Kerr, in the matter of Octaviar Limited (in liquidation) [2019] FCA 1614

Counsel for the Commissioner of Taxation of the Commonwealth of Australia: Mr D J Butler with Mr A G Psaltis

Solicitor for the Commissioner of Taxation of the Commonwealth of Australia: Australian Government Solicitor

8 October 2019 In the last sentence of the quoted extract in paragraph 49(7), "not" has been inserted after "should".

ORDERS NSD 1130 of 2019 IN THE MATTER OF OCTAVIAR LIMITED (IN LIQUIDATION) ACN 107 863 436 BETWEEN: DAVID JOHN KERR AS SPECIAL PURPOSE LIQUIDATOR OF OCTAVIAR LIMITED (IN LIQUIDATION) Plaintiff

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Interested Person

JUDGE: FARRELL J DATE OF ORDER: 4 sEPTEMBER 2019

1. Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), and on the ground that it is necessary to prevent prejudice to the proper administration of justice for the purposes of s 37AG of the Federal Court of Australia Act 1976 (Cth), the following material is not to be disclosed or made available for inspection by any person until cessation of the special purpose liquidation of Octaviar Limited (in Liquidation) or further order other than a judge of the Court, the personal staff of judges of the Court, any officer of the Court, the Plaintiff, his staff and his legal representatives: (a) Annexure DJK36 to the Third Affidavit of the Plaintiff sworn on 19 August 2019; (b) Annexure DJK37 to the Third Affidavit of the Plaintiff sworn on 19 August 2019.
2. Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), and on the ground that it is necessary to prevent prejudice to the proper administration of justice for the purposes of s 37AG of the Federal Court of Australia Act 1976 (Cth), the following material is not to be disclosed or made available for inspection by any person until cessation of the special purpose liquidation of Octaviar Limited (in Liquidation) or further order other than a judge of the Court, the personal staff of judges of the Court, any officer of the Court, the Plaintiff, his staff and his legal representatives and members of the committee of inspection of Octaviar Limited (in Liquidation): (a) Annexure DJK38 to the Third Affidavit of the Plaintiff sworn on 19 August 2019.
3. Costs of this interlocutory application be costs in the cause.
4. Any person demonstrating sufficient interest in orders 1 and 2 have liberty to apply to the Court to seek access to the material on 48 hours' notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS NSD 1130 of 2019 IN THE MATTER OF OCTAVIAR LIMITED (IN LIQUIDATION) ACN 107 863 436 BETWEEN: DAVID JOHN KERR AS SPECIAL PURPOSE LIQUIDATOR OF OCTAVIAR LIMITED (IN LIQUIDATION) Plaintiff

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Interested Person

JUDGE: FARRELL J DATE OF ORDER: 30 september 2019

1. Pursuant to s 90-15(1) of Pt 3 of Div 90 of Sch 2 to the Corporations Act 2001 (Cth), the plaintiff would be justified in not taking any further steps to progress the claim of Octaviar Limited (in liquidation) (Octaviar) to be a creditor of Octaviar Administration Pty Ltd (in liquidation) (Admin), including by appealing the decision of Admin's liquidators to reject Octaviar's proof of debt dated 11 April 2011, until the final determination of proceedings numbered BS8856/18 issued out of the Supreme Court of Queensland.

2. The plaintiff's costs of this application be costs in Octaviar's liquidation. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 This is an application made under s 90-15 of Part 3 of Div 90 of Sch 2 to the Corporations Act 2001 (Cth) (Insolvency Practice Schedule) by David John Kerr as special purpose liquidator of Octaviar Limited (in liq) (Octaviar). 2 Mr Kerr seeks a direction that he would be justified in not taking any further steps to progress a claim that Octaviar is a creditor of Octaviar Administration Pty Ltd (in liq) (Admin), including by appealing (New Appeal) the decision of the liquidators of Admin made on 11 April 2014 to reject Octaviar's proof of debt dated 11 April 2011 (Octaviar POD Rejection) having regard to Admin's asserted Offsetting Claims (Intercompany Indebtedness issue) (see [14] and [19]-[24] below) until the determination of proceedings brought against the Commissioner of Taxation of the Commonwealth of Australia (Commissioner) by Octaviar's general purpose liquidators and Admin's liquidators (the Garnishment Proceeding) (see [35]-[38] below). Mr Kerr was joined as second respondent to the Commissioner's counterclaim in the Garnishment Proceeding. The Garnishment Proceeding has been set down for hearing on 11 November 2019 for three days. 3 On 31 July 2019, Markovic J made orders in this proceeding to the following effect: (1) Granting the Commissioner, in his capacity as a creditor of Octaviar, leave to be heard in the proceedings without becoming a party pursuant to r 2.13(1) of the Federal Court (Corporations) Rules 2000 (Cth); and (2) Subject to the view of the docket judge, determining that the matter be determined on the papers but subject to a hearing of no more than half a day to supplement the papers. No such hearing was required. The Court formed the view that the matter could be dealt with on the papers. 4 Mr Kerr filed four affidavits in support of his application, all of which are taken as read. The first affidavit, sworn on 17 July 2019, contains a detailed background to the application, much of which is reflected in the material under the heading "Background" below. The second affidavit, sworn on 26 July 2019, is an affidavit of service in relation to notification of creditors of the first return date in relation to this application and correspondence with them. The third affidavit, sworn on 19 August 2019, contains copies of further correspondence with creditors. The fourth affidavit, sworn on 19 August 2019, relates to Mr Kerr's application for orders under s 37AF of the Federal Court of Australia Act 1976 (Cth) in relation to: (1) Annexure DJK36 to that affidavit, being confidential legal advice which Mr Kerr received in respect of the Offsetting Claims and the application of the rule in Jeffs v Wood (being a rule discussed further in [22] below). (2) Annexure DJK37 to that affidavit, being a confidential costs estimate provided to Mr Kerr by his solicitors in relation to any New Appeal. Mr Kerr submitted that the estimate of legal costings would be valuable information that could be strategically deployed by opposing interests if they considered that the estimate had been reached at any point. (3) Annexure DJK38 to that affidavit, being a copy of a report to Octaviar's Committee of Inspection issued on 30 October 2018 updating them on the progress of the Intercompany Indebtedness issue. Mr Kerr says that the report was generated solely for Octaviar's Committee of Inspection and it contains a confidential discussion of strategy, including the merit or otherwise of a New Appeal and other issues, which could be deployed by those with opposing interests against Octaviar. 5 The Court was satisfied that it is necessary, in order to prevent prejudice to the proper administration of justice, being a ground set out in s 37AG of the Federal Court of Australia Act, that DJK36, DJK37 and DJK38 not be disclosed or made available for inspection by any person until cessation of the special purpose liquidation of Octaviar or further order except in the limited circumstances identified in the orders made on 4 September 2019. 6 Mr Kerr filed written submissions in support of his application on 19 August 2019. The Commissioner filed brief written submissions on 28 August 2019. The Commissioner stated that he does not oppose the relief sought by Mr Kerr because, in his view, it is unlikely that the Intercompany Indebtedness issue will be resolved before the hearing and determination of the Garnishment Proceeding. 7 These are the reasons for making the direction and orders sought by Mr Kerr.

