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Judgment 1The applicants, Paul Weston and David Young, in their capacity as Liquidators ("Liquidators") of 7 Steel Distribution Pty Limited (in liq) (recs and mgrs apptd) ("Company") apply for an order under s 477(2B) of the Corporations Act 2001 (Cth) that they, as liquidators of the Company, be authorised to enter into a Funding Agreement with 101 Capital Pty Limited as trustee of the LCM Litigation Investment Fund, and a direction under s 511 of the Corporations Act that they are justified in doing so. The Liquidators also seek an order under s 477(2B) of the Corporations Act approving their entry into an agreement retaining Kemp Strang to act and continue acting as solicitors for the Liquidators and the Company in, or substantially in, the form of Schedule D to the Funding Agreement. This application has been made in circumstances of considerable urgency. Background to application 2The background to the application is set out in an affidavit of Mr Paul Weston dated 14 May 2013. The Company previously operated distribution centres for steel products. Mr Weston and Mr Young were appointed as administrators of the Company on 1 March 2010, by its secured creditor, HSBC Bank Australia Limited, under s 436C of the Corporations Act, and receivers and managers were appointed and took control of the Company's assets and operations on the same day. The Company's creditors subsequently resolved that it be wound up at a second meeting of creditors on 2 August 2010, under s 439C of the Corporations Act, and Messrs Weston and Young therefore continued as Liquidators of the Company under a creditors' voluntary winding-up. The Company has priority unsecured creditors of approximately $1.25 million and ordinary unsecured creditors of approximately $38 million. 3Mr Weston has formed the view, based on a review of the Company's books undertaken by the Liquidators and their staff, that the Company was insolvent from at least 1 September 2009, being a date six months prior to the relation-back day, namely, the date of appointment of the administrators on 1 March 2010, for reasons which are set out in some detail in his affidavit. 4Several creditors of the Company ("Intervening Creditors") received payments during the relation-back period and, on 18 February 2013, immediately prior to the expiry of the three year period specified in s 588FF of the Corporations Act, the Liquidators commenced proceedings against the Intervening Creditors in the Federal Court of Australia, which have yet to be served. As noted above, the Liquidators now seek the Court's approval under s 477(2B) of the Corporations Act and a direction under s 511 of the Corporations Act in respect of a Funding Agreement, prior to the service of the proceedings. Mr Weston points out that no dividend will be distributed to the Company's unsecured creditors without recoveries from the Intervening Creditors and the Liquidators have no funds to conduct proceedings against the Intervening Creditors, absent the entry into the Funding Agreement. The Liquidators have presently adjourned the extension of the return date of the proceedings brought in the Federal Court of Australia to 30 May 2013, with a view to obtaining the relevant approvals from this Court and in serving the proceedings upon the Intervening Creditors. 5Mr Weston refers to some previous attempts to obtain funding for the proposed proceedings. By their report to creditors dated 13 April 2011, the Liquidators noted the possibility of preference proceedings and invited creditors to provide funding. HSBC declined to do so. One of the Intervening Creditors raised the possibility of funding, and, perhaps for strategic reasons, requested a copy of preliminary legal advice as to the claim. The Liquidators declined to provide such advice, which they were then obtaining, and indicated that any funding proposal would need to include a proposal for the Intervening Creditor to settle the claim against it. That second condition may not have been necessary, since it is not immediately apparent why the Liquidators could not have accepted unconditional funding from such a creditor, or at least funding that did not confer any control of the proceedings on it. In any event, the correspondence went no further to a substantive proposal by that creditor. 6The next step referred to in Mr Weston's affidavit is that, ten months later, he approached three litigation funders; no explanation is given of what, if anything, took place in the intervening period. One of the litigation funders declined to provide funding; a second made an offer of limited funding for public examinations; and, as far as I can tell, Mr Weston's affidavit does not disclose the position of the third funder. It appears that negotiations with the second funder then took a further seven months, with exchanges of correspondence and draft funding agreements interrupted by periods in which the representatives of the funder or the Liquidators or both were on leave. Subsequently, that litigation funder has been prepared to fund the proceedings without first conducting public examinations. 