Angas Law Services Pty Ltd v Carabelas

DECISION : Various relief granted to liquidators in 2005 and 2007.

CATCHWORDS : CORPORATIONS - winding up - winding up by the court - various applications by liquidators contemplating pursuit and funding of litigation - powers of liquidators to provide litigation funding - various heads of power discussed - what is "necessary" for winding up the affairs of the company - where same persons liquidators of funding and funded companies - conflict of duties - to whom liquidators duties owed in winding up by the court - inherent power of court to authorise what would otherwise be breach of duty - need for attention to separate interests of respective companies - statutory constraint upon a person's acting as liquidator of a company if the person is an officer of a mortgagee of the company - where litigation funding arrangements involve granting of mortgage - construction of the statutory provision

LEGISLATION CITED : Corporations Act 2001 (Cth), Division 1 Part 2D, ss 9, 418(1), 477(2)(c), 477(2)(g), 477(2)(m), 477(2A), 477(2B) , 479(1), 532(2), 543 Uniform Companies Acts of 1961-2, s 277A(1A)

Angas Law Services Pty Ltd v Carabelas (2005) 79 ALJR 993 Byrnes v R (1995) 183 CLR 501 Energy and Resource Conservation Co Ltd v Abigroup Contractors Pty Ltd (1997) 41 NSWLR 169 Forge v Australian Securities and Investments Commission (2004) 52 ACSR 1 Jarbin Pty Ltd v Clutha Ltd (2004) 180 FLR 393 Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722 Low v Performance Finance Ltd (2004) 28 WAR 512 McGrath re HIH Insurance Ltd [2005] NSWSC 731 McGrath re HIH Insurance Ltd [2005] NSWSC 787 McGrath re HIH Insurance Ltd [2005] NSWSC 1087 Pongrass Group Operations Pty Ltd v Lowerpinems Pty Ltd (1994) 15 ACSR 341 Re ACN 003 671 387 Pty Ltd (2004) 49 ACSR 443 CASES CITED : Re Antard Pty Ltd (1976) 2 ACLR 108 Re Ausminco Ltd (1976) 2 ACLR 114 Re Bairnsdale Food Products Ltd [1948] VLR 264 Re Cambrian Mining Co (1882) 48 LT 114 Re CIC Insurance Ltd (2001) 38 ACSR 181 Re GA Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 Re HIH Insurance Ltd [2004] NSWSC 5 Re Perseus Mining NL (1976) 2 ACLR 105 Re Photo Holdings Pty Ltd (1976) 2 ACLR 117 Re Rochelle Flats Pty Ltd (1976) 2 ACLR 104 Re Spedley Securities Ltd (1992) 9 ACSR 83 Re Splinta Holdings Pty Ltd (1976) 2 ACLR 103 Walker v Wimborne (1976) 137 CLR 1 Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666

TEXTS CITED : "McPherson The Law of Company Liquidation" by A.R. Keay (4th edition), pp 281, 285

PARTIES : Anthony Gregory McGrath and Christopher John Honey in their capacity as liquidators of HIH Insurance Ltd & Ors - Applicants

FILE NUMBER(S) : SC 1799/01 ; 1805/01; 1808/01; 1810/01 ; 3753/02; 1798/01; 1800/01; 1801/01; 1803/01; 1804/01; 1806/01; 1807/01; 1809/01; 1811/01; 1812/01; 1813/01; 1814/01; 1815/01; 2650/01; 4727/01; 4913/01; 2601/02; 4096/02; 4098/02; 4472/02; 1348/03; 2419/03; 2421/03; 2422/03; 2423/03; 2424/03; 2425/03; 2426/03; 4227/03; 4229/03; 4231/03; 4232/03; 4233/03; 4235/03; 4236/03; 4237/03

(1) Mr M B Oakes SC/Ms J A Soars - Applicants COUNSEL : (2) Mr M B Oakes SC - Applicants (3) Mr M B Oakes SC/Mr J Scarcella - Applicants (3) Mr J W Stevenson SC/Ms V Whittaker - Special Purpose Liquidator in 1805/01 and 1808/01