Background 8 What follows is an overview of the circumstances which Mr Kerr considers relevant to this application based on written submissions made by his counsel (Mr Leopold SC and Mr Wilkins) and Mr Kerr's evidence.

Octaviar Group activities 9 The Octaviar Group of companies (Octaviar Group) was involved in the tourism, property funds management and financial services sectors. Octaviar is the ultimate holding company of the Octaviar Group and it was listed on the Australian Securities Exchange. At the time it was placed in liquidation, it was the holding company of over 70 subsidiaries. 10 Admin functioned as the treasury company for the Octaviar Group, recording payments made and received in intercompany loan accounts. 11 Between May and June 2007, Fortress Credit Corporation (Australia) II Pty Ltd (Fortress) lent to members of the Octaviar Group, namely Octaviar Castle Pty Ltd and Young Village Estates Pty Ltd, $250 million and $53.5 million respectively. The loan to Octaviar Castle Pty Ltd was guaranteed by Octaviar, and that guarantee was supported by a first ranking fixed and floating charge over Octaviar's assets and undertaking (the Fortress Charge). 12 In February 2008, 65% of the tourism sector businesses of the Octaviar Group were sold, generating $400 million in proceeds, with Fortress being paid about: (1) $189 million to discharge the loan to Octaviar Castle Pty Ltd; and (2) $20 million in reduction of the loan to Young Village Estates Pty Ltd.

Liquidation of Octaviar and Admin, appointment of Receivers 13 The history of the liquidations of Octaviar and Admin are both long and complex. Mr Kerr summarised the circumstances in which they were wound up as follows: (1) On 4 June 2008, the Public Trustee of Queensland (PTQ) commenced winding up proceedings in the Supreme Court of Queensland (SCQ) against companies in the Octaviar Group, including Octaviar. Those applications were adjourned to allow Octaviar's directors to appoint voluntary administrators rather than immediately putting the companies into liquidation. (2) On 10 September 2008, the Commissioner issued a notice (in effect, a garnishee notice) to Admin under the Taxation Administration Act 1953 (Cth), Sch 1, s 260-5 in respect of tax debts owed by Octaviar in the amount of $58,092,713.57 (the Garnishment). (3) On 13 September 2008, Octaviar was placed into voluntary administration by resolutions of its directors. John Greig and Nicholas Harwood of Deloitte were appointed as Octaviar's joint and several administrators. (4) On 15 September 2008, Fortress appointed Stephen Parbery and Anthony Simms of PPB Advisory as joint and several receivers and managers of Octaviar (the Receivers) pursuant to the Fortress Charge. (5) On 3 October 2008, Admin was placed into voluntary administration by a resolution of its directors and Mr Greig and Mr Harwood were appointed as Admin's joint and several administrators. (6) On 17 December 2008, creditors resolved to place Octaviar and Admin into deed administration. On 12 January 2009, deeds of company arrangement were entered into in respect of both companies and at that time the voluntary administrations ended. (7) On 31 July 2009, on application by the PTQ, the SCQ terminated the deeds of company arrangement, the Court ordered that Admin be wound up and appointed Mr Greig and Mr Harwood as provisional liquidators of Octaviar and liquidators of Admin. (8) On 9 September 2009, again on application to the SCQ by the PTQ, an order was made that Octaviar be wound up, that Mr Greig and Mr Harwood be removed and that Katherine Barnet and William Fletcher be appointed as the liquidators of Octaviar and Admin (Liquidators).

Octaviar POD 14 On 11 April 2011, the Receivers lodged a proof of debt by Octaviar in the liquidation of Admin in the amount of $514,685,948.12, based on the intercompany loan account contained in the books and records of the Octaviar Group (the Octaviar POD).

