Empire (Aust) Nominees Pty Ltd v Vince [2018] NSWSC 1224 | Case summary

Supreme Court of NSW|2018-07-30|Before: Gleeson JA, Mr P

Background

Under s 477(2)(a), a liquidator of a company may bring or defend any legal proceedings in the name of and on behalf of the company. Under s 477(2)(b), a liquidator of the company may appoint a solicitor to assist in his or her duties. However, s 477(2B) provides that except with the approval of the Court, of 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 the term of the agreement may end, or obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance more than three months after the agreement is entered into, even if the term may end, or the obligations may be discharged within those three months.
Mr Woodgate anticipates that the funding deed with Kaspersky and the retainer of the solicitors (Deutsch Miller) may last longer than three months. The funder, Kaspersky, is the largest creditor of the company. No committee of creditors has been appointed. Counsel for the Special Purpose Liquidator submits that calling a meeting of creditors to obtain approval of the funding deed and costs agreement would not be practical, given that at an earlier meeting of creditors held on 27 January 2017, the creditors voted against a resolution moved by Kaspersky seeking to appoint Mr Lock as liquidator of the company in place of the present liquidators, Mr Tayeh and Ms McCallum. That submission may be accepted.

Legal principles - s 477(2B)

The object of the approval process under s 477(2B) is to ensure that contractual provisions as to timing do not cut across the general expectation that the winding up will proceed in an expeditious fashion as circumstances allow: Re HIH Insurance Ltd and related matters [2004] NSWSC 5 at [15] (Barrett J); Re HIH Overseas Holdings Ltd (in prov liq) [2001] NSWSC 426 at [5] (Barrett J).
The following propositions can be derived from the authorities, when deciding whether to grant approval under s 477(2B): 1. the controlling consideration is the interests of creditors concerned in the winding up; 2. the court pays regard to the commercial judgment of the liquidator; 3. although the court is not a rubber stamp for whatever the liquidator puts forward, it is not the role of the court to independently appraise the commercial desirability and commercial terms of the transaction, 4. the court will generally not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or some real and substantial ground for doubting the prudence of the liquidator's proposal. See Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-6; State Bank of NSW v Turner Corporation Ltd (prov liq apptd) (1994) 14 ACSR 480 at 483; Re HIH Insurance Ltd [2004] NSWSC 5 at [15] and Re GA Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 at 311.

Funding deed and solicitor's retainer

The funding deed is in evidence although the identification of what is defined in the deed as the "Funding Amount", is the subject of a confidentiality order (Confidential, Ex L1). The deed contains a suspensory provision in the form of a condition precedent in cl 2.4 providing that on or before the "Sunset Date" (which is defined as the day four weeks after the agreement is executed), the Special Purpose Liquidator obtains approval under s 477(2B) for his entry into the deed and any costs agreement. The existence of a suspensory condition, such as the first sentence of cl 2.4, is sufficient to justify the conclusion that, pending its satisfaction, the act of agreement with which s 477(2B) is concerned, should be regarded as not having occurred: Re HIH Insurance Ltd and related matters; Re HIH Casualty & General Insurance Ltd (in liq) [2002] NSWSC 1036; Re FAI Traders Insurance Co Pty Ltd [2002] NSWSC 1080.
Clause 2.4 also provides that Kaspersky will, notwithstanding the condition precedent to the operation of the deed, pay the Special Purpose Liquidator's remuneration and expenses incurred in seeking approval under s 477(2B) of the Corporations Act for his entry into the deed and any costs agreement, even if such approval is not obtained. That obligation would seem to be one which would be performed within the three-month period referred to in s 477(2B) of the Corporations Act.
In any event, for the avoidance of doubt, I am satisfied that this is an appropriate case in which, if it is otherwise appropriate to grant approval under s 477(2B), then such leave should be granted nunc pro tunc, given the explanation of the Special Purpose Liquidator that he was not in a position to fund the costs of the present application without the funding deed being in place. Leave may be granted retrospectively: Re HIH Insurance Group Ltd [2001] NSWSC 308; (2001) 19 ACLC 1102 at [6]; Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324 at [10]; (2000) 18 ACLC 738 at 741.
The relevant provisions of the funding deed are helpfully summarised in the written submissions of counsel for the Special Purpose Liquidator as follows: (a) Clause 2.4 - provides that the obtaining of Court approval pursuant to s477(2B) is a condition precedent to the operation of the deed; (b) Clause 3.3 - provides that the funding paid by Kaspersky is "non-recourse", and is only repayable if recovery is made; (c) Clause 4.2 - the Special Purpose Liquidator undertakes to recover his remuneration only in accordance with the Deed, or out of the assets of the Company during the course of his appointment; (d) Clause 5 - requires the Special Purpose Liquidator to conduct itself independently of Kaspersky as funder; (e) Clause 6 - provides the Special Purpose Liquidator with an indemnity "from and against any adverse cost order" made against the Special Purpose Liquidator (f) Clause 7 - provides the regime for repayment of the funder in the event of recovery. Any amount recovered will be paid (subject to any order under s564): (i) first to Kaspersky to repay the funding amount; (ii) second to Kaspersky to pay a funding premium of 15% of the recovered amount less the funding; (iii) third to the general liquidator. (g) Clause 13 - provides that the Special Purpose Liquidator will be formally instructed by the law firm Deutsch Miller (cl 13.1), and provides that ultimate decision-making authority of proceedings will rest with the Special Purpose Liquidator (cl 13.5); (h) Clause 14 - provides a warranty by the Special Purpose Liquidator that it has no conflict of interest; (i) Clause 17 - provides that the deed should remain confidential, principally in relation to the "Funding Amount" define at clause 1.1.
Mr Woodgate deposed that both the funding deed and the costs agreement for which approval is sought, will facilitate the investigation of specific matters identified at the time of his appointment as Special Purpose Liquidator and therefore further the interests of the creditors as a whole.
With respect to the proposed costs agreement with Deutsch Miller, Mr Woodgate deposed that the charges identified in that proposed agreement are, in his experience, within the normal range of fees charged by a small-medium law practice in assessing whether approval should be given to a liquidator's funding agreement (whether retrospective or not).
As stated in Re 777 389 30144 Pty Ltd (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452 at [61], the question of whether a litigation funding agreement should be approved under s 477(2B) has been considered in a number of cases including Re HIH Insurance Group Ltd and Re Leigh [2006] NSWSC 315. In the latter case, Austin J referred to his earlier decision (at [24]-[25]) in Re ACN 076 673 875 Ltd (rec'r & mgr apptd) (in liq) [2002] NSWSC 578; (2002) 42 ACSR 296 and summarised the relevant factors 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 consultations with creditors; and
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 defendant's costs if the action is not successful, or towards any order for security for costs).