• 39 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

APPLICATIONS OF ANTHONY GREGORY McGRATH AND CHRISTOPHER JOHN HONEY IN THEIR CAPACITY AS LIQUIDATORS OF EACH OF 1799/01 - HIH INSURANCE LTD 1805/01 - FAI INSURANCES LTD 1808/01 - FAI GENERAL INSURANCE CO LTD 1810/01 - HIH CASUALTY AND GENERAL INSURANCE LTD 3753/02 - HIH INVESTMENT HOLDINGS LTD 1798/01 - FAI TRADERS INSURANCE CO PTY LTD 1800/01 - WORLD MARINE AND GENERAL INSURANCES PTY LTD 1801/01 - HIH UNDERWRITING AND INSURANCE (AUS) PTY LTD 1803/01 - LANLEX NO. 65 PTY LTD 1804/01 - FAI LEASING FINANCE PTY LTD 1806/01 - CIC INSURANCE LTD. 1807/01 - FAI INVESTMENTS PTY LTD 1809/01 - FAI OVERSEAS INVESTMENTS PTY LTD 1811/01 - HIH OVERSEAS HOLDINGS LTD 1812/01 - FAI FINANCIAL SERVICES LTD 1813/01 - FAI OVERSEAS HOLDINGS PTY LTD 1814/01 - FAI REINSURANCES LTD 1815/01 - HIH UNDERWRITING AND AGENCY SERVICES LTD 2650/01 - HANNAN & CO PTY LTD 4727/01 - NOTESTIR PTY LTD 4913/01 - FIRST MENTOR GROUP PTY LTD 2601/02 - WORLDWIDE WEATHER UNDERWRITING AGENCIES (AUS) PTY LTD 4096/02 - HIH COMPANY LTD 4098/02 - ACN 006 495 987 PTY LTD (FORMERLY INDUSTRIAL REHABILITATION SERVICES PTY LTD) 4472/02 - CIC GENERAL INSURANCE HOLDINGS LTD 1348/03 - FAI HOME SECURITY HOLDING PTY LTD 2419/03 - ACN 005 312 345 PTY LTD (FORMERLY READY PLAN ASIA PACIFIC PTY LTD) 2421/03 - FAI FILM DISTRIBUTION PTY LTD 2422/03 - FAI WORKERS' COMPENSATION (VIC) PTY LTD 2423/03 - HIH (REAL ESTATE) PTY LTD 2424/03 - INTEGRATED COMMERCIAL FINANCE PTY LTD 2425/03 - INNES OWENS PTY LTD 2426/03 - RISKCORP AUSTRALIA PTY LTD 4227/03 - ACN 006 584 103 LTD (FORMERLY READY PLAN GROUP LTD) 4229/03 - MARINE AND AVIATION MANAGEMENT SERVICES LTD ACN 006 385 584 4231/03 - CIC WORKERS' COMPENSATION (NSW) LTD 4232/03 - CIC INVESTMENTS LTD ACN 004 766 081 4233/03 - PEMBROKE SECURITIES LTD ACN 002 799 546 4235/03 - LAKE CRACKENBACK RESORT PTY LTD ACN 003 379 708 4236/03 - 422 COLLINS STREET PTY LTD ACN 005 807 036 4237/03 - FAI FINANCE CORPORATION PTY LTD ACN 053 262 561 JUDGMENT 1 On each of 4 August 2005 (see McGrath re HIH Insurance Ltd [2005] NSWSC 787) and 26 October 2005 (see McGrath re HIH Insurance Ltd [2005] NSWSC 1087), I ordered that, until further order, reasons for judgment then delivered to the applicants in the absence of the public be kept confidential, not be posted on the Caselaw New South Wales website and not be accessed by any person. 2 The reasons for judgment related to applications made by the liquidators of 41 companies in the HIH Group with respect to a number of matters concerning then pending litigation the liquidators had caused to be instituted against other persons. The applications and the reasons for judgment merited confidentiality for reasons explained in McGrath re HIH Insurance Ltd [2005] NSWSC 731. 3 The litigation in question has now concluded. The liquidators accept that there is accordingly no longer any basis for maintaining confidentiality in relation to the reasons of 4 August 2005 and 26 October 2005 (or in relation to more recent reasons of 27 April 2007), except as to certain isolated passages referring to communications in which legal professional privilege is considered by the liquidators to subsist. 4 The liquidators have therefore asked that the confidentiality and non-publication regime be terminated, subject only to ongoing protection for the isolated passages I have mentioned. 5 I therefore order (a) that the orders with respect to confidentiality and non-publication made on 4 August 2005 in relation to reasons for judgment delivered to the applicants in the absence of the public on that day be revoked; (b) that the reasons for judgment so delivered on 4 August 2005 be published as Appendix 1 to reasons for judgment of today's date; (c) that the orders with respect to confidentiality and non-publication made on 26 October 2005 in relation to reasons for judgment delivered to the applicants in the absence of the public on that day be varied so as to permit publication of and access to the redacted form thereof contained in Appendix 2 to reasons for judgment of today's date; (d) that the said redacted form of the reasons for judgment so delivered on 26 October 2005 be published as Appendix 2 to reasons for judgment of today's date; (e) that the orders with respect to confidentiality and non-publication made on 27 April 2007 in relation to reasons for judgment delivered to the applicants in the absence of the public on that day be varied so as to permit publication of and access to the redacted form thereof contained in Appendix 3 to reasons for judgment of today's date; (f) that the said redacted form of the reasons for judgment so delivered on 27 April 2007 be published as Appendix 3 to reasons for judgment of today's date. ********** Appendix 1: Reasons for judgment of 4 August 2005: JUDGMENT 1 On 20 July 2005, I heard together applications by Mr McGrath and Mr Honey, as the liquidators of 41 companies I shall call "HIH companies", for orders under s 477(2B) of the Corporations Act 2001 (Cth) approving the making of certain agreements which will not be fully performed within three months after they are made. By s 477(2B), a liquidator is required not to enter into an agreement of that kind on behalf of the relevant company except with the approval of the court, the committee of inspection or a resolution of the creditors. 2 In the present case, the committees of inspection of certain of the companies have considered the proposal to be implemented by the agreements and the creditors of one of the companies have likewise considered the proposal. In all such cases, the committee or the creditors have agreed in principle to the companies' participation in the overall arrangement to be created by the proposed agreements. The liquidators have, however, thought it prudent to seek the approval of the court in relation to the arrangement as finally formulated and reduced to detailed documentation. 3 The overall arrangement is intended to facilitate pursuit of legal proceedings to be prosecuted by certain of the HIH companies against persons who, in the liquidators' opinion, are liable to those HIH companies upon causes of action which, if made out, might be expected to yield substantial awards of damages. I shall refer to those companies as the "claimant companies". 4 Some of the claimant companies do not have sufficient funds to permit them to pursue the contemplated proceedings or, in the first instance, to participate in attempts to compromise proceedings before trial. Others of the HIH companies, although in liquidation, have cash reserves which could be used in providing financial assistance to those claimant companies. I shall refer to those companies as "funding companies". 6 Under the proposals to be implemented by means of the several proposed agreements, the funding companies will make funds available to assist the prosecution of certain claims by certain claimant companies. The emphasis, in the first instance, will be upon attempts to reach a compromise on what has been termed a "global basis" - that is, with all claimant companies and all parties against whom claims are made participating in attempts to compromise all claims. 7 If particular litigation assisted by funding is successfully prosecuted and results in an award of damages to a particular claimant company, the net proceeds after costs and the like will, under the proposed arrangement, be applied, first, in repaying amounts provided by the relevant funding company in respect of that litigation, second, in paying interest at court rates to that funding company on the funding provided by it and, third, in providing to the funding company a premium equal to one-half of the balance of the net proceeds, with the remainder of that balance accruing to the benefit of the claimant company. The same procedure will be followed if a one-to-one settlement yielding monetary proceeds is achieved between the particular claimant company and a particular defendant or group of defendants. 8 If a global settlement (or a partial settlement involving two or more proceedings) is achieved, the resultant net proceeds will be split among the several claims concerned in such manner as the relevant companies agree or, in default of agreement, according to a determination made by an expert panel made up of several lawyers, one representing the interests of each of the claimant companies. The need for this fall-back mechanism arises from the fact that all the claimant companies have the same liquidators - which means, of course, that the respective lawyers will act as experts, according to their own informed assessments, rather than on the instructions of any client. I am told that the lawyers in contemplation have agreed to act in this way. Once a portion of proceeds has been allocated by this process to a particular settled claim, that portion will in turn be allocated among the separate claimant companies in relation to that claim by a similar process. 9 No funding company is also a claimant company. Each funding company is thus an outsider to the litigation it is intended to fund but does have an interest in the outcome of that litigation as a creditor of the claimant company to which it will provide financial support. It is that creditor status of a funding company as against the claimant company to be financially assisted by it and the interest that the creditor status entails that distinguish the funding company from a mere provider of speculative litigation funding. 10 For the funding companies, the advantages seen by the liquidators are the opportunity to receive the premium over and above the sum outlaid by way of financial assistance (plus repayment of the assistance and interest thereon) and the opportunity to share, along with all other creditors, in the remainder of any enhanced recoveries flowing from implementation of the proposal. Against that stands, of course, the risk that a funding company may lose altogether the money it outlays. 11 For the claimant companies needing financial assistance to pursue claims, the advantages identified by the liquidators as advantages to be had from the proposal are obvious enough: they will be able to pursue litigation that their separate financial resources do not allow them to pursue. Each claimant company given financial assistance will grant a charge over its assets generally to the funding company by which the financial assistance is given.

12 The other group of companies to be considered consists of the claimant companies which do not need and will not be given financial assistance. The only implications of the proposal for them is that they will be parties to the arrangements for the division of proceeds where a global settlement or a settlement of several claims on an undissected basis is achieved. The liquidators see advantages for them in so participating because of the benefits that will come from concerted action in pursuing settlement possibilities rather than allowing matters to be fragmented. Each claimant company pursuing separately its own attempt to settle would, it is considered, be less effective than the combined group. The division of proceeds mechanisms are, in any event, regarded by the liquidators as equitable. 13 This brings me to the approach that the court is to take in deciding whether to grant approval under s 477(2B). The aim of the provision is clearly enough, to ensure that the court exercises some oversight of a liquidator's actions and, in effect, confers or completes the necessary power only where it sees that a case for exercise of the power in the particular circumstances has been sufficiently shown. The court's assessment must be made in the light of the purposes for which liquidators' powers exist. One over-riding purpose is to serve "the interests of those concerned in the winding up - here the creditors" (Re Spedley Securities Ltd (1992) 9 ACSR 83 per Giles J); the other is to do whatever needs to be done "for the proper realisation of the assets of the company" or to assist its winding up (Re GA Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 per Young J). The court generally does not concern itself with the commercial desirability of the transaction. As Giles J said in the Spedley Securities case (above) at pp.85-6: "… the court pays regard to the commercial judgment of the liquidator. That is not to say that it rubber stamps whatever is put forward by the liquidator but, as is made clear in Re Mineral Securities (Australia) Ltd [1973] 2 NSWLR 207 at 231-2, the court is necessarily confined in attempting to second guess a liquidator in the exercise of 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." 14 Although this was said in relation to s 477(2A), I consider the statement to be equally applicable to s 477(2B), even though that section focuses particular attention on the need to ensure that contractual provisions as to timing do not cut across the general expectation that winding up will proceed in as expeditious a fashion as circumstances allow: Re GA Listings & Maintenance Pty Ltd (above); Re CIC Insurance Ltd (2001) 38 ACSR 181.

