Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher

GREENWOOD J: 1 These proceedings are concerned with an interlocutory application filed on 16 December 2019 by which the second to thirteenth applicants seek two orders. The first is an order pursuant to s 477(2B) of the Corporations Act 2001 (Cth) that they be granted approval to enter into a document called the Second Amendment Deed the effect of which is to amend for the second time a funding agreement with the Commonwealth of Australia entered into by the liquidators on 27 May 2019 (the Funding Agreement). The Funding Agreement was entered into pursuant to an order of this court made on 24 May 2019 pursuant to s 477(2B). The Funding Agreement was varied in accordance with a document called the Amendment Deed entered on 4 November 2019 with the approval of this court by order made on 31 October 2019. The two previous orders are the subject of: Vickers, in the matter of J M Kelly Builders Pty Ltd (In Liq) [2019] FCA 918; Vickers, in the matter of J M Kelly Builders Pty Ltd (In Liq) (No 2) [2019] FCA 1789. 2 The second order is sought under s 37AF of the Federal Court of Australia Act 1976 (Cth) prohibiting or restricting the publication of particular information. The information in question is: the affidavit of Derrick Craig Vickers sworn 16 December 2019; each of the annexures to that affidavit; the written submissions in support of the present application; any transcript of the hearing of the application; and the marked up copy of the Funding Agreement. 3 The application is supported by the affidavit material referred to above together with two other affidavits of Mr Vickers sworn on 15 May 2019 and 22 October 2019. The applicants have put on extensive written submissions in support of the application. 4 It has not been necessary to conduct the application in camera as all of the evidence in support of the application and submissions on the application of the legal principles to that evidence was put before the court in writing and I have had the benefit of reading that material. Often, applications under s 477(2B) relating to funding arrangements are conducted in camera so as not to prejudice, by public disclosure, potential steps or proceedings to be taken, the subject of the funding, designed to serve the best interests of the creditors: Jones, Saker, Weaver and Stewart (Liquidators), in the matter of Great Southern Limited (In Liq) (Receivers and Managers Appointed) [2012] FCA 1072 at [8]-[21] (and the authorities there cited). The present application has been made ex parte on the footing that an application on notice to those persons who might be the subject of steps taken or inquiries made as a result of the funding arrangements might prejudice those steps or inquiries: Crosbie, in the matter of Hastie Group Limited (In Liq) [2016] FCA 1289. 5 The elements of s 477(2B) are well known and so too are the essential principles governing its application. 6 However, s 477(2B) is in these terms: 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 (for example, but without limitation, a lease or an agreement under which a security interest arises or is created) if: (a) without limiting paragraph (b), the term of the agreement may end; or (b) obligations of party to the agreement may, according to the terms of the agreement, be discharged by performance; more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months. 7 In Hughes, in the matter of Sales Express Pty Ltd (in Liq) (Hughes) [2016] FCA 423 at [20], Edelman J identified the following principles in connection with applications under s 477(2B) concerning funding agreements: (1) the role of the Court is to grant or refuse approval. It is not to develop an alternative proposal; (2) the notion of necessity in the power of the liquidator to do "things as are necessary" has a broad meaning and empowers a liquidator to do anything expedient in relation to the beneficial completion of the winding-up of the affairs of the corporation and the distribution of its assets; (3) however, notwithstanding this breadth, the Court must be satisfied that there is a good and solid reason for concluding that the processes of winding up and distribution would be enhanced by the funding agreement, compared with the ordinary deployment of surplus funds. The enhancement must be demonstrated by some informed and independent assessment of the separate and selfish interests of the funding company; (4) although the Court must be satisfied that it is appropriate for the exercise of power under s 477(2B), the Court will not generally review a liquidator's commercial judgment or second guess its decision; (5) circumstances in which the Court will scrutinise a liquidator's decision closely include where there appears to be a lack of good faith, an error of law or principle, or a real or substantial ground for doubting the prudence of the liquidator's conduct; (6) the Court will rarely approve an agreement which has important terms that are unclear; (7) in considering whether the Court's power under s 477(2B) should be exercised, any relevant matter can be considered. Matters that are commonly relevant include: (a) the manner in which the funding or indemnity will be provided under the agreement; (b) the extent to which the liquidator has considered other funding options; (c) the interests of creditors other than the proposed or potential respondents and the extent to which the liquidator has consulted them; (d) the liquidator's prospects of success