Circumstances of appointment of special purpose liquidator of Octaviar, Octaviar Claim and Admin Claim against Fortress 15 On 8 December 2011, the Liquidators successfully applied to the Supreme Court of New South Wales (SCNSW) for orders pursuant to which Mr Kerr was appointed as a special purpose liquidator of Octaviar and Ms Barnet and Mr Fletcher became the general purpose liquidators of Octaviar. 16 Mr Kerr was appointed because the Liquidators were pursuing an action on behalf of Octaviar against Fortress (the Octaviar Claim) commenced in the SCQ in 2010 and they proposed to commence an action on behalf of Admin against Fortress (the Admin Claim). The Octaviar Claim relevantly included the payment referred to at [12(2)] above. The soon-to-be commenced Admin Claim relevantly included the payments referred to at [12(1)] and [12(2)] above. The overlapping claims competed with each other. Both entities were claiming to recover $20 million paid to Fortress from what are referred to as the Stella Sale Proceeds. That resulted in a conflict of duties for the Liquidators as general purpose liquidators of Octaviar. 17 Mr Kerr was appointed to conduct the Octaviar Claim (he was funded by Admin) and Ms Barnet and Mr Fletcher, as liquidators of Admin, conducted the Admin Claim which was commenced in the SCQ in 2012.

Commissioner's proof of debt in Octaviar liquidation 18 On or about 9 February 2012, the Commissioner lodged a proof of debt in the liquidation of Octaviar which estimated the value of the security interest arising from the Garnishment at $1 by reason of the priority of the Fortress Charge and because the amount of the dividend to be paid by the Liquidators of Admin was expected to be insufficient to discharge the Fortress Charge.

Octaviar POD Rejection, POD Appeal, Intercompany Indebtedness Issue and Offsetting Claims 19 According to the loan accounts in the books and records of the Octaviar Group, Octaviar is a creditor of Admin for approximately $514 million. On 11 April 2014, the Liquidators of Admin rejected the Octaviar POD (Octaviar POD Rejection) on the basis that Admin was allegedly entitled to offset the following claims for an aggregate amount of $830,096.384 (together, the Offsetting Claims): (1) $51,451,146 said to be due under a service agreement alleged to have been entered into by Octaviar and Admin in January 2005. This claim is said to comprise 68 separate payments to 18 different service providers with each service provider operating under their own arrangements. (2) $37,056,409 said to be due by reason of Admin having made payments on behalf of Octaviar that were not reflected in the intercompany loan account. Mr Kerr says that this claim is said to comprise 88 separate payments to 13 different service providers with each service provider again operating under separate arrangements. (3) $137,215,904 said to be due because Octaviar was allegedly knowingly involved in, or knowingly participated in, breaches of trust said to arise out of Admin's directors' alleged misuse of $130 million to pay Fortress, which payment resulted in a liability owing from Admin to Wellington Capital Limited (Wellington). This is said to be part of a successful prosecution by the Australian Securities & Investments Commission against certain directors of Octaviar and Admin which commenced in the SCQ in October 2009. Judgment was delivered in May 2016. Appeals from that decision were largely dismissed, however, one aspect of the Court of Appeal's decision, concerning the meaning of 'officer' is currently the subject of a pending appeal in the High Court, special leave having been granted on 17 May 2019. (4) $604,372,925 said to be due by reason of Octaviar allegedly being knowingly involved in, or knowingly participated in, breaches of duty by Admin's directors relating to the sale of the 65% interest in the tourism sector businesses (which is referred to at [12] above); that is, indirect liability due to the misuse of the Stella Sale Proceeds. This offsetting claim is similar to the allegations made by Admin against Fortress in the Admin Claim except that this time Octaviar is said to have been knowingly involved. Mr Kerr observes that the Admin Claim was an enormous undertaking. For example: there were in excess of 80,000 relevant documents disclosed; the e-court book contained over 15,000 documents; the insolvency report ran to over 800 pages; and the estimated length of the trial was between 10 and 12 weeks. 20 Mr Kerr notes that, if established, the Offsetting Claims would, in net terms, mean that Admin was one of the Octaviar's largest creditors for an amount of about $300 million, contrary to Octaviar's POD. 21 The dispute as to which claim is correct is referred to as the Intercompany Indebtedness issue. 22 On 30 September 2014, the Receivers caused Octaviar to appeal against the Octaviar POD Rejection in the SCNSW (proceedings 86869 of 2014) (POD Appeal). In addition to the Offsetting Claims, the points of defence filed by Admin's Liquidators pleaded that, under the rule in Cherry v Boultbee (1839) 41 ER 171, Octaviar is not entitled to participate in the fund constituted by Admin's insolvent estate until Octaviar has made a contribution to that fund and Octaviar has not done so. Mr Kerr notes that the actual rule relied on by Admin's Liquidators is the rule in the Jeffs v Wood (1723) 2 P Wms 128; 24 ER 668 under which a person who is both a claimant on, and a debtor to, a fund cannot obtain payment of that person's claim out of the fund without first paying the person's debt to the fund. Mr Kerr notes that the rule in Cherry v Boultbee operates as an exception to the rule in Jeffs v Wood.

Settlement of claims against Fortress and discontinuance of POD Appeal 23 In April 2015, Mr Kerr settled the Octaviar Claim with Fortress. In May 2015, Fortress and Admin's Liquidators settled the Admin Claim as a result of which Fortress assigned to Admin Octaviar's remaining debt to Fortress (said to be about $7.9 million) for $2.35 million and the Fortress Charge. Admin thereby became a secured creditor of Octaviar. Following those settlements, the Receivers retired from their appointment. 24 Also in May 2015, the POD Appeal was discontinued by consent (in the case of Octaviar, by the Receivers) on the basis that Admin's Liquidators would not raise any time bar defence in any further appeal against the Octaviar POD Rejection. Any further appeal which may be filed will be referred to as a New Appeal.