15 Accepting that the court is not concerned, in the s 477(2B) context, with matters of commercial wisdom and merit, the submissions made on behalf of the liquidators show that two questions are seen to arise in relation to the overall proposal, while a third arises in relation to the particular matter of the grant of security by financially assisted claimant companies to the funding companies by which they are assisted. The first question is as to the powers of the liquidators to commit the various companies to the courses of action the agreements contemplate. The second is as to the fact that the same persons are liquidators of all the companies intended to be parties to the relevant agreements. The third question is as to the need for the leave of the court under s 532(2) and the ability of the court to grant leave in the particular circumstances. I shall consider these questions in turn.

16 The question of powers arises in relation to two classes of companies - funding companies and the financially assisted claimant companies. In relation to the latter, the relevant feature of the arrangement, apart from borrowing and the giving of security (which are clearly within the power conferred on liquidators by s 477(2)(g)), is the assignment to the relevant funding company of any proceeds of settlement of action, to be held upon trust for the recipient and the funding company. In the context of litigation funding arrangements of a kind sufficiently similar to the present to make the situations truly comparable, Campbell J said, in Jarbin Pty Ltd v Clutha Ltd (2004) 180 FLR 393 (at paragraph [107]): "It is now well established that a liquidator's power of sale of the property of the company, under section 477(2)(c) of the Corporations Law , enables him or her to assign all, or part, of a cause of action of the company in return for a consideration, which might be a fixed payment, a share of any net proceeds of the action, or a consideration arrived at in some other way, and such assignment may be made without infringement of the law concerning maintenance and champerty."

17 His Honour cited extensive authority in support of this proposition concerning s 477(2)(c). He then surveyed the arrangements in a number of decided cases. Both the principle and the examples show to my satisfaction that the liquidators of the claimant companies that are to receive financial assistance under the arrangements proposed in this case have the necessary power under s 477(2)(c) and s 477(2)(g) to enter into those arrangements.

18 There is next the question of the powers of the funding companies. In a direct and immediate sense, each funding company will simply lend money or grant accommodation in return for the promise of repayment with interest and premium if success is achieved by the assisted claimant company, such promise being supported by the security given by that claimant company. A liquidator is not given by the Corporations Act any explicit power to lend. The head of power said to be applicable for that purpose here is that conferred by s 477(2)(m), being the power to: "do all such other things as are necessary for winding up the affairs of the company and distributing its property." 19 It can be said at once that this head of power would not support the provision of litigation funding by a liquidator to some entirely unrelated litigant, purely for the sake of the returns (or prospects of returns) that might be generated by the transaction itself. Such a transaction would be in no sense "necessary for winding up the affairs of the company and distributing its property". The present case is, however, distinguishable from that hypothetical case. Each funding company is, as I have said, a creditor of the claimant company to which it is proposed that it give financial assistance.

20 Case law shows that the word "necessary" in s 477(2)(m) is not synonymous with "essential" or "indispensable". The provision is accordingly not confined to matters without which the winding up of affairs and distribution of property cannot occur. The test is, rather, one of what "may be thought expedient with reference to the assets of the company": Re Cambrian Mining Co (1882) 48 LT 114 per Kay J. Counsel referred me to the decision of Fullagar J in Re Bairnsdale Food Products Ltd [1948] VLR 264 as providing an example of the scope of the section. That case concerned a company which had a right of first refusal in respect of land occupied by it as lessee. After commencement of the winding up, the lessor offered the company the opportunity to purchase. On the evidence, it would have been advantageous to the winding up for the liquidator to buy the land and re-sell it, thus realising the value of the right of first refusal. It was held that the purchase was justified as an incident of the subsequent sale and was therefore comprehended by the power to sell. There was subsidiary reliance upon the equivalent of s 477(2)(m).

21 I accept that s 477(2)(m) enables a liquidator to do anything expedient with reference to, or conducive to, the beneficial pursuit towards completion of the winding up of affairs and distribution of property. The question is whether commitment of funds by a particular funding company to the pursuit of a claim by a particular assisted claimant company of which it is a creditor is expedient with reference to, or conducive to, those matters in relation to that funding company.

22 The parts of Mr McGrath's affidavit to which I have been directed on this are paragraphs 49, 84 and 85. The last two of these make it clear that Mr McGrath (with whom Mr Honey, by separate affidavit concurs) is of the opinion that the arrangements as a whole are commercially appropriate and in the "best interests" of all participating companies. In paragraph 49, by contrast, he refers specifically to the funding companies and says that the funding arrangements entail benefits for those companies by way of the opportunities to make recoveries of funds outlaid, plus interest and premium, as well as by way of enhanced possibility of recoveries by the funding companies as pre-existing creditors of the assisted claimant companies. To that must be added the benefit that may be expected from concerted action to reach a "global settlement".

23 The matter relevant to s 477(2)(m) from the perspective of the funding companies is also dealt with in expert evidence given by Mr L.B. Hunter, an experienced insolvency practitioner not connected with these insolvent administrations. Mr Hunter reviewed the proposed arrangements from the perspective of companies in all relevant classes. His conclusions are based on various assumptions stated by him which I am prepared to think probably reflect assessments objectively made by the liquidators and conveyed to him. Mr Hunter's overall conclusion is that the arrangements are beneficial to all companies. The benefits he sees for funding companies are stated to be: "The benefits I can see to the Funders are: (a) They obtain a charge over the claims and therefore have security; (b) They are entitled to claim from the proceeds realised from the Claims repayment of costs previously funded, together with interest (though interest on past funding is only calculated from the date of execution of the funding agreements); (c) They are entitled to claim from the proceeds realised from the Claims repayment of ongoing funded costs, together with interest; (d) The interest rate is better than that available from financial institutions; (e) The Funding Arrangements allow for the control of the litigation to remain with the Liquidators which may facilitated joint settlements of the major litigation claims; (f) The proposed return is commercial and commensurate to the risks; (g) It allows an incremental benefit via the flow through dividends which may be paid to the Funders by reason that all the Funders are creditors of some of the Plaintiffs; (h) It allows all of the major claims of the group to be pursued; and (i) Costs to pursue the claims are not fixed and the agreements make provision for further funding to be provided, where necessary and appropriate." 24 I should refer also, at this point, to a report provided by Mr Lipman, a solicitor experienced in litigation funding. He refers to a number of matters relevant to the obtaining of finance by liquidators generally to pursue claims. His opinion does not touch directly upon the position of the funding companies, except insofar as it refers to difficulties that can be encountered in obtaining financing on a large scale for complex cases in Australia.

25 On the material before me, I do not see how I can safely conclude that it will be expedient with reference to, or conducive to, beneficial progress towards completion of the winding up of the affairs of any funding company and the distribution of its property for that funding company to provide financial assistance to the particular claimant company. A funding company could and, in the ordinary course, would deploy surplus funds in the normal types of investment entailing minimal risk: see s 543. For it to depart from that ordinary and expected course and to deploy its surplus funds in some other way would call for some analysis of pros and cons undertaken exclusively from the viewpoint of the funding company itself and having regard solely to its separate interests. That is what seems to me to be lacking here. It has not been suggested or shown that there has been any independent assessment, from the unilateral perspective of each funding company, of where the commercial and financial interests of that funding company lie, so far as the proposals are concerned. It is all very well to say, in the abstract, that by financially supporting the pursuit of particular litigation by a claimant company, a funding company may enhance its prospects of greater returns in its capacity as a creditor of the claimant company, in addition to recouping its funding outlay, plus interest and premium on a secured basis. That is no doubt supportable as a theoretical proposition. Also supportable in an abstract or theoretical sense is the proposition that the funding company faces the prospect of losing its total outlay without any return whatsoever. Before the court could conclude that the matter was within s 477(2)(m), it would have to see that there was some good and solid reason for concluding that the processes of winding up and distribution referred to in that provision would be enhanced by the particular outlay of funds envisaged in the particular circumstances prevailing, with the enhancement being demonstrable by comparison with the situation that would prevail if surplus funds were deployed in the ordinary way pursuant to s 543. The enhancement would have to be demonstrated by some informed and independent assessment of the separate and selfish interests of the funding company alone.

