Australian Securities and Investments Commission v Bettles

Federal Court of Australia|2024-11-08|Before: Mr P, Downes J

Counsel for the Plaintiffs: Mr A Pomerenke KC with Mr C Curtis and Ms N Derrington

Solicitor for the Plaintiffs: HWL Ebsworth Lawyers

Counsel for the First, Second and Third Interested Persons: Mr P Dunning KC with Mr K Byrne and Mr T Pagliano

ORDERS QUD 291 of 2024 IN THE MATTER OF QUEENSLAND NICKEL PTY LTD (IN LIQUIDATION) (ACN 009 842 068) BETWEEN: JOHN PARK AND KELLY-ANNE TRENFIELD IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF QUEENSLAND NICKEL PTY LTD (IN LIQUIDATION) ACN 009 842 068 First Plaintiffs

QUEENSLAND NICKEL PTY LTD (IN LIQUIDATION) (ACN 009 842 068) Second Plaintiff

AND: QUEENSLAND NICKEL SALES PTY LTD First Interested Person

QNI RESOURCES PTY LTD Second Interested Person

QNI METALS PTY LTD Third Interested Person

order made by: DOWNES J DATE OF ORDER: 8 November 2024

THE COURT NOTES THAT: A. SPL Settlement Agreement means the agreement, a copy of which is Annexure KLT-17 to the affidavit of Kelly-Anne Lavina Trenfield sworn 3 June 2024. B. Trust Assets means the balance of the Judgment Sum that continues to be held by the Second Plaintiff and all assets of the Second Plaintiff held by it as trustee for the Second and Third Interested Persons.

THE COURT ORDERS THAT:

The Plaintiffs would be justified in not paying from the Trust Assets interest pursuant to section 563B of the Corporations Act 2001 (Cth) in respect of payments made to the persons listed in Schedule 2A to the SPL Settlement Agreement as set out in the annexure to this order. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ANNEXURE Creditor Amount Paid AUSTRALIAN TAXATION OFFICE $2,405,369.32 DAICHII CHUO KISEN KAISHA $1,563,272.75 NATIONAL PUMP AND ENERGY $1,517,432.25 OFFICE OF STATE REVENUE $50,939.38 MOUNT ISA MINES LIMITED $1,102,844.20 DE LAGE LANDEN PTY LTD $96,691.32 NICKEL MINING COMPANY SAS $530,174.48 NCA MARKETING COMPANY PTY LTD $509,202.48 CIVIL HAULAGE AND MINING PTY LTD $461,672.48 OCWEN ENERGY PTY LTD $364,685.75 QUEENSLAND ELECTRICITY $365,523.64 BOC LIMITED $208,348.05 ORIX AUSTRALIA CORPORATION $183,231.24 PORT OF TOWNSVILLE LIMITED $162,874.39 WATER TREATMENT SERVICES $153,132.40 WORKCOVER QUEENSLAND $110,921.63 DEPT OF JUSTICE AND ATTORNEY-GENERAL $44,350.00 AUSTRALIAN METAL POWDERS $86,561.20 SOLVAY INTEROX PTY LTD $80,745.28 DEVCO AUSTRALIA HOLDINGS PTY LTD $64,240.92 SUN METALS CORPORATION PTY LTD $60,197.51 AUSTRALASIAN SOLVENTS & CHEMICALS COMPANY $58,903.60 NQ RESOURCE RECOVERY PTY LTD (CLEANAWAY) $54,011.67 TOWNSVILLE CITY COUNCIL $34,579.20 J BLACKWOODS & SONS LIMITED $51,069.63 PANOCEAN CO LTD $29,520.77 OUTOTEC PTY LTD $12,672.15 TWIN CITY TYRES PTY LTD $20,422.00 AUSTRALIAN PRINT HOLDINGS PTY LTD $20,260.08 METAL MANUFACTURERS PTY LTD $20,171.38 HYDRO ENGINEERING & CONSULTING $20,033.76 ENVIROBIOMETRY $18,689.00 GHD PTY LTD $18,119.20 COATES HIRE OPERATIONS PTY LTD $16,620.98 NORTHERN EQUIPMENT OPERATIONS $13,051.26 GASCO PTY LTD $12,516.24 HASTINGS DEERING AUSTRALIA $12,085.70 MAERSK LINE A/S $11,941.71 NQCRANES PTY LTD $12,097.80 QUEENSLAND RAIL LIMITED $11,166.35 ROCKET FAB ENGINEERING PTY LTD $10,365.30 TEMPERATURE CONTROLS PTY LTD $8,622.90 HILDITCH PTY LTD $9,942.92 QUALITY CASTINGS PTY LTD $9,587.60 ATLAS COPCO RENTAL $9,319.22 COOGEE CHEMICALS PTY LTD $9,128.72 CALTEX YABULU $8,243.64 ENDFIRE ENGINEERING SERVICES $8,156.06 FLSMIDTH PTY LTD $7,983.80 REXEL AUSTRALIA PTY LTD $7,694.61 THE BABCOCK AND WILCOX COMPANY $10,393.24 ATLAS COPCO AUSTRALIA PTY LTD $6,512.95 AUSDRAULICS HOLDINGS PTY LTD $5,353.00 PACIFIC CONTROLS PTY LTD $6,380.00 TOTALLY WORKWEAR $6,225.38 LJ S TECHNICAL SERVICES $6,163.30 AFH TECHFLOW $3,245.00 CARDBOARD BOX SHOP $5,155.69 WORKSAFE CONNECT PTY LTD $5,000.00 YOKOGAWA AUSTRALIA PTY LTD $4,845.50 Q COAST SHIPPING $4,271.58 RATCH AUSTRALIA TOWNSVILLE PTY LTD $3,997.21 RADCOFLEX AUSTRALIA PTY LTD $3,427.60 SIGNET PTY LTD $2,859.96 XRF CHEMICALS $2,750.00 AUSTRALIAN LABORATORY SERVICES $2,657.60 EKTIMO PTY LTD $2,618.00 SOFTCON SYSTEMS PMD PROCESS $2,789.49 A & O ENGINEERING PTY LTD $2,508.00 AUSTRALIAN OPCO PTY LTD (CORPORATE TRAVELLER) $2,452.34 TOWNSVILLE ENGINEERING (TEI) $2,145.00 LESLIE'S AUTO ELECTRICAL $1,471.65 SEFAR FILTER SPECIALISTS $1,366.53 SHINAGAWA REFRACTORIES $1,254.88 WULGURU ENGINEERING PTY LTD $1,097.80 CAMPBELL SCIENTIFIC AUSTRALIA $889.35 BUNNINGS GROUP LIMITED $879.98 THOMPSONS KELLY (PFD) & LEWIS $860.20 STATEWIDE BEARINGS $582.03 JAYSEL ELECTRICAL & INSTRUMENTATION $511.50 PARASOL EMT PTY LIMITED $420.00 AGL ENERGY LIMITED $386.88 LOCKER GROUP PTY LTD $376.20 CONTROL LOGIC PTY LTD $360.80 HITACHI CONSTRUCTION MACHINERY $355.22 GLOBAL WELDING SUPPLIES $348.60 ALS INDUSTRIAL PTY LTD $269.50 SAFETY SIGNS SERVICE PTY LTD $262.97 CLARK EQUIPMENT SALES PTY LTD $229.99 TROPICAL ICE $225.50 DATACOM SYSTEMS PTY LTD $177.10 STAPLES AUSTRALIA PTY LIMITED (WINC) $100.21 ALL RIG LIFTING & ENGINEERING $55.00 ESEARCH PTY LTD $52.80

