Barnes v Addy

Federal Court of Australia|2023-07-04|Before: Mr J, Rares J

Counsel for the plaintiffs in NSD 449 of 2023: Mr M Condon SC with Mr M Rose

Solicitors for the plaintiffs in NSD 449 of 2023: Addisons Lawyers

Counsel for the applicant in NSD 461 of 2023: Mr D Pritchard SC with Mr J Parrish

ORDERS NSD 449 of 2023

IN THE MATTER OF METIGY PTY LTD (IN LIQUIDATION) ACN 617 973 270 &

METIGY ADMINISTRATION PTY LTD (IN LIQUIDATION) ACN 167 887 907 SIMON CATHRO AND ANDREW BLUNDELL AS JOINT AND SEVERAL LIQUIDATORS OF METIGY PTY LTD (IN LIQUIDATION) ACN 617 973 270 First Plaintiff

METIGY ADMINISTRATION PTY LTD (IN LIQUIDATION) ACN 167 887 907 Second Plaintiff

order made by: RARES J DATE OF ORDER: 4 JULY 2023

Pursuant to s 90-15(1) of Sch 2 to the Corporations Act 2001 (Cth) (Act), the plaintiffs are justified, and would otherwise be acting reasonably, in entering into and in giving effect to the settlement set out in the terms of settlement dated 5 May 2023 between Metigy Pty Ltd (in liq), Metigy Administration Pty Ltd (in liq) and Metigy Global Pty Ltd (in liq) (collectively Metigy), the plaintiffs as liquidators of Metigy, Bruce Gleeson in his capacity as trustee of the bankrupt estate of David Frazer Ewan Fairfull (the trustee) and Regal Funds Management Pty Limited ACN 107 576 821 as trustee for Regal Emerging Companies Fund II, Regal Emerging Companies Fund III and Regal Emerging Companies Opportunities Fund, Five V ESVC Fund I, LP acting through its general partner Five V ESVC Fund I UGP Pty Ltd ACN 638 344 448, Five V Bare Nominees VC1 Pty Ltd ACN 649 721 399 and Sirius Enterprises Pty Ltd ACN 619 137 254 as trustee for the Sirius Trust (the investors).
Pursuant to s 90-15(1) of Sch 2 to the Act, the plaintiffs take all steps necessary to cause the moneys held in the controlled moneys account, bearing BSB 032 143 and account number 965471 (the controlled moneys account), to be paid as follows: (a) up to $100,000 to the trustee in respect of the trustee's costs and expenses, including the trustee's remuneration, costs, charges (including any realisation charge) and expenses in respect of the trustee application; (b) $176,200 in respect of the trustee's current costs and expenses, including trustee's remuneration, costs, charges (including any realisation charge) and expenses on an indemnity basis, in respect of the bankrupt estate of David Frazer Ewan Fairfull (the bankrupt estate); (c) $200,000 to the trustee (the trustee distribution) in respect of the trustee's future remuneration, costs, charges and expenses on an indemnity basis and in respect of any realisation charge, and subsequently for distribution to unsecured creditors in accordance with s 109 of the Bankruptcy Act 1966 (Cth); and (d) as to the balance remaining in the controlled moneys account: (i) 50% to the plaintiffs; and (ii) 50% to the investors.
Pursuant to s 90-15(1) of Sch 2 to the Act, the plaintiffs are justified, and would otherwise be acting reasonably, in causing the payments identified in order 2 to be made.
Pursuant to s 90-15(1) of Sch 2 to the Act, the plaintiffs are justified, and would otherwise be acting reasonably, in not proving in the bankrupt estate in respect of the trustee distribution.
The plaintiffs' costs of this application be their costs in the windings up of each of Metigy Pty Ltd (In Liquidation) ACN 617 973 270 and Metigy Administration Pty Ltd (In Liquidation) ACN 167 887 907. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS NSD 461 of 2023