Cost of potential New Appeal 25 Mr Kerr has received cost estimates from his lawyers should it become necessary to commence a New Appeal against the Octaviar POD Rejection. 26 The estimate is made in three steps: (1) Immediate steps, comprising the application for an extension of time to file the New Appeal, the notice of appeal and initiating affidavit, the first directions hearing and points of claim, defence and reply. (2) Intermediate steps, comprising a compulsory mediation and possibly an interlocutory application to determine the application of rule in Jeffs v Wood (the effect of which may either narrow or completely resolve the Intercompany Indebtedness issue). (3) Final steps to get the New Appeal ready for hearing, comprising the preparation of evidence and the hearing itself. 27 Mr Kerr says that the third step is by far the most expensive, as the first step largely reproduces the work previously completed by the Receivers as part of the POD Appeal. He says that the second step has been advanced already through the completed steps in the negotiations to which he deposes. He says that the amount he holds in his special purpose liquidator's account will cover the estimated costs and estimated adverse costs exposure. 28 Mr Kerr's affidavit sworn on 19 August 2019 contains confidential annexure DJK37, being the estimate of costs for the New Appeal.

Expansion of Mr Kerr's powers 29 On 28 August 2015, the SCNSW (Brereton J) directed that Mr Kerr would be justified in applying to expand his powers to deal with the Intercompany Indebtedness issue after 1 December 2015 (given that, in the meantime, there would be negotiations between the Liquidators of Admin and the Commissioner about a possible compromise of the Garnishment): see In the matter of Octaviar Limited (in liquidation) [2015] NSWSC 1621. 30 On 2 February 2016, Brereton J made orders to the following effect: (1) Granting leave to the Liquidators of Octaviar to continue their appointment. (2) Advising the Liquidators of Admin that they be justified in maintaining (as distinct from enforcing) the Fortress Charge. (3) Empowering Mr Kerr to: (a) Call for, assess and administer any proof of debt lodged by Admin in the liquidation of Octaviar; (b) Represent the interests of Octaviar in respect of any proof of debt that may be appropriate for it to lodge in the estate of Admin (including by appealing the Octaviar POD Rejection, that is, undertaking a New Appeal); and (c) Exclusively represent the interests of Octaviar in respect of Octaviar's claims to be a creditor of Admin and Admin's claims to be a creditor of Octaviar (including its claims to be a secured creditor of Octaviar). See In the matter of Octaviar Limited (in liquidation) [2016] NSWSC 16.

Negotiations concerning Intercompany Indebtedness issue and Garnishment 31 In April 2016, Mr Kerr initiated negotiations on a without prejudice basis with Admin's Liquidators concerning the Intercompany Indebtedness issue. In his affidavit sworn on 17 July 2019 at [40]-[41], Mr Kerr explained his reasons for taking that course and, in very general terms, the way in which the negotiations were conducted by exchange of papers and meetings in person to discuss issues. 32 Those negotiations were suspended by Admin's Liquidators in July 2017 to allow them to advance a contention with the Commissioner concerning the Garnishment. The issue ventilated was whether the application of the rule in Jeffs v Wood and the calculations required by that rule operated in favour of Admin such that there was no debt owing by Admin to Octaviar or no debt owing by Admin to Octaviar after enforcement of the Fortress Charge and therefore no value in the Garnishment. 33 After negotiations between Admin's Liquidators and the Commissioner failed to lead to any resolution, Mr Kerr and Admin's Liquidators reinstated negotiations in September 2017 and they continued until May 2018. Of these negotiations, Mr Kerr said that Admin's Liquidators and he (and their respective lawyers) discussed a mechanism by which Admin's contentions around set-off and the rule in Jeffs v Wood could be tested by a Court process (being an application brought by Admin). Most of those discussions were held on a without prejudice basis. Mr Kerr has deposed that, without any intention on his part to undermine the privilege, the discussions were at an advanced stage and (given the advice that he had received) he had agreed to represent the interest of Octaviar and act as a contradictor on any application brought by Admin on the matter. Mr Kerr said that he agreed to do so because: (1) If Admin were correct, then the Intercompany Indebtedness issue would effectively be resolved and there would be no need to calculate the exact amounts owed by Admin to Octaviar, as there would be no dividend paid regardless (by either Admin to Octaviar or by Octaviar to Admin); (2) If Admin were incorrect, at the very least, the issues being ventilated would substantially narrow the matters in dispute, in that, depending on where Admin was found to be incorrect, the outcome could impact substantially on the quantum of dividend paid by Admin to Octaviar (with the prospect of potentially exceeding the tax liability comprised in the Garnishment); and (3) To put those outcomes into context, the value of the Octaviar POD in the liquidation of Admin, disregarding any notions of set-off and the rule in Jeffs v Wood, could result in a dividend being paid by Admin to Octaviar of approximately $27 million (that calculation is based on the Octaviar POD being admitted at $514 million and an equalising dividend at 5.2 cents being paid to Octaviar) plus any further dividend on the balance of the funds available for distribution (which could be approximately $13 million, based on the Octaviar POD representing 32.74% of admitted unsecured creditors of Admin). 34 Admin's Liquidators suspended negotiations with Mr Kerr in May 2018 to re-engage in negotiations with the Commissioner.