in the litigation although this factor will rarely be able to be assessed at anything other than a high level of abstraction; (e) possible oppression in bringing the proceedings; (f) the nature and complexity of the cause of action; (g) 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 costs of the defendant in the event that the action is not successful, or towards any order for security for costs); (h) any particular premium or benefit which is promised in consideration of the provision of the funding or indemnity including whether that benefit is proportionate to the risk undertaken by the funder; (i) whether the liquidator is subject to any control over the conduct of the litigation, other than the usual obligation to keep the funder fully informed of all matters relating to the action; and (j) whether the agreement provides for a clear mechanism for resolving any dispute between the funder and the liquidator about the compromise of the litigation which is funded … 8 Those principles are referrable to these authorities: Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2015) 295 FLR 13; Sheahan, in the matter of BCI Finances Pty Ltd (In Liq) [2015] FCA 121; Re McGrath (in their capacity as liquidators of HIH Insurance Ltd [2010] NSWSC 404; (2010) 266 ALR 642; Re Ascot Vale Self-Storage Centre Pty Ltd (In Liq) [2014] VSC 75. 9 For obvious reasons, it is undesirable to examine in any detail the scope of the work to be undertaken by reason of the funding agreement. The affidavits of Mr Vickers and particularly his affidavit of 16 December 2019 identifies much detail in relation to the variation to the Funding Agreement, the reasons for the variation and the scope of the work to be undertaken arising out of the provision of further funding by the Commonwealth. I am satisfied that the evidence put on by Mr Vickers demonstrates that the amendments to the Funding Agreement serve the interests of the creditors. I consider it appropriate to grant approval to the liquidators to enter into the Second Amendment Deed for these reasons. 10 First, the court has already considered the Funding Agreement and the First Amendment Deed and has been satisfied that orders ought to be made granting the liquidators approval to enter into those arrangements. The previous orders do not, of course, determine the question of whether the court should approve the proposed Second Amendment but the substratum of the circumstances which led to those earlier orders remains intact. 11 Second, no party has challenged the earlier orders. 12 Third, there is nothing in the material which suggests that approval of a continuation of the funding by force of the Second Amendment no longer serves the interests of the creditors or for some other reason is no longer appropriate. 13 Fourth, the terms of the Funding Agreement are clear and bear an appropriate relationship to a scope of works to be undertaken for designated tasks for a proper purpose which serves the best interests of the creditors overall. 14 Fifth, the amendment to the Funding Agreement is the result of discussions between the liquidators and the Commonwealth which engaged an arm's length testing of the merits of the work to be done and the scope of funding required to enable that work to be done. 15 Sixth, the control of the work to be undertaken by reason of the Second Amendment remains in the hands of the liquidators. 16 Seventh, the Committee of Inspection of JMK Builders has already considered and approved the entry by the liquidators into the Second Amendment Deed. 17 Eighth, the considered judgment of the experienced liquidators is that entry into the Second Amendment Deed would aid the just and beneficial winding-up of the companies in liquidation. Mr Vickers gives evidence that he considers that there is benefit to the unsecured creditors in having undertaken the investigations and other steps taken to date and the steps to be taken with the aid of further funding. Mr Vickers identifies the outcomes of those steps and the prospects of enlarging the pool of assets available for distribution amongst the unsecured creditors by making the inquiries and taking the steps contemplated through the provision of further funding. 18 Ninth, there is nothing in the material to suggest that the judgment of the liquidators reflects a lack of good faith or an error of principle or lacks prudence. 19 Accordingly I am satisfied that an order ought to be made under s 477(2B). 20 I am also satisfied that undertaking steps and inquiries contemplated by the evidence put on by Mr Vickers and the subject of the funding arrangement will be likely to be prejudiced and is apt to defeat the interests of the creditors should the material the subject of the s 37AF application be disclosed. I am satisfied that orders ought to be made restricting the publication or other disclosure of the relevant material and thus such an order is "appropriate". 21 The orders are these:

1. Pursuant to section 477(2B) of the Corporations Act 2001 (Cth), the second to thirteenth applicants be granted approval on behalf of the companies in respect of which they are appointed joint and several liquidators to enter into the Second Amendment Deed at annexure "DCV-1" to the Affidavit of Derrick Craig Vickers sworn on 16 December 2019, between the Commonwealth of Australia (acting through the Attorney-General's Department) ABN 92 661 124 436, the applicants, and the companies in respect of which they are appointed joint and several liquidators.