IN THE MATTER OF THE BANKRUPT ESTATE OF DAVID FRAZER EWAN FAIRFULL BRUCE GLEESON IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF DAVID FRAZER EWAN FAIRFULL Applicant

order made by: RARES J DATE OF ORDER: 4 JULY 2023

Pursuant to s 90-15 of the Insolvency Practice Schedule (Bankruptcy), Sch 2 to the Bankruptcy Act 1966 (Cth) (IPS), the applicant in his capacity as trustee of the bankrupt estate of David Frazer Ewan Fairfull (bankrupt estate) is justified, and would otherwise be acting reasonably, in entering into and in giving effect to the settlement set out in the terms of settlement dated 5 May 2023 between him, Metigy Pty Ltd (in liq), Meitgy Administration Pty Ltd (in liq) and Metigy Global Pty Ltd (in liq) (collectively Metigy), Simon Cathro and Andrew Blundell as joint and several liquidators of Metigy (the liquidators) and Regal Funds Management Pty Limited ACN 107 576 821 as trustee for Regal Emerging Companies Fund II, Regal Emerging Companies Fund III and Regal Emerging Companies Opportunities Fund, Five V ESVC Fund I, LP acting through its general partner Five V ESVC Fund I UGP Pty Ltd ACN 638 344 448, Five V Bare Nominees VC1 Pty Ltd ACN 649 721 399 and Sirius Enterprises Pty Ltd ACN 619 137 254 as trustee for the Sirius Trust (the investors).
Pursuant to s 90-15(1) of the IPS, the applicant takes all steps necessary to cause the moneys held in the controlled moneys account, bearing BSB 032 143 and account number 965471 (the controlled moneys account), to be paid as follows: (a) up to $100,0000 to the applicant in respect of the applicant's costs and expenses of this application, including his remuneration, costs, charges (including any realisation charge) and expenses; (b) $176,200 to the applicant in respect of the applicant's past costs and expenses in respect of the bankrupt estate, including his remuneration, costs, charges (including any realisation charge) and expenses, on an indemnity basis in a fixed amount of $176,200; (c) $200,000 to the applicant in respect of the applicant's future costs and expenses in respect of the bankrupt estate, including his remuneration, costs, charges (including any realisation charge) and expenses on an indemnity basis, and subsequently for distribution in accordance with s 109 of the Bankruptcy Act 1966 (Cth); and (d) as to the balance remaining in the controlled moneys account: (i) 50% to the liquidators; and (ii) 50% to the investors.
Pursuant to s 90-15(1) of the IPS, the applicant is justified, and would otherwise be acting reasonably, in causing the payments identified in order 2 to be made.
The applicant's costs of, and incidental to, this application are costs properly incurred in the administration of the bankrupt estate. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introuction 1 These are applications under s 90-15(1) and (3)(a) of Sch 2 to the Bankruptcy Act 1966 (Cth) and Corporations Act 2001 (Cth) by, respectively, Simon Cathro and Andrew Blundell, the liquidators of Metigy Pty Ltd (in liq), and Bruce Gleeson, the trustee in bankruptcy of the bankrupt estate of David Fairfull, seeking orders that each would be acting reasonably by entering into, and giving effect to, a settlement they, together with four holders of convertible notes and shares in Metigy, Regal Funds Management Pty Ltd, Five V ESVC Fund 1, LP, Five V Bare Nominees VC1 Pty Ltd and Sirius Enterprises Pty Ltd (the investors), entered into, following a two-day mediation, and recorded in terms of settlement dated 5 May 2023. 2 Under s 90-15(1) and (3)(a) in Sch 2 of each of the Bankruptcy Act and Corporations Act, the Court may make orders in relation to the administration of a regulated debtor's estate in the case of a bankrupt or the external administration of a company and, without limiting those, determine any question arising in the respective administration.