Relevant background 1 The salient facts are described in Park, in the matter of Queensland Nickel Pty Ltd (in liq) (No 3) [2022] FCA 1301 (November 2022 judgment) and in Park, in the matter of Queensland Nickel Pty Ltd (in liq) [2024] FCA 912 (August 2024 judgment), and I do not propose to repeat them in these reasons. I will adopt the same defined terms as appear in those judgments except that I will describe the settlement deed referred to at [104] of the November 2022 judgment as the SPL Settlement Deed and the Settlement Deed referred to at [15] of the August 2024 judgment as the Prony Settlement Deed, so as to distinguish between them. 2 Following an appeal brought by the Palmer Parties, the November 2022 judgment was upheld by the Full Court: Queensland Nickel Sales Pty Ltd v Park in his capacity as liquidator of Queensland Nickel Pty Ltd (in liq) (2023) 299 FCR 169; [2023] FCAFC 150 (Markovic, Banks-Smith and Halley JJ). 3 The August 2024 judgment is the subject of a further appeal brought by the Palmer Parties, which appeal is yet to be heard. That judgment and the second appeal concern Prony, a creditor, which filed submissions but did not appear at the hearing on 25 October 2024.

Payment of interest under the Corporations Act 4 The central issue for determination is the proper construction of s 563B of the Corporations Act 2001 (Cth), which provision falls within Part 5.6, Division 6 of that Act. 5 Part 5.6 of the Corporations Act concerns winding up generally, and Division 6 relates to proof and ranking of claims. 6 Within Division 6 there is Subdivision A, which is entitled "Admission to proof of debts and claims". 7 By s 553(1), the debts or claims which are admissible to proof against the company are (generally) those "the circumstances giving rise to which occurred before the relevant date". 8 Section 553D enables (in substance) a debt or claim to be proved formally, and this must occur if the liquidator requires it, or it may be proved in some other way, subject to compliance with the requirements of the Corporations Regulations 2001 (Cth) relating to the informal proof of debts or claims. 9 For example, a liquidator may call for formal proofs, but they are not required to do so, particularly in relation to debts that have already been admitted: see regs 5.6.48(1), 5.6.48(2)(b). 10 In the situation where formal proofs of debt have not been submitted, reg 5.6.47 provides as follows: (2) If a liquidator admits a debt or claim without formal proof, it is not necessary for the liquidator formally to admit the debt or claim in writing. (3) If a creditor's debt or claim has been admitted without formal proof, a notice of dividend is sufficient notice of the admission. (4) A liquidator must not reject a debt or claim without: (a) notifying the creditor of the grounds of the liquidator's rejection; and (b) requiring that a formal proof of debt or claim be submitted for that debt or claim. 11 Thus, reg 5.6.47 recognises that a debt or claim may be admitted by a liquidator without formal proof, and a liquidator may admit the debt or claim by notice of a dividend. As to this, reg 5.6.47(3) is permissive, not mandatory. In other words, although a sufficient condition, the giving of a notice of dividend is not a necessary condition of admission of the debt or claim. 12 By contrast, if a debt or claim is rejected, certain steps must be taken by the liquidator which include requiring that a formal proof of debt or claim be submitted. In this regard, the Regulations impose a formal obligation on the liquidator. 13 Subdivision B of Division 6 of the Corporations Act relates to computation of debts and claims. For example, by s 554(1), the amount of a debt or claim, "including a debt or claim that is for or includes interest", is to be computed for the purposes of the winding up as at the relevant date. Section 554A applies where, in the winding up of a company, the liquidator admits a debt or claim that, as at the relevant date, did not bear a certain value. 14 Subdivision C contains provisions in relation to the proof of a secured debt in the winding up of an insolvent company. 15 Subdivision D concerns priorities. By s 555 and except as otherwise provided by the Corporations Act, all debts and claims proved in a winding up rank equally and, if the property of the company is insufficient to meet them in full, they must be paid proportionately. 16 Various provisions within Subdivision D identify circumstances in which certain debts or claims take priority (such as in s 556) or, in the case of subordinate claims, are postponed (s 563A). 17 Subdivision E contains miscellaneous provisions, including s 563B which relevantly provides: (1) If, in the winding up of a company, the liquidator pays an amount in respect of an admitted debt or claim, there is also payable to the debtor or claimant, as a debt payable in the winding up, interest, at the prescribed rate, on the amount of the payment in respect of the period starting on the relevant date and ending on the day on which the payment is made. (2) Subject to subsection (3), payment of the interest is to be postponed until all other debts and claims in the winding up have been satisfied, other than subordinate claims (within the meaning of section 563A). … 18 It is common ground that s 563B expresses the sole entitlement to the payment of interest in respect of an admitted debt or claim, and that s 563B expressly prescribes the circumstances in which it may be paid: see McGrath v Sturesteps (2011) 81 NSWLR 690; [2011] NSWCA 315 at [77], [80] (Bathurst CJ, with whom Macfarlan JA and Sackville AJA relevantly agreed).