Garnishment Proceeding 35 Between May and July 2018, the Liquidators of Octaviar corresponded with the Commissioner on the appropriateness of redeeming for $1 the security interest comprised in the Garnishment, that figure being the nominal value ascribed to that interest in the Commissioner's proof of debt lodged in the liquidation of Octaviar. 36 On 17 August 2018, the Liquidators (as liquidators of Octaviar and Admin) instigated a proceeding numbered BS8856/18 in the SCQ (Garnishment Proceeding), seeking a declaration that the security comprised in the Garnishment had been redeemed. In his affidavit sworn on 17 July 2019, Mr Kerr explained that: (1) If the redemption were valid, then the effect would be that Octaviar's general unsecured creditors would participate in any dividend paid by Admin to Octaviar arising from the Octaviar POD; and (2) If the redemption were invalid, then, to the extent that the Garnishment was otherwise enforceable, the Commissioner would be paid any debt otherwise payable by Admin to Octaviar arising from the Octaviar POD (up to the value of the tax liability). 37 The Commissioner opposes the making of that declaration. In his affidavit sworn on sworn on 17 July 2019, Mr Kerr deposed that the parties to the Garnishment Proceeding corresponded and in the course of that correspondence, the Commissioner raised, on a number of occasions, the utility of the Garnishment Proceeding in the absence of the determination of the Intercompany Indebtedness issue and that (through his lawyer) the Commissioner stated that the issues raised by the Intercompany Indebtedness issue would become issues in the Garnishment Proceeding. 38 Between December 2018 and May 2019 the Garnishment Proceeding progressed through its initial stages. Mr Kerr was joined as second respondent to the Commissioner's counterclaim. The proceeding has been set down for hearing on 11 November 2019 for three days.

Communications with Committee of Inspection concerning Intercompany Indebtedness issue 39 During October and November 2018, Mr Kerr communicated with Octaviar's Committee of Inspection (or Committee), PTQ and the Liquidators about ways to progress a resolution of the Intercompany Indebtedness issue: (1) At a meeting with the Committee of Inspection on 22 October 2018, some members of the Committee expressed (what Mr Kerr took to be) frustration at the time taken to finalise the Intercompany Indebtedness issue. As a result, the Committee did not approve his remuneration incurred in relation to that issue but did otherwise approve his remuneration. This was said to be as an incentive to him to progress the Intercompany Indebtedness issue to conclusion. (2) On 25 October 2018, Mr Kerr sent a letter to Admin's Liquidators proposing formal mediation or an expert determination to seek to advance the Intercompany Indebtedness issue. (3) On 30 October 2018, Mr Kerr convened a further meeting of the Octaviar Committee of Inspection for 5 November 2018 and provided a written report on the progress of the Intercompany Indebtedness issue and options to move forward. A copy of the report is confidential annexure DJK38. (4) On 1 November 2018, Mr Kerr received a letter from Admin's Liquidators, in response to his letter of 25 October 2018, which was written on a confidential and without prejudice basis. Admin's Liquidators did not support Mr Kerr's efforts to seek to progress of the Intercompany Indebtedness issue while the Garnishment Proceeding was not yet determined. (5) No quorum was achieved at the meeting of the Committee of Inspection on 5 November 2018. Mr Kerr updated those members who were present (being the representatives of Challenger, OPI and ARL) and suggested that a way to progress the Intercompany Indebtedness issue while the Garnishment Proceeding was on foot was for Admin's Liquidators to engage in a formal mediation on the basis that any resolution would be conditional on the Garnishment being successfully redeemed (by virtue of the Garnishment Proceeding) and otherwise subject to judicial advice. Members present made it clear that they did not wish Mr Kerr to incur any expenditure to progress the Intercompany Indebtedness issue. Mr Kerr pointed out that this was inconsistent with the Committee refusing to approve Mr Kerr's remuneration until such time as he had sought to progress the Intercompany Indebtedness issue. Members also suggested that Mr Kerr provide an estimate of costs for formal mediation for their consideration. (6) On 14 November 2018, PTQ's lawyers wrote to Mr Kerr. The letter was critical of Mr Kerr seeking to progress the Intercompany Indebtedness issue while the Garnishment Proceeding was on foot on the basis that PTQ did not support expending funds that may or may not benefit Octaviar's general unsecured creditors but may only benefit the Commissioner, depending on the outcome of the Garnishment Proceeding. Mr Kerr responded by providing background on the Intercompany Indebtedness issue and context for seeking to progress those issues, including the fact that it had been the Committee of Inspection which had asked him to do so. (7) On 22 November 2018, Mr Kerr distributed a note to those members of the Committee of Inspection who had attended the informal discussion 5 November 2018. The note contained an estimate of costs.

Creditors of Octaviar and Admin 40 The Liquidators of Octaviar have admitted 16 unsecured creditors' claims in the liquidation of Octaviar in an aggregate amount of $1,156,347,682. They have not adjudicated on two unsecured creditors' claims in an aggregate amount of $929,108,422 (see footnotes "**" and "##" at [42] below). 41 The Liquidators have admitted 27 unsecured creditors' claims in the liquidation of Admin for an aggregate amount of $1,057,422,033. They have not adjudicated on four unsecured creditors' claims in an aggregate amount of $55,002,346. This does not include the Octaviar POD. 42 There are a small number of large creditors of Admin and Octaviar which may be summarised as follows: Octaviar admitted claims Admin admitted claims Creditor Debt$ % of Total Debt$ % of Total Asset Resolution Limited (ARL) 205,694,372 17.79 137,215,904 12.98 Challenger Managed Investment Ltd (Challenger) 107,363,895 9.28 21,344,139 2.02% Colonial First State Investments Ltd (Colonial) 8,081,153 0.70 1,784,029 0.17 Commissioner 58,164,482 5.03 3,650,664 0.34 Octaviar Investment Bonds Ltd (in liquidation) (OIB) **Not adjudicated - 104,354,806 9.87 Octaviar Investment Notes Ltd (in liquidation) (OIN) ##Not adjudicated - 360,907,477 34.13 OPI Pacific Finance Ltd (receivers and managers appointed) (OPI) 372,375,191 32.2 65,000,000 6.15 PTQ++ 384,710,658 33.27 362,610,864 34.29 TOTALS 1,136,389,750 98.27 1,056,864,883 99.95

** OIB has lodged a proof of debt for $464,566,212 in Octaviar's liquidation.

OIN has lodged a proof of debt for $464,542,210 in Octaviar's liquidation.