Background 3 On 1 June 2023, Markovic J ordered that: the proceedings by each of the liquidators and the trustee be heard together today and evidence in one be evidence in the other; each of the trustee and liquidators send a copy of his or their application in the respective proceeding and her Honour's orders by email or post in accordance with email or postal addresses known to the liquidators or trustee, respectively, to: (a) all known creditors of each of, first, Mr Fairfull's bankrupt estate and, secondly, Metigy, together with its related companies, Metigy Administration Pty Ltd (in liq) and Metigy Global Pty Ltd (in liq) (collectively, the Metigy group), which were also parties to the terms of settlement and were also being wound up by the liquidators; (b) in the case of the bankrupt's estate, the wife of the bankrupt, Deborah Fairfull (Mrs Fairfull), all shareholders of Metigy and all noteholders of Metigy previously notified by the liquidators to Mr Gleeson; and (c) in the case of the liquidations, all creditors of each member of the Metigy group who had lodged a proof of debt, all shareholders in the Metigy group and all persons issued with convertible notes by Metigy; (collectively, the interested parties) any interested party who wished to make a proprietary claim on the balance of monies realised from the sale of two properties owned by the bankrupt and Mrs Fairfull, being $4,134,137.27 paid into a controlled monies account held in the liquidators' names (the sale proceeds) referred to in the respective orders, had to apply to the Court by 26 June 2023 for orders that either: (d) they be joined as a party to the proceeding; or (e) they be granted leave to commence a proceeding against: (i) Metigy under s 500(2) of the Corporations Act and proceed by way of points of claim within the liquidation proceeding; or (ii) the bankrupt's estate under s 58(3) of the Bankruptcy Act and proceed by way of points of claim within the bankruptcy proceeding; and any application made by an interested party was returnable on 29 June 2023. 4 The liquidators' amended originating application contained more information, for the purposes of persons whose interests may be affected, than in Mr Gleeson's application. That is because the amendments to the liquidators' application identified how, under the terms of settlement, the parties proposed the sale proceeds be distributed. The liquidators' amended originating application sought orders that: they take all steps necessary to cause the sale proceeds to be distributed as follows: (a) up to $100,000 to Mr Gleeson in his capacity as trustee of the bankrupt's estate in respect of his costs and expenses, including remuneration, costs, charges, any realisation charge and expenses for his application to the Court; (b) $176,000 in respect of Mr Gleeson's current costs and expenses in respect of the bankrupt's estate fixed in the amount of $176,200; (c) $200,000 to Mr Gleeson in respect of his future remuneration, costs, charges and expenses on an indemnity basis and in respect of any realisation charge and, subsequently, for distribution to unsecured creditors in accordance with s 109 of the Bankruptcy Act; and (d) by paying the balance in equal shares to the liquidators, in their official capacity, and to the investors; and they would be justified, and would otherwise be acting reasonably, in not proving in the bankrupt's estate of Mr Fairfull in respect of the $200,000 payment to Mr Gleeson. 5 The purpose of the proposed payment of $200,000 was to enable payment of the only three unsecured creditors of the bankrupt's estate that Mr Gleeson presently understands are likely to prove in it. They were St George Bank Ltd, the Deputy Commissioner of Taxation and OnDeck Capital, and their debts total about $300,000. Mr Gleeson estimates that, if he receives the $200,000, those three creditors will receive a dividend of about 30 cents in the dollar as a result. 6 In the event, no person sought leave to proceed or appeared on 29 June 2023, save for the investors who informed the Court that they did not propose to be heard on the present applications, unless any other interested party appeared. No interested party appeared then or now. 7 However, Mr Blundell gave evidence that Anthony Vogel, who appeared to be connected to three convertible noteholders, namely, Thorney Technologies Ltd, Jasforce Pty Ltd and TIGA Trading Pty Ltd, which share the same address in Melbourne, had had contact with him and employees of his firm on a number of occasions. Mr Blundell said that, on each of those occasions, he informed Mr Vogel that he would need to seek his own legal advice. In a phone call on 30 June 2023, Mr Vogel told Mr Blundell that he was conferring with his internal legal counsel and asked if he could call back afterwards. It transpired that Mr Vogel made no further contact then or later. The solicitors for the liquidators sent Mr Vogel an email late on 30 June 2023 attaching their submissions for the purpose of today's hearing, together with the liquidators' amended originating process and the orders made by Markovic J. The email informed him that the matter was listed for hearing today, he would need to make his own application and seek his own legal advice as to his position. Given that those three companies appear, based on Metigy's records, to have invested over $2.75 million in convertible notes issued by Metigy, they may be expected to have been in a position to seek to intervene had they considered that such a course were appropriate. 8 I am satisfied by the evidence that Mr Gleeson and the liquidators read today that each complied with the orders made on 1 June 2023 for notification of persons who were, or may be, interested in the respective proceedings and that all such persons have been notified appropriately of these applications.

