings were commenced. He summarises the claims brought in the proceedings, which include claims against several parties, including for unreasonable director-related transactions and other voidable transactions; a substantial claim against IGS; the claim for a loan from THS to IGS which is, in turn, the subject of the compromise for which approval is sought and a claim for knowing receipt against IGS; and claims against Ms Grace Kunz. Mr Cussen there identifies the two creditors with claims in the liquidation, Bendigo and Adelaide Bank Limited ("Bank") with a very substantial claim, and the Office of State Revenue ("Revenue NSW"), which has a lesser claim. Both have been given notice of the proceedings; the Bank consents to the settlement which is now proposed, as to which these approvals are sought; and Revenue NSW has not sought to be heard in the application, and thereby has not opposed the settlement, albeit it does not appear to have expressly consented to it. 2. Mr Cussen refers to the substantial costs which would be incurred in continuing the proceedings through a hearing, which was estimated to last five days, and involved the retainer of Senior Counsel by the Plaintiffs. He also refers to matters which, I accept, raise issues of concern as to the ability of the Defendants, and particularly IGS, to meet the full amount of the judgment sought against them. Mr Cussen there expresses the view, in summary, that although the total claims made were in the order of $3 million, it was commercially prudent and in the interests of creditors to accept the certainty of payment of $775,000 under the settlement of the proceedings, rather than to continue them where the prospect of recovering a greater amount against the Defendants, and particularly IGS, was uncertain. 3. By a further confidential affidavit of Mr Cussen, also dated 11 April 2019, he referred to the terms of the Deed of Settlement and Release between the Plaintiffs and the several Defendants, to which I have been taken by Mr Sharp, who appears for Mr Cussen. That document provides for the Defendants to be jointly and severally liable for payment of the amount of the settlement sum of $775,000, which it appears has now been paid into a solicitors' trust account of the Defendants' solicitors, and provides for releases between the parties. Mr Cussen's affidavit also refers to an Amendment Deed in respect of the Deed of Settlement and Release, which modified and extended the terms of the release somewhat, but do not alter their substance. The settlement terms are otherwise in conventional terms, and the only issue raised by them is, in substance, whether the amount of the settlement is reasonable in the relevant circumstances. 4. Mr Cussen referred to a memorandum of advice from Counsel, to which I have regard, but need not refer in detail. It is sufficient to note that nothing in that advice is inconsistent with the approach which Mr Cussen proposes to take and that advice is broadly supportive of that approach. 5. Mr Cussen's confidential affidavit also annexes a form of retainer of the solicitors who act in the proceedings, although it does not seem to me that that document had any element of confidentiality about it. It would have been preferable if it was not annexed to a confidential affidavit to be subject of a claim of confidentiality which, arguably, was not appropriate. 6. That affidavit also annexes a Deed of Funding and Indemnity between Mr Cussen and the Bank, which had provided funding for certain aspects of the proceedings, and which has a right to priority of reimbursement of the funding provided on resolution of the proceedings. I note that clauses 5 and 6 of that funding agreement, to which Mr Sharp drew attention, did not confer any inappropriate degree of control of the proceedings upon the Bank. That document also contained a confidentiality provision, and I recognise that litigation funders, including institutions funding particular proceedings, will typically seek confidentiality as to the terms of such funding. 7. By a further confidential affidavit dated 15 April 2018 of Mr Anthony Wright, an Account Director – Restructuring Services in Mr Cussen's firm, Mr Wright referred to the circumstances in which the funding agreement with the Bank had been negotiated and recognised, uncontroversially, that litigation funders would typically seek to obtain a premium in respect of funding provided. To that extent, the funding obtained by the liquidator from the Bank was more advantageous than would likely have been obtained from a third party litigation funder. A further confidential affidavit of Mr Wright dated 17 April 2019, and correspondence which has been tendered in the application, records communications with the Bank, by which it was made aware of and consented to the settlement of the proceedings on the present terms. An affidavit dated 17 April 2019 proves service of the application on Revenue NSW, which has confirmed that it does not seek to take any active role in the proceedings. Approval of the Deed of Funding and