- Empire (Aust) Nominees Pty Ltd v Vince

Judgment 1By Amended Interlocutory Process dated 24 April 2012, the Applicants, Ms Robyn Duggan and John Melluish in their capacity as joint and several liquidators ("Liquidators") of Mulsanne Resources Pty Limited (in liq) ("Company") apply for an order under s 477(2B) of the Corporations Act 2001 (Cth) approving their entry into an Amended Funding Agreement with Blackwood Corporation Limited ("Blackwood") in, or substantially in, the form reproduced as Confidential Exhibit DPC-1 to the affidavit of David Cowling dated 24 April 2013. An application for approval of an earlier form of the Funding Agreement is no longer pressed. 2By way of background, the Company failed to pay the purchase price payable under a Share Purchase Agreement entered into with Blackwood on 6 May 2012, by which it was to acquire 94,689,760 shares in Blackwood for a subscription price of $28.4 million. The Liquidators' investigations indicate that completion of that Agreement was initially set for 19 July 2012 and was thereafter extended. When that Agreement was not completed Blackwood issued a creditor's statutory demand for the amount payable under that Agreement, the Company did not bring an application to set aside that statutory demand; and the Company was thereafter wound up in insolvency on Blackwood's application. Blackwood subsequently funded the conduct of public examinations of several of the Company's directors and officers on 14-15 March 2012 and, in her affidavit sworn 12 April 2013 in support of the application, Ms Duggan summarises the evidence given at those public examinations. 3The Amended Funding Agreement relates to the conduct of proposed proceedings in this Court in relation to claims to be brought by the Company in respect of an agreement that it would subscribe for shares in Blackwood. The Liquidator has not sought creditors' approval of the proposed Amended Funding Agreement where it appears that he is unable to conduct meetings of creditors by reason of a lack of quorum for those meetings. 4Ms Duggan's evidence is that, since the Company is without assets, the Liquidators need to have recourse to funding by Blackwood to complete the liquidation which they contemplate will include commencing the proposed proceedings. Ms Duggan expresses the view (albeit in respect of an earlier version of the Funding Agreement which was less favourable to the Company and its creditors than the Amended Funding Agreement) that no creditor would be prejudiced by approval of that agreement. There is also in evidence, on a confidential basis, a draft Originating Process, draft Points of Claim and a Memorandum of Advice prepared by Counsel in respect of the proposed claim. 5The application is brought under s 477(2B) of the Corporations Act which 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 term of that agreement may end, or obligations of a party to the agreement may be discharged by performance, more than three months after entry into the agreement. The Court is not concerned, in granting such an approval, 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 (Aust) Nominees Pty Ltd v Vince [2000] VSC 324; (2000) 35 ACSR 167; Re McGrath & Anor (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; (2010) 78 ACSR 405. 6In Re Leigh; AP & PJ King Pty Ltd (in liq) [2006] NSWSC 315, Austin J summarised several factors relevant to whether such approval should be granted as including the liquidator's prospects of success in the litigation; the interests of creditors other than the proposed defendant; possible oppression in the bringing of the proceedings; the nature and complexity of the cause of action; the extent to which the liquidator has canvassed other funding options; the level of the funder's premium; the liquidator's consultation with creditors; the risk 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 defendant's costs if the action is not successful, or towards any order for security for costs. Those factors were in turn referred to by the Full Court of the Federal Court in Fortress Credit Corporation (Aust) II Pty Ltd v Fletcher [2011] FCAFC 89 at [24]; (2011) 85 ACSR 38 and by Jacobson J in Pascoe; Re Matrix Group Ltd (in liq) (2011) FCA 1117 at [14], where his Honour had to consider whether to approve the funding of claims by a party associated with the company. His Honour there noted that the question for the Court was whether the liquidator's judgment in that regard had been infected by a lack of good faith or an error of law or principle and whether there were real or substantial grounds for doubting the prudence of the liquidator's conduct in seeking to enter into the funding agreement. 7In assessing the Liquidator's prospects of success in the proposed proceedings, I have had regard to the fact that the proposed proceedings may raise issues of some legal and factual complexity. [REDACTED] 8The grant of approval is in the interests of the Company's only substantial creditor other than parties associated with the potential defendants to the litigation and success in the litigation has the capacity to increase the Company's assets; and Blackwood, as funder, would substantially bear the risk of failure in the proceedings. There is nothing to suggest oppression in the conduct of the proceedings. It does not appear that the Liquidator has canvassed other funding options. However, the terms of the Amended Funding Agreement appear to be more favourable to the Company and its creditors than would realistically be available from third party funders, and there seems to be little realistic possibility that interests associated with the proposed defendants would have wishes to participated in funding the proceedings against them, so as to require that they have been offered an opportunity to do so. 9So far as any question will later arise as to any priority to be given to Blackwood's claims by reason of its funding of the proposed proceedings, there is no disadvantage to other creditors - and specifically those associated with the defendants in the proposed proceedings - where the question of any such priority would be determined by the Court on its merits at an appropriate time under s 564 of the Corporations Act, having regard to the outcome of the proceedings and whether they have augmented the assets available for distribution to creditors: Re Mustang Marine Australia Services Pty Ltd (in liq) [2012] NSWSC 620 at [9]. The Amended Funding Agreement contains appropriate indemnity provisions, so as to mitigate the risk to the Liquidator (or, indirectly creditors) from conduct of the proceedings. The Amended Funding Agreement properly recognises the operation of s 556 of the Corporations Act and the general law, so far as obligations are imposed on the Liquidators in particular circumstances under that Agreement. 10Having regard to these matters, it seems to me that there is no reason, on the material before me, to conclude that the Liquidators' judgment has involved any lack of good faith or error or law or principle and also no reason to doubt the Liquidators' prudence in proposing to enter into the Amended Funding Agreement and cause the Company to do so. Accordingly, I will grant the approval which is sought under s 477(2B) of the Corporations Act for entry into that agreement. 11I therefore make the following orders: