1st plaintiff v 1st plaintiff

1. By way of a very broad overview, Baker and Reindel (and their related entities) are and continue to be engaged in what has been described as a proxy war. Each of them makes significant and serious claims of misconduct in relation to their respective involvement in the operation of the Company up until shortly before it was placed in liquidation.[1]
2. Over an extended period of time, both Baker and Reindel were involved in separate negotiations with the Liquidator about the possibility of entering into an agreement to provide funds to the Liquidator as a part of broader agreements for which each of them hoped to derive some benefits. In December 2021, the Liquidator was confronted with competing proposals about which there has been extensive evidence. Without seeking any form of approval from the court, the Liquidator chose to enter into a deed on 10 December 2021 with Baker ("the Deed"). By the Deed and subject to a number of conditions, the Liquidator accepted a total of $700,000, with an initial instalment of $200,000 due to be paid on 17 December 2021.[2]
3. The Deed was entered into by the Company, both in its own capacity and "formerly as trustee of the Windsor Development Company Trust". The Liquidator was also a party "as liquidator of the Company and to be appointed receiver of the Trust". In return for the "Deposit" of $700,000, Baker was immediately released from the "Released Claims",[3] subject to the terms of the Deed. The Deed included the following:

1. The Liquidator is expressly empowered under clause 100-5 of the Insolvency Practice Schedule (Corporations) and agrees to assign the Assigned Claims, subject to complying with his obligations under the Corporations Act.

1. The Liquidator has accepted an offer from the Assignee to:

(i) Release the Released Parties from the Released Claims; and

(ii) Assign the Assigned Claims to the Assignee and has given written notice to the creditors of the Company of the proposed assignment on 23 November 2021.

1. The Liquidator agrees to assign the Assigned Claims on the terms set out in this Deed.

Application means the application to be made by the Liquidator to be appointed trustee of the Trust and any application (if required) pursuant to Section 477(2B) of the Corporations Act and any further application for directions or order that the Liquidator deems appropriate.

Assigned Claims means any claims against any party relating to each of the transactions and payments identified in Annexure A.[4] For the avoidance of doubt, any other claims against [Reindel] for trading whilst insolvent or breach of director's duties in respect of the Company will not be assigned and remain with the Liquidator.

Baker Claims means any of the claims made by the Assignee and his related parties in the Supreme Court Proceedings.

Claims means the Released Claims and the Assigned Claims.

Deposit means $700,000.00 (inclusive of GST).[5]

Reindel Transfer Claim means all claims relating to the transfer of completed units in the development at 2-14 James Street, Windsor and 1-11 White Street, Windsor from the Company to [Reindel] and Blizzard Winds Pty Ltd.

Released Claims means the claims identified in Annexure B.[6]

Total Claims means the Baker Claims and the Assigned Claims.

1. RELEASED CLAIMS
   • 2.1. In consideration of payment of the Deposit and subject to the terms of this Deed, the Liquidator and the Company hereby release and discharge the Assignee and his related parties from the Released Claims.
   • 2.2. In consideration of payment of the Deposit and subject to [Murone] and [Monson] and their respective related parties (the Murone and Monson Parties) withdrawing any claims they have as creditors of the Company (including any Proofs of Debt), the Liquidator and the Company hereby release and discharge the Murone and Monson Parties from the Released Claims.
2. ASSIGNMENT OF ASSIGNED CLAIMS

• 3.1. The Assignee must pay the Deposit to the Liquidator as follows:

(a) $200,000 by 17 December 2021; > > (b) $500,000 within 7 Business Days of the Liquidator satisfying the conditions in Clause 3.3 and the parties otherwise being reasonably satisfied that there are no other matters to be undertaken by them to enable the Assignee to commence any proceeding relating to the Reindel Transfer Claim.

Payment of the Deposit is to be made at the direction of the Liquidator and save for the amount of $75,000.00, the balance of the Deposit is to be retained in trust by the Liquidator subject to satisfaction of the conditions of this clause 3.