Reasons for order made on 25 October 2024 in relation to Prony 19 On 25 October 2024, I made the following order: Subject to a surplus of Trust Assets being available, the Plaintiffs would be justified in paying interest pursuant to section 563B of the Act: (a) to the creditors set out in Annexure A to this order, in respect of the amounts set out therein; and (b) to the creditors, in respect of the amounts paid on 14 April 2023, as set out in Annexure B to this order. 20 Prony was included in the list of creditors at Annexure A of the Order. These are my reasons for including Prony in that list. 21 The Palmer Parties submitted that any judicial advice concerning Prony should be deferred until the completion of the appeal process from the August 2024 judgment. 22 However, any such deferral is neither necessary nor appropriate. That is because: (1) the present state of affairs is that: (a) Prony's debt has been admitted; (b) the Palmer Parties withdrew their objection to the admission of Prony's debt; (c) this Court has made two directions which operate to confirm that the first plaintiffs would be justified in paying Prony's admitted debt; (2) the Palmer Parties accept that if the extant appeal is not successful and my construction of the Prony Settlement Deed is upheld, "it will necessarily follow that" interest is payable to Prony under s 563B; (3) it is a more efficient use of the parties' resources and those of this Court to have the issue determined now such that any appeal from this decision could be heard at the same time as the appeal from the August 2024 judgment (as both would involve the same issues); (4) the absence of evidence of any prejudice to the Palmer Parties if the issue is not deferred; (5) senior counsel for the Palmer Parties accepted that dealing with the substantive issue now is an equally expedient means to a deferral of it. 23 The substantive opposition of the Palmer Parties to the direction in relation to s 563B being made in respect of Prony rests on the premise that the Prony Settlement Deed extinguished Prony's pre-liquidation debt and replaced it with a new set of (post-liquidation) rights and obligations, such that the obligation to pay the debt to Prony arises under the Prony Settlement Deed (being an event after the relevant date). 24 However, for the reasons explained in the August 2024 judgment, especially at [27]-[32], that submission cannot be accepted. It finds no support in the express terms of clause 3.2 of the Prony Settlement Deed, which clause operates (subject to fulfilment of conditions precedent) to bind Prony to reduce the amount claimed in its proof of debt to a particular amount and then binds the first plaintiffs to admit that proof of debt, with the debt which is the subject of the proof being (expressly) a pre-liquidation debt. As such, there is no "new" debt created at all.

Payment of interest to creditors listed in Schedule 2A to the SPL Settlement Deed 25 In this proceeding, the plaintiffs seek an order as follows: Subject to a surplus of Trust Assets being available, the Plaintiffs would be justified in paying from the Trust Assets interest pursuant to section 563B of the Act in respect of payments made to the creditors of QNI listed in Schedule 2A to the SPL Settlement Agreement, as set out in Annexure C to this order. 26 The reference to SPL Settlement Agreement is a reference to the SPL Settlement Deed, as I have defined it.