7Mr Weston summarises the terms of the proposed Funding Agreement, which were tendered without a claim for commercial confidentiality, and to which I can therefore refer below. It is a condition precedent to that agreement that the Court's approval be obtained by 15 May 2013, which was apparently extended to 17 May 2013, and this application was only made on 15 May 2013. Mr Weston indicates that the Liquidators have been provided with a costs estimate of $765,000 in respect of the conduct of the proceedings to a final hearing against all defendants. That estimate appears to be a reasonable one, where there are seven defendants, a substantial claim, a need to prove the Company's insolvency and the defendants have foreshadowed raising running account and good faith defences. The Funding Agreement would provide for payment of reasonable costs of the proceedings and an indemnity for the Liquidators' costs, and that the Liquidator may (but, apparently, is not obliged to) provide security for costs if ordered and, if such security is not provided, the agreement terminates. 8Mr Weston notes that the litigation funders would receive a funder's premium of 15 per cent of the total recovery made by the Company to 30 June 2013, which, presumably, could occur only if there was a prompt settlement of the proceedings; after that date, they would receive a premium of 35 per cent of the total recovery made by the Company, with an additional 10 per cent if the Action Costs (as defined) exceed the amount of $650,000. That higher percentage would very likely be payable if the proceedings went to final hearing against all defendants, given the costs estimate received by the Liquidators, although it may not be payable if, for example, the proceedings were to settle promptly as against some of the defendants. 9Mr Weston estimates that, if the proceedings succeed against all defendants, and the Liquidators recover the estimated amounts, that would allow a payment to priority creditors in full, and unsecured creditors in the range of 10 cents to 13.2 cents in the dollar, after the costs and the litigation funder's premium in respect of the proceedings. Although Mr Weston's affidavit did not make clear whether that calculation had taken account of the fact that, if preferences were recovered from the Intervening Creditors, they would then be entitled to prove in the winding-up for a larger amount, I have been informed by the Liquidators' counsel that the calculation, in fact, took that into account and will proceed on that basis. 10Mr Weston expresses the view, based on his experience, that: "The funder's premium is within the range of typical premiums charged by litigation funders in proceedings such as these, and the Funding Agreement represents a sound opportunity for the Company to recover assets for the benefit of its creditors". 11This evidence has not been tested by cross-examination, given the nature of the proceedings, to which I will refer further below. There may be a question whether Mr Weston's experience of the premium payable in funding agreements is consistent with the Court's experience in respect of the range of funding agreements that it is usually asked to approve. Whether Intervening Creditors were entitled to be heard 12A preliminary issue arose in the application as to whether the Intervening Creditors, in their capacity as creditors of the Company, had a right to be, or should in the Court's discretion be, heard in respect of the application. Mr Cook, who appeared for the Intervening Creditors, contended that the terms of the Funding Agreement would have a direct impact on the amount of dividend that the Intervening Creditors would receive from any successful litigation and that their interests would be affected to the extent that recoveries were diverted to a litigation funder, or that settlement of any claims could be made more difficult. It seems to me that, at least in the absence of an alternative funding offer, these submissions have limited weight. Without funding, there can be no proceedings and no dividend to creditors; with funding, there is a potential recovery for creditors generally, including the Intervening Creditors, and a potential dividend, although that comes at the cost to the Intervening Creditors of the alleged preferences recovered from them. There is presently no alternative prospect of litigation with funding on other more favourable terms. The Intervening Creditors also point out that consultation with creditors has not been particularly extensive, although I accept the Liquidators' submission that there was good reason not to seek approval from the committee of creditors, given its composition, being comprised of two of the Intervening Creditors and a credit insurer that was apparently in a similar interest to the Intervening Creditors. 