BCI Finances Pty Ltd (in liq) v Binetter

WHITE J: 1 The Plaintiffs are the joint and several liquidators of four companies: BCI Finances Pty Limited (in liq) (BCI), Binqld Finances Pty Limited (in liq) (Binqld), EGL Development (Canberra) Pty Limited (in liq) (EGL) and Ligon 268 Pty Limited (in liq) (Ligon 268) (collectively, the Liquidated Companies). 2 By an originating process filed in the South Australian Registry of the Court late on 27 September 2018, the Plaintiffs seek an order pursuant to s 477(2A) of the Corporations Act 2001 (Cth) (the Act) approving their entry into an agreement for the compromise of judgment debts, as well as consequential orders. The Plaintiffs requested that the application be heard urgently and ex parte. 3 In his supporting affidavit of 27 September 2018 Mr Lock, who is one of the Plaintiffs, describes the agreement as providing for "the compromise of debts owing to one or more of the Liquidated Companies". He also deposes that the agreement is intended to give effect to a compromise of the issues in dispute between certain of the parties to appeal proceedings commenced in the New South Wales Registry of the Court and on which the Full Court (Allsop CJ, Moshinsky and Colvin JJ) has reserved judgment. 4 A brief background is that on 30 January 2015, BCI, which was then in liquidation, commenced proceedings (SAD5/2015) seeking relief against its directors, certain members of the Binetter family and companies associated with them. As I understand it, the principal cause of action alleged by BCI was based on alleged breaches by its directors of their duties as directors. Later, Binqld, EGL and Ligon 268 were joined as plaintiffs to Action SAD5/2015. 5 Later, in 2015, the Plaintiffs caused the Liquidated Companies to commence separate proceedings in the New South Wales Registry of the Court against a number of other entities and financial institutions. 6 Gleeson J delivered judgment in SAD 5/2015 on 18 November 2016: BCI Finances Pty Ltd (in liq) v Binetter (No 4) [2016] FCA 1351; (2016) 348 ALR 227. This was a substantial judgment following a nine day trial. The Liquidated Companies succeeded in their claims against all but two of the respondents. 7 Gleeson J then conducted further hearings in order to determine the amounts for which the Liquidated Companies were entitled to judgment. Mr Lock has deposed that judgment was entered in favour of BCI against eight respondents for varying amounts with the maximum it can recover being $13,087,428.58. In the case of Binqld, judgment was entered against four respondents with the maximum amount which it may recover being $29,121,155.80. In the case of EGL, judgment was entered against eight respondents with the maximum which it may recover being $46,857,201.51. In the case of Ligon 268, judgment was entered against five respondents with the maximum it may recover being $21,634,089.60. The aggregate of the amounts which the Liquidated Companies may recover pursuant to the judgments is $110,699,875.49. 8 Appeals by the unsuccessful respondents and cross appeals by the Liquidated Companies were heard by the Full Court between 6 and 10 August 2018. As indicated, the Full Court is presently reserved on its judgment. 9 Mr Lock deposes that: The parties to the Appeal Proceedings have agreed to resolve all matters in dispute between them for consideration of, amongst other things, a significant payment to each of the Liquidated Companies ("Proposed Resolution"). 10 Counsel for the Plaintiffs explained this morning that that statement is subject to a qualification because the proposed resolution will not resolve the issues raised by the appeals and cross appeals involving Mr Gary Binetter. Nevertheless, I proceed on the basis that the proposed agreement will result in the resolution of a great number of the issues on the appeal. 11 The Plaintiffs conducted concurrent meetings of creditors of each of the Liquidated Companies on 25 September 2018. At each of those meetings, the creditors resolved, pursuant to s 477(2B) of the Act, to approve the liquidators entering into the proposed agreement. The Plaintiffs considered that that approval was necessary because the proposed agreement contains obligations, the performance of which may extend beyond a period of three months. 12 The parties to the proposed agreement had intended to execute it this morning, 28 September 2018. Mr Lock deposes that yesterday, on 27 September 2018, the other parties to the agreement indicated that they would not proceed with the agreement unless it was also approved pursuant to s 477(2A) of the Act. 13 Section 477 of the Act provides (relevantly): 477 Powers of liquidator (1) Subject to this section, a liquidator of a company may: … (d) compromise any calls, liabilities to calls, debts, liabilities capable of resulting in debts and any claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting or supposed to subsist between the company and a contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the property or the winding up of the company, on such terms as are agreed, and take any security for the discharge of, and give a complete discharge in respect of, any such call, debt, liability or claim. … (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 a 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. … 14 As is apparent, s 477(2A) provides that an approval of the kind which it contemplates may be given by the Court, the committee of inspection or by a resolution of the creditors. The Court was informed that meetings of creditors have been arranged for Friday 12 October 2018 with a view to the creditors resolving to approve the entry into the agreement pursuant to s 477(2A). However, the Plaintiffs seek an earlier approval in order that the execution of the proposed agreement can proceed today, as was originally contemplated. The circumstance that the other parties raised the requirement for approval pursuant to s 477(2A) only yesterday explains in part the late application to the Court for approval and the request that the Court hear and determine it urgently. 