26 In the Bairnsdale Food case, Fullagar J emphasised that the existence of power must be distinguished from the propriety of its exercise. I do not lose sight of that distinction here. The point is that, when the question is whether a particular step is "necessary for" - in the s 477(2)(m) sense of "expedient with reference to" or "conducive to" - the progress and completion of the winding up process, the consequences or likely consequences of the step must be known (or, at least, reliably predicted, on the basis of known facts and informed assessment of their significance) as an essential ingredient of the formation of the opinion relevant to the existence of the power, quite separately from the wisdom of its exercise.

27 Lest it be thought that there is undue concentration here on the question whether the proposed actions of the liquidators of the funding companies are within s 477(2)(m), it should be emphasised that, in entertaining a s 477(2B) application, the court necessarily has before it the question whether it should perfect the power of the liquidator. Each of the specific heads of power in s 477(2) is governed by the opening words of s 477(2): "Subject to this section, a liquidator of a company may …". I would repeat here what I said in relation to the interaction between ss 477(2) and 477(2B) in Re HIH Insurance Ltd [2004] NSWSC 5 at paragraph [12]: "Each of s 477(1) and 477(2) begins with the words 'Subject to this section', so that a power conferred by one of those provisions (including the power to compromise debts and claims conferred by s 477(1)(d)) simply does not arise, in a case dealt with by s 477(2A) or s 477(2B), unless court approval is given." 28 It follows that, in considering a s 477(2B) application, the court, while not concerned with matters of commercial judgment, is concerned to see that an occasion for the proper exercise of the power it is asked to perfect has arisen.

29 I turn now to the circumstance that each of the companies involved in the proposed arrangements has the same liquidators. Liquidators, like directors, are fiduciaries. Any liquidator is therefore subject to a duty to act with single-minded regard for the interests of the company of which he or she is liquidator - which, in the case of an insolvent administration, may generally be equated with the interests of the body of creditors. Where the same person is the liquidator of two companies, the position, from a fiduciary standpoint, must be the same as it is where the same persons are the directors of two companies. The plight of directors in such a situation was described by Brennan, Deane, Toohey and Gaudron JJ in Byrnes v R (1995) 183 CLR 501 (at pp. 516-7) as follows: "Each of Byrnes and Hopwood was in a position of conflicting fiduciary duties: they were directors of both Magnacrete and Jeffcott. The interests of those companies did not necessarily coincide. They devised the Vicksburg joint venture and they executed the relevant instruments in order to commit the resources of Magnacrete for the benefit of Jeffcott. Whatever authority Byrnes and Hopwood might otherwise have had to execute instruments under seal so as to bind Magnacrete, it was not an authority to be exercised for the moving purpose of benefiting Jeffcott. A company is entitled to the unbiased and independent judgment of each of its directors. A director of a company who is also a director of another company may owe conflicting fiduciary duties. Being a fiduciary, the director of the first company must not exercise his or her powers for the benefit or gain of the second company without clearly disclosing the second company's interests to the first company and obtaining the first company's consent. Nor, of course, can the director exercise those powers for the director's own benefit or gain without clearly disclosing his or her interest and obtaining the company's consent. A fiduciary must not exercise an authority or power for the personal benefit or gain of the fiduciary or a third party to whom a fiduciary duty is owed without the beneficiary's consent." [citations omitted] 30 Translated to the present situation, the third last sentence of this extract means that the persons who are the liquidators of a funding company and also the liquidators of the claimant company to which, it is proposed, the funding company will give financial assistance must not exercise their powers as liquidators of the funding company for the benefit or gain of that claimant company without clearly disclosing the claimant company's interest to the funding company and obtaining the funding company's consent. In general terms, references in this kind of context to "the company's consent" is a reference to the consent of the company in general meeting, at least where the company is solvent. But that consent will not be sufficient or alone operative where the company is insolvent: see, for example, Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722. 31 In written submissions on this aspect, counsel for the liquidators say: "Consent raises the issue of from whom it must come. The Liquidators' fiduciary duty is owed to the Court, the creditors and the contributories (McPherson 4 th ed pp286-287). Where the winding up is in insolvency, it is submitted that the consent of contributories is unnecessary, unless it becomes apparent that there is likely to be a surplus on the winding up available to them. With the creditors, the Act specifically provides in s 548 for a representative body of the creditors in the form of the committee of inspection and vests in that organ, in s 477, the power to give the Liquidators certain approvals which powers are also vested in the creditors generally. Section 479(1) obliges the Liquidators to have regard to any directions given by the committee of inspection. Where the approval which the Liquidators seek activates one of the heads in s 477, relevantly here s 477(2B), and the obtaining of the approval necessitates disclosure of a potential conflict, consent to the potential conflict is implicit in the approval. Consent takes the form of the approvals given by the committees of inspection (or in one case creditors) of the Funders and the Impecunious Plaintiffs and the Court in the case of all companies. A decision has been taken not to consult the creditors generally (including the creditors of the Pecunious Plaintiffs which do not have committees of inspection) for the reasons set out in para 77 of McGrath's affidavit." 32 I do not accept that a committee of inspection may give a consent amounting, in the terms required by general fiduciary principles, to a consent of the company to which the liquidators' duties are owed. Such committees are provided for in the legislation and given particular powers and functions. They have no wider or residual role. Their statutory powers do not extend to the giving of consent of the relevant kind. Nor do I think that any function of giving such consent can be seen as some kind of incident of the s 477(2B) function which is concerned solely with the question whether the making of a contract not to be performed within three months is consistent with the due and orderly conduct of the winding up. The same is true, in my opinion, of s 479(1): it simply does not contemplate that the committee of inspection may convey a consent sufficient to authorise what would otherwise be a breach of duty. It is also relevant that, in the present case, the committees of inspection of those of the HIH companies that have such committees, while they have given a form of in principle approval to the proposals under discussion, have not been asked to exercise the s 477(2B) function, so that, even if that function had the added dimension the submissions suggest, it could not be said that it had been activated.

