Section 564
84 RGH's primary submission is that the application under s 564 is premature and should await the outcome of the hearing of the Proof of Debt Interlocutory Proceeding and the Construction List Proceeding to commence in the Supreme Court on 23 November 2009. As a secondary position, RGH accepts that the DCT should be afforded some priority or advantage but contends that that priority or advantage should be by reference to the funds currently at Mr Chamberlain's disposal (cash at bank of $1,600,803) rather than what Mr Chamberlain may expect, and that there should be taken into account the full amount of RGH's claim to debt of $2,295,008.
85 Section 564 of the Act provides:
Where in any winding up:
(a) property has been recovered under an indemnity for costs of litigation given by certain creditors, or has been protected or preserved by the payment of money or the giving of indemnity by creditors; or
(b) expenses in relation to which a creditor has indemnified a liquidator have been recovered;
the Court may make such orders, as it deems just with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving those creditors an advantage over others in consideration of the risk assumed by them. [My emphasis]
86 In State Bank of New South Wales v Brown (2001) 38 ACSR 715, the New South Wales Court of Appeal approved the following statement by Brownie J in Household Financial Services Pty Ltd v Chase Medical Centre Pty Ltd (1995) 18 ACSR 294 at 296-7:
The last words of s 564 provide for, and the authorities accent the need to assess the risk run by the indemnifying creditors, for whose benefit an application is made, but the authorities show that it is also appropriate to look to the sum recovered (or the value of the property recovered), the failure of other creditors to provide the indemnity, the proportions between the debts of the indemnifying creditors and-the other debts, the public interest in encouraging creditors to provide indemnities so as to enable assets to be recovered, and, generally, the totality of the circumstances; and there has been a tendency in recent times to adopt a more liberal approach, in favour of indemnifying creditors. …
87 In the same case Spigelman CJ indicated (at [40]) that the exercise of the statutory power to give a funding creditor 100% of recovery will be rare. His Honour indicated that the cases in which 100% of the recovery has been awarded to the indemnifying creditor have had particular features which the Chief Justice discussed.
88 I accept RGH's submission that it is premature for the application under s 564 to be determined at this stage. The considerations that lead me to this conclusion are set out in the following paragraphs.
89 First, as just noted, it is not known with certainty what the final size of the fund available for unsecured creditors will be because, although the liquidator has cash in hand of $1,600,803.00, whether this amount will be augmented by the sum of $1,095,000 over the next nineteen months (bringing the amount available up to $2,695,803) by the monthly payments of $60,000 by the Hardys, depends upon whether they default. Mr Chamberlain has only their unsecured promise to make the payments.
90 Second, while Mr Chamberlain does not seek an order disturbing the priorities provided for in s 556(1) of the Act, the amount of his remuneration, legal costs and disbursements and other expenses in defending the Proof of Debt Interlocutory Proceeding and the Construction List Proceeding will not be known until after those Proceedings are heard and determined. That amount would apparently enjoy priority over other unsecured creditors.
91 Third, the Court is not in a position to determine the relativity between the DCT's debt and that of the other unsecured creditors so long as the Proof of Debt Interlocutory Proceeding and Construction List Proceeding remain undetermined. RGH may fail completely in those proceedings and therefore not be a creditor at all, or it may be a creditor to the full extent of its claim of $2,295,008 plus interest plus the costs of both Supreme Court proceedings, or it may prove to be a creditor for some intermediate amount.
92 Fourth, there appears to be no urgency touching the determination of the application.
93 Fifth, although the further affidavit evidence explaining Mr Chamberlain's delay in seeking the Court's approval under s 477(2B) will no doubt be prepared and admitted at an early date, the fact is that that hearing is likely to take place only two to three weeks before the commencement of the hearing in the Supreme Court on 23 November 2009.
94 Mr Chamberlain's approach has been to treat the sum of $1,095,000 as if it were cash in hand that has been recovered as a result of the funding provided by the DCT, but it is not. I note in passing that the proposed advantage is not that the DCT is to be entitled to the instalments if and when they are paid and that it be paid the remainder of its debt ($1,300,273.63-$1,095,000 = $205,273.63) out of the cash in hand, leaving $1,395,529.37 as cash in hand to satisfy Mr Chamberlain's further remuneration, costs and expenses and other admitted creditors.
95 If the application were to be determined now and the orders sought by Mr Chamberlain made, apparently he would immediately pay $1,300,273.63 to the DCT, leaving him with $300,529.37 as cash at bank. In addition, he would have the Hardys' unsecured promise to pay $1,095,000 over 19 months. Let it be assumed that the Hardys paid none of the monthly instalments and that RGH had total success in the Supreme Court proving as a creditor for $2,295,008 plus interest plus costs. In that case it would transpire that Mr Chamberlain's further remuneration, costs and expenses in this proceeding and, more significantly, in defending the Supreme Court proceedings, would almost certainly absorb the sum of $300,529.37. If not, those amounts together with RGH's legal costs and expenses associated with the Supreme Court proceedings would certainly do so. In the circumstances hypothesised, neither RGH nor the Directors would receive anything, and so it would transpire that DCT would have had 100% of the recovery.
96 No doubt it is possible that the decision in the two Supreme Court proceedings will be reserved and in any event there is the possibility of an appeal to the New South Wales Court of Appeal. Nonetheless, the position will at least be somewhat clearer than it is at present if this proceeding is adjourned, first to a date to deal with the supplementary evidence in relation to s 477(2B) to which I referred, and then to a further date following the conclusion of the hearing in the Supreme Court.
97 There are too many unknowns at present to enable the Court to decide Mr Chamberlain's application under s 564 with confidence that its order would be just.