BP Australia Ltd v Brown and Others

Judgment (Ex tempore) 1HIS HONOUR: By originating process filed on 25 March 2013, the first plaintiffs Richard Albarran and Steven Gladman as liquidators of Novo Tank Pty Limited (in liquidation) seek an order pursuant to (Cth) Corporations Act 2001, s 477(2B), permitting them to enter into a funding agreement with Litigation Fighting Fund Pty Limited, and an order pursuant to s 588FF(3), extending the time within which they may commence proceedings to recover the proceeds of voidable transactions against certain named persons to 25 September 2013. 2The company went into voluntary administration on 26 March 2010 when the first plaintiffs were appointed its joint and several administrators. Following the issue of a report to creditors, no proposal for a deed of company arrangement was forthcoming and the company went into liquidation on 10 May 2012, whereupon the plaintiffs became its joint and several liquidators. Accordingly, the relation back day, for the purposes of Corporations Act, s 513C, is the date of the plaintiffs' appointment as administrators, namely 26 March 2010, and the relation back period for the purposes of the Corporations Act, s 588FF, is the period 23 September 2009 to 26 March 2010. 3The present application was filed on 25 March 2013, one day prior to the expiration of three years from the relation back day. Section 588FF(3) provides that an application for an order in relation to a voidable transaction under subsection (1) may be made only during the period beginning the relation on the relation back day and ending three years after that day, or twelve months after the first appointment of a liquidator, whichever is the later, or: (b) within such longer period as the court orders on an application under this paragraph made by the liquidator during the paragraph (a) period. 4As Spigelman CJ explained in BP Australia Ltd v Brown and Others [2003] NSWCA 216: 118. Section 588FF(3) does not have the effect of requiring all applications to be brought within a short period of time. It does, however, have the effect of requiring those who wish to keep open the option to do so, to determine that they do wish to do so within the three-year period and to seek a determinate extension of the period. One thing that must be decided within the three-year period is how long the process of deciding whether to pursue voidable transactions will take. Eventually, investigations to overcome deficiencies of information or the pursuit of funding must cease. Parliament has identified a reasonable time for such matters to occur, subject to a single determinate extension of time. 119. In a context where conflicting interests have to be balanced, the eventual loss of the ability to make a relevant claim can reasonably be regarded as something to be surrendered in favour of providing certainty to others who have had dealings with the company, including other creditors, so that they can proceed with their business affairs with an assurance that they are no longer at risk. 5In addition, his Honour observed (at [126]): In the process of balancing the conflicting interests affected by the legislative scheme, the interests served by the process of administration may justify giving lesser weight to the interests of commercial certainty for those who have dealt with the company in the past. After all, if, as s 435A(a) envisages, a successful administration avoids liquidation, there will be no liquidator and therefore Part 5.7B will never be invoked at all. 6Similarly, in In the matter of Octaviar Administration Pty Ltd (In Liquidation) [2013] NSWSC 786, Young AJ said: [68] Then the public interest was referred to. This was dangerous ground for the liquidators because the authorities (see, particularly, BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322) show that the weight of public interest in these matters is in favour of members of the commercial community knowing that at the end of the fixed period laid down by the statute that they are free from claim. As I said, earlier considerations in extending limitation periods in other cases are not of much relevance when one is considering extension of the time under s 588FF. One cannot just say, as with respect Mr Coles attempted to say, that the limitation defence is a mere technicality and does not go to the merits of the matter. 69. Finally, Mr Coles said that there has been no prejudice ever shown by Messrs Anderson and White apart from their lack of reliance on a limitation defence. Mr Condon accepts this point but says that it is immaterial. The statute sets out a fixed time and makes it clear that unless it is properly shown that the time should be extended the court should not do so. I agree with this submission. 7In the present case, it is clear that the liquidators were aware from the outset of the potential for claims to recover the proceeds of voidable transactions. So much was referred to in their initial report to creditors, even when they were still administrators. On 31 August 2010, they first instructed lawyers to advise as to the merits of potential preference claims against the proposed defendants. After various exchanges between them and the lawyers then acting for them, they ultimately received formal advice on 25 July 2011. Fairly promptly after receipt of the advice they caused enquiries to be made of potential litigation funders - there otherwise being no funders of the liquidation to fund proceeds of the kind contemplated. One litigation funder made an offer which would have covered proceedings against only one of the potential defendants on 24 August 2011. Another litigation funder made an offer which covered proceedings against all the proposed defendants on 22 March 2012. 