• 3.2. In consideration of payment of the Deposit and subject to the terms of this Deed, the Assignor assigns to the Assignee absolutely all rights, title and interest in the Assigned Claims.
• 3.3. The assignment of the Assigned Claims is conditional upon the Liquidator successfully making the Application to:

(a) Be Appointed receiver of the Trust; and

(b) Obtain any order (if required) pursuant to Section 477(2B) of the Corporations Act,

and any such Application must be filed as soon as practicable, but without any undue delay. If the Application is successful and the Assigned Claims are assigned to the Assignee, the Liquidator is entitled to retain the Deposit in full.

• 3.4. The parties acknowledge and agree that if the Application is not successful and the Assigned Claims are not assigned to the Assignee, the Liquidator shall immediately return $125,000 of the Deposit (without deduction) to the Assignee.
• 3.5. The parties to this Deed acknowledge and agree that following the assignment of the Assigned Claims to the Assignee:

(a) subject to 3.5(b), the prosecution and ultimate disposition of any of the Total Claims are matters entirely at the discretion of the Assignee including, but not limited to, the decision to enter into any agreement with any party in full and final settlement of any of the Total Claims acting reasonably and upon receiving legal advice;

(b) any settlement of the Total Claims must yield an expected return of Funds of [redacted] as reasonably assessed by the Assignee. If any proposed settlement of the Total Claims is for an amount [redacted] (the Proposed Settlement), the Assignee must obtain the prior written consent of the Liquidator and legal advice that the Proposed Settlement is reasonable to proceed with such a settlement;

(c) the Assignee must keep the Assignor fully informed of any proceeding commenced in relation to any of the Assigned Claims and consult with the Assignor when required;

(d) subject to 3.5(b), the Assignee is not required to obtain approval from the Assignor in any circumstances in connection with pursuing any of the Assigned Claims.

• 4.1. The first [redacted] of Funds are to be disbursed in the following priority:

(a) First, in payment of the Costs. The Assignor has the right to challenge the quantum of the Costs. > > (b) Second, in payment of any Assignor Costs. The Assignee has the right to challenge the quantum of the Assignor Costs. > > (c) Third, an amount equivalent to the Deposit is to be paid to the Assignee. Upon receipt of the Deposit in full, the Assignee and his related parties will not be entitled to prove for any debt in the liquidation of the Company. All other rights as a creditor in the liquidation of the Company will not be otherwise affected. > > (d) Fourth, the balance of the Funds will be transferred equally between the Assignor and the Assignee.

• 4.2. The balance of the Funds, if any, are to be disbursed as follows:

(a) 20% to the Liquidator; > > (b) 80% to the Assignee.

• 6.1. Save for the Reindel Transfer Claim and subject to the conditions below, the Assignee has no obligation to commence any proceeding relating to the Assigned Claims.
  • 6.2. Subject to receiving legal advice that the claim has reasonable prospects of success and there is no impediment in making the claim, the Assignee must commence a proceeding in relation to the Reindel Transfer Claim as soon as practicable and progress the proceeding expeditiously to hearing.
  • 6.3. In the event that the Assignee:

(a) does not commence any proceeding in relation to any of the Assigned Claims by 30 September 2022; or > > (b) gives notice to the Assignor that he does not intend to proceed with any of the Assigned Claims,

any such Assigned Claims will be reassigned to the Assignor at their request.

• 6.4. For the avoidance of doubt, should the Assigned Claims be reassigned to the Assignor, the Deposit is not required to be repaid to the Assignee.

Thus, the Liquidator was required to be appointed receiver of the Trust and approval of the Deed was required under section 477(2B) of the Corporations Act.

1. On 13 July 2022, the Company, the Liquidator and Baker executed a "Deed of Variation", which amended clauses 2, 3 and 6 of the Deed as follows:

• 2.1 The parties agree that the [Deed] is to be varied as follows with effect from the date of the execution of this Deed of Variation:

Clause 2.1 is amended to include the word "Initial" before the word Deposit.