13In Kingsheath Club of the Clubs Ltd [2003] FCA 1034, Goldberg J permitted creditors to be heard on an application to approve a funding Agreement. On the other hand, in Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 498; (2010) 78 ACSR 163, Barrett J held that creditors who were also potential defendants had no right to be heard in a similar situation, and the Court of Appeal in Deloughery v Weston [2010] NSWCA 148; (2010) 79 ACSR 180, upheld that view and also indicated that it would not take a different view as to the exercise of a discretion as to whether the creditors should be heard. I do not consider that the Intervening Creditors have a right to be heard in their capacity only as creditors and would not exercise a discretion to hear them in this application. I am reinforced in that view, so far as an application for directions under s 511 of the Corporations Act is concerned, by the fact that such a direction would only have effect to protect the Liquidators if the relevant facts have been placed before the Court. 14When the matter was first mentioned before me, I left open the question whether the Intervening Creditors would have an interest entitling them to be heard if, as they had foreshadowed, an alternate offer of funding was made by them. In the result, that did not occur, although they were plainly under very significant time constraints in respect of any ability to formulate such an offer. No question as to their right to be heard on that basis arises. Application for approval of Funding Agreement under s 477(2B) of Corporations Act 15As I noted above, the Liquidators seek approval of entry into the Funding Agreement s 477(2B) of the Corporations Act. That section provides that, except with the court's approval or the approval of the committee of inspection or a resolution of creditors, a liquidator must not enter into an agreement on a company's behalf if the terms of that agreement may end, or obligations of a party to the agreement may be discharged, by performance more than three months after the entry into the agreement. The purpose of this subsection is "to ensure that the court exercises some oversight of the liquidator's actions and, in effect, confers or completes the necessary power only where it sees that a case for exercise of the power in the particular circumstances has been sufficiently shown": Re HIH Insurance Ltd [2004] NSWSC 5 at [15]. 16It is at least arguable that that requirement under s 477(2B) applies in a creditors voluntary winding up, since s 506 of the Corporations Act allows the liquidator, in a creditors' voluntary winding-up, to exercise the powers that the Act confers on a liquidator in a winding up insolvency or by the Court, and the powers conferred on a liquidator under s 477 in that situation are arguably confined by s 477(2B). In Re Harris Scarfe Ltd (in liq) [2007] SASC 186, Debelle J appears to have proceeded on the basis that such approval was required to enter into a litigation funding agreement in a creditors' voluntary winding-up without directly addressing that question. Given the urgency of the matter I will assume, without deciding, that such approval is required and consider whether to give it on that basis. 17The Court is not concerned, in granting an approval under s 477(2B) of the Corporations Act, with matters of commercial judgment but is concerned to be satisfied that the entry into the agreement is a proper exercise of power and not ill-advised or improper on the part of the liquidator: Empire Australia Nominees Pty Ltd v Vince [2000] VSC 324; (2000) 35 ACSR 167; Re McGrath and Anor in their Capacity as Liquidators of HIH Insurance Limited [2010] NSWSC 404; (2008) 78 ACSR 405. Several factors relevant to that question have been identified in the case law: Re Leigh, A P & P J King Pty Ltd (in liq) [2006] NSWSC 315; Fortress Credit Corporation (Aust) ll Pty Ltd v Fletcher [2011] FCAFC 89 at [24]; (2011) 85 ACSR 38. In Pascoe; Re Matrix Group Limited (in liq) [2011] FCA 1117 at [14], Jacobsen J noted that the question for the Court in such an application was whether the liquidator's judgment had been infected by a lack of good faith, or an error of law or principle, and whether there was a real or substantial ground for doubting the prudence of the Liquidator's conduct in seeking to enter into the funding agreement. That question arises, in the context of s 477(2B), in the context of entry into a longer term agreement, the performance of which might otherwise delay the completion of the winding-up. 18It seems to me that I can be satisfied as to several of the aspects referred to in the case law, for the limited purpose I am required to assess them under s 477(2B) of the Corporations Act. I can be satisfied, with one qualification, as to the prospects of the success of the proceedings, having regard to the Liquidators' assessment of the insolvency of the Company in the period prior to the relation-back day, the qualification being that there is presently no information before the Court to assess whether good faith or running account defences will ultimately be established. The Liquidators have made at least some attempts to canvass other funding options, and it does not seem to me that there is reason to think that the decision to enter the Funding Agreement involves an error of law or principle or a lack of good faith. On one view, that question can be determined simply because the Liquidators now finds themselves in a position where the only choice available to them is to either enter into that Funding Agreement or to allow the proceedings and the prospect of recovery to lapse, subject to any possibility of considering other options and seeking further extensions of time from the Federal Court of Australia. I will return to those matters below. 