Relevant facts 27 The SPLs were appointed pursuant to the appointment order which was made on 18 May 2016 by Dowsett J. The relevant terms of the appointment order, including the Schedule, are at [210]-[211] of the November 2022 judgment. 28 The Administrators initially called for proofs of debt in the administration of QNI. Following the appointment of the GPLs on 22 April 2016 (as to which, see [69] of the November 2022 judgment), the GPLs then shared their records once the SPLs were appointed. The SPLs received copies of those proofs of debt, and other internal records of QNI, as part of this process. The SPLs then: (1) caused QNI to commence the SPL proceeding on 30 June 2017, which included a claim for indemnity from Resources and Metals (as to which, see [99] of the November 2022 judgment) and in which it was asserted that QNI was liable to pay each of the creditors listed in Schedule E (otherwise known as the Schedule E Creditors): see, in particular, [107]-[111] of the Second Further Amended Statement of Claim; (2) advanced a positive case in submissions, and led evidence in support of that case, that QNI was liable to pay each of the Schedule E Creditors, being liabilities which QNI had incurred. This included evidence of work which had been performed to verify that each liability remained unpaid, including by reference to QNI's records and information provided to the SPLs by the respective creditors; (3) by the SPL Settlement Deed, procured a promise by Resources and Metals that they would pay each of those Schedule E Creditors who had not been paid at the time of the execution of the SPL Settlement Deed (named in that deed as the Schedule 2A creditors and otherwise known as the Remaining Schedule E Creditors), as part of the consideration for discontinuing the claim for indemnity against Resources and Metals: see [104] of the November 2022 judgment. 29 Resources and Metals then paid, or caused to be paid, the Remaining Schedule E Creditors.

