Solicitors:
Colin Biggers & Paisley (Plaintiffs)
A Papoulias (self-represented) (Third and Sixth Defendants)
File Number(s): 2018/78012 (005)
[2]
Nature of the application
By Interlocutory Process filed, by leave, today, the liquidators of Courtenay House Capital Trading Group Pty Ltd (in liq) and an associated entity ("Companies") seek directions under s 90-15 of the Insolvency Practice Schedule (Corporations) and s 63 of the Trustee Act 1925 (NSW) that they are justified in entering into deeds of settlement and release with Mr Sipina and certain entities associated with him and Mr Papoulias and certain entities associated with him in respect of certain proceedings brought against them and those associated entities.
The Court's jurisdiction to grant such orders is well-established. Section 90-15 of the Insolvency Practice Schedule (Corporations) permits a range of interested persons, including relevantly a liquidator, to seek such orders as the Court sees fit in relation to the external administration of a company, including an order determining any question arising in the external administration. That power is at least as wide as, and likely wider than, the Court's power to give directions which previously existed under former ss 479 and 511 of the Corporations Act 2001 (Cth), and the Court has had regard to similar principles in exercising that power: Walley; Re Poles and Underground Pty Ltd (admins apptd) [2017] FCA 486 at [41]; Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [7]ff. The Court's power to give such directions is intended to facilitate the performance of a liquidator's functions and should be interpreted widely to give effect to that intention, and the Court may give such advice or such a direction where it is advantageous to the liquidation to do so: Re Octaviar Administration Pty Ltd (in liq) above at [9].
The Court's powers under s 63 of the Trustee Act permit a trustee, faced with a difficult or controversial decision, to approach the Court for judicial advice and, on receipt of that advice, the Trustee may act in accordance with that advice without liability for breach of trust, providing that the procedural requirements of s 63 of the Act are observed. That section applies here, because the liquidators' position in the proceedings is, and they would very likely have established at a contested hearing that, the funds which are the subject of this application were held on constructive trust for the Companies.
[3]
Affidavit evidence
The application is supported by an affidavit dated 24 April 2019 of Mr Jahani. Mr Jahani refers to his experience and qualifications, which include substantial experience in the conduct of complex liquidations, including liquidations in which issues similar to that which have arisen in this liquidation have arisen. Mr Jahani refers to steps which have been taken to identify the assets of the relevant Defendants, where freezing orders had been in place against the Defendants, of varying width, since the commencement of proceedings by the Australian Securities and Investments Commission prior to the liquidators' appointment. Mr Jahani refers to his confidence that assets of the Defendants have been located in the course of those investigations.
Mr Jahani in turn refers to the terms of the settlement deeds in respect of the relevant Defendants which, broadly, bring about the recovery of substantially all of the amounts claimed by the liquidators in the proceedings, although certain concessions have been made to the Defendants and third parties in respect of the settlement. The settlement deeds provide that Mr Sipina's wife is entitled to retain a particular asset, where the liquidators are satisfied that it was funded from her own resources; and that Mr Papoulias may retain a property that is mortgaged to a lender, where the liquidators are satisfied that the recovery from that property, after repayment of the loan, would not allow sufficient benefit to the Companies to warrant the costs involved. I can see no error in the liquidators' reasoning in that respect. I need not refer, in this judgment, to further detail of the terms of the settlements, since the application raises issues of principle as to the approach to the settlement generally which would not be affected by those matters of detail. Mr Jahani's evidence is that the liquidators hold the opinion that entry into the relevant settlements is beneficial to the creditors of the Companies, for the reasons that I have noted, and the committee of inspection of the Companies has formed the same view, in approving the Companies' and liquidators' entry into the settlement deeds.