Indemnity 1. I turn now to the various approvals which are sought. The first, under s 477(2B) of the Corporations Act relates to the relevant Deed of Funding and Indemnity. The purpose of that section is to ensure that the Court exercises some oversight of the liquidator's actions and, in effect, confers, or completes the necessary powers on a liquidator to enter an agreement under which obligations will extend for a term of more than three months, only where it can be seen that the case for exercise of that power in the particular circumstances has been sufficiently shown: Re HIH Insurance Ltd [2004] NSWSC 3 at [15]. The role of the Court in such an application is to determine whether it will approve the particular proposal, and the Court will not substitute its judgement for the liquidator's judgement as to the commercial merits of the arrangement, but will have regard to whether there is any suggestion of error of law, or bad faith, or impropriety in entry into that arrangement. 2. In this case, it seems to me that the Deed of Funding and Indemnity was likely more favourable to the liquidator, the conduct of the liquidation and the creditors than a third party funding arrangement would have been. It would not unduly extend the liquidation, in circumstances that the Deed of Funding and Indemnity did not extend beyond the conduct of the proceedings themselves, which were directed to obtaining a recovery for the benefit of the liquidation and the creditors. I am satisfied, having regard to the evidence of the circumstances in which that arrangement was reached, and the terms of that arrangement, that it may properly be approved by a court. The authorities make clear that such approval can be granted nunc pro tunc. Approval of solicitors' retainer agreement 1. Approval is also sought under s 477(2B) of the Act, again because the arrangement would continue over a term of more than three months, for the retainer agreement with the solicitors who acted in the proceedings, again, on a nunc pro tunc basis. That agreement refers to hourly rates which are consistent with those which would ordinarily be seen in respect of the conduct of complex proceedings, albeit it contemplates a modest uplift of the hourly rate to be charged where litigation was conducted on a speculative basis. It seems to me that nothing in the terms of that arrangement gives rise to any reason to think that it was ill-advised, or not properly entered into, and again, it would not unduly extend the winding up where it was coincident with the conduct of the proceedings generally. Approval of compromise of debt owed by IGS 1. The third approval sought is for an approval of the compromise of the debt owed to THS by IGS, which I noted above relates to one aspect of a settlement, but which requires approval under s 477(2A) of the Act, so far as it involves the compromise of a debt. In determining whether to grant such approval, the Court will have regard to the creditors' interest and the public interest, and will generally grant such approval if the liquidator has taken legal advice as to the compromise and there is no indication of any lack of good faith, error of law, or principal, or substantial reason to doubt the prudence of the compromise: Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as liquidator of the Bell Group Ltd (in liq) [2013] WASC 409; (2013) 97 ACSR 117. 2. The proposed settlement in this case will have the ultimate economic result that it will discharge the costs incurred by the Bank in funding the proceedings, together with the costs of the winding up, without generating any, or any substantial further return to creditors. There will, of course, be occasions on which proceedings are properly settled, although a settlement will not bring about a recovery to creditors, or even a complete recovery of the costs of the liquidation. However, plainly, a liquidator faces greater difficulties, including in respect of the exercise of independent and unconflicted judgement, where the entry into a settlement will discharge costs which he or she has incurred in his or her personal capacity, without a further return to creditors. Mr Sharp submits, and I accept, that that is not a reason not to approve such a settlement, but has the result that such a settlement ought to be scrutinised with particular care. In particular, the Court must have regard, within the limits of the role, to the question whether a liquidator's decision to compromise the relevant debt, by reference either to the legal prospects of recovery, or the practical likelihood of recovery, is ill-advised in the particular circumstances. 3. Here, I have had regard to the fact that the liquidator has obtained and seems to me to have acted within the parameters set by, advice of experienced counsel in respect of the prospects of and settlement of the proceedings. I have had regard to the fact that the liquidator has engaged in a rational assessment of the prospects of practical recovery of the judgment, as against the several Defendants to it, although it seems to me that it might have been preferable had the liquidator gone somewhat further, to seek confirmation by statutory declaration or otherwise of the limited assets which the Defendants claim to have, rather than relying only on the results of public searches in order to reach the conclusion that those assets were limited. 