3.1 The Assignee must pay the Deposit to the Liquidator as follow:

(a) $200,000 by 17 December 2021 (Initial Deposit);

(b) $500,000 within 7 Business Days of the Liquidator satisfying the conditions in Clause 3.3 and the parties otherwise being reasonably satisfied that there are no other matters to be undertaken by them to enable the Assignee to commence any proceeding relating to the Reindel Transfer Claim (Deposit Balance).

Clause 6.3(a) is amended such that the words "by 30 September 2022" are removed and the words "within 60 days of orders being made in the Application in favour of the Liquidator."

1. When the materials were filed in support of the orders, including numerous affidavits sworn by the Liquidator, no reference was made to any legal advice that he might have obtained in relation the Deed. During the course of giving his evidence at the hearing it became apparent that some legal advice had been obtained. It was revealed in part as a result of the following cross examination by Reindel's senior counsel:

You didn't ask - you didn't obtain legal advice about the Baker interests claim, did you?---Ah, no, I'd disagree with that. Ah, the claims that - for all the parties were assessed and discussed with my solicitors.

So did you get legal advice about it; is that what you're saying?---In terms of how I would be going about assessing claims and the validity or otherwise, that's correct.

Where would we find a reference to that in your affidavit material?---You might not find a reference to that.

Where would we find a document that records that in your affidavit material?---You might not find one.

I suggest to you that that's something that you've just made up now. What do you say to that?---I disagree with your assertion.

But you did not assess how the litigation would unfold in entering into the [Deed], did you?---I couldn't form a final view as to how it would be resolved. But, clearly, this provided a prospect of further funds to be received.

And you didn't get legal advice, did you, about how the litigation might unfold as a result of the [Deed], did you?---I'd disagree with that, because this - this [Deed] is framed in terms of things such as the floor, in terms of resolving matters, ah, between the assignor, assignee, and ah, and the parties that, ah, would be pursued.

So you didn't get legal advice about that, did you?---No, I - I'd disagree again with that assertion.

Well, where would we find that, Mr Gollant, because you don't mention it, do you?---No, I - I may not mention it in my document, ah, in my affidavit, but, ah, certainly, the terms of this deed were discussed at length.

1. On the question of why reference to legal advice was not given in the affidavits relied upon in support of the Liquidator's applications, the following exchange took place in re-examination:

Do you remember Mr Austin asked you about legal advice yesterday?---Yes.

Why didn't you include reference to your legal advice in your affidavits?---Well, legal advice is normally qualified, isn't it? Or privileged, I should say.

1. After the re-examination was complete the following exchange took place:

HIS HONOUR: I just might ask a question if I may?---Yes.

Yesterday Mr Austin asked you - this is at transcript page 93, line 27 - "In substance, what is your objection to receiving free legal advice from the Australian Securities and Investments Commission?". And this was your answer: "Ah, again, it's the utility of the advice as I say here." Now, I understand that was a reference to paragraph 22 of your confidential affidavit of 17 January where you say, "There was little utility in obtaining legal advice?"---Yes, your Honour.

Once you had the competing proposals in December 2021, did you obtain any written legal advice?---Ah, email advice. Yes, your Honour.

And you've chosen not to produce that?---Yes, your Honour.

1. Despite Reindel and the Investor Parties criticising this approach in their closing submissions, no legal advice has been made available to the court (whether on a confidential basis or otherwise).

1. Plainly, both the existence of any legal advice and the nature and the extent of any legal advice given are relevant matters for the court to consider on applications such as these.[7] Notwithstanding such relevance, the position adopted by the Liquidator was that, as the case is adversarial in nature, he ran the risk of waiving privilege. This risk of waiver was said to apply even if the advice was produced on the condition that it only be provided to the court strictly on the basis that the privilege would be maintained and the advice was only for the view and consideration of the court.
2. Whether or not the Liquidator's view concerning risk of waiver is correct, all parties before the court have now stated unequivocally that they will not seek to interfere with any claim by the Liquidator for privilege in this regard. Their position is if the Liquidator decides to produce relevant legal advice on a strictly confidential basis (so that privilege is not waived and instead is unreservedly maintained, such that the production is only for the court and not for any other party), then they will not make any application to inspect the documents or to suggest privilege may have been waived by adopting such a course. Further, in closing submissions, senior counsel for the Liquidator referred to the decision of Gordon J in Vickers v Australian Securities and Investments Commission,[8] (a case that had also been relied upon by Reindel in closing submissions) in which the following was stated:[9]

