ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited;... [2011] FCA 517 | Case summary

Pursuant to sections 479 and 511 of the Act, the First Plaintiffs are justified in entering into the funding agreement with IMF Australia Ltd (IMF) in relation to proposed public examinations in the form set out in Confidential Exhibit GMM1 to the affidavit of Gregory Michael Moloney sworn on 6 May 2011 and filed in these proceedings (Funding Agreement).
The First Plaintiffs are justified in complying with the terms of the Funding Agreement.
Notwithstanding any terms of the Funding Agreement to the contrary, the First Plaintiffs undertake not to provide IMF with access to documents produced by the following parties pursuant to the orders of this Court entered on 30 November 2009 or 20 April 2011 in proceedings NSD 1257 of 2009: (a) Citibank, NA; (b) Bank of America, NA; (c) Bank of Western Australia Ltd; (d) Mizuho Corporate Bank, Ltd; (e) Australia and New Zealand Banking Group Limited; (f) Westpac Banking Corporation; (g) National Australia Bank Limited; (h) Commonwealth Bank of Australia Limited; and (i) CBA Corporate Services (NSW) Pty Limited, (together the Banks), except in so far as the whole or part of a document produced to the Court by any of the Banks has been put to an examinee in the course of or during the examinations conducted by the First Plaintiffs pursuant to section 596B of the Corporations Act 2001, in which event that document may be disclosed to those persons employed by IMF named in the undertaking in the terms attached to these orders (as shown to the Court) upon the giving of an undertaking by each of these persons in the terms attached to these orders (as shown to the Court) to the Court, and to the Bank that produced the relevant document.

