Australian Securities and Investments Commission v United Global Capital Pty Ltd

1. Pursuant to section 1322(4)(a) of the Corporations Act, the Deed of Settlement is not invalid by reason of it having been entered into without the Court's prior approval.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

1. By an originating application filed on 10 April 2025, the First Plaintiff, being the joint and several liquidators of Global Capital Property Fund Limited (in liquidation) (GCPF) seeks orders, primarily under s 477(2A) and s 477(2B) of the Corporations Act 2001 (Cth) (Corporations Act), that the Court authorise nunc pro tunc the entering into the deed of settlement and release executed on 28 March 2025 between GCPF, Kooyongkoot Project Pty Ltd, Pomeroy Pacific Pty Ltd, Filip Gacesa, and Possibility Group Pty Ltd (Deed of Settlement). The First Plaintiff also seek orders pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) at Sch 2 to the Corporations Act (which was not the focus of the application), s 1322(4)(a) of the Corporations Act, and an order in relation to costs.
2. GCPF was the subject of winding up orders in this Court on 3 October 2024: Australian Securities and Investments Commission v United Global Capital Pty Ltd [2024] FCA 1215 (Winding-up Judgment). The liquidators, who are the First Plaintiff in this proceeding, were appointed pursuant to those orders of 3 October 2024. GCPF is owed various debts, including one relevant to these proceedings by Kooyongkoot.
3. The Loan Agreement (defined below) was for a maximum amount of $9.5 million. The Deed of Settlement for which approval is sought compromises a debt pursuant to that Loan Agreement. The First Plaintiff seeks to compromise this debt for a sum of $1 million.
4. Furthermore, the Deed of Settlement has perpetual obligations.
5. Approval of the compromise of the debt under s 477(2A) of the Corporations Act by way of the Deed of Settlement is required as the debt is more than $100,000. That exceeds the prescribed amount in reg 5.4.02 of the Corporations Regulations 2001 (Cth) (Corporations Regulations) for the purposes of s 477(2A).
6. Also, as the Deed of Settlement has perpetual obligations which extend beyond the three months prescribed in s 477(2B), approval of the Court is also required.
7. For the reasons given below, I am satisfied that it is appropriate to make orders under s 477(2A) and s 477(2B) giving the Court's approval to the liquidators to enter the Deed of Settlement nunc pro tunc. I also am satisfied that it would be prudent in the circumstances to make the declaration sought under s 1322(4)(a) of the Corporations Act and costs.

1. The liquidators have filed a detailed affidavit of Mr Blakeley on behalf of both of the liquidators. Mr Blakeley is an experienced registered liquidator and chartered accountant, having more than 30 years' experience in corporate restructuring, insolvency and corporate turnaround matters. Mr Blakeley provides that affidavit on behalf of both of the liquidators.
2. GCPF is an unlisted company which was incorporated on 15 August 2019 and was placed into liquidation by an order of the Federal Court made on 3 October 2024. GCPF has around 538 shareholders. The majority of those shareholders came to invest in GCPF through the "UGC Advice Model": Winding-up Judgment at [25]-[27].
3. GCPF invested around $9.2 million in the Kooyongkoot Project. That investment was pursuant to the Loan Agreement. Pursuant to the Loan Agreement, GCPF was entitled to have a second-ranking mortgage. However, prior to the appointment of the liquidators, GCPF did not register any mortgage pursuant to the Loan Agreement. On 25 October 2024, shortly after the winding-up order, La Trobe Financial, being another of the financiers of the Kooyongkoot Project, indicated its intent to exercise its mortgagee's power of sale. La Trobe Financial held a first-ranking registered mortgage over the Land, the subject of the Kooyongkoot development Project.
4. The liquidators are of the view that, given the amounts outstanding to creditors and where GCPF stands in the ranking of priority, if the Land was sold by La Trobe Financial, GCPF would receive little, if any, return.
5. Prior to the winding-up orders, earlier proceedings were taken by ASIC on 20 June 2024, and orders were made by O'Callaghan J. Those orders included freezing orders in relation to the "property" of GCPF. A carveout order was also made which permitted GCPF to pay, or otherwise incur, a liability in certain circumstances.
6. As part of the orders made in the Winding-up Judgment, a variation of the earlier freezing orders was made. This permitted the liquidators, in their capacity as joint and several liquidators of GCPF or anyone authorised by them, from taking action in relation to the "property" of GCPF.
7. The Loan Agreement related to the Kooyongkoot Project, which was situated at 148 to 152 Riversdale Road, Hawthorn. The Loan Agreement was entered on or around 15 December 2020, and, pursuant to its terms, it defined the principal sum (in the schedule), as $9.5 million.
8. Although the terms of the Loan Agreement provided that a mortgage could be registered, the liquidators have given evidence that no mortgage was registered over the Land prior to their appointment. Further, Mr Blakeley gives evidence that the amount drawn down under the Loan Agreement was $9,194,750. The total amount outstanding under the Loan Agreement, which includes that principal amount, establishment fees and interest accrued, is approximately $13.42 million.
9. In addition to the funding from GCPF for the Kooyongkoot Project, the liquidators are aware that Kooyongkoot has obtained additional funding of approximately $8.3 million, that being the principal-only amount. Interest to that amount must also be added. A substantial part of that additional funding is an amount of $7.175 million from La Trobe Financial, which is secured by a first-registered mortgage over the Land.
10. Having regard to the additional funders of the Kooyongkoot Project, Mr Blakeley's evidence is that GCPF ranks behind the first, second and third mortgage. Furthermore, based on the liquidators' inquiries to date, the total amount outstanding pursuant to the first, second and third mortgages is approximately $9,483,087.
11. On 25 October 2024, La Trobe Financial appointed a controller to Kooyongkoot, entered into possession and took control of the Land for the purposes of enforcing its mortgage. However, it has provided an opportunity to Kooyongkoot to first sell the properties.
12. Mr Blakeley also gives evidence that on 8 November 2024, the liquidators, on behalf of GCPF, registered a caveat over the Land, in respect of GCPF's interest as mortgagee. It is not necessary to detail the precise matters which took place in relation to that caveat. It is sufficient to observe that Kooyongkoot commenced proceedings to have the caveat removed, those proceedings were dismissed, and that the caveat will be released as part of the Deed of Settlement.
13. The liquidators are in possession of various valuations of the Land:

1. The valuations available to the liquidators contained a significant range of values. The liquidators then sought an independent valuation, by way of a review of those above listed valuations from Sutherland Farrelly. The advice provided to the liquidators was to provide support for the M3 valuation, which valued the Land at $10 million.
2. From 6 January 2025 and 28 February 2025, the liquidators and Mr Gacesa exchanged correspondence with a view to reaching a commercial settlement. A first settlement deed was entered into, but that was on the basis of a particular purchaser buying the Land. That purchaser did not complete its purchase.
3. On 28 March 2025, the Deed of Settlement was entered.
4. The liquidators' solicitors have also provided an additional affidavit which establishes that copies of the originating application and supporting affidavit of Mr Blakeley have been provided to the Australian Securities and Investment Commission (ASIC) and to the parties to the Deed of Settlement, prior to the hearing. That notification also contained details and notice of the hearing. On 17 April 2025, the liquidators also issued a circular to creditors and shareholders, which provided details of the Deed of Settlement. Relevantly, from that circular, the liquidators stated the following:

The liquidators have obtained an independent assessment of the valuations obtained by Kooyongkoot, which indicated that if the Kooyongkoot properties are sold as is in the current market, the Kooyongkoot Properties are unlikely to achieve a sale price which would be enough to pay out the other secured lenders who rank ahead of GCPF and provide any return to GCPF.

1. Further, the circular to creditors and shareholders noted that the Deed of Settlement was subject to GCPF obtaining Court approval. The time and date for the hearing of that Court approval was also provided in that circular to creditors. Finally, in that circular, the liquidators stated:

The liquidators have formed a view that this settlement provides a better commercial outcome for GCPF and its stakeholders than alternative options, such as continued litigation, and will provide a return on its investment in the Kooyongkoot project.

1. The relevant principles to be applied when considering s 477(2A) and s 477(2B) of the Corporations Act are well settled. Section 477(2A), read together with reg 5.4.02 of the Corporations Regulations, effectively provides that, 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 $100,000.
2. Further, s 477(2B) effectively provides that 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 if the term of the agreement may end or obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance, more than three months after the agreement was entered into.
3. Each of these provisions are engaged given the amount of the debt involved which is proposed to be compromised and the terms of the Deed of Settlement.
4. The Court has been helpfully referred to a number of authorities in the written submissions filed on behalf of the liquidators. It is sufficient for these purposes to outline the following principles from his Honour Justice Brereton in Re One.Tel Ltd and Others (2014) 99 ACSR 247; [2014] NSWSC 457 at [23] to [30]. I would summarise those relevant principles as follows:

(1) Both of those provisions, being s 477(2A) and s 477(2B), are concerned to ensure that the Court exercises some oversight over the liquidators' actions.

(2) The Court's assessment must be made in light of the purposes for which the liquidators' powers exist. One overriding purpose is to serve the interests of those concerned in the winding up, being the creditors.

(3) The role of the Court is to grant or deny approval to the liquidators' proposal, not to reconsider every issue considered by the liquidator nor to develop some alternative proposal.

(4) Importantly, the Court's approval is not an endorsement of the proposed agreement but merely permission for the liquidator to exercise his or her own commercial judgment in the matter.

