In the matter of Plutus Payroll Australia Pty Limited (in liquidation) [2019] NSWSC 706

In the matter of Plutus Payroll Australia Pty Limited (in liquidation) [2019] NSWSC 706 | Case summary | Zoe

By Interlocutory Process filed on 4 March 2019, the Applicants, Messrs Norman and Algeri as the joint and several liquidators of Plutus Payroll Australia Pty Limited (in liq) and several other entities seek approval, nunc pro tunc, to enter into a Deed of Indemnity dated 29 January 2019 with the Deputy Commissioner of Taxation. That Deed of Indemnity deals with costs incurred by the liquidators in the period from 9 January 2018 to 31 January 2019. In that respect, the work contemplated by the Deed of Indemnity has already been done, and the costs which fall within its scope have presumably already been incurred.
The application is supported by an affidavit dated 27 February 2019 of Mr Norman which refers to the circumstances of his and Mr Algeri's appointment as provisional liquidators and then liquidators of the relevant companies; to pooling orders which have been made by the Court in respect of the liquidation; and the nature of the business conducted by the relevant companies. Mr Norman there refers to a previous indemnity which had been provided by the Deputy Commissioner of Taxation to the provisional liquidators, pursuant to a Deed of Indemnity made in August 2017; to the approval of that previous Deed of Indemnity by the Court by orders made on 4 June 2018; and to a short term indemnity also provided to the liquidators in respect of work over a limited period.
Mr Norman also refers to the steps which were taken to negotiate the further Deed of Indemnity, and I have been informed by Mr Elliott, on instructions, that that document, or at least specific clauses in it, were the subject of full negotiation. Mr Norman also notes that the Australian Taxation Office is the largest known creditor of the relevant companies and has submitted very substantial proofs of debt in the liquidations of companies although such proofs of debt have not yet been adjudicated or admitted, and was the only creditor which offered to indemnify the liquidators in respect of remuneration and expenses in connection with the liquidation of the companies. Mr Norman also observes that the liquidators do not have sufficient funds in the liquidation to run orderly liquidations and expresses the view that the interests of creditors would be served by entering into the relevant Deed of Indemnity. He notes that the Court's approval for entry into that Deed of Indemnity is sought under s 477(2B) of the Corporations Act 2001 (Cth) where there is no committee of creditors, and costs and delays would be incurred in convening a meeting of the company's creditors to seek approval by the creditors as a whole of the relevant arrangement.
Turning now to the terms of the Deed of Indemnity, Mr Elliott has taken me to critical provisions, including the period for which it applies, to which I have referred above, and the amount of the indemnity, as to which a claim for confidentiality is made. It is not necessary to address that amount for the purposes of this judgment. The Deed of Indemnity refers to what is described as an "Indemnity Purpose" as set out in cl 4.1, which sets out the terms on which the Deputy Commissioner of Taxation indemnifies the liquidators for remuneration, legal fees and expenses. Mr Elliott points out that, by contrast with the previous indemnity in respect of the provisional liquidation, the indemnity here extends beyond remuneration to legal fees and expenses, in a capped amount.
The Deed of Indemnity does not extend to adverse costs orders made against the liquidators. It may be that, in any application for approval of any further deed of indemnity, extending to a period in which litigation is brought by the liquidators, that clause will require more scrutiny. In particular, it appears to reflect a decision by the liquidators that they will accept the risk of personal costs orders against them, in any litigation which they may commence, subject to any negotiations with the Deputy Commissioner of Taxation or other creditors at the relevant time, at least if that litigation is commenced in their own names. To the extent that litigation is commenced in the names of the companies, then adverse costs orders may be provable against the companies in the liquidation, or it may be that security for costs would be granted in respect of such proceedings. I need not consider that clause further at this point since the period within the scope of this indemnity has passed without any adverse costs order arising in respect of the liquidators. The Deed of Indemnity also excludes certain costs, but those exclusions appear to be largely directed to the efficient and cost effective conduct of the liquidation, and do not give rise to difficulty.
The Deed of Indemnity provides for certain reporting obligations, which do not seem to me to cause difficulty in respect of a funding arrangement, and also provides for certain consultation arrangements with the Deputy Commissioner of Taxation in respect of settlement offers. Again, it is not necessary to scrutinise those provisions in detail at this point, given the nature of the work that has been primarily involved in this period. As a matter of first impression, it seems to me that those provisions are characteristic of what might be expected in a funding arrangement, and do not give rise to any unreasonable degree of control by the Deputy Commissioner of Taxation over the conduct of the liquidations. However, I leave that question open, and further scrutiny of that form of provision may be required, in respect of approval of any further indemnity in a period where, for example, proceedings against third parties are being brought.
The Deed of Indemnity also provides for certain priorities to the Deputy Commissioner of Taxation, against particular recoveries that are obtained with the benefit of indemnification, and also provides for reimbursement of funding provided by the Deputy Commissioner of Taxation to the liquidator, on the basis that it would have the priority that would be afforded to costs incurred by the liquidator in a liquidation. The Deed of Indemnity also preserves the ability to bring an application under s 564 of the Corporations Act for a priority distribution to the Deputy Commissioner of Taxation, reflecting the funding that it had provided. I see no difficulty with those provisions in the relevant circumstances, where it would be expected that a funder would seek such priority in respect of the funding provided to secure recoveries. The Deed of Indemnity, appropriately, provides that the indemnity survives a termination of the deed.
I have reviewed the applicable provisions in my earlier judgment in Re Plutus Payroll Australia Pty Ltd (in liq) [2018] NSWSC 1092 at [19]ff, in that case in respect of an indemnity in relation to the provisional liquidation of the companies. The liquidators correctly recognise that the Deed of Indemnity requires the Court's approval under s 477(2B) of the Corporations Act, which relevantly provides that, except with the Court's approval or other approvals not presently relevant, a liquidator must not enter into an agreement on a company's behalf, where the term of that agreement may end, or obligations of a party to the agreement may, according to its terms, be discharged by performance, more than three months after that agreement was entered into. In this case, the obligations of the Deputy Commissioner of Taxation in respect of the indemnification would continue for more than three months. The primary purpose of s 477(2B) of the Act is to ensure that the liquidator does not enter into commitments which will unduly delay the completion of that winding up. The entry into the Deed of Indemnity in this case will not have that effect and, to the contrary, it allows the liquidators to be funded for activities which would otherwise be unfunded, where the assets of the companies involved are not sufficient to fund that work. There is no reason to doubt that, in the present case, the entry into the relevant agreement is a proper and good faith exercise of the liquidators' powers or to think that it is ill-advised so as to decline approval under that section: Re 7 Steel Distribution Pty Ltd (in liq) (recs and mgrs apptd) [2013] NSWSC 669; Re Plutus Payroll Australia Pty Ltd (in liq) above at [21]. There is no doubt that the Court has power to grant such approval nunc pro tunc as is now sought.
I am satisfied that the interests of the general body of creditors are promoted by entry into the Deed of Indemnity, notwithstanding the consultation arrangements that are provided in respect of the Deputy Commissioner of Taxation and the priority which may be available to it over recoveries in certain circumstances, where it has the consequence that the liquidators are funded to undertake steps which may give rise to recoveries for the companies, in circumstances that they would otherwise not be achieved. I am therefore satisfied that the Deed of Indemnity should properly be approved, nunc pro tunc, under s 477(2B) of the Corporations Act.