The Dispute over the Sale Proceeds 9 The sale proceeds represented the net proceeds of sale of two real properties for the purchase of which, in 2021, the bankrupt and Mrs Fairfull had paid with funds sourced from Metigy, which, in turn, were alleged to have been funded by, among others, the investors' acquisitions of their convertible notes in Metigy for about $11.5 million in late 2020 and, subsequently, purchase of Metigy shares in July 2021 for about $13.25 million, totalling $24.57 million. I infer that other persons, such as those associated with Mr Vogel, made further investments in Metigy. 10 At the mediation, the three parties were represented by senior and junior counsel and solicitors experienced in commercial litigation and insolvency administrations. The circumstances in which each sought to claim an interest in the sale proceeds were complex. 11 According to Benjamin McCallum, in an affidavit he affirmed on 4 August 2022 and filed in proceedings in the commercial list of the Equity Division of the Supreme Court of New South Wales, in late July 2022, the investors learned from Mr Fairfull that Metigy was insolvent. Mr McCallum was a portfolio manager with Regal with which the other investors were associated. Mr McCallum said that: on 26 May 2020, he had received an email from the brokers for an issue of convertible notes by Metigy. The email contained a representation of Metigy group's actual and forecast revenue trends indicating that, as at May 2020, the group had monthly recurring revenue of around $750,000; on 1 September 2020, he received an email from Mr Fairfull containing a profit and loss statement for the Metigy group consolidated for the period July 2019 to June 2020 that stated that, as at June 2020, the group had annual recurring revenue of about $8.1 million and monthly recurring revenue of about $675,000; on about 2 September 2020, Regal had been given access to a data room for the purposes of a proposed capital raising for Metigy by its issuing convertible notes; the data room contained documents that included a profit and loss statement of the Metigy group for the period July 2019 to June 2020 and a document entitled 'Metigy Introduction Deck September 2020'; on 2 September 2020, he received revenue forecasts for the years ending June 2021 and 2022 that estimated, respectively, Metigy group's annual recurring revenue of about $36.7 million and $135.7 million and recurring monthly revenue of $3.05 million and $11.3 million; based on those representations, among other things, Mr McCallum said that Regal made a decision to enter into a deed to invest in the Metigy convertible notes and paid Metigy a total of about $11.5 million; subsequently, Mr Fairfull communicated more financial information to the investors that suggested that the Metigy group's monthly recurring revenues and annual recurring revenues were proceeding in a healthy, upward fashion; on 2 June 2021, Mr Fairfull sent a spreadsheet with an April 2021 management report that suggested that, as at that time, the Metigy group had annual recurring revenue of $26.47 million and monthly recurring revenue of about $2.2 million; and on about 14 July 2021, the investors purchased shares in Metigy from third parties, including ones associated with Mr Fairfull, for a total of about $13,070,436 12 Mr Fairfull continued his efforts to raise funds for Metigy, but, in around late 2021, he and his wife entered into contracts to purchase two properties, one that became their home in Sirius Avenue, Mosman and another at Wattamolla Road, Wattamolla. On 16 November 2021, the Mosman property purchase completed for a total price of $10.5 million and, on 22 December 2021, the Wattamolla property purchase completed for a total price of $7.7 million. Mr Fairfull caused Metigy to enter into an unsecured loan agreement dated 14 November 2021 to lend $7.7 million to himself and his wife, which was used in the purchase of the two properties. The balance of the purchase prices was funded by the former registered mortgagee, Pallas Commercial Lending Pty Ltd. 13 Mr McCallum's affidavit attested that Mr Fairfull continued making his bullish representations to Mr McCallum about the apparent success of Metigy's trading and, in about April 2022, sought further investment from the investors, which they decided not to pursue. Nonetheless, Mr Fairfull engaged in numerous communications with Mr McCallum, advising him of Metigy's apparently successful trading. 14 All of Mr Fairfull's conduct was a charade. Starting on about 27 July 2022, the charade began unravelling when Metigy's chief financial officer, Stephen Robinson, informed the investors that Metigy was not able to meet its payroll on the forthcoming Friday. 15 Next, Mr McCallum's affidavit recorded that: on 28 July 2022, Mr McCallum and others sought to speak with Mr Fairfull and ultimately visited him later that day at the Mosman property, by which time they had received from Mr Robinson Metigy's balance sheet as at 30 June 2022 and profit and loss statement for the financial year ended 30 June 2022. Those documents showed that Metigy had earned sales revenue of just $43,024.25 in that financial year (which, I interpolate, was obviously starkly different to the earlier, numerous representations of its likely earnings); when they met at the Mosman property, Mr Fairfull admitted that Metigy was not able to pay its debts as and when they fell due and, more significantly, that the June 2022 financial statements, that Mr Robinson had recently provided to the investors, set out the accurate financial position of the Metigy group; Mr McCallum asked Mr Fairfull whether Metigy had provided a loan to Mr Fairfull of about $7.7 million to purchase the Mosman property, and Mr Fairfull said that it had, but that he had repaid about $2.5 million of that sum. Mr Fairfull admitted that the proceeds of the convertible notes had been used to fund his director's loan to buy the Mosman property; Mr McCallum handed Mr Fairfull a printed copy of the 2019/2020 profit and loss statement that showed the annualised recurring revenue of about $8 million as at June 2020 and asked whether, when the investors subscribed for their convertible notes in 2020, that represented average annual recurring revenues was accurate; Mr Fairfull confirmed to Mr McCallum that he had not been full and frank in his dealings with the investors and said: I doctored the statements. … The bulk of the figures are fabricated. There would have been some transaction but I don't know the real figures. Mr Fairfull said that he was the only person involved in these misrepresentations; and at that point, Mr McCallum served a default notice under the convertible note documentation on Mr Fairfull. 16 In the Supreme Court proceedings, the investors claimed, initially, freezing orders in aid of their claims for declarations that the Mosman and Wattamolla properties were held subject to a charge or interest in favour of the investors, to the extent that any funds from Metigy had been misappropriated, and the appointment of trustees for sale. In the event, Pallas, as mortgagee, sold both properties and realised the amount necessary to repay its advance in full, leaving the balance that comprises the sale proceeds.