++PTQ's priority unsecured claim for $658,302 has been paid. 43 The Committee of Inspection is made up of a representative of each of ARL, Challenger, Colonial, Commissioner and OPI. OIN and OIB are represented by their liquidator. Admin's Committee of Inspection has the same composition, save that the Commissioner is not represented on that Committee. PTQ was previously represented on both Committees but its representative (Gareth Jenkins, a partner of Clayton Utz) resigned. In an email in June 2015 Mr Jenkins cited the potential for a conflict of interest in relation to the Intercompany Indebtedness issue, given that PTQ was a creditor of both Octaviar and Admin.

Matters which Mr Kerr considered relevant on the application 44 In concluding that the appropriate course of action would be to await the outcome of the Garnishment Proceeding before instituting a New Appeal, Mr Kerr considered the following factors.

Considerations relevant to the grant of an extension of time to prosecute a New Appeal 45 It is likely that the propriety of delaying a resolution of the Intercompany Indebtedness issue will be significant in determining whether leave will be granted to commence the New Appeal out of time. 46 Mr Kerr noted that the notice of the Octaviar POD Rejection stated in substance that the decision may be appealed to a Supreme Court or this Court no later than 28 days after service. He also noted that: (1) Under reg 5.6.54(2) Corporations Regulations 2001 (Cth), a person may appeal against a rejection of a proof of debt within the time specified in the notice or such further period as the Court allows; and (2) Under r 14.1(2)(b) of the Supreme Court (Corporations) Rules 1999 (NSW) and r 14.1(2)(b) of the Federal Court (Corporations) Rules 2000 (Cth), such an appeal is to be filed within 21 days, or "within … any further time allowed by the Court". 47 He submitted that, while Admin's Liquidators agreed not to raise any time bar defence in a New Appeal, a New Appeal would still require Mr Kerr to obtain leave from this Court or a Supreme Court to extend the time within which to commence the New Appeal. Relying on Jackamarra v Krakouer [1998] HCA 27; 195 CLR 516 at [5] (Brennan CJ and McHugh J) and at [66] (Kirby J), he submitted that the factors relevant to an application for an extension of time are (1) whether it is just in all the circumstances to grant an extension; (2) whether the time limits are of a substantive or procedural nature; (3) whether the case is arguable; (4) respective prejudice to the parties; (5) length of the delay; (6) responsibility and reasons for the delay; (7) whether the delay was intentional or the result of a bona fide mistake; and (8) whether the delay was caused by the litigant or legal advisers: 48 Mr Kerr submitted that: (1) Without intending to waive privilege, legal advice suggests that there are good prospects of establishing that Octaviar is a net creditor of Admin. A copy of that legal advice is in evidence as confidential annexure DJK36. (2) In relation to extending time to serve an originating process, awaiting the outcome of a proceeding is not ordinarily seen as a "good reason": see IMB Group Pty Ltd (in liq) v Australian Competition and Consumer Commission [2007] 1 Qd R 148, [2006] QCA 407 at [56]-[57] (McMurdo P, Keane JA and Cullinane J agreeing. However, an extension of the time for service has been granted where the awaited proceeding determined all or part of the outcome of the delayed proceeding, particularly where there was no prejudice suffered by a party defending the delayed proceeding (relying on Hunter v Hanson [2014] NSWCA 263 at [71]-[74] (McColl JA, Macfarlan JA agreeing); Agricultural & Rural Finance Pty Ltd v Kirk [2011] NSWCA 67; 82 ACSR 390 at [104]-[105] and [118] (Tobias, Macfarlan JJA and Sackville AJA agreeing)). Delaying the commencement of a New Appeal to await the outcome of the Garnishment Proceeding should similarly be viewed as a good reason. (3) Admin's Liquidators have agreed not to take any time bar limitation to the instigation of a New Appeal. There has also been extensive discussion of the contentions of both Admin and Octaviar (including with interested parties) in relation to the Intercompany Indebtedness issue. That has occurred through the provision of position papers during without prejudice negotiations, multiple meetings and the points of claim and points of defence filed in the discontinued appeal. In those circumstances, it cannot be said that Admin, Octaviar or any interested party will be prejudiced by a lack of notification either of the intention to bring any New Appeal or the specific contentions to be made in those proceedings.

