SETTLEMENT APPROVAL
8 Sections 477(2A) and (2B) of the Corporations Act provides:
(2A) Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not compromise a debt to the company if the amount claimed by the company is more than:
(a) if an amount greater than $20,000 is prescribed - the prescribed amount; or
(b) otherwise - $20,000.
(2B) Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf (for example, but without limitation, a lease or an agreement under which a security interest arises or is created) if:
(a) without limiting paragraph (b), the term of the agreement may end; or
(b) obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;
more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.
9 What then are the principles the Courts apply in considering whether to exercise its discretion to grant approval under s 477 of the Act? In Re Stewart; Newtronics Pty Ltd [2007] FCA 1375 at [26], the relevant principles were summarised as follows:
(1) the court does not simply "rubber stamp" whatever is put forward by a liquidator. As Giles J said in Re Spedley Securities Ltd (In liq) (1992) 10 ACLC 1,742 at 1,745 in relation to the powers of a liquidator to compromise claims:
[T]he Court is necessarily confined in attempting to second guess the 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. The same restraint must apply when the question is whether the liquidator should be authorised to enter into a particular transaction the benefits and burdens of which require assessment on a commercial basis. Of course, the compromise of claims will involve assessment on a legal basis, and a liquidator will be expected (as was made plain in Re Chase Corporation (Australia) Equities Ltd) to obtain advice and, as a prudent person would in the conduct of his own affairs, advice from practitioners appropriate to the nature and value of the claims. But in all but the simplest case, and demonstrably in the present case, commercial considerations play a significant part in whether a compromise will be for the benefit of creditors.
(2) a court will not approve an agreement if its terms are unclear: Re United Medical Protection (No 4) (2002) 20 ACLC 1,647;
(3) the role of the Court is to grant or deny approval to the liquidator's proposal. Its role is not to develop some alternative proposal which might seem preferable: Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 16 ACLC 1,642;
(4) in reviewing the liquidator's proposal, the task of the Court is:
[not] to reconsider all of the issues which have been weighed up by the liquidator in developing the proposal, and to substitute its determination for his in ... a hearing de novo [but] ... simply to review the liquidator's proposal, paying due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, satisfying itself there is no error of law or ground for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene in terms of the "expeditious and beneficial administration" of the winding up.
…
(6) generally, the Court grants approval under s 477(2B) of the [Corporations] Act only where the transaction is the proper realisation of the assets of the company or otherwise assists in the winding up of the company: GDK Financial Solutions at [58] and the cases cited therein.
10 As this extract makes clear, a Court will generally grant approval if a compromise would appear to be for the benefit of those concerned in the winding up, giving significant weight to commercial considerations and the judgment of the liquidators (and in this case the receivers). And the Court will generally 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: Re Spedley Securities Ltd (In Liq) (1992) 9 ACSR 83; Re HIH Insurance Ltd [2004] NSWSC 5 at [15]-[18]; Re S&D International Pty Ltd (in liq) (No 7) (2012) 92 ACSR 38 at [73]-[80]. The principles applicable to the approval of the compromise for the Mews Receivers are substantially the same: see Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 8) [2011] FCA 997 at [27]-[33].
11 It is against that background, that it is appropriate to consider the current application for approval. The Court is not being asked to rubber stamp what is put in front of it. Mr McMaster, one of the Mews Liquidators and Mews Receivers, swore an affidavit on 18 January 2013 (the McMaster affidavit) which explained to the Court the relevant circumstances including the nature of the proceedings and the conduct of them and the circumstances surrounding the settlement. In his evidence he also described the factors and considerations the Mews Liquidators and Mews Receivers had weighed up in assessing the compromises and making their decision as to why they thought it appropriate to seek approval from the Court to enter into a Deed of Settlement, a copy of which was provided to the Court as Exhibit BKM-11 to the McMaster affidavit (the Proposed Deed of Settlement).
12 The McMaster affidavit summarised the considerations to which Mr McMaster and Mr Mentha had regard in forming the view that the compromises recorded in the Proposed Settlement Deed were in the best interests of the creditors. Those considerations may be summarised as:
1. the prospects associated with AVS' claims against the Mews Fund and WRVM's claim against Mr Salvo, as informed by legal advice;
2. issues as to whether either AVS or Mr Salvo would have the capability to satisfy a money judgment or costs order made against either of them;
3. the fact that the terms of the compromise provide certainty as to the outcome of the AVS Proceeding and WRVM Proceeding, with no potential for adverse costs orders, and also save legal and administrative costs;
4. the assessment, by the Mews Receivers and the Mews Liquidators, of the likely return to investors if the proceedings and claims are compromised in terms of the Proposed Settlement Deed, compared to other possible or likely outcomes from the AVS Proceeding and WRVM Proceeding; and
5. the expectation that the current compromise proposal will assist in the timely conclusion of the winding up of the Mews Scheme.
13 I have had the benefit of reading the Proposed Deed of Settlement. The terms of the Deed are clear. As Giles J observed with regard to the deeds before him in Re Spedley Securities at 85, it can be seen from the face of the Proposed Settlement Deed that it is a product of extensive and detailed negotiations. There is no suggestion of a lack of good faith or any error in law or principle. There are no grounds, let alone substantial grounds, for doubting the prudence of the Mews Liquidators and the Mews Receivers entering into the Proposed Settlement Deed. Next, and no less importantly, I accept the submissions of the Mews Liquidators and Mews Receivers that the terms of the Deed record compromises which are demonstrably in the best interests of investors: Re Spedley Securities at 85-86.
14 It is important to record that the Mews Liquidators and the Mews Receivers have consulted with the plaintiff (ASIC) and Peter Warne, the Seventh Defendant. A copy of the interlocutory process and the McMaster affidavit was provided to ASIC and Mr Warne. Subject to certain queries which Mr Warne asked to be brought to the Court's attention, neither Mr Warne nor ASIC disputed the appropriateness of the proposed compromise. Mr Warne's concerns were brought to the attention of the Court and, in my view, have been addressed by the Mews Liquidators and the Mews Receivers. Mr Warne's role was important; he was the investor representative. In those circumstances, I accept that it was not necessary for notice of the proposed compromise to be provided to all investors: GDK Financial Solutions (No 8) at [35]-[46].
15 For all those reasons, I accept that the Court should approve the Mews Liquidators and the Mews Receivers entering into the Proposed Settlement Deed.