[3]

Approval of compromise of claim

Messrs Norman and Algeri, as liquidators of Plutus Payroll Australia Pty Limited (in liq) and other entities, also seek an order under s 477(2A) of the Corporations Act that approval be granted nunc pro tunc to compromise a debt of $288,325.73 purportedly owing by CDMS Investments Pty Limited ("CDMS") to the Tenth Defendant, SAI Solutions Australia Pty Ltd (in liq) ("SAI").
Section 477(2A) of the Corporations Act relevantly provides that, except with the approval of the Court, a committee of inspection or a resolution of creditors, a liquidator of a company must not compromise a debt to the company if the amount claimed is more than $20,000 or the prescribed amount. The amount of $100,000 is now prescribed for the purposes of this section, and the amount of debt here claimed exceeds that amount. This requirement only applies to a debt in a strict sense, but Mr Elliott, who appears for the liquidators submits, and I accept, that the amount claimed by SAI against CDMS is a debt in a strict sense, although a claim might also be formulated in other ways. The Court will have regard to creditors' interests and the public interest in determining whether to approve a compromise of debt under the section, and will generally grant such approval where the liquidator has taken appropriate advice and there is no indication of any lack of good faith, error of law or principles or substantial reason to doubt the prudence of the compromise: Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as liquidator of the Bell Group Ltd (in liq) [2013] WASC 409; (2013) 97 ACSR 117.
The application for approval of the compromise is supported by Mr Norman's affidavit dated 27 February 2019. He sets out a detailed description of the payroll business operated by the relevant companies and the difficulties in obtaining financial information and access to books and records in the liquidation. He points to the circumstances in which invoices were issued to another entity, which appears to have an association with CDMS, although it bears the Australian Business Number of a company that has now been placed in liquidation. Mr Elliott points out, and I accept, that that raises a real risk for any claim against CDMS, that it would ultimately be contended that the relevant arrangement was with that other company in liquidation. Mr Norman also refers to the result of liquidators' investigations in respect of payment of invoices issued in that way and to correspondence with CDMS which has led to the proposed settlement with CDMS. Mr Norman also refers to the investigations which have been undertaken as to CDMS's assets which have been reflected in an assessment of the likelihood of recovery in any proceedings.
Mr Norman expresses the view, based on his investigations and correspondence with CDMS and its solicitors, that it is in the best interests of creditors to enter into the proposed deed of settlement and release, because of difficulties in verifying the amounts purportedly owed by CDMS to SAI; the issues as to the availability of financial records to the liquidators; and the issue as to the identity of the debtor to which I have referred above. Mr Norman also refers to CDMS's intent to defend the relevant proceedings and to bring a cross-claim and seek security for costs in respect of proceedings. All of these matters, plainly, would involve risks in contested litigation, and Mr Norman also refers to the scale of other transactions that are presently subject of investigation by the liquidators, of which this transaction represents a relatively small claim, as a matter supporting settlement of the claim.
Mr Elliott draws attention to the scope of s 477(2A) and its purpose, and notes the view formed by the liquidators as to the desirability of a settlement and the reasons why that view has been formed. He also points to the liquidators' assessment that it would be uncommercial to commence the proceedings, given the risk that a recovery will ultimately not be obtained in them, because of the limits to the assets of CDMS. It seems to me that, in the circumstances, there is no reason to doubt either the steps which have been taken by the liquidator in assessing the merits of the relevant claims and no reason to think that there is any lack of good faith, error of law or principle or reason to doubt the prudence of the proposed compromise. For those reasons, I will make the order sought in respect of the compromise of the debt under s 477(2A) of the Act.

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