2. Pursuant to section 37AF of the Federal Court of Australia Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice, until further order: (a) the information comprising the following documents be kept confidential and not be provided or disclosed to any person other than the applicants and their solicitors: (i) the Affidavit of Derrick Craig Vickers sworn on 16 December 2019; (ii) each of the annexures to the Affidavit of Derrick Craig Vickers sworn on 16 December 2019; (iii) the written submissions on behalf of the applicants filed on 16 December 2019 in support of the interlocutory process filed on 16 December 2019; (iv) any transcript of the hearing of the interlocutory process filed on 16 December 2019; (v) the marked-up copy of the Funding Agreement provided by email to the Court on 16 December 2019; and (b) the documents at (a)(i) to (v) (inclusive) above be marked "confidential" on the electronic court file, not to be published or accessed by any party other than the applicants and their solicitors except pursuant to an order of the Court.
3. Any person demonstrating sufficient interest in Order 2 above have liberty to apply on seven days upon notice.
4. The second to thirteenth applicants' costs of this interlocutory process be costs in the liquidation of the companies in respect of which the second to thirteenth applicants are appointed joint and several liquidators. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

SCHEDULE OF PARTIES QUD 257 of 2019 Applicants Fourth Applicant DERRICK CRAIG VICKERS AND MICHAEL OWEN IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF BPM COWLRICK PTY LTD (IN LIQUIDATION) ACN 010 366 300 Fifth Applicant DERRICK CRAIG VICKERS AND MICHAEL OWEN IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF BURNS & TWIGG PTY LTD (IN LIQUIDATION) ACN 009 658 057 Sixth Applicant DERRICK CRAIG VICKERS AND MICHAEL OWEN IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF C.Q. CONSTRUCTION MANAGEMENT PTY LTD (IN LIQUIDATION) ACN 010 181 923 Seventh Applicant DERRICK CRAIG VICKERS AND MICHAEL OWEN IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF CAJUN PTY LTD (IN LIQUIDATION) ACN 062 966 312 Eighth Applicant DERRICK CRAIG VICKERS AND MICHAEL OWEN IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF CENTRAL ELECTRICS (CONTRACTING) PTY LTD (IN LIQUIDATION) ACN 010 543 987 Ninth Applicant DERRICK CRAIG VICKERS AND MICHAEL OWEN IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF CENTRAL QUEENSLAND INVESTMENTS PTY LTD (IN LIQUIDATION) ACN 009 769 180 Tenth Applicant DERRICK CRAIG VICKERS AND MICHAEL OWEN IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF FITZROY INDUSTRIES PTY LTD (IN LIQUIDATION) ACN 009 801 496 Eleventh Applicant DERRICK CRAIG VICKERS AND MICHAEL OWEN IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF JMK PASTORAL CO PTY LTD (IN LIQUIDATION) ACN 010 063 340 Twelfth Applicant DERRICK CRAIG VICKERS AND MICHAEL OWEN IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF G.J. MURPHY HOLDINGS PTY LTD (IN LIQUIDATION) ACN 056 514 651 Thirteenth Applicant DERRICK CRAIG VICKERS AND MICHAEL OWEN IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF ANNCORP PTY LTD (IN LIQUIDATION) ACN 056 637 328