Consideration 30 It is necessary to decide whether the Remaining Schedule E Creditors' claims constituted an admitted debt or claim within the meaning of s 563B of the Corporations Act. 31 As s 563B refers to an amount being paid in respect of an admitted debt or claim and having regard to its location within Part 5.6, Division 6 of the Corporations Act, it is plain that the reference to "admitted" is a reference to admission by the liquidator within the meaning of Part 5.6, Division 6 and the associated Regulations. The parties did not contend otherwise. 32 As to the functions of a liquidator more generally, Dodds-Streeton J observed in Australian Securities and Investments Commission v Edge (2007) 211 FLR 137; [2007] VSC 170 at [40]: The liquidator's essential functions are to identify, take possession of and realise the company's assets, to investigate and determine the claims against the company and to apply the assets to the satisfaction of those claims in accordance with the statutory scheme of priority. See also, for example, Forex Capital Trading Pty Ltd (in liq) v Invesus Group Limited [2024] NSWSC 867 at [46] (Ball J); Australian Securities and Investments Commission v Bettles (2023) 169 ACSR 244; [2023] FCA 975 at [429] (Markovic J); Australian Securities and Investments Commission v McDermott, in the matter of Conalpin Pty Ltd (in liq) [2016] FCA 1186 at [18] (Moshinsky J). 33 A decision by a liquidator to admit or reject a proof of debt is a critical function that will (subject to appeal rights) affect the interests of the creditor whose proof is dealt with, as well as the interests of other creditors where there is a deficit of assets to liabilities: see Challis v Hoffmann (2017) 121 ACSR 585; [2017] NSWSC 870 at [82]-[84] (Gleeson JA); Tuscan Capital Partners Pty Ltd v Trading Australia Pty Ltd (in liq), in the matter of Trading Australia Pty Ltd (in liq) (Proof of Debt) (2021) 156 ACSR 553; [2021] FCA 1061 at [1] (Perram J). 34 As to the manner in which a proof of debt is admitted or rejected, it was stated in McMillan Investment Holdings Pty Ltd v Morgan (2023) 295 FCR 543; [2023] FCAFC 9 at [100] (Yates J, with whom Beach J relevantly agreed): In a winding up, the proof of debt procedure proceeds on the basis that recognition of a creditor (as distinct from a mere claimant to creditor status) will be determined by the adjudication of a proof of debt: Selim v McGrath (2003) 177 FLR 85 at [78]. In Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 338-339, Brennan and Dawson JJ observed that, in determining whether to admit or reject a proof of debt, a liquidator has been said to act in a quasi-judicial capacity according to standards no less than the standards of a court or judge. Their Honours observed that this description of a liquidator's function reflects a duty, on the liquidator's part, to distribute assets to those who are "truly entitled". 35 Although it may be accepted that neither the Corporations Act nor the Regulations impose obligations of formality upon a liquidator when deciding whether to admit or reject a proof of debt, there must still be a conscious engagement by the liquidator with that task. 36 Further, there is a distinction between "the rights of creditors vis-a-vis the liquidator in a winding up, as to the proof of their claims and their entitlement to a ratable distribution, on the one hand and, on the other hand questions which arise in the course of a common law claim by a company in liquidation, which requires, in part, to be quantified by reference to various alleged liabilities of that company": see, generally, Duke Group Ltd (in liq) v Arthur Young (No 2) (1991) 4 ACSR 355 at 393, 397 (Olsson J, with whom Matheson and Duggan JJ relevantly agreed); see also Tanning Research Laboratories Inc v O'Brien (1987) 11 ACLR 778 at 791 (Cohen J). 37 The specific conduct of the SPLs which is relied upon by the plaintiffs as constituting admission of the proofs of debt involved the SPLs investigating and verifying whether the claims by the Remaining Schedule E Creditors were valid, and whether the amount claimed by each creditor was correct, so as to assist QNI to prosecute its claim for indemnity against the JVCs. 38 Notwithstanding this, none of the steps relied upon by the plaintiffs involved the SPLs making a conscious determination of who is entitled to participate in the distribution of the assets of QNI in accordance with the scheme set out in the Corporations Act: see Forex at [50]. Further, there is no evidence that any such adjudication occurred as a matter of fact (such as, for example, a statement to that effect in the SPL Settlement Deed). Indeed, that the SPLs did not adjudicate upon and admit the proofs submitted by the Remaining Schedule E Creditors is fortified by evidence given by Mr Parbery (one of the SPLs) in the consolidated proceeding about whether there had been an adjudication on the proofs of debt lodged in the liquidation: --- That's not part of my role. That'd be the role of the general purpose liquidator. 39 It follows that, properly characterised, the SPL proceeding constituted conduct by the SPLs in seeking to take possession of QNI's assets by causing QNI to bring a claim for indemnity against the JVCs, being the first essential function of a liquidator as described in Edge. Had that proceeding not settled, and QNI been successful in obtaining judgment for the claimed amount, any judgment proceeds would have formed part of the assets of QNI available for distribution (being the third essential function as described in Edge) following the adjudication of all proofs of debt, including those submitted by the Remaining Schedule E Creditors (being the second essential function as described in Edge; see also Challis). As to this, I express no concluded view as to whether the SPLs or the GPLs would have performed the adjudication task in relation to the proofs submitted by the Remaining Schedule E Creditors. 40 For these reasons and contrary to the submissions of the plaintiffs, there was no admission by the SPLs of the proofs of debt of the Remaining Schedule E Creditors. 41 For these reasons, the payments by the JVCs to the Remaining Schedule E Creditors pursuant to the SPL Settlement Deed were not payments of an amount in respect of an admitted debt or claim within the meaning of s 563B(1) of the Corporations Act. It follows that interest is not payable to those creditors. 42 Although the Palmer Parties advanced other arguments against the application of s 563B to the facts of this case, it is not necessary to address those arguments in light of this conclusion.

Conclusion 43 For these reasons, the order sought by the plaintiffs will not be made. Instead, the order proposed by the Palmer Parties will be made, being in substance that the plaintiffs would be justified in not paying interest pursuant to s 563B of the Corporations Act in respect of payments made to the persons listed in Schedule 2A to the SPL Settlement Deed. The plaintiffs did not oppose such an order being made in the event that they were unsuccessful. 44 As there is no existing authority on the proper construction of s 563B of the Corporations Act and as there was a dispute raised about its application in the somewhat novel circumstances of this case, it was appropriate for judicial advice to be sought by the plaintiffs. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Downes.

Corporations Act 2001(Cth)ss 553, 553D, 554, 554A, 555, 556, 563A, 563B

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