Discussion
53 The terms of the Qiu Funding Agreement, the ATO Funding Agreement and the Beaconsfield Deed are clear and documented and plainly provide for the funding of both the Qiu proceeding and the ATO proceeding.
54 Mr Jahani, a very experienced liquidator, considers that the claims in both proceedings warrant being brought in the interests of creditors. Without the funding offered on the terms of the funding agreements, the liquidators would be without funds to prosecute the claims.
55 I am satisfied that the liquidators' commercial judgement, in determining that entry into the funding arrangements are in the best interest of creditors, has been formed in circumstances where the claims in the proceedings constitute assets that have the potential to lead to the payment of a dividend to creditors of the company plaintiffs (and, in turn the Ralan Companies insofar as other companies are also creditors of some of the company plaintiffs such as RPS). Also, the liquidators' judgement follows protracted exploration of potential funding on appropriate terms with many litigation funders.
56 The liquidators' view is that the funding arrangements represent the best terms on which the Qiu proceeding and the ATO proceeding may be funded.
57 I am satisfied that, in practical terms, the funding offered is the only means of continuing the pursuit of the claims in the proceedings for the benefit of creditors.
58 Further, there is no basis, including in light of the above factors, to consider that the liquidators have acted in bad faith or with impropriety, or on some error of law, which might give me concern.
59 Entry into the funding agreements will, obviously enough, prolong the liquidations. However, that is because the funding arrangements will permit the claims in the proceedings to be prosecuted which has the not unduly remote potential benefit for the creditors of the company plaintiffs and will not cause them any detriment. In other words, the funding agreements are a price worth paying to potentially augment the assets in the winding of the company plaintiffs and the other Ralan Companies. Other than insofar as they facilitate pursuit of the claims, the funding arrangements will not prolong the liquidation of the Ralan Companies.
60 I am satisfied that, to the extent necessary, the s 477(2B) approvals ought to be granted nunc pro tunc.
61 Turning to the appropriateness of the judicial direction which is only sought in relation to the Beaconsfield Deed, the evidence is that in the course of the negotiations with LCM, the liquidators became concerned that the amount of funding on offer was insufficient to fully fund the claims in the ATO proceeding up to and including a final hearing (and any appeal therefrom). Further, no other external funding was available. The liquidators therefore considered it appropriate that other funding be put in place to ensure that sufficient funding was available for that purpose - and only Beaconsfield was in a position to make such funding available. It is accepted, in that regard, that funding provided by Beaconsfield in the ATO proceeding will potentially be of benefit to all of the plaintiffs in that proceeding (and not just Beaconsfield).
62 The liquidators have (at least in Mr Jahani's case) been appointed as the liquidator of each of the Ralan Companies. As such, the liquidators have duties to each company which, to the extent that funding provided by one company may benefit another company, have the potential to conflict with one another. Given the proposed funding arrangements, and the potential for a conflict of duty and duty, the liquidators are entitled to guidance and directions from the Court to avoid any allegation that their proposed method of funding from Beaconsfield unnecessarily favours either the other plaintiffs in that proceeding (as "free riders") or Beaconsfield itself (because of the potential receipt of a funding commission). This is a circumstance in which courts will generally provide judicial directions to liquidators of related companies whose affairs are intermingled: Lewis & Templeton v LG Electronics Australia (No 2) [2016] VSC 63; 48 VR 450 at [152] per Sifris J; Re BBY Holdings Pty Ltd (receivers and managers appointed) (in liquidation) [2019] NSWSC 1272 at [6] per Rees J.
63 Having regard to the conflict, or potential conflict, of duty and duty in the context of the multiple liquidated estates, the liquidators deserve to receive the protection of a judicial direction before the Beaconsfield Deed is to become effective. I consider that that is so for the following reasons.
64 First, it is plainly desirable that sufficient funding be available for the prosecution of the ATO proceeding all the way to a final hearing (if that becomes necessary).
65 Secondly, Beaconsfield is the only entity amongst the plaintiffs to that proceeding that has funds available to it.
66 Thirdly, Beaconsfield has its own claim in the ATO proceeding. It is therefore not the case that a company in liquidation is providing funding to advance claims which do not belong to it (accepting that the funding provided by Beaconsfield will potentially be of benefit to all of the plaintiffs).
67 Fourthly, the funding to be provided by Beaconsfield is secondary funding and is only to be deployed after the primary funding from LCM has been utilised - as such, it may be that the funding from Beaconsfield is ultimately not required.
68 Fifthly, the commission payable to Beaconsfield (as a return for the funding it provides) has been structured in exactly the same terms as that payable to LCM - given that Beaconsfield is potentially providing funding for the ATO proceeding (and putting at risk those funds) not just for its own benefit for the benefit of the other plaintiffs, it seems to be fair and reasonable for Beaconsfield to enjoy an uplift on its invested capital which is commensurate with that potentially payable to LCM. Moreover, as Mr Jahani deposes, it may be that the payment of any commission will ultimately have a neutral (or largely neutral) effect on the other plaintiffs (either because they themselves are major creditors of Beaconsfield and/or because there may be a subsequent pooling of the assets of the Ralan Companies under Div 8 of Pt 5.6 of the Corporations Act).
69 I consider that in this case it is expedient for the proposed funding to be made available by Beaconsfield notwithstanding that it is both a funding party and a claimant. See Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89; 281 ALR 38 at [44] per Emmett, Nicholas and Robertson JJ, referring to Re McGrath (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; 266 ALR 642 at Appendix 1, [18]-[21] per Barrett J.
70 The liquidators also seek judicial directions with respect to the pursuit of some of the claims in the Qiu proceeding. As noted above, some of the causes of action belong to the liquidators personally (under Pt 5.7B of the Corporations Act) whereas other causes of action are "company claims" and are therefore likely to fall within the security interest granted by RPS and RP1 in favour of Wingate.
71 No arrangement has been reached with Wingate. While there is a risk that Wingate may seek to recover some of the proceeds of any judgment or settlement reached in the Qiu proceeding (insofar as those proceeds reflect the causes of action falling with its security interest), the liquidators nevertheless consider that it is appropriate to pursue all available claims of RPS and RP1 for the following reasons.
72 First, many of the various causes of action in the Qiu proceeding overlap with respect to the same set of facts, such that there is only a small additional cost in pursuing the "company claims".
73 Secondly, it is forensically advantageous to the plaintiffs in the proceeding to pursue all available causes of action together.
74 Thirdly, Wingate is most unlikely to pursue the claims itself (or cause the receivers to do so). Indeed, it has stated that it will not.
75 Fourthly, the Commonwealth, as funder, is prepared to proceed in that manner.
76 I accept that those reasons are compelling and favour the liquidators proceeding in the manner contemplated. However, because of the potential risk of criticism by unsecured creditors (if Wingate later seeks to assert that any proceeds of the claims fall within its security interest), the liquidators should have a judicial direction that they are justified in pursuing the claims. I note that despite having been given notice, Wingate has not sought to appear to oppose the relief sought by the liquidators. It has stated in correspondence that it does not consent to the liquidators pursuing "its" claims and that it does not relinquish its rights over its security or any potential claims may have, but it has done no more. It has not asserted that the liquidators require its consent. Absence of consent by the receivers would not disentitle the directors from pursuing the claims subject to the security: Deangrove Pty Ltd (Receivers and Managers Appointed) v Commonwealth Bank of Australia [2001] FCA 173; 108 FCR 77 at [40] per Sackville J. The same is true of the liquidators who have the power to bring legal proceedings in the name of the company (s 477(2)(a) of the Corporations Act), subject of course to the secured creditor's security interest in any proceeds in due course.