15 Section 477(2A) operates with respect to the compromise of debts to a company. The judgments which the Liquidated Companies have obtained against the defendants to SAD5/2015 constitute debts to those companies. The proposed agreement involves a compromise of those debts, although it is apparent that its terms extend to other matters as well. That is to say, I proceed on the basis that the Court's power under s 477(2A) is enlivened when a proposed agreement involves a compromise of a debt to a company in liquidation even though the agreement may also have some wider operation. It is not practical in the present circumstances to address more fully the possibility advanced by counsel for the Plaintiffs to the effect that the proposed agreement may be regarded more accurately as a compromise of litigation than as a compromise of debts. 16 The principles relating to an approval under s 477(2A) are the same as those in relation to the grant of approvals under s 477(2B). In Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375, Gordon J summarised the principles which guide the exercise of the Court's power of approval as follows: [26] … (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." See ASC Timber at 1,650; see also Re Gate Gourmet Australia Pty Ltd (in liq) (2005) 23 ACLC 834 at [10] and Warne v GDK Financial Solutions; Peridon Village Nominees (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) 21 ACLC 1,347 at [11] and Re ACN 076 673 875 Ltd (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. 17 It is appropriate to emphasise a number of aspects of those principles. The Court does not simply rubber stamp whatever is put forward by a liquidator, but the Court's approval is not an endorsement of a proposed agreement. It is instead a permission for liquidators to exercise their own commercial judgment. The Court satisfies itself that there is no good reason to intervene in the administration of the winding up insofar as that is reflected in the agreement for the compromise of the debts. 18 In the present case a number of matters indicate that it is appropriate for the Court to grant the approval which the Plaintiffs seek. 19 First, the creditors of each of the Liquidated Companies has given approval for the compromise pursuant to s 477(2B). In addition, the creditors of each company have communicated to the Plaintiffs their willingness to give approval pursuant to s 477(2A) and, as I noted earlier, the Plaintiffs have arranged meetings of the creditors at which resolutions to that effect may be obtained. I also note in this respect that each of the creditors has been informed of this morning's hearing, and none of them has sought to be heard in the proceedings. 20 The number of creditors of each of the Liquidated Companies is quite small and, in some cases, it is only the Deputy Commissioner of Taxation who is the creditor. In those cases in which there is more than one creditor, the Deputy Commissioner is by far and away the largest of the creditors. The Court was informed that representatives of the Deputy Commissioner have been actively involved in the negotiation of the proposed agreement, and they have also negotiated a collateral agreement with the Liquidated Companies which will result in a significant payment to the Deputy Commissioner. The Plaintiffs are not party to that agreement. 21 The second matter pointing to the appropriateness of the approval, is that it will result in the payment of substantial sums to the Liquidated Companies. 22 Thirdly, the Plaintiffs have taken advice from the solicitors and counsel acting on behalf of the Liquidated Companies in the litigation in this Court. That includes advice from senior counsel. The Court was informed that the legal advisers have advised in favour of entering into the proposed agreement. 23 Fourthly, I take into account that the Plaintiffs are experienced liquidators. Mr Lock has deposed that each of them considers it to be in the best interests of the creditors that they enter into the proposed agreement. 24 Next, I take into account the content of the proposed agreement, which is in the form of a deed. It is a detailed and complex document. Close consideration must have been given to the preparation of its terms. It is plainly not of a kind which should give the Court concern as being ill-considered or hastily prepared. 25 Finally, I have not identified any other consideration of the kind referred to by Gordon J in Stewart, in the matter of Newtronics which should cause the Court concern about granting its approval. I note again that the Court's approval does not constitute an endorsement of the proposed agreement. 26 For these reasons, I make orders as follows: (1) The Originating Process filed on 27 September 2018 be heard ex parte. (2) The Court approves the entry by the Plaintiffs into an agreement in the form of the draft settlement deed annexed to the Affidavit of Ian Russell Lock sworn 28 September 2018 and approves the Plaintiffs compromising the debts of the four companies BCI, Binqld, EGL and Ligon 268 by that agreement. (3) Upon the filing of the Affidavit of Ian Russell Lock made 28 September 2018 to which is annexed the settlement deed referred to in the previous order, that Affidavit is to be kept confidential and, despite the terms of r 2.32 of the Federal Court Rules 2011, may not be inspected by any person without the leave of a Judge of the Court. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White.