33 Identification of available avenues of consent in a case where a liquidator seeks dispensation from some aspect of the strictures of the fiduciary duties to which liquidators are subject received attention in Re ACN 003 671 387 Pty Ltd (2004) 49 ACSR 443. That was a case in which a company associated with the firm of a liquidator appointed by the court wished to purchase the shares in two companies of which he was the liquidator and to have each winding up terminated. Austin J, referring to the liquidator's fiduciary duty, said: "In the case of a court-appointed liquidator, the beneficiary of the duty is, technically speaking, the company, but the company is in no position to make a fully informed decision to enter into or reject the transaction, because the directors and officers of the company are precluded, unless the court approves, from exercising any of their functions or powers: Corporations Act 2001 (Cth), s 471A. Although there appears to be no direct authority in point, it would be logical to say that for the purposes of the purchasing rule, fully informed consent given by the creditors and contributories to a proposed purchase by the liquidator will suffice. Whether, if the winding up is in insolvency, fully informed consent of the creditors alone will be sufficient, and whether the consent must, in either case, be unanimous, are matters I do not have to decide, for here there is only one creditor which is also the sole shareholder, and it fully supports the transaction." 34 His Honour went on to refer to the special position of a court-appointed liquidator. After referring to legislative provisions bearing on the question whether it is technically correct to regard such a liquidator as an officer of the court, he noted (at paragraph 41) that there is no express requirement that such a liquidator obtain the court's leave in order to purchase assets from the company or to enter into any other transactions with the company or with respect to it, for the liquidator's own benefit. The same is, of course, true in relation to transactions involving another company of which the liquidator is also liquidator. Austin J continued (at paragraphs 43 to 46): "While there appears to be no direct authority, it seems that a court-appointed liquidator, like a solicitor acting in litigation, owes a duty to the court, in addition to his or her fiduciary duty to the principal, to avoid any undisclosed conflict of interest. In the case of a solicitor, the duty to the court arises from the court's concern that it should have the assistance of independent legal representation for the litigating parties: see D Ipp, "Lawyers' Duties to the Court", (1998) 114 LQR 63 at 93. By parity of reasoning, a court-appointed liquidator has a general duty to the court to avoid anything that would or might compromise his or her impartiality, which implies a duty not to deal with the company's assets for his or her own benefit, or otherwise place himself or herself in a position of actual or possible conflict between personal interest and the duties of office. The court-appointed liquidator's duty is at least as strong as the lawyer's, and might be even stronger, having regard to the quasi-judicial functions that a liquidator is expected to perform: see, for example, Re Chevron Furnishers Pty Ltd (in liq); Qld Amalgamated Industries Pty Ltd v Harris [1995] 1 QdR 125; (1994) 12 ACSR 565. Presumably the court, as the beneficiary of this duty, has an inherent power to exonerate the liquidator from performance of the duty, and the exoneration might conveniently take the form of granting leave to the liquidator to enter into the transaction. It is unnecessary to decide whether that leave, if granted in a case where the liquidator has also breached the fiduciary duty, would also absolve the liquidator from breach of fiduciary duty, because in this case the liquidator is protected from breach of fiduciary duty by the consent of his principal.

Though the power to exonerate therefore exists, it seems to me that it will only rarely be exercised. The court will be very careful to preserve the integrity of the winding-up procedure."

35 In my opinion, these principles apply here. I am prepared to accept that the court has an inherent power (likely to be exercised only rarely) to authorise a court-appointed liquidator to cause the company in liquidation to undertake a transaction that would otherwise entail breach of fiduciary duty by that liquidator. The court does not, of course, have power to absolve the liquidator in advance or in retrospect from breaches of the statutory duties arising from Division 1 of Part 2D.1, to the extent that they are applicable: see generally Angas Law Services Pty Ltd v Carabelas (2005) 79 ALJR 993; Forge v Australian Securities and Investments Commission (2004) 52 ACSR 1. But exoneration by the court, if granted, might re-shape the content of the statutory duties.

36 It is submitted on behalf of the applicant liquidators that it is not necessary to pursue a separate application for the court's authorisation by reference to a perceived need to obtain dispensation from fiduciary constraints. This, according to the submission, is because it would be "surplusage on a s 477(2B) order". I understand this to be a submission that an order under s 477(2B) carries within it authorisation to commit any breach of fiduciary duty that is involved in the making of the relevant contract. That cannot be so, when one has regard to the limited purpose of s 477(2B) which is to provide a mechanism whereby proposals that might unduly prolong a winding up may be screened. In the ordinary course, scrutiny by the court of the propriety or appropriateness of the proposed contract on some wider front would not be expected as merely some incident or by-product of a s 477(2B) application.

37 If the court, in the exercise of its inherent jurisdiction, is to grant authorisation by reference to fiduciary considerations in the present case, it will only do so directly and upon proper application, and not as some form of implied side-wind from s 477(2B) approval. In saying this, I do not mean to suggest that there must be some adherence to procedural form merely for the sake of it. What I do mean is that the matter must be put before the court as an explicit application for dispensation from fiduciary duties, with appropriate evidence showing how and why circumstances exist warranting dispensation. As is demonstrated by the decision of the Court of Appeal in Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666, the task of explanation inherent in a request to be excused from a fiduciary requirement is an onerous and exacting one.

38 Counsel submit that the court has before it now enough to enable it to deal with the matter. My comments about the s 477(2)(m) aspect will make it clear that I do not share that view. The court has not been given any separate assessment of where the funding companies' separate interests lie, so far as the proposed transactions are concerned. Opinions expressed by Mr McGrath (with whom Mr Honey concurs), Mr Hunter and Mr Lipman are opinions about the positions and interests of all the companies. To the extent that they speak of the interests of funding companies, the statements of those witnesses are necessarily coloured by the fact that they speak also of the interests of the assisting companies - indeed, the interests of all the companies affected by the proposals. As I have already said in the s 477(2)(m) context, someone qualified to do so needs to come to a fully informed and independent conclusion as to whether and, if so, how the separate interests of the funding companies (being, in the final analysis, the interests of the creditors who stand to receive distributions in the funding companies' windings up) will be promoted by having them commit their funds in the ways envisaged, when the alternative is for those funds to be husbanded in the normal way. Any application for fiduciary dispensation must necessarily proceed by reference to a comparison of that kind.

39 I have concentrated, in the fiduciary context, on the position of the funding companies because the fiduciary considerations are particularly pronounced there. That is not to say that they do not also arise in relation to companies within the other categories or that the liquidators do not need to consider applications for like dispensations in those connections. It is axiomatic that, in the context of a group of companies, the propriety of the exercise of powers by directors (or liquidators) of a particular company is to be judged by reference to the interests of that company rather than some perceived transcending interest of the group: Walker v Wimborne (1976) 137 CLR 1.

40 It remains to deal with the third question. That question also arises because the liquidators are the liquidators of multiple companies. It arises under s 532(2)(c)(ii): "Subject to this section, a person must not, except with the leave of the Court, seek to be appointed, or act, as liquidator of a company:

(ii) the person is an officer of any body corporate that is a mortgagee of property of the company …" 41 This provision is relevant because, under the proposal, each claimant company afforded financial assistance by a funding company will grant security over its assets to that funding company. Each of Mr McGrath and Mr Honey, being a liquidator of each claimant company to be given financial assistance, is, under paragraph (f) of the s 9 definition, an "officer" of each such claimant company, with the result that the circumstance that the funding company giving the assistance (of which the same persons are liquidators) becomes a mortgagee of property of the relevant claimant company brings into play the s 532(2)(c) prohibition upon his acting as a liquidator of the funding company.

42 The first issue here is one of construction, namely, whether the provision for the granting of leave by the court applies not only to the prohibition upon seeking appointment but also to the prohibition upon acting. In other words, is the prohibition upon acting absolute in that, unlike the prohibition upon seeking appointment, it cannot be overcome by the leave of the court?

43 I was referred, in that connection to a number of decided cases. None of them is directly in point. The most recent is the decision of Simmonds J in Low v Performance Finance Ltd (2004) 28 WAR 512. The s 532(2) issue there related to appointment, so that the point before me did not arise. There was an additional issue under s 418(1) (which begins, "A person is not qualified to be appointed, and must not act, as receiver …") but the different wording means that no real guidance is provided for present purposes. The other cases to which counsel referred all arose under s 277A(1A) of the Uniform Companies Acts of 1961-2 which was inserted in 1976: Re Splinta Holdings Pty Ltd (1976) 2 ACLR 103, Re Perseus Mining NL (1976) 2 ACLR 105, Re Antard Pty Ltd (1976) 2 ACLR 108. There are, in fact several other similar cases in the same volume of the reports: Re Rochelle Flats Pty Ltd (1976) 2 ACLR 104, Re Ausminco Ltd (1976) 2 ACLR 114, Re Photo Holdings Pty Ltd (1976) 2 ACLR 117. These cases are not of any direct help in the present context because the wording of s 277A(1A) was: "Subject to this section, a person shall not, without the leave of the Court, consent to be appointed, and shall not act, as liquidator …"

44 Under this formulation, the leave of the court was obviously available only in relation to consenting to appointment, as distinct from acting. The prohibition upon consenting could be overcome by the leave of the court, but the prohibition upon acting could not. But, as some of the decided cases recognised, someone who was granted leave to consent to appointment and was then appointed could thereafter act in pursuance of the appointment. The prohibition upon acting only applied to someone who became subject to one of the disqualifying factors after accepting an appointment which the person was free to take without the leave of the court.