The Liquidations and Bankruptcy 17 Initially, the liquidators were appointed administrators of Metigy under Pt 5.3A of the Corporations Act. They ascertained that the books and records of the Metigy group had not been appropriately maintained. Mr Cathro said that: the companies had traded whilst insolvent from at least 12 November 2021; the reason that the group companies failed could be attributed to undercapitalisation, poor strategic management, inadequate cashflow or high cash use, trading losses and unreasonable director-related transactions; at the time of the 2020 capital raising through the convertible notes, the Metigy group's operations were generating $1,941 in recurring monthly revenue based on a four-month average through to October 2020 and were incurring pre-tax losses of $276,433 per month over that four-month period; after the capital raising following October 2020, the Metigy group's combined accounts showed net assets of $19.4 million, including a cash holding of $18.7 million; the terms of the convertible notes included a requirement that any loans to a related party, such as the $7.7 million loan to Mr Fairfull and his wife, required consent of the convertible noteholders, but they were not asked to consent and had not given any consent to such a loan; and as at 30 June 2022, the Metigy group's average losses were $965,472 per month, based on a four-month average, and monthly operating losses in the month of June 2022 were even more. Revenues in that month were nil. 18 On 10 November 2022, during the course of the Supreme Court proceeding, Mr Gleeson was appointed Mr Fairfull's trustee in bankruptcy. 19 The investors discontinued the Supreme Court proceeding. It appears that, on 16 November 2022, the investors, Mr and Mrs Fairfull and Fairfull Holdings Pty Ltd, their family company, entered into a deed, and Mr Gleeson, as trustee of Mr Fairfull's bankrupt estate, a deed poll. Mrs Fairfull agreed that she would not advance any contention that she held a beneficial interest in the properties at any time and, accordingly, had no right, claim or entitlement to the sale proceeds. Metigy and the liquidators were not parties to that deed. 20 Shortly before this hearing, Mrs Fairfull, through her solicitors, advised the parties that she made no claim to the sale proceeds and did not wish to be heard on these applications. 21 Mr Gleeson said that: his investigations revealed that the bankrupt's known creditors comprised the three unsecured creditors mentioned above, together with Metigy, which claimed a debt of $4.76 million, and the investors who claimed $24.57 million, based on their claims against him for fraud, among other causes of action. Mr Gleeson has not yet admitted any claims by ordinary unsecured creditors for dividends but intends to proceed with a distribution to the unsecured creditors of about 30 cents in the dollar if I approve the terms of settlement; however, unless he receives moneys from the proposed settlement, there will be no assets in the bankrupt's estate, other than his claim to the sale proceeds and the realisations from the sale of two vehicles registered in Mr Fairfull's name; it was highly unlikely that any of the ordinary unsecured creditors in the bankrupt's estate, including the Deputy Commissioner, would fund Mr Gleeson to litigate his claim in relation to the sale proceeds; in his experience, and based on his legal advice, there was a real risk that he would be unsuccessful in litigating a claim to the sale proceeds and wished to avoid that risk, if possible; and he considered that the unsecured creditors would prefer to receive a dividend of about 30 cents in the dollar now rather than to wait several years with the possibility that some or all of the funds, that he may have available to him, would be exhausted in any attempt to litigate.