19It seems to me that, on this basis, I can properly grant approval for the entry of the Funding Agreement under s 477(2B) of the Corporations Act, on the basis that it would not be an improper exercise of the Liquidators' power and there is no indication that the entry into the Funding Agreement would involve an error of law or principle or not be in good faith or that entry into the Funding Agreement would inappropriately extend the winding-up having regard to the prospective recoveries in the proceedings. Application for direction under s 511 in respect of the Funding Agreement 20As noted above, the Liquidators also seek a direction under s 511 that they are justified in entering into the Funding Agreement. This direction, in my view, raises questions of greater difficulty. The principles applicable to an application under s 511 of the Corporations Act were recently reviewed by Ward J in Re Purchas as Liquidator of Astarra Asset Management Pty Ltd (in liq) [2011] NSWSC 91 and I gratefully adopt her Honour's summary of the relevant principles. Applications under that section in a voluntary winding up are determined in a similar manner to applications in a court ordered winding up under s 479(3) of the Act, notwithstanding that section does not expressly require that it be "just and beneficial" to give the relevant directions. The Court may give such a direction where it will be "of advantage in the liquidation", Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212; (1997) 24 ACSR 79; Handberg (in his capacity as Liquidator for S&D International Pty Ltd) (in liq) v MIG Property Services Pty Ltd [2010] VSC 336; (2010) 79 ACSR 373 at [7]. It will be common for proceedings seeking directions under s 511 to be brought with notice to parties affected by the direction, although there is no invariable rule that such an application cannot be brought on an ex parte basis: Handberg (in his capacity as Liquidator for S&D International Pty Ltd) (in liq) v MIG Property Services Pty Ltd above at [7]. The Liquidators accept that the Court will not generally give such a direction where the matter relates to the making or implementation of a business or commercial decision or where no legal issue is raised and there is no attack on the propriety of reasonableness of the Liquidators' decision, but point out, correctly, that the Court may do so where such an attack is in prospect. I accept that it is possible that there will here be an attack on the propriety of the Liquidators' decision, given the composition of the creditors' committee and the circumstances in which it is made. 21I have nonetheless formed the view that this is not a proper case to give the direction sought by the Liquidators. I have reached that view for several reasons. The Liquidators' primary position is, in substance, that the Liquidators now face a choice between entry into the Funding Agreement on the only available terms or allowing the proceedings to lapse. That may now be the only choice now available. However, it seems to me that the Court cannot assess the Liquidators' justification for entry into the Funding Agreement only by reference to the position today, without reference to how that position has been reached, which I do not consider the Court is in a position to assess in an application of this kind and without hearing from parties who may take a contrary view to that put by the Liquidators. It also seems to me that there would be little utility in a direction under s 511 of the Corporations Act. If the Liquidators have acted diligently and reasonably in reaching the position in which they now find themselves, there can be little doubt that entry into the Funding Agreement on the only available terms would be of benefit to creditors, and a decision that the Liquidators can properly make, without the need for a direction under s 511 of the Corporations Act. If, on the other hand, the Liquidators have not acted diligently or reasonably in reaching that position, then that matter has not been disclosed to the Court in seeking that direction and it would not protect them. 22Moreover, the application for a direction in respect of the entry into the Funding Agreement in its present form also conceals a further commercial question that, in my view, the Liquidators will need to address. There is a question whether the Liquidators should, as a matter of their commercial judgment, seek to renegotiate with the litigation funder to achieve better terms or allow additional time for the Intervening Creditors to put a funding proposal, seeking a further extension of time from the Federal Court to serve proceedings in order to do so, and it does not seem to me that the Court should make a direction which would potentially displace the need for them to exercise their commercial judgment as to that matter. 