45 There seem to be two cases in which judges have made relevant passing comment about the present section. In Pongrass Group Operations Pty Ltd v Lowerpinems Pty Ltd (1994) 15 ACSR 341, Sackville J said (at p.342): "Except with the leave of the court and in certain other circumstances, a person is not to be appointed or to act as liquidator of a company, inter alia [in specified circumstances]." 46 In Energy and Resource Conservation Co Ltd v Abigroup Contractors Pty Ltd (1997) 41 NSWLR 169, McLelland CJ in Eq said (at p.172): "It is also to be noted that an administrator, being an officer of the company (see s 82A), is one of the classes of persons which s 532(2) purports to prohibit from seeking appointment, or acting, as liquidator without the leave of the Court or a resolution of creditors after the formalities in s 532(5) have been observed." 47 In both these passages, it is obviously assumed that the court's power to grant leave extends not only to allow appointment (or, more precisely, the seeking of appointment) but also to allow acting, in the sense of ongoing exercise of the office. That, it seems to me, is entirely consistent with the present form of the section. The prohibition is imposed by the words, "must not … seek to be appointed, or act". The "except with the leave of the Court" qualification comes immediately after "must not" and therefore applies to both seeking appointment and acting. In the 1976 version, the words "shall not act" were, because of their positioning, obviously not subject to the "without the leave of the Court" qualification. Under the present legislation, the court may grant leave so as to allow a person not yet appointed both to seek appointment and to act once appointed; and it may, as a separate matter, grant leave to act to a person who, being already in office, is, by subsequent events, brought within one of the categories that attract the prohibition on acting.

48 I should say, before leaving this subject, that I do not think the effect of the current legislation is accurately captured at page 281 of the fourth edition (1999) of "McPherson The Law of Company Liquidation" by A.R. Keay. It is there said that s.532 "is not to be read as requiring or enabling leave to be given to acting as liquidator as distinct from consenting to be appointed as such". That statement is supported by reference to some of the cases on the 1976 provision which, as I have said, was significantly different in its wording.

49 My conclusion on this aspect is that the court has power to grant leave to Mr McGrath and Mr Honey under s 532(2) to act as liquidators of claimant companies which give security to funding companies and thereby to forestall the prohibition on continuing to act as liquidators of those claimant companies that would otherwise arise by reason of the creation of a mortgagee relationship comprehended by s 532(2)(c)(ii).

50 Whether the court should grant such leave is another question. On that, the guiding consideration is the legislative intention that a liquidator should be free from the potentially conflicting allegiance unless the court sees that independent judgment will nevertheless still be available. The factors to be taken into account in relation to that matter correspond, in large measure, with those to which I have referred in discussing the fiduciary question. Because, at this point, the court is not in a position to address the fiduciary matter, it should, for the time being, also not make a decision on the question of the grant of leave under s 532(2).

51 Before concluding, I should refer to the fact (mentioned in submissions) that appointment of the same liquidators to a number of the HIH companies was something that was canvassed before Bergin J on 15 March 2001 when her Honour first appointed Mr McGrath and Mr Macintosh (Mr Honey's predecessor) as provisional liquidators of those companies. On that occasion, a creditor submitted that there should be separate provisional liquidators for certain of the companies. Bergin J said: "Mr Ryan in response submits that Mr McGrath and Mr Macintosh who have consented to act as provisional liquidators and if to either of those men there appears to be a conflict then one would, of course, expect either of those two men or both of them to immediately approach the Court to indicate such a position.

I do not require an undertaking from either Mr McGrath or Mr Macintosh, whom I intend to appoint, to approach the Court should there be a conflict. I take the view it goes without saying and it is part of their obligation." 52 This, of course, did not purport to absolve the common liquidators from any of the consequences of the multiple appointments. It merely reflected the reality, first, that it often makes good practical sense for the same liquidators to be appointed to companies in a group (as is recognised in a passage at page 285 of the fourth edition of McPherson to which I have been referred) but, second, that the need to be alive to the possibility of conflicts is thereby sharpened.

53 I decline at this point to grant the approvals under s 477(2B) sought by the applicant liquidators. I also decline at this point to grant leave under s 532(2).

54 The interlocutory process in each proceeding will be stood over to a date to be fixed for directions as to the filing of such further evidence as the applicants may wish to adduce.

Appendix 2: Reasons for judgment of 26 October 2005: JUDGMENT 1 The liquidators of the 41 "HIH companies" have renewed and expanded the applications dealt with in my judgment of 4 August 2005. The adjourned and amended applications were heard by me on 11 October 2005. Extensive further evidence was adduced on that occasion. 2 The applications were originally applications for approval under s 477(2B) of the Corporations Act 2001 (Cth). By each amended interlocutory process, however, the liquidators have sought additional relief, having regard to the earlier judgment. Four substantive orders are now sought in relation to each of the 41 companies. In the case of HIH Insurance Limited, the orders sought are as follows: "1. Order, under the Court's inherent jurisdiction, that the liquidators of the Company, on behalf of the Company, be granted leave to enter into the agreements and deeds which are in or substantially to the effect of the forms of documents at Tab 15(A) to Tab 15(K), inclusive, of Exhibit AGM1 referred to in the Second McGrath Affidavit.

2. Direction, pursuant to s479(3) of the Act, that the liquidators of the Company, on behalf of the Company, have power to enter into the agreements and deeds which are in or substantially to the effect of the forms of documents at Tab 15(A) to Tab 15(K), inclusive, of Exhibit AGM1 referred to in the Second McGrath Affidavit.

3. Order pursuant to s477(2B) of the Act, that the following be approved, namely, the making by the liquidators of the Company, on behalf of the Company, of the agreements and deeds which are in or substantially to the effect of the forms of documents at Tab 15(A) to Tab 15(K), inclusive, of Exhibit AGM1 referred to in the Second McGrath Affidavit.