REASONS FOR JUDGMENT 1 I have before me a further interlocutory application concerning the ABC Learning Centres Limited group of companies (the ABC Group). Some of the background to the application was the subject of reasons given on 22 October 2009 (see ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No. 9) [2009] FCA 1462). On 2 June 2010, Messrs Peter Walker and Gregory Moloney (the Liquidators) were appointed joint liquidators of the ABC Group, by resolution of their creditors. They had been appointed as joint administrators of the companies on 6 November 2008, the same day as receivers were appointed to the companies. The receivers continue to have the day-to-day control of the companies' business affairs and property. For the most part, the Liquidators have no funds available to them, save those provided by the receivers from time to time to meet certain costs and expenses, and by the Australian Securities and Investments Commission (the Commission) in relation to an application that was made by the Commission to the Court. 2 The Liquidators, when administrators, also secured limited funding from IMF (Australia) Limited (IMF) to permit the preparation of a preliminary report on insolvency of the ABC Group as at 25 June 2008, under a funding agreement entered into on 19 February 2009, and to conduct public examinations in relation to the examinable affairs of the companies in the ABC Group, under a funding agreement entered into on 29 October 2009. The funds provided by IMF were used to conduct public examinations of various examinees in December 2009, March 2010 and April 2010 and to procure production of documents to the Court. 3 As a result of the ongoing investigations that have been conducted by the Liquidators, in their capacity both as administrators and as liquidators, including the public examinations, the Liquidators have formed the view that it is appropriate to conduct further public examinations in relation to the companies in the ABC Group. Such further examinations would be for the examination of employees of the syndicate of banks with whom companies in the ABC Group dealt in early 2008 to mid-2008 (the Banking Syndicate). In December 2007 the Banking Syndicate provided funding to the ABC Group through a syndicated multi-option facility. That facility was unsecured, although it contained negative pledge clauses. In June 2008, the facility was renegotiated, and charges were granted to the members of the Banking Syndicate as security for the obligations of the companies in the ABC Group under the facility as amended and restated. In or about June and September 2008, approximately $500 million from the proceeds of the sale of parts of the business of companies in the ABC Group was paid to the Banking Syndicate, pursuant to the charges to which I have just referred. 4 The Liquidators have given consideration to possible causes of action that may be available to them arising out of the circumstances surrounding the granting of those charges. In particular, the Liquidators wish to explore the state of knowledge of the officers of bank who were members of the Banking Syndicate as to the solvency, or insolvency, of members of the ABC Group. The Liquidators expect that the public examinations of bank officers would require approximately five days. 5 Following the liquidation of the companies in the ABC Group, a committee of inspection was created for each of two companies, being the company formerly known as ABC Learning Centres Limited (ABC) and the company formerly known as ABC Developmental Learning Centres Pty Limited. At a meeting of the committees of inspection held on 21 April 2011, a draft funding agreement between IMF and the Liquidators, providing for the proposed funding of the public examinations and associated work, together with costs agreements between the Liquidators and solicitors and counsel, were presented to the committees. On that day, the committees approved the Liquidators entering into both the draft funding agreement and the legal costs agreement. The Liquidators have formed the view that it is desirable for the public examinations to be conducted, and therefore need funding to enable the examinations to be conducted. They intend to fund the examinations by means of the proposed agreement with IMF. Arrangements have been made for public examinations to commence on 2 June 2011. 6 I shall summarise the main provisions of the funding agreement. The funding will be provided to the Liquidators for the purposes of funding the public examinations. The Liquidators and companies in the ABC Group will pay to IMF, upon resolution, as defined, from any resolution sum, as defined, in the order of priority set out in the funding agreement. The Liquidators will keep IMF fully informed of all matters concerning the public examinations, including any mediation and settlement decisions. They are also to ensure that IMF is given all necessary information in order to enable IMF to provide management of the project, including access to documents that are produced to the Court and provided to counsel. 7 It is usual for a litigation funder to require a payment in the order of 15 to 35 per cent of the proceeds of any recovery, depending on the stage at which the litigation settles or concludes by way of a court judgment. In addition, the litigation funder would be repaid the expenses involved in the funding of a particular piece of litigation, depending on whether proceedings are resolved a short time after commencement or well after commencement. The proportion of any recovery that would be paid to IMF under the proposed agreement is less than the higher end of that scale. The Liquidators consider that the terms of the proposed agreement are reasonable in the light of that level of remuneration. They also consider that the proportion payable to IMF is reasonable in comparison with litigation funders generally, having regard to the value of the potential claim by the Liquidators that might arise in respect of the charges given to the Banking Syndicate. That value is extremely high, and IMF is taking a risk in funding the public examinations, with no certainty that the Liquidators will subsequently bring claims. That is to say, the Liquidators have not yet made a decision as to whether causes of action exist, and, if so, whether they will be pursued. 8 The Liquidators are therefore unable to estimate the quantum of funds that may be available to unsecured creditors from any recovery from causes of action that might be pursued following the public examinations. They contemplate that any action available would be supported by evidence obtained in the public examinations. IMF has indicated that it is prepared to enter into the proposed funding agreement provided that certain conditions precedent are satisfied, which include the approval of the committees of inspection and of the Court. The Court, of course, would not approve the agreement as such. The most it would do is to direct that the liquidators would be justified in entering into the agreement. 9 It is unlikely that the assets of the members of the ABC Group will realise sufficient funds for any unsecured creditors to receive a dividend. Accordingly, it is only as a result of recoveries by the Liquidators, or successful challenge of the charges given to the Banking Syndicate, that any return for unsecured creditors is likely. The Liquidators are of the opinion that it is in the best interests of the companies in the ABC Group and the unsecured creditors that the proposed funding agreement and the legal costs agreements be entered into. The relevant summonses have been issued for public examinations to be held on 2, 3, 6, 7 and 8 June 2011. 10 There is some need for expedition of the examinations, because of the approaching three year limitation period for bringing any action to avoid the charges and recover any preferences under s 588FF(3) of the Corporations Act 2001 (Cth) (the Corporations Act). The three year period will expire in November of this year. 11 The proposed funding agreement provides that the Liquidators will make available to IMF all documents that are necessary for IMF to make an informed decision as to whether or not to provide funding in relation to potential causes of action regarding the Banking Syndicate's charges, the questions of insolvency of members of the ABC Group and possible good faith defences available to potential defendants in respect of any claim. The Liquidators consider that it is reasonable in all of the circumstances that IMF be furnished with that information and any relevant documents. The material would be made available on an appropriate basis as to confidentiality. 12 Section 479 of the Corporations Act provides that a Court-appointed liquidator of a company may apply to the Court for directions in relation to any particular matter arising under the winding up. Section 511 provides that a liquidator in a voluntary winding up may apply to the Court to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court. Section 477(2B) of the Corporations Act provides that, except with the approval of the Court or of a committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf if obligations of a party to the agreement may be discharged more than three months after the agreement was entered into. The proposed funding agreement and the legal costs agreements may fall within that prohibition. 13 The Liquidators are prepared to undertake that, notwithstanding the terms of the proposed agreement, they will not provide IMF with access to documents produced by members of the Banking Syndicate, except to the extent that the whole or a part of the document has been put to a bank officer in the course of an examination. 14 In all of the circumstances, I consider that it is appropriate to give to the Liquidators the direction that they seek, namely, that they would be justified in entering into the proposed funding agreement with IMF, and with the solicitors and counsel. They would also be justified in complying with the terms of the agreement. It is also appropriate that the agreements be approved pursuant to s 477(2B). 15 The terms of the proposed funding agreement with IMF are commercially sensitive and highly confidential. Accordingly, it is appropriate that the terms of the proposed funding agreement, which was an exhibit in this hearing, not be disclosed without further order of the Court. It is also appropriate that the costs of this application be regarded as the Liquidators' costs and expenses of the liquidation of the companies. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

ABC Learning Centres Limited, in the matter of ABC Learning Centres Limited; application by Walker (No. 10) [2011] FCA 517

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