[T]o come squarely within the ambit of Macedonian Orthodox[10] and thereby maintain privilege in the two opinions, two circumstances should exist:

(1) the opinion is not provided to the Court by adduction of evidence: see Macedonian Orthodox at [44]-[45]; and

(2) the opinion is provided to the Court only after the Court has indicated that doing so is necessary before it can be in a proper position to give the judicial advice or directions sought: see Macedonian Orthodox at [51].

1. As to the first of these 2 circumstances, the Liquidator has not adduced any evidence of any legal advice received. On the contrary, he has been very careful not to do so. Before turning to the second circumstance, it is appropriate to refer to another case of her Honour in Re Stewart; Newtronics Pty Ltd,[11] where she stated as follows:[12]

(1) the court does not simply "rubber stamp" whatever is put forward by a liquidator. As Giles J said in Re Spedley Securities Ltd (in liq)[13]... in relation to the powers of a liquidator to compromise claims:[14]

... [T]he Court is necessarily confined in attempting to second guess the liquidator in the exercise of [her or his] powers and generally will not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct. The same restraint must apply when the question is whether the liquidator should be authorised to enter into a particular transaction the benefits and burdens of which require assessment on a commercial basis. Of course, the compromise of claims will involve assessment on a legal basis, and a liquidator will be expected, as was made plain in Re Chase Corporation (Australia) Equities [Pty] Ltd_,[15] to obtain and, as a prudent person would in the conduct of [her or his] own affairs, advice from practitioners appropriate to the nature and value of the claims_. But in all but the simplest case, and demonstrably in the present case, commercial considerations play a significant part in whether a compromise will be for the benefit of creditors.

(4) in reviewing the liquidator's proposal, the task of the Court is:[16]

...[not] to reconsider all of the issues which have been weighed up by the liquidator in developing the proposal, and to substitute its determination for [hers or his] in ... a hearing de novo [but] ... simply to review the liquidator's proposal, paying due regard to [her or his] commercial judgment and knowledge of all of the circumstances of the liquidation, satisfying itself there is no error of law or ground for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene in terms of the "expeditious and beneficial administration" of the winding up...

See ASC Timber at 1,650; see also Re Gate Gourmet Australia Pty Ltd (in liq) [2005] NSWSC 392; (2005) 23 ACLC 834 at [10] and Warne v GDK Financial Solutions; Peridon Village Nominees [2006] NSWSC 184; (2006) 24 ACLC 1,019 at [60]. The Court's approval is not an endorsement of the proposed agreement but is merely a permission for the liquidator to exercise [her or his] own commercial judgment in the matter;

(6) generally, the Court grants approval under s 477(2B) of the Act only where the transaction is the proper realisation of the assets of the company or otherwise assists in the winding up of the company: GDK Financial Solutions at [58] and the cases cited therein.

1. The reference to the case of Re Chase Corporation (Australia) Equities Pty Ltd[17] in subparagraph (1) of the passage above was a reference to a decision of Young J made back in 1990, where his Honour spoke in terms of a decision involving millions of dollars and the prudence of obtaining legal advice from an experienced and capable barrister practising in the area of the law at hand.[18]