8The liquidators then convened a meeting of the committee of inspection in relation to the proposed voidable transaction claims. At that meeting on 13 April 2012, the members of the committee of inspection voted against a resolution to authorise the liquidators to enter into the proposed funding agreement. From the minutes of the meeting, it appears that the creditors who were members of the committee were of the view that it would be unfair to require creditors who had received payment - apparently in return for work done and services provided by them to the company - to have to disgorge them at this (relatively late) stage. This view was supported even by one creditor who was apparently a priority creditor. 9Although it seems that there was some breakdown in the relationship between the proposed litigation funder and its lawyers some time after April 2012, the evidence does not really explain what happened between then and 19 March 2013, when the liquidator spoke to the litigation funder and confirmed that it was now prepared to fund the proposed claims if certain (different) lawyers were appointed to act in the proceedings. That was done and the proceedings were commenced on 25 March 2013, as I have said, one day before the 3-year period expired. 10As to the merits of the proposed proceedings, it is unnecessary and inappropriate to express conclusions in detail at this stage. It suffices to say that the evidence so far available discloses a strongly arguable case that the company was insolvent throughout the relevant period, and that the amounts the subject of the proposed claim - totalling some $3.5 million - would be recoverable as voidable transactions, subject to any "running account" defence, which may well be available but which is unlikely to extinguish the whole of any claim. I am satisfied that the proposed proceedings have at least reasonable, if not better, prospects of success. 11The key feature of the proposed funding agreement is the litigation funder's reward which, in essence, entitles it to receiving from the gross amount of any final judgment plus costs, the funding provided by it and then 50% of the balance of the total recovery. While I am conscious that it has been said that even 75% might not be unreasonable, there is always cause for close scrutiny once the interests of the funder become a majority interest in the litigation because it can then be said that the litigation is being pursued predominantly in the interests of the funder rather than in the interests of those entitled beneficially to the cause of action. 12In this case, even after allowing for the funder's share of any recovery, it seems likely that there will be sufficient to enable the priority creditors to be paid in full, and for there to be a small distribution to unsecured creditors, more likely in the order of six cents in the dollar than the 18 cents in the dollar that the liquidator's evidence initially suggested. This is because the liquidator's calculations do not appear to have made provision for the funder's share of the proceeds of any recovery. 13The priority creditors amount to some $562,000 (after exclusion from the employee creditors of a director/employee and his associate). Of that sum, about $255,000 is a claim by the Department of Employment and Workplace Relations in respect of the amounts it paid to employees by way of wages in respect of whose claims in the liquidation the Department is entitled to be subrogated. In other words, the Commonwealth has paid out the employees, and now the Department proves in the liquidation for an indemnity in respect of that payment. The balance of the priority claims are in respect of superannuation and leave entitlements of various employees. 14I must confess that, in circumstances where the committee of inspection did not support pursuing a claim, I have had some reservations as to whether a different view should prevail. However, there is a significant public interest in a successful prosecution of what seems to be a strongly arguable claim that will enable priority creditors to be paid and the Commonwealth to be reimbursed for the funds it has paid out to employee creditors. Although the explanation for the delay in instituting proceedings is less than satisfactory, the fact is that only a short extension of time to September this year is sought, and the nature of the claims to be brought has been clearly characterised, so that what is sought is not in the nature of a "shelf order," but one which will operate only for a short time. It is also telling, that each of the proposed defendants has been served with the present application. One has entered into a compromise with the liquidators, and the others do not appear to oppose it. Were there significant matters of prejudice to be raised, they would surely have appeared and raised them. 15Accordingly, I am satisfied that the limited extension of time sought in the application should be granted, and that permission to enter into a funding agreement should also be granted. 16Pursuant to Corporations Act, s 588FF(3), I order that the time during which an application under s 588FF(1) may be made be extended to 25 September 2013. 17Pursuant to Corporations Act, s 477(2B), I approve the liquidator entering into, on behalf of the company, the funding agreement with Litigation Fighting Fund Pty Limited (ACN 147 382 081) in the form comprised in exhibit PX04 herein, notwithstanding that the terms of the agreement may end or an obligation of a party to the agreement could, according to its terms, be discharged by performance more than three months after the agreement is entered into. 18I order that costs of the application be costs of the liquidation. 19The exhibits may be returned.