The Terms of Settlement 22 The liquidators and Mr Gleeson each received advices, that are confidential exhibits, from their respective counsel. David Pritchard SC and James Parrish advised Mr Gleeson and Miles Condon SC and Michael Rose advised the liquidators. I have had regard to both of the opinions of counsel. I have also had regard to the position papers of each of the three parties to the mediation that are also confidential exhibits.

The Parties' Submissions 23 In his submissions on these applications, Mr Gleeson understood that the investors contended that the sale proceeds were impressed with an institutional constructive trust under the principles in Black v S Freedman & Co (1910) 12 CLR 105, because of the fraudulent misrepresentations that Mr Fairfull had made to them to raise from them some or all of the $24.57 million total investment in Metigy convertible notes and shares and how a portion of that sum came to be applied to the purchase of the two properties. 24 Mr Gleeson's view was that complex issues of fact and law would arise in relation to whether the investors could establish such a claim and the legal route by which that might occur, including whether it was necessary for the investors to show that they received nothing of value in return for their investment, as White J opined in Orix Australia Corporation Ltd v Moody Kiddell & Partners Pty Ltd [2005] NSWSC 1209 at [155]-[156]. Mr Gleeson's understanding was that Metigy asserted that the sale proceeds were impressed with a constructive trust in Metigy's favour, because it had supplied the money to Mr Fairfull in circumstances where he plainly breached his fiduciary and director's duties under ss 180, 181 and 182 of the Corporations Act and the first or second limb in Barnes v Addy (1874) LR 9 Ch App 244. 25 For their part, the liquidators contended that their claim to the sale proceeds arose on similar bases. 26 The investors, on the other hand, asserted that they had a proprietary claim, based on their being able to trace through the sale proceeds from Mr Fairfull's fraudulent conduct that had induced their investments in the convertible notes and or shares to his application of those monies, including because of his admission to Mr McCallum that monies they had invested were, in part, at least, connected to, or funded, Metigy's loan of $7.7 million that he caused it to make to himself and his wife to purchase the two properties.