1. Turning to the facts of this case, it does involve millions of dollars. It also involves a series of questions which call for legal advice, some of which are self-evidently complicated and intricate. Also, the issues arise in a context where the Liquidator has formed a view that he needs to be circumspect in relation to some of the information that has been provided to him by the parties in conflict.
2. Further, there is a dearth of information before the court about the true nature and content of any legal advice that might have been given where, having reviewed the material and heard closing submissions, I have concerns about whether or not any of the applications ought to be successful.
3. I have decided that presently it is not appropriate for me to record what issues are troubling me as part of this ruling, but many of them will be apparent from the exchanges that took place during closing submissions. It might be thought that, in such circumstances where I have formed the view that there is a real prospect that the applications ought to be dismissed, I should simply consider the matters presently before the court and arrive at a conclusion. In the circumstances of this case, that is not the appropriate course.
4. It is abundantly clear that there are very serious ramifications for those involved, both if the applications succeed or if the applications fail. That is even more so because there is an interlocutory process on foot to seek orders in the event that the applications fail. In short, it would not simply be a matter of refusing the applications and asking the Liquidator to revisit his considerations in light of any ruling, but there may be irreversible consequences which could seriously prejudice the creditors of the Company if certain arrangements are allowed to remain in place as a result of applications made in the interlocutory process.[19]
5. In such circumstances, it is appropriate that I indicate to the Liquidator that it is necessary for legal opinion to be provided to the court before any decision can be properly made with respect to the 3 applications he has made which are presently before me.
6. Precisely what opinion or opinions ought to be provided is something the Liquidator will need to take advice on. As already stated, reference has been made in evidence to the existing advice, but that advice has not been disclosed (and its substance is unknown). Further, there is no evidence of how formal the instructions were when given in relation to that advice, and precisely when or by whom it was given (other than a general reference to solicitors). It may be that in deciding what course to adopt the Liquidator will form the view that the existing advice will suffice.
7. However, a cautionary note must be made in accordance with what Young J said in Re Chase Corporation (Australia) Equities Pty Ltd.[20] Obviously for the court to place any weight on any advice which might be provided, it will be necessary to show that an appropriate level of care and skill has been applied to the task, and that the advice addresses the key issues that have been raised.
8. In giving this indication, I am mindful of the fact that the Liquidator was not in funds upon his appointment and that there may be significant costs in obtaining proper legal advice. But such costs are proportionate not only to the amount of the potential claims of the Company, but also to the very significant costs and disbursements that have already been incurred in this litigation.

1. Accordingly, subject to any further submissions that anyone wishes to make about procedural matters, I propose to adjourn this matter for directions at 10.00 am on Friday 9 December 2022, at which time the court may be informed about the course the Liquidator intends to adopt.

[1] There are a number of other proceedings currently on foot concerning these and related matters.

[2] The Deed was later varied on 13 July 2022 by "Deed of Variation": see par 12 below. However, the total funds to be paid to the Liquidator remained unchanged.

[3] Released Claims was defined to mean "the claims identified in Annexure B". Annexure B contained a table setting out 13 known claims against "Baker and/or other parties" that were to be released. It also contained an incomplete row that referred to "[c]laims for [t]rading [w]hilst insolvent against Murone and Monson and/or breach of director duties", the detail and value of which were not provided.

[4] Annexure A contained a table of 22 known claims, 5 of which were categorised under the "Reindel Transfer Claim" heading.

[7] Further, when judicial advice or approval is sought, appropriate steps may ordinarily be taken to protect any legal privilege of the advice in question. The mere reference to the fact that legal advice has been obtained will not, without more, amount to a waiver of privilege: Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd [1996] HCA 15; (1996) 137 ALR 28, 34.4 (Kirby J). Compare, for example, Re McDermott and Potts (in their capacities as joint and several liquidators of Lonnex Pty Ltd (in liq)) [2019] VSCA 23, [92(6)-(7)] (Whelan AP, McLeish and Hargrave JJA).

[8] [2011] FCA 1028; (2011) 196 FCR 479.

[10] Macedonian Orthodox Community Church St Petka Inc v Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand [2006] NSWCA 160; (2006) 66 NSWLR 112, 122 [35]-[36], 125 [51]-[53] (Beazley and Giles JJA, with whom Hodgson JA relevantly agreed).

[11] [2007] FCA 1375.

[15] (1990) 8 ACLC 1118.

[16] Corporate Affairs Commission v ASC Timber Pty Ltd [1998] FCA 775; (1998) 16 ACLC 1,642, 1650.2 (Austin J).

[17] (1990) 8 ACLC 1118.

[19] Baker has submitted that if the applications are unsuccessful he should still receive the benefit of the releases, as those releases (so it is contended) do not require court approval under s 477(2B) of the Corporations Act.

[20] See fn 18 above.