Who will benefit from resolving the Intercompany Indebtedness issue? 49 Counsel for Mr Kerr submitted that: (1) The value of the Octaviar POD in the liquidation of Admin, if accepted in its entirety, would result in an equalising dividend of at least $27 million. About $7.9 million of any dividend payable to Octaviar may be secured to Admin under the Fortress Charge. (2) If the Garnishment was validly redeemed on 3 August 2018, the balance of any dividend payable by Admin to Octaviar, after paying any amount secured by the Fortress Charge, will be paid to (and therefore benefit) Octaviar's unsecured creditors. (3) Alternatively, if the Garnishment remains, then the balance of any dividend payable by Admin to Octaviar, after paying any amount secured by the Fortress Charge, will be paid to the Commissioner. (4) Whether the Garnishment has been validly redeemed and whether it is capable of attaching to any dividend payable by Admin to Octaviar are issues to be resolved in the Garnishment Proceeding. (5) The appropriateness of expending the significant funds required to determine the Intercompany Indebtedness issue on a New Appeal is complicated if the Garnishment remains in place in light of Mr Kerr's duty to act for the benefit of unsecured creditors as a whole rather than for the benefit of a single creditor. In Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15; 252 CLR 307, the High Court said at [58] (citations removed): It is no part of a liquidator's duty to ensure that litigation conducted in the course of the realisation of assets is for the benefit of a secured creditor, or any particular creditor. A liquidator's duty is owed to the body of creditors as a whole and to the court. The relevant benefit is that which is sought by the realisation of assets, namely the augmentation of assets available for distribution. A liquidator is to do what he or she can to augment the disposable assets of the company. (6) If the Garnishment was not validly redeemed, resolving the Intercompany Indebtedness issue solely benefits the Commissioner to the extent of any dividend that is ultimately payable by Admin to Octaviar. On the other hand, if the Garnishment was validly redeemed, resolving the Intercompany Indebtedness issue successfully to Octaviar would dispose of Admin's claim to be one of the largest creditors of Octaviar (by reason of the Offsetting Claims), meaning general unsecured creditors of Octaviar would benefit because their dividend from Octaviar's liquidation will not be diluted by Admin's claims. (7) A further complication is that Mr Kerr might also have rights under the principle in Re Universal Distributing Co Ltd (In Liq) [1933] HCA 2; 48 CLR 171 at 174, discussed in Stewart v Atco Controls. In Re Universal Distributing Co Ltd (In Liq) at 174-175, Dixon J said (citations removed): … If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets. The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it. The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun a suit for its realization or had themselves realized it without suit. In applying this principle, only those expenses appear to have been thrown against the fund belonging to the debenture-holders which have been reasonably incurred in the care, preservation and realization of the property. In the present case the liquidator has employed a material part of his time and energies in recovering moneys, both uncalled capital and debts, which enure for the debenture-holder, and in so far as these services increase the remuneration which he receives, I see no reason why the burden should not be thrown upon the proceeds. The question is not whether moneys available for unsecured creditors should be relieved at the expense of the security. In such a case it may be said that the service of collecting enough to discharge the debenture must in any event be performed in order that a surplus may then arise in which the unsecured creditors may participate. The question in the present case is whether the liquidator can charge against the fund passing through his hands as between himself and the person to whom it is payable, so much of the remuneration fixed for work done in the winding up as is referable to the calling in and conversion of the assets producing the fund. I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it. 50 Counsel for Mr Kerr note that it has been asserted in correspondence from the Commissioner that the Garnishment Proceeding is hypothetical as it assumes the existence of a debt owing from Admin to Octaviar, in circumstances in which no issue is raised in the Garnishment Proceeding as to whether or not there is any debt owing from Admin to Octaviar. That issue would be the subject of the New Appeal, if brought. The Liquidators of Octaviar and Admin have rejected this, and have noted that the Commissioner has not raised the point in his defence. 51 Mr Kerr is concerned that, if it eventuates that the Garnishment Proceeding resolves nothing because the existence of a debt owing from Admin to Octaviar is held to be hypothetical, he is exposed to an allegation of breach of duty for delaying resolution of the Intercompany Indebtedness issue. 52 Counsel for Mr Kerr submit that is also relevant to note that the members of the Octaviar's Committee of Inspection and PTQ make up approximately 98.3% of the quantum of admitted unsecured claims against Octaviar. The composition of Admin's Committee of Inspection is the same, save that the Commissioner is not on that Committee. The members of Admin's Committee of Inspection and PTQ make up approximately 99.9% of the admitted unsecured claims against Admin. Members of the Committees and PTQ have expressed the view that the Intercompany Indebtedness issue may not need to be determined if the Garnishment is found to be redeemed, essentially on the basis that the Intercompany Indebtedness issue would be much more likely to be able to be resolved at a mediation. Any New Appeal would be very costly and, considering the degree of commonality of creditors, it would clearly be in the interests of the creditors of both Octaviar and Admin to seek to reach a compromise which avoided such costly litigation. It is for these reasons that Mr Kerr has preferred without prejudice negotiations as the method of resolving the Intercompany Indebtedness issue. 53 Counsel for Mr Kerr note that it is true that some creditors have a difference in quantum between the debts they seek to prove against Admin and Octaviar, with the consequence that they will receive more or less depending on how the Intercompany Indebtedness issue is resolved. They say, however, that there is at least a prospect that the Intercompany Indebtedness issue will be easier to compromise should the outcome of the Garnishment Proceeding be that the Garnishment has been validly redeemed. 54 Counsel say that it is for the those reasons that Mr Kerr believes that delaying a resolution of the Intercompany Indebtedness issue, including by delaying commencement of a New Appeal, is in the best interests of Octaviar's creditors. The outcome of the Garnishment Proceeding may have the consequence of removing the need for a New Appeal, as it may motivate the creditors of Admin and Octaviar to resolve the Intercompany Indebtedness issue out of court. Alternatively, it will at least clarify who will benefit from any determination of the Intercompany Indebtedness issue, which will in turn inform the question of who should be funding any New Appeal.