23I am therefore not prepared to give the direction sought under s 511 of the Corporations Act as to entry into the Funding Agreement. I am conscious that it is unusual, in applications of this kind, for the result of an application under s 477(2B) and an application under s 511 to diverge. However, in the present case, the entry into the Funding Agreement can properly be authorised under s 477(2B), because the Court can accept the Liquidator's commercial judgment that that is the best course in the relevant circumstances. I do not think the Court should go further to make a direction under s 511 that would potentially displace the need for the Liquidators' commercial judgment to be exercised in those circumstances or their responsibility for the exercise of that judgment. 24A further complexity arose immediately prior to the delivery of judgment, which maybe of lesser significance given the view that I have expressed above. The Liquidators' Counsel provided to the Court a copy of a letter from the Intervening Creditors' solicitor to the Liquidators' solicitor dated 16 May 2012 which noted, correctly, that an application determined without hearing from the Intervening Creditors would be ex parte in character, and contended that the Liquidators had not drawn to the Court's attention, first, that the Intervening Creditors had attempted to engage with them since 16 April 2013 relating to the proposed claim and, second, that the Liquidators had not complied with the obligation to file a genuine steps statement under the Civil Dispute Resolution Act 2011 (Cth) in respect of the Federal Court proceedings. The Liquidators respond that the correspondence relating to the question of engagement was in evidence in proceedings. It was, in my view, sufficiently drawn to my attention and I have had regard to it. I should add that the letter from the Intervening Creditors' solicitors dated 16 April 2013 seems to me to be more aptly characterised as a vigorous objection to entry into the Funding Agreement than as an invitation to commercial engagement or settlement. The Liquidators accept that they have not to date complied with the requirement to file a genuine steps statement under the Civil Dispute Resolution Act and that they will now do so. It is implicit in that position that the Liquidators maintain that they have in fact taken such genuine steps and I proceed on that basis. Application for approval of retainer agreement under s 4771(2B) of Corporations Act 25The Liquidators also seek approval under s 477(2B) of the Corporations Act for entry into a retainer agreement with their solicitors. Mr Weston's evidence is that he is satisfied with the terms of that agreement and is of the view that the rates contained within that agreement are within the range of typical fees charged with respect to similar matters. I have reviewed that agreement which contains detailed provisions as to the conduct of the proceedings. There is, on the evidence before me, no reason to think that the entry into the retainer agreement is not a proper exercise of the Liquidators' powers. The Court's role, in that regard, is not to second guess the Liquidators' judgment as to that matter and there would be no reason to doubt that judgment in respect of the retainer agreement. Accordingly, I would grant approval for entry into that agreement under s 477(2B) of the Corporations Act. Conclusion and orders 26By way of summary, the result of this judgment is that the Liquidators are authorised to enter into the Funding Agreement in the terms which they propose. They are also authorised to enter into a retainer with their solicitors for the conduct of the proposed proceedings. The Court has left the Liquidators to exercise their own commercial judgment as to whether that is a course which they should take in the relevant circumstances. 27I therefore make the following orders:

1. An order, pursuant to s 477(2B) of the Corporations Act, approving the Liquidators entering into, on behalf of the Second Plaintiff, an agreement which is in, or substantially to the effect of, the Funding Agreement with 101 Capital set out in Tab 14 Exhibit "PGW 1" to the affidavit sworn by Paul Gerard Weston on 14 May 2013 and filed in these proceedings ("Funding Agreement").
2. An order pursuant to s 477(2B) of the Act approving the Liquidator entering into an agreement retaining Kemp Strang to act and continue acting as the solicitors for the Liquidators and the Second Plaintiff which is in, or substantially to the effect of, schedule D to the funding agreement.
3. An order that the Liquidators' costs and expenses of this application be the costs and expenses of the liquidation of the second plaintiff.
4. These orders be entered forthwith. 28The exhibits should be returned. In the circumstances of this application, I will also direct that the Liquidators retain the exhibits pending the conclusion of the winding up.