4. Order that pursuant to s532(2)(c)(ii) of the Act, that leave be granted to the liquidators of the Company to continue to act as liquidators of the Company notwithstanding the fact that they are liquidators of HIH Casualty and General Insurance Limited (In Liquidation) ACN 008 482 291 and FAI General Insurance Company Limited (In Liquidation) ACN 000 327 855 to whom it is proposed that a charge, in or substantially to the effect of the document titled "Floating Charge - Takeover Loss Claim" at Tab 15(E) and a charge in or substantially to the effect of the document titled "Floating Charge - HIH Dividend Loss Claim" at Tab 15(J) of Exhibit AGM 1 referred to in the Second McGrath Affidavit, is to be given or is given by the Company." 3 Under the interlocutory process in each of the other proceedings, relief corresponding with that in paragraphs 1 to 3 is sought. There is a claim in terms of paragraph 4 only in the case of HIH Insurance Limited and HIH Investment Holdings Limited. 4 The agreements to which the orders thus expressed refer are similar to those I considered in my previous judgment. Most of the agreements relate to two major claims the liquidators consider to be maintainable by, in one case, HIH Insurance Limited and HIH Investment Holdings Limited and, in the other case HIH Insurance Limited alone. Those agreements provide, in broad terms, for HIH Casualty and General Insurance Limited ("C&G") to provide financial assistance for the pursuit of the claims by the companies considered to have them. Consistently with the terminology in the earlier judgment, I shall refer to C&G as the "funding company" and to HIH Insurance and HIH Investment as "assisted claimant companies". The proposal no longer involves, as to the future, like assistance of FAI Insurance Limited by FAI General Insurance Company Limited, but there is a small amount of past assistance given by the latter company that, under the proposals, will be secured by the charge to be taken by C&G both for its own benefit and (as to that small amount of past funding) for the benefit of FAI General Insurance. All assisted claimant companies will grant security over their assets in this way. It is that circumstance and the impact of s 532(2) of the Corporations Act that have caused the liquidators of the assisted claimant companies to seek an order under s 532(2)(c)(ii). 5 Another agreement (called "settlement proceeds deed") extends to HIH companies beyond the funding company and the assisted claimant companies because it relates to claims in addition to those involved in the proposed funding arrangements to which the funding company and the assisted claimant companies propose to become party. The general nature and purpose of the settlement proceeds deed remain as described in paragraph 7 of the earlier judgment. 6 In that earlier judgment the court (a) accepted that the liquidators of the claimant companies that were to receive financial assistance from funding companies had the necessary power under s 477(2)(c) and s 477(2)(g) to enter into the funding arrangements; (b) was content that the liquidators of all relevant companies had power to enter into the settlement process arrangements; (c) was not satisfied that, in terms of s 477(2)(m), it was "necessary for" (in the sense of expedient with reference to, or conducive to beneficial pursuit towards completion of) the winding up of a funding company for it to give the contemplated financial assistance; (d) pointed to the need for the liquidators of a funding company, who were also the liquidators of a claimant company to which the funding company was to give financial assistance, to obtain relevant authorisation to permit them, as fiduciaries, to exercise their powers for the benefit of the claimant company; (e) accepted that the court has an inherent power to grant such authorisation; (f) observed that the same fiduciary considerations apply to the liquidators as liquidators of assisted claimant companies, although, in the particular context, in a less pronounced way; (g) was not satisfied that it had been shown that the separate interests of each funding company (there were then several) - being, in the final analysis, the interests of the creditors who stand to receive distributions in the funding company's winding up - would be promoted by the funding company's committing its funds in the ways envisaged, when the alternative is for those funds to be husbanded in the normal way; (h) held that, upon the proper construction of s 532(2)(c)(ii), the court's power to grant leave under that section extends not only to the seeking of appointment as liquidator but also to acting as liquidator (in the sense of ongoing exercise of the office), with the result that the circumstance that a funding company giving financial assistance to a claimant company (of which the same persons are liquidators) becomes a mortgagee of property of the claimant company under the funding agreements will not preclude continuation of the liquidators in office if leave under s 532(2)(c)(ii) is granted; and (i) declined to grant that leave pending resolution of the s 477(2)(m) and fiduciary questions. 7 The liquidators of the relevant HIH companies have now placed additional evidence before the court. In doing so, their intention is to show, principally from the viewpoint of the funding companies (but with regard also to the positions of the assisted claimant companies), that the funding arrangements are beneficial and desirable in such a way to justify positive findings on the issues relevant to the grant of the relief sought in the several amended interlocutory processes. I shall refer to the important aspects of that further evidence. 8 First, the liquidators have produced to the court opinions of senior counsel (Mr Sullivan QC) as to the prospects of success in the major claims intended to be covered by the settlement proceeds agreement, including the claims by the assisted claimant companies to which the proposals for financial assistance by the funding company relate. Each of the claims by those assisted claimant companies, if pursued, would involve several defendants. Mr Sullivan's opinion is [redacted reference to legal advice]. This opinion is, in some instances, related to part only of the sum claimed but, in those cases, each such part is a substantial part. 9 As I have indicated, Mr Sullivan's opinions also refer to litigation not directly involved in the financial assistance proposal but intended to be covered by the settlement proceeds deed. [Redacted reference to legal advice]. It is important to recognise that, while those other proceedings will not be funded by the funding company, they play a necessary part in an assessment of where the interests of the funding company (as well as those of the assisted claimant companies) lie in the context as a whole. This is because there is some commonality of defendants among the various proceedings and some overlapping of claims; and also because of the emphasis being placed upon attempts to obtain, in the first instance, an overall settlement of all matters. The funding company is itself a plaintiff in some of the allied litigation. To the extent that the assisted claimant companies are thereby enabled to pursue litigation as part of the plan of concerted action, there are direct benefits to the funding company apart from the benefits it may obtain directly by way of returns under the funding arrangements (referred to at paragraph 9 of the earlier judgment) and benefits that may accrue to it in its capacity as a creditor of the assisted claimant companies (see paragraph 8 of the earlier judgment). There is also the point that the funding company is a creditor of companies pursuing litigation without assistance from the funding company. 10 The liquidators have also given evidence of the results of their investigations into the financial substance of (or likely to be available to) the several defendants. It is clear that all are well worth pursuing for the amounts involved. 11 Next, there is, in Mr McGrath's affidavit of 7 October 2005 (paragraphs 40 to 43), an assessment of the sums required by the claimant companies by way of financial assistance. These are then put into context by evidence (in paragraphs 44 to 48) about the surplus funds available to the funding company. It is there made clear that only a very small part of the funding company's surplus cash is intended to be committed to the financial assistance proposal; also that funds will be made available progressively as the litigation moves first towards settlement attempts and thereafter through interlocutory stages towards court if the settlement attempts do not yield an acceptable result. 12 Mr McGrath then goes on to describe perceived benefits to the funding company. I refer particularly, in that context, to a summary of financial modelling (at Tab 36 of Ex. AGM1) of the effects of various outcomes on the dividend expected to be available to creditors of the funding company. The analysis is made first by reference to each of the claims affecting the funding company, that is, the claims it will fund and those which, although not funded by it, will, if successful, produce benefits to it either because they are claims which it is itself asserting or because of returns to it in its capacity as a creditor of the companies pursuing the unassisted claims. I re-emphasise here that the funding company is a creditor of both the assisted claimant companies (as well as other claimant companies) and that it is itself a claimant; also that all claims will be progressed together, at least in the initial stages where settlement is the immediate objective, there being some commonality among certain of the defendants to the individual claims and overlapping of claims. There are clear strategic and tactical advantages in such an approach. 13 The financial modelling provides an estimate of the dividend impact of various outcomes in relation to the separate claims, as well as the same outcomes in relation to all claims combined. The outcomes considered are; first, low result under the early resolution (ie, settlement) strategy, second, high result under the early resolution strategy, third, low result under the "litigation to judgment" strategy and, fourth, high result under the litigation to judgment strategy. Taking all the claims together, the impact upon creditors' expected dividend rate are respectively, +7.15%, +16.34%, +97.24% and -8.08%. The worst outcome (being the last) would eventuate if all relevant claims were pursued to judgment and the liquidators were wholly unsuccessful in every case. [Redacted reference to legal advice], the possibility of that worst outcome is very remote. In my opinion, that evidence coupled with the evidence about costs and the litigation strategies to be pursued, justifies an opinion that some enhancement of dividend is likely for the creditors of the funding company if the proposals are implemented and that a diminution in dividend, although of course possible, is unlikely; also that any such diminution is unlikely to exceed 8.08% and, if suffered at all, will probably be significantly less than that. This evidence is very useful from the point of view of assessment of creditors' interests. 14 The next aspect of the new evidence to be mentioned is the opinion evidence of Mr Parbery, an experienced liquidator and insolvency practitioner is unconnected with these administrations. He examined matters from the prospective of the funding company only and has sworn an affidavit to which a report is annexed. 15 Mr Parbery's report is very comprehensive. He makes, at the outset, the important point that these liquidators, unlike many, have a great deal of information about the claims they intend pursuing. The relevant facts and circumstances have been the subject of not only liquidators' examinations in the usual way but also extensive exploration by the HIH Royal Commission and in ASIC examinations. This, in Mr Parbery's opinion, means that the liquidators have a much better understanding of likely outcomes than would ordinarily be the case. And that, of course, has served to inform the opinions as to prospects rendered by Mr Sullivan QC, copies of which Mr Parbery has reviewed. 16 Mr Parbery canvasses in some detail the advantages and disadvantages of participation by the funding company in the way proposed. At the end of that discussion appears the following summary: " Advantages: Potential increased return is likely to be significantly higher in the event of all claims being successful compared to the current investment strategy; Maximises the avenues of returns to HIH C&G - that is, not only does HIH C&G potentially receive a return from the funding provided, it also enhances the prospect of having its own claims resolved/settled and receiving dividends from other plaintiffs (both funded and unfunded); Increased chance of pre-trial settlement; The Funder is familiar with the facts and circumstances surrounding the claims and therefore no due diligence by it is required; and Increased prospect of having past funding returned. Disadvantages Uncertainty of litigation, in terms of outcome, defendants capacity to pay and allocation of proceeds; and Possible time taken to settle litigation. I note that the disadvantages are somewhat tempered by: [Redacted reference to legal advice]; The knowledge and existence of substantial amounts of evidence from the Royal Commission, ASIC and Liquidator examinations; Relatively sound knowledge of some defendants capacity to pay, which indicates an [sic] good prospect of recoverability; and Returns available to HIH C&G via the dividend flow through effect." 17 Mr Parbery states conclusions: "Based on the information provided to me and the opinions expressed within the body of this report, I am of the opinion that by providing the funding to the Unfunded Plaintiffs, the process of winding up and distribution of the property of HIH C&G will be enhanced in the particular circumstances of HIH C&G, compared with the situation whereby the funds were deployed in the ordinary way pursuant to Section 543 of the Act. … Based on the information provided to me and the opinions expressed within the body of this report, I am of the opinion that by providing the funding to the Unfunded Plaintiffs, the separate interests of HIH C&G (being the interests of its creditors) are promoted by having it commit the funds to be made available under the funding proposals in the particular circumstances compared with investing the funds in the manner permitted by Section 543 of the Act." To complete the evidence, the liquidators have filed a further affidavit of Mr Hunter, another experienced insolvency practitioner, who has considered the proposals from the point of view of the claimant companies which are to receive the financial assistance (which he calls the "Impecunious Plaintiffs"). Again the consideration of the matter has been comprehensive. It is sufficient to state the conclusion: "In my opinion, the process of winding up and distribution of the property of each of the Impecunious Plaintiffs will be enhanced by the particular terms of the Funding Arrangements in the particular circumstances of each of the Impecunious Plaintiffs, with the enhancement being demonstrable by comparison with the situation that would prevail if the Impecunious Plaintiffs did not enter into those arrangements for the following reasons: 1. There is little or no financial risk to the Impecunious Plaintiffs. 2. The Impecunious Plaintiffs have insufficient funds both now and in the future to fund the pursuit of the major claims. 3. The benefits to the Impecunious Plaintiffs are fair and reasonable. 4. The creditors of the Impecunious Plaintiffs may forego a sizable return if the major claims are not pursued due to lack of funding. 5. The Funding Arrangements appear, as regards the provision for sharing any proceeds, to provide added comfort in that such determination will be subject to Court approval. 6. The proposed funding proposals are within current commercial parameters for litigation funding. 7. Added benefits will be derived by the Impecunious Plaintiffs in the event of pursuit of the claims being successful because of the 'flow-through' effects. 8. There is little or no cost to the Impecunious Plaintiffs under the Funding Arrangements. 9. The Funding Arrangements should allow the Liquidators to further pursue all the major claims together. This is likely to maximise recoveries in that it will facilitate a possible global mediation of multiple claims that are interrelated and involve overlapping defendant pools. 10. The control of the litigation will remain with the Plaintiffs. Accordingly, the Liquidators' costs of reporting on the progress of the prosecution of the major claims to the committee of inspection or creditors should be less and would facilitate a more efficient decision process especially concerning potential settlements. 11. The enhancement is demonstrable by virtue of the possible increase in dividends estimated to be paid to the creditors of the Impecunious Plaintiff as a result of the pursuit and successful outcomes of the major claims." 18 In the light of all this evidence, I return to the matters identified in the earlier judgment as in need of attention and resolution. The two questions of substance so identified were, in essence, whether (and, if so, how) the process of winding up and distribution of the property of the funding company would be enhanced by the funding company's giving the proposed financial assistance (see paragraph 24 of the previous judgment); and whether (and, if so, how) the separate interests of the funding company (being, in the final analysis, the interests of creditors) would be promoted by the application of funds in accordance with the financial assistance proposal. 19 The new evidence to which I have referred, considered in conjunction with the evidence originally adduced, warrants a positive assessment in relation to each of these matters. It remains clear that the funding company runs a risk of losing all the money it commits to assisting the assisted claimant companies. But that risk is not great. There are good prospects that the funding company will benefit materially from its participation, thus enhancing the returns to its creditors. I would go so far as to say that the evidence indicates that a positive and beneficial outcome of that kind is much more likely than any negative outcome. In saying this, I recognise not only the distinct probability of financial returns under the funding arrangements but also the advantages that will accrue less directly (but no less realistically) to the funding company by way of improved prospects of success in litigation by that company itself and other claimant companies of which it is a creditor and in whose success it will share. 20 As to the claimant companies that are to be the recipients of the financial assistance from the funding company, I am also satisfied that their interests will be well served by their receiving the assistance and participating in the proposals. 21 These conclusions mean that the court will grant all of the relief sought by each of the amended interlocutory processes. It remains only to say explicitly, with respect to certain specific matters, that a clear case for agreements extending beyond the period of three months referred to in s 477(2B) has been made out and that the considerations I have mentioned point to the appropriateness of allowing the liquidators to continue as liquidators of all relevant companies by means of leave under s 532(2). 22 I direct that short minutes of orders in terms of the several amended interlocutory processes be filed by delivery to my Associate. I shall make the orders in chambers.

