CHRISTOPHER WYKES IN HIS CAPACITY AS LIQUIDATOR OF ALPINE BEEF PTY LTD (IN LIQ) ACN 088 887 209 and ALPINE BEEF PTY LTD (IN LIQ) ACN 088 887 209 v ARTON NO 001 PTY LTD ACN 054 328 004, SEAN MARTIN HOWARD and DANI LYNETTE HOWARD

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 884 of 2011

IN THE MATTER OF ALPINE BEEF PTY LTD (IN LIQ) ACN 008 887 209) BETWEEN: CHRISTOPHER WYKES IN HIS CAPACITY AS LIQUIDATOR OF ALPINE BEEF PTY LTD (IN LIQ) ACN 088 887 209

JUDGE: STONE J DATE: 30 JUNE 2011 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 I have before me an interlocutory application filed on 9 June 2011 pursuant to which the first applicant, in his capacity as liquidator of Alpine Beef Pty Ltd (in liquidation) (Alpine Beef), seeks retrospective approval of the Court pursuant to s 477(2B) of the Corporations Act 200l (Cth) for leave to enter into a Funding Agreement which contains obligations that will not be discharged by performance within 3 months. The Funding Agreement is to provide funding for the Liquidator to bring proceedings to recover a vessel, known as China Grove II, which the Liquidator claims is the property of Alpine Beef. 2 The respondents deny that the vessel is the property of Alpine Beef as claimed in the originating process. At the hearing of the interlocutory application Mr Sulan appeared for the respondents. He advised the Court that although the respondents opposed the application in the originating process they did not wish to be heard on the interlocutory application. Mr Sulan emphasised that the respondents' decision not to intervene in the interlocutory application in no way indicated any acceptance of the claims made by the Liquidator in relation to the ownership of the China Grove II yacht. 3 Evidence in support of the interlocutory application includes two affidavits, sworn by the Liquidator on 8 and 9 June respectively as well as an affidavit sworn on 29 June 2011 by Stephen Keith Mullette, a solicitor for the applicant. The Funding Agreement is annexed to the later of the Liquidator's affidavits. The applicant seeks a confidentiality order in relation to that affidavit and to the annexed Funding Agreement. Such an order is not uncommon in relation to litigation funding agreements and the reasons for that and the power of the court to make such an order are well-established in the authorities; see HIH Insurance Ltd [2007] NSWSC 498 at [6] and Fletcher and Barnet, in the matter of Octaviar Limited (Receivers and Managers Appointed)(In Liq) and Octaviar Administration Pty Ltd (In Liq) [2011] FCA 132 at [22]-[26]. 4 Obviously were the details of the Funding Agreement known to the respondent there is a potential for proceedings brought pursuant to that agreement to suffer prejudice. I am satisfied that the form of the order sought by the Liquidator is necessary and appropriate to avoid prejudice to the administration of justice. 5 Section 477(2B) of the Corporations Act restricts the power of a liquidator to enter into long-term agreements. It provides: Except with the approval of the Court, or 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: (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. 6 The company has three creditors: the first respondent, who claims to be owed the amount of approximately $568,000; the company's former accountants, Aitken Business Partners, who claim to be owed approximately $1000, and the funding creditors, who claim to be owed approximately $471,000. The Liquidator claims that the vessel in question is the only asset of the company in liquidation. It is not necessary to detail the basis of this claim. That is for another time however information in the documents annexed to the Liquidator's affidavit of 8 June shows that there is a coherent basis for the claim albeit in the form of, as yet, unchallenged evidence. 7 In considering an application such as the present it is necessary to take into account a number of factors which are comprehensively listed in Leigh, Re AP and PJ King Pty Ltd (in liq) [2006] NSWSC 315 at [25] per Austin J: (i) the liquidator's prospects of success in the litigation; (ii) the interests of creditors other than the proposed defendant; (iii) possible oppression in the bringing of the proceedings; (iv) the nature and complexity of the cause of action; (v) the extent to which the liquidator has canvassed other funding options; (vi) the level of the funder's premium; (vii) the liquidator's consultations with creditors; (viii) the risks involved in the claim (including the amount of costs likely to be incurred in the proposed litigation, the extent to which the funder is to contribute to those costs, and the extent to which the funder is to contribute to the costs of the defendant in the event that the action is not successful, or towards any order for security for costs). 8 Mr Wood, who appeared for the applicants, also referred me to the decision of Gordon J in Stewart, in the matter of Newtronics Pty Limited [2007] FCA 1375, where her Honour set out the considerations that should be taken into account. The factors identified by her Honour are consistent with those identified by Austin J. Their Honours recognise that the court should not merely "rubber stamp" whatever is put forward by the liquidator. Justice Gordon at [26] referred to the view of Giles J in Re Spedley Securities Ltd (In Liq) (1992) 10 ACLC 1,742 at 1,745 where his Honour said: "[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." 9 It is not for the Court to substitute its commercial judgment for the liquidator, however, the Courts need to take into account the question of whether there is any oppression in the proposed proceedings and whether the litigation funder is seeking any undue benefit, and generally to consider the terms of the funding agreement with a view to determining whether there is any lack of good faith or grounds for doubting the prudence of the proposed proceedings. 10 I have reviewed the litigation funding agreement in this matter. It seems to me to be an entirely conventional document. It does not provide for the funding creditors to get any share of the proceeds that might be realised under such litigation, other than reimbursement of the amounts required to fund the litigation and, of course, their normal entitlement to a share of the assets of the company in litigation along with other creditors. 11 I see no reason why the application should not be granted and that in my view it should also be granted retrospectively so that anything done to date under the agreement is protected from any claim that it might otherwise be invalid. I shall therefore make the orders sought in the interlocutory application. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.