Consideration 27 The various legal arguments the subject of the position papers, which are subject to without prejudice privilege, but are in evidence before me for the purposes of these applications, suggested that the underlying dispute, particularly between Metigy and the investors, as to which might have a better claim to the sale proceeds, was highly complex, factually and legally. 28 While Mr Fairfull may have been able, through his trustee, to assert some right to those monies, the agreed proposed manner of distribution of the sale proceeds reflects the substantively weaker claim that Mr Gleeson, as trustee of Mr Fairfull's estate, would be able to maintain in respect of those funds. 29 Applications of the present kind by a trustee or liquidator are, in substance, for judicial advice to resolve doubt about whether it is proper for the trustee or liquidator to incur costs and expenses in prosecuting or defending litigation. As Gummow ACJ, Kirby, Hayne and Heydon JJ said in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 at 93-94 [71]-[72]: No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee's fear of personal liability for costs. It is, therefore, not right to see a trustee's application for judicial advice about whether to sue or defend proceedings as directed only to the personal protection of the trustee. Proceedings for judicial advice have another and no less important purpose of protecting the interests of the trust. 30 In Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 at 428 [65], Goldberg J said that: the prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. There must be some issue which arises in relation to the decision. A court should not give its imprimatur to a business decision simply to alleviate a liquidator's or administrator's unease. There must be an issue calling for the exercise of legal judgment. (emphasis added) 31 A decade earlier, McLelland J expressed a similar view in Re G B Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 679F-680C (see also Goyal, in the matter of Cape Technologies Pty Ltd (administrators appointed) [2021] FCA 1654 at [19]-[20] per Yates J and Leroy (Trustee), in the matter of Vitale and Vitale (Bankrupts) [2016] FCA 999 at [37] per Wigney J). 32 I am satisfied that the application by each of Mr Gleeson and the liquidators is based on there being a substantive doubt as to whether either of them or the investors has a better claim to the sale proceeds. Each of the three parties' claims has strengths and weaknesses, albeit that Mr Gleeson's is much weaker in comparison to the other two claims. The terms of settlement are not merely reflective of a commercial judgment but bespeak a compromise of complex factual and legal issues for which there is no particularly clear answer. 33 While often it can be said that fraud unravels all, here, the facts suggest that Mr Fairfull has engaged in, what might charitably be called questionable, commercial dealings that have given rise to the current disputed claims to the sale proceeds, at least on the basis of Mr McCallum's evidence and that of the liquidators as to Metigy's financial status. The legal right to the sale proceeds that a court, in contested litigation, ultimately may find in resolving the various claims to the sale proceeds of the investors, the liquidators and the bankrupt's estate is not obvious. There are conflicting legal authorities, and it will obviously be necessary for a detailed factual investigation to occur in a complex, commercial trial. Such a proceeding would require considerable pre-trial preparation and consume substantial amounts of whatever might ultimately be realised, if anything, by each of the trustee and liquidators, who only will have recourse to the assets of their respective estates with which to pursue any such litigation. 34 In my opinion, having regard to the arguments set out in the parties' position papers for the purposes of the mediation and the advices of counsel for, respectively, Mr Gleeson and the liquidators, I am satisfied that there is an issue calling for the exercise of legal judgment which entitles each of them to seek judicial advice as to whether they would be justified to proceed on the basis of the terms of settlement: Macedonian Orthodox Community 237 CLR at 93-94 [71]-[72]; Re Ansett 115 FCR at 428 [65].

Conclusion 35 The opinions which each of Mr Gleeson and the liquidators received from their respective senior and junior counsel discuss the problems which all sides to the potential litigation would face in seeking to establish a better right to the sale proceeds, were it not resolved on the terms of settlement. On the evidence, those opinions and the parties' claims in their position papers satisfy me that the terms of settlement represent a genuine and appropriate resolution of those competing claims, which it would be appropriate for Mr Gleeson and the liquidators, respectively, to enter into and act upon in giving effect to the compromise. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rares.

Bankruptcy Act 1966(Cth)ss 58(3), 109, Sch

Corporations Act 2001(Cth)ss 180, 181, 182, 500(2), Pt

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