4. I have regard to the fact that the Bank, which is by a substantial margin the largest creditor, appears to have been made aware of the steps leading to settlement, where it had funded the proceedings, and has consented to that settlement. I have also had regard to the fact that Revenue NSW, having been made aware of this application, has not sought to be heard in opposition to the settlement. 5. It seems to me that the liquidator's analysis of the issues in respect of the legal risks of the proceedings, and the commercial risks of the recovery, is neither ill-advised nor irrational. I recognise that the fact that the recovery would discharge the costs of the winding up is a legitimate objective both of the pursuit of the proceedings and, ultimately, of the settlement of proceedings, although it would obviously have been preferable had a greater recovery for creditors been achievable in the relevant circumstances: Hall v Poolman [2009] NSWCA 64; (2009) 71 ACSR 139 at [150]; Re Blue Mountains Helicopters Pty Ltd (in liq) [2013] NSWSC 1630 at [18]. I also have regard to the fact that the settlement is supportable, not only so far as it recovers costs that have already been incurred in the winding up, but so far as it avoids incurring further costs, albeit those costs would likely have been borne by the liquidator or the funding creditor in the relevant circumstances. The amount of the recovery is substantial, although significantly less than the amount claimed, and the settlement also obtains the benefit of the release of two adverse costs orders previously made against THS in respect of aspects of the proceedings. Mr Sharp points out, and I accept, that the settlement deed was negotiated at arm's length between legally represented parties, and I have been informed that those negotiations involved both Mr Cussen personally and Senior Counsel. 6. For all these reasons, I am satisfied that the settlement is not ill-advised, or inappropriate in the relevant circumstances, and that I should make the orders that are sought in that regard. As Mr Sharp rightly recognised, the making of those orders confers the power upon the liquidator, in the relevant circumstances, to compromise the debt, and does not involve the Court itself exercising the commercial judgement whether to do so in the relevant circumstances. The liquidator has exercised that judgement, as I have noted, with the benefit of legal advice and on the basis of an apparently rational analysis of the prospects of recovery in the relevant circumstances. Non-publication orders 1. Finally, I am asked to make orders in respect of three confidential affidavits and an exhibit tendered to the Court on 15 April 2019 under the Court Suppression and Non-publication Orders Act. It is not necessary to make such an order in respect of the exhibit, where I will order that the exhibits be returned. I am satisfied, with some hesitation, that those orders should be made in respect of each of the affidavits, although it seems to me that the annexures to Mr Cussen's confidential affidavit sworn 11 April 2019 includes some documents that are genuinely confidential and others that are not. 2. I have regard, in that respect, to the approach adopted by Tobias AJA in Rinehart v Welker [2011] NSWCA 345, recognising that in some circumstances parties must be entitled to agree confidentiality among themselves, and I adopted a similar approach in Re Idoport Pty Ltd (in liq) [2015] NSWSC 1423. I am satisfied that such orders are warranted, in respect of the affidavit generally, and in particular in respect of Counsels' opinion and the deed of settlement which is subject to confidentiality provisions. I recognise that in some circumstances it will be necessary for a liquidator to agree to such provisions, in order to achieve a settlement, and necessary for the Court to make such orders in order to preserve the liquidator's ability to approach the Court. In the present circumstances, with hesitation, I am satisfied that I should make that order in respect of the affidavit generally, because of the difficulties of segregating confidential from non-confidential annexures. I consider it would be strongly preferable, in future cases, if non-confidential annexures are not attached to affidavits for which confidentiality will be claimed. 3. For these reasons, I make orders in accordance with the short minutes of order initialled by me and placed in the file, omitting paragraph 4(c) since the exhibit will be returned. I make a further order that the exhibits be returned. 4. In the proceedings generally I make orders in accordance with the short minutes of order initialled by me and placed in the file. ********** 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: 14 July 2019