Reference should also be made to the summary of principles by Gordon J in Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375 which included at [26(5)]: Further, in judging whether or not a liquidator should be given permission to enter into a funding agreement (whether retrospective or not), it is important to ensure, inter alia, that the entity or person providing the funding is not given a benefit disproportionate to the risk undertaken in light of the funding that is promised or a "grossly excessive profit": Anstella Nominees Pty Ltd v St George Motor Finance Ltd (2003) 21 ACLC 1347 at [11] and Re ACN 076 673 875 Ltd (2002) 20 ACLC 1551 at [28].
Counsel for the Special Purpose Liquidator submitted that some of the above factors are not able to be assessed in the present case because proceedings have not been commenced. That may be accepted. However, the following observations can be made.
First, Mr Woodgate has expressed the opinion that, in his experience, a commercial litigation funder would seek to recover a funding premium on recoveries in the order of 25-45 per cent of the value of recoveries, whereas the terms of the funding deed offered to the company by Kaspersky involved a funding premium of 15 per cent. Mr Woodgate also expressed the view that there is no realistic prospect of obtaining funding from a commercial litigation funder on terms which would provide for a funding premium of 15 per cent.
Second, as noted in the earlier judgment ([2018] NSWSC 1002 at [33]), Mr Woodgate has given an undertaking that he will not seek to recover his fees and expenses out of the funds or property of the company (a) other than in accordance with the terms of the funding deed or; (b) otherwise out of the assets of or, for the benefit of the company that he recovers or obtains during the course of his appointment as a Special Purpose Liquidator.
Third, the funding deed provides the funds necessary to conduct the independent investigations of specific matters and an indemnity from Kaspersky for any adverse costs of an unsuccessful proceeding.
Fourth, as indicated, Mr Woodgate has consulted with creditors, and the present application is not opposed by any creditor, nor the general liquidators, Mr Tayeh and Ms McCallum, nor ASIC.
Fifth, Mr Woodgate intends to engage Deutsch Miller as his solicitors to act on his behalf in relation to his investigations and any claims he may bring as a result of those investigations. Those solicitors are independent of the solicitors for Kaspersky.
There is nothing exceptional about the proposed retainer of Deutsch Miller in the context of proposed public examinations or ensuing commercial litigations which might be brought by the Special Purpose Liquidator. As I have said, Mr Woodgate has expressed the view that the hourly rates charged by those solicitors are within the normal range of small to medium law practices.
I am satisfied that it is appropriate that the Court approve the funding deed and that such approval should be given nunc pro tunc, insofar as that may be necessary, and to also approve the proposed costs agreement.

Orders

Accordingly, the Court makes the following orders: 1. Pursuant to s 477(2B) of the Corporations Act 2001 (Cth) that approval be given nunc pro tunc for Mr Giles Geoffrey Woodgate, in his capacity as special purpose liquidator of ACN 152 546 453 (formerly Hemisphere Technologies Pty Ltd) (in liq) (the company) to enter into the funding deed in the terms of Confidential Exhibit L1. 2. Pursuant to s 477(2B) of the Corporations Act 2001 (Cth) that approval be given for Mr Woodgate, in his capacity as special purpose liquidator of the company, to enter into a costs agreement in or substantially in the same terms as the costs agreement at Annexure C of the affidavit of Mr Woodgate sworn 9 July 2018.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 August 2018

Judgment EX TEMPORE

GLEESON JA: Application is made by Mr Giles Woodgate in his capacity as liquidator of ACN 152 546 543 Pty Ltd (formerly Hemisphere Technologies Pty Ltd) (the company) for approval of the Court under ss 477(2B) and 506(1A) of the Corporations Act 2001 (Cth) in relation to entry into a funding deed with Kaspersky Lab UK Limited (Kaspersky) and a costs agreement with Deutsch Miller to enable him to carry out his functions as Special Purpose Liquidator of the company. Section 506(1A)(a) provides, relevantly, that s 477 (2B) applies in relation to the liquidator (in a voluntary winding up) as if he or she were a liquidator in a winding up insolvency or by the Court.
Mr Woodgate was appointed Special Purpose Liquidator of the company for a number of identified purposes on 29 June 2018: Re ACN 152546453 Pty Ltd (formerly Hemisphere Technologies Pty Ltd) (in liq) [2018] NSWSC 1002. It is not necessary to set out the background to or reasons for that appointment on the present application.

Empire (Aust) Nominees Pty Ltd v Vince

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