(5) The Court pays regard to the commercial judgment of the liquidator. That is not to say that it rubber stamps whatever is put forward but, as is made clear, it is not attempting to second guess a liquidator in the exercise of his or her powers.

(6) The Court does not exhaustively or closely consider the commercial merits or otherwise of the transaction.

(7) If the liquidator expresses the opinion that it is an appropriate commercial compromise and there does not appear to be any such lack of good faith, error in law or principle, or real or substantial ground for doubting the reasonableness of the liquidators' view, the court will generally give its approval.

1. In relation to s 477(2B), the principles were usefully summarised by her Honour Justice Gordon (then of this Court), which I gratefully adopt, in Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375 at [26]:
   1. There are a number of principles relevant to the exercise of the Court's power under s 477(2B) which are worth restating:

(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) [1991] HCA 58; (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] FCA 1089; (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."

See ASC Timber at 1,650; see also Re Gate Gourmet Australia Pty Ltd (in liq) [2005] NSWSC 392; (2005) 23 ACLC 834 at [10] and Warne v GDK Financial Solutions; Peridon Village Nominees [2006] FCA 1805; (2006) 24 ACLC 1,019 at [60]. The Court's approval is not an endorsement of the proposed agreement but is merely a permission for the liquidator to exercise his or her own commercial judgment in the matter;

(5) further, in judging whether or not a liquidator should be given permission to enter into a funding agreement (whether retrospective or not), it is important to ensure, inter alia, that the entity or person providing the funding is not given a benefit disproportionate to the risk undertaken in light of the funding that is promised or a "grossly excessive profit": Anstella Nominees Pty Ltd v St George Motor Finance Ltd [2003] FCA 429; (2003) 21 ACLC 1,347 at [11] and Re ACN 076 673 875 Ltd [2002] FCA 1089; (2002) 20 ACLC 1,551 at [28];

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

1. The date of the Deed of Settlement is 28 March 2025. In the recitals to the Deed of Settlement, it expressly refers to the requirement that the liquidators must obtain approval of the Court pursuant to the relevant sections in order for the obligations of GCPF to become effective.
2. Clause 8.1 of the Deed of Settlement provides that it is conditional on Court approval, and that is a defined term within the document. It requires pursuant to clause 8.5 that within 14 days of receipt of the deposit, GCPF will procure the liquidators to commence the Court approval application and use its best endeavours to obtain that Court approval. Mr Blakeley gives evidence that the deposit was paid on 31 March 2025 and these proceedings were filed on 10 April 2025 and hence are within time in accordance with those provisions of the Deed of Settlement. The Deed of Settlement also provides that on the settlement date, the "GCPF Settlement Sum" will be paid, and GCPF must provide to Kooyongkoot and Pomeroy a discharge and release of the "GCPF Securities". The "GCPF Securities" is defined under the Deed of Settlement and relevantly includes the caveat registered by the liquidators. By the liquidators registering that caveat in circumstances where the mortgage had not been previously registered, that has assisted the liquidators in being able to negotiate this position.
3. I have considered the remaining terms of the Deed of Settlement which appear to be clear and appropriate, although obviously requiring the Court's approval.
4. The range of valuations provided to the liquidators may suggest that there was more scope for negotiation. However, when consideration is given to the lower end of those valuations being $8.6 million, and the outstanding $9,483,087 to the first mortgagee, that scope dissipates. The independent valuation obtained by the liquidators provided support for the M3 valuation of $10 million. On that figure, there would be potentially some amount (although it may be quite limited) which might be paid to the liquidators of GCPF on any sale of the Land.
5. Mr Blakeley estimates that a sale price of at least $10.8 million would be necessary before there would be any moneys available to make a payment pursuant to the Loan Agreement. The available valuations to the liquidator, particularly noting the independent additional valuation obtained, do not support a sale price of $10.8 million. As was submitted at the hearing, the Land would actually need to be sold for greater than $11.8 million for the liquidators of GCPF to obtain a better result than what they have achieved pursuant to the Deed of Settlement. I make these observations in relation to the valuations, sale prices and potential payments not because it is for the Court to weigh into the commercial merits or otherwise of the transaction. However, this is to engage in the oversight which is required by the Court and to consider whether or not the proposal by the liquidators, on its face, appears to have any lack of good faith or any real or substantial ground for doubting the reasonableness of the liquidators' actions or views. As is clear from this consideration, there is no reason to doubt the reasonableness of the liquidators' actions of views.
6. In this regard, I also observe that the Deed of Settlement does not preclude the liquidators from bringing separate proceedings against the directors. A compromise of any such claims is not part of the Deed of Settlement.
7. In conclusion, the liquidators have made a commercial assessment of entering into the Deed of Settlement and given evidence that they believe the settlement is in the best interests of GCPF's stakeholders, being its creditors and shareholders. For all of these reasons, including the relevant background I am satisfied that it is appropriate to grant the approval that is sought.

I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Wheatley.