[4]
The liquidators' submissions
Mr Robertson, who appears for the liquidators, points out that the application is properly brought because the liquidators are of the view that the funds are held on constructive trust for the Companies, and it is appropriate that the liquidator seek directions at least under s 63 of the Trustee Act, before entering a settlement which has the consequence that a modest part of the funds will remain in the hand of the Defendants. It should be noted, of course, that the allegations underlying the claim to a constructive trust have not yet been determined in the liquidators' favour in contested proceedings, which would have involved several days of hearing time. I proceed, having regard to the Court's earlier judgments in the matter, on the basis that the liquidators' claim to a constructive trust over the relevant assets was, at least, strongly arguable and, on one view, very likely to succeed. Having said that, the liquidators rightly recognise that even the strongest case has litigation risk, and a case of this kind also would lead the liquidators, and indirectly the creditors, to incur significant costs which would not wholly be recovered even if the case was successful.
Mr Robertson identifies, by reference to Mr Jahani's affidavit, several bases on which the liquidators contend the directions and approval sought should be given. First, the settlement deeds provide for the Companies to recover significant amounts from each of the Defendants, which comprise most, although not all, of their known funds and assets. Second, the liquidators have formed the view that the cost of litigating the substantive proceedings against the Defendants is unlikely to result in a greater return to the Companies' creditors than the returns provided by the settlement deeds. This involves an essentially pragmatic analysis, which recognises the possibility that complete success in the proceedings, incurred with additional litigation costs, may be less favourable to the Companies and their creditors than a settlement which leaves some funds in the Defendants' hands. That reflects the fact that the amount of unrecoverable litigation costs that would be incurred in respect of the conduct of the proceedings to a successful conclusion potentially exceeds the amounts left in the Defendants' hands, quite apart from any allowance for litigation risk.
Mr Robertson also points to two aspects of the settlement deeds which are advantageous to the Companies and creditors, namely that they do not provide a release of the Defendants, but only an undertaking not to bring further claims against them so long as the Defendants have disclosed all of their available assets to the liquidators. That approach is prudent, since it leaves open the opportunity for further recoveries, if any additional assets of the Defendants are ultimately identified. The terms of the settlement deeds also do not release any third parties who may have received trust funds, and claims against those parties are also likely to remain available, particularly where there has been no release of the primary wrongdoers, but only an agreement not to bring further proceedings against them if disclosure of all their assets has been made.
[5]
Determination
It seems to me that the Court can and should give the direction which is sought. The only basis on which that direction would not be given, in the relevant circumstances, would be if the Court were to take the view that the liquidator should pursue the recovery of all the trust funds, even if it would be more costly to recover all those funds and less advantageous to creditors than it is to enter a settlement which provides for recovery of the substantial majority of those funds at lesser cost and risk. It does not seem to me that a trustee acting prudently, and with the beneficiaries' interests in mind, would proceed in that manner. It seems to me that a trustee, giving full regard to the interests of the beneficiaries, may properly adopt a pragmatic course which advances beneficiaries' interests, just as a person might properly do in dealing with his or her own affairs. While I have not been taken to authority which authorises that approach, in terms, it does not seem to me to be an uncontroversial approach. That approach is implicit, as Mr Robertson pointed out, in an earlier judgment of Brereton J in these proceedings, which gave a similar direction in respect of a similarly structured settlement of claims against Mr Iervasi, which I have been asked to assume also involved recovery of most of his available assets, with a limited concession in order to bring about the settlement.
I also note that a trustee has power to compromise or settle a claim relating to the trust under s 49(1)(d) of the Trustee Act. The Court directed under s 63 of the Trustee Act that a trustee was justified in entering a compromise of a dispute in Cowan v Lai [2014] NSWSC 1143. A compromise of litigation, to avoid the uncertainty and risk associated with continuing it, albeit made with beneficiaries' consent, was the subject of such a direction in Campbell ATF the Joan Macpherson Trust and the Banandara Pastoral Settlement Trust [2016] NSWSC 1751. An agreement to compromise disputes was similarly the subject of such a direction in Application by John William Kellert (No 2) [2018] NSWSC 94, where the Court had regard to the costs and delays involved in ongoing proceedings and the uncertainty involved in conduct of contested litigation in accepting that it was in the best interests of the beneficiaries to compromise the disputes.
For these reasons, I am satisfied that I should make the orders sought. I make orders in accordance with the short minutes of order initialled by me and placed in the file, which include an order that the exhibit be returned.
[6]
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Decision last updated: 05 May 2019