Appendix 3: Reasons for judgment of 27 April 2007 JUDGMENT - See [redacted reference to transcript page] 1 The liquidators of the several HIH companies, together with the additional liquidator of the two FAI companies appointed for special purposes related to litigation, seek various orders to facilitate the compromise of certain claims brought by the principal liquidators. I do not intend to go into detail beyond saying that I have been presented with evidence which shows that both the principal liquidators and the additional liquidator have approached matters in a systematic and methodical way, by reference to processes calculated to ensure that results beneficial to the respective bodies of creditors are forthcoming. 2 There are, of course, matters of judgment and I have been referred in each case to the steps that were taken to assist the liquidators in coming to the necessary judgments in a fully informed way. The processes and the steps taken to implement them are such as to engender a level of confidence in the integrity and beneficial nature of the outcomes sufficient to indicate that the court should make the several facilitating orders sought of it. 3 I will make the orders in chambers upon delivery of the final form of short minutes to my associate. 4 I order that until further order these reasons, delivered in the absence of the public, remain in the court file in a sealed envelope and not be accessed by any person, except by the leave of the judge and upon 48 hours prior notice to Blake Dawson Waldron and Corrs Chambers Westgarth. 5 I direct that these reasons not be posted on the Caselaw New South Wales website while the immediately preceding order remains in force. **********

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