The views of the creditors and the Liquidators 55 Counsel for Mr Kerr noted that, between October and November 2018, the Committee of Inspection and PTQ expressed views to the effect that: (1) Mr Kerr should not have his remuneration approved for work done in relation to the Intercompany Indebtedness issue until he progressed the issue; and (2) Funds should not be expended on resolving the Intercompany Indebtedness issue while the Garnishment Proceeding remains on foot, and Mr Kerr found it difficult to reconcile those two views: (see [39] above). 56 In anticipation of this application, the Committee of Inspection, PTQ and the Liquidators were informed of Mr Kerr's intention to seek the proposed direction and asked them to express their views. 57 The Liquidators of Octaviar and Admin confirmed that they considered it appropriate to defer the progress of the Intercompany Indebtedness issue to await the outcome of the Garnishment Proceeding and that they supported applying for the direction. Their reasons for that view are set out in annexure DJK28, which is a letter dated 11 June 2019 from Mr Fletcher to Mr Kerr. 58 At a meeting of Octaviar's Committee of Inspection held on 12 June 2019, the following views were expressed: (1) The representatives of OPI, ARL and Colonial (who together represent 50.06% of admitted unsecured claims against Octaviar) stated that they did not see the benefit in this application. Counsel for Mr Kerr note that representatives of OPI and ARL had said, in the lead up to the meeting, that "both liquidators should urgently seek to resolve the position in a commercial manner" and they did not support the costs of ongoing court directions. (2) The representatives of OIN and OIB, whose proofs of debt have not yet been adjudicated upon in the liquidation of Octaviar, and Challenger (representing 9.28% of admitted unsecured claims) said that the application was a matter for Mr Kerr and they did not object to it. (3) The representative for the Commissioner said that the Intercompany Indebtedness issue had to be determined as soon as possible and indicated that the Commissioner may seek to appear on this application. Later, the Commissioner repeated that contention in correspondence and reserved his position on appearing subject to digesting Mr Kerr's material. Ultimately, the Commissioner's counsel informed this Court during the case management hearing on 31 July 2019 that the Commissioner did not oppose the relief sought in the application. The Court notes that the Commission repeated the view that the Intercompany Indebtedness issue should be determined as soon as possible and said that he did not oppose the relief sought by Mr Kerr in written submissions filed on the Commissioner's behalf on 28 August 2019. (4) The representatives of OPI, ARL, OIN, OIB and Challenger stated that they did not support progressing the Intercompany Indebtedness issue until the outcome of the Garnishment Proceeding is known. Insofar as Mr Kerr relied on opinions expressed by the liquidators of OIN and OIB, the Court notes that, since Mr Kerr filed his evidence and submissions, the SQC (Bradley J) has given judicial advice to Octaviar's Liquidators that they would be justified in rejecting OIN and OIB's proofs of debt: see Re Octaviar Limited (in liq) [2019] QSC 235. 59 Following that meeting of Octaviar's Committee of Inspection, the solicitor for PTQ, Mr Jenkins, offered to Mr Kerr and the Committee of Inspection an alternative approach. That approach would involve Mr Kerr and the Liquidators obtaining a direction that they would be justified in entering into a negotiated standstill agreement, on the basis that it is unnecessary to outline the complex history of the liquidation to this Court if it is made clear that Mr Kerr and the Liquidators share the view that the commercial exigencies of the matter make it desirable to deal with the Intercompany Indebtedness issue after the Garnishment Proceeding. Counsel for Mr Kerr submitted that the only practical difference in that approach is that the application for judicial advice would be brought by both Octaviar's Liquidators and Mr Kerr and it would relate to whether Mr Kerr was justified in entering into the standstill agreement. 60 In summary, counsel for Mr Kerr submit that the wishes of the majority of interested parties is to halt attempts to resolve the Intercompany Indebtedness issue until such time as the Garnishment Proceeding is finally determined, but they held varying views about the desirability of Mr Kerr making this application for directions in the nature of judicial advice. 61 Counsel note that when, on 22 July 2019, notice of this application for directions was given, various email communications ensued between Mr Kerr and the representatives for OPI, OIN, OIB and PTQ, including discussions about costs. In addition, and, in accordance with the orders made by Markovic J on 31 July 2019, an email was sent by Mr Kerr to the Committee of Inspection. 62 The PTQ also stated that Mr Kerr had refused to meet to consider its suggested approach of a negotiated standstill agreement, which it alleges would have reduced costs. Counsel submit that Mr Kerr does not comprehend how: (1) meeting to discuss the standstill agreement as an alternative to this application; (2) drafting and negotiating the standstill agreement; and (3) obtaining a direction from the Court that the plaintiff and the Liquidators are justified in entering into the standstill agreement, would have been more cost effective than this application, given that a direction would be sought from the Court either way and the underlying issues on the application are essentially the same. 63 Counsel submit that, in any event, it appears that there is no opposition by any creditor to the Court giving Mr Kerr the directions sought by the application.

Costs of commencing a New Appeal verses the costs of waiting until the outcome of the Garnishment Proceeding 64 As noted discussed at [25]-[28] above, Mr Kerr has obtained an estimate of the costs of a New Appeal and holds sufficient funds to cover the estimated costs and any possible adverse cost exposure. 65 Counsel for Mr Kerr submit that while the Garnishment Proceeding remains on foot, the question of whether it is appropriate for Mr Kerr and Admin's Liquidators to fund any New Appeal will likely continue to be disputed by the unsecured creditors of Octaviar and Admin. Counsel note that there is also a possibility that the Liquidators of Octaviar and Admin would seek a stay of the New Appeal pending the outcome of the Garnishment Proceeding. Given the great complexity of the issues arising on any New Appeal, the estimated costs of pursuing any New Appeal is, not surprisingly, very large. Counsel point out that there are no costs, or very modest costs, in awaiting the outcome of the Garnishment Proceeding before progressing the resolution of the Intercompany Indebtedness issue. Further, if the Commissioner is unsuccessful in the Garnishment Proceeding, then it may be that the Intercompany Indebtedness issue can be resolved without a hearing

Consideration 66 Section 90-15 of the Insolvency Practice Schedule relevantly provides as follows: 90-15 Court may make orders in relation to external administration Court may make orders (1) The Court may make such orders as it thinks fit in relation to the external administration of a company. Orders on own initiative or on application (2) The Court may exercise the power under subsection (1): (a) on its own initiative, during proceedings before the Court; or (b) on application under section 90-20. Examples of orders that may be made (3) Without limiting subsection (1), those orders may include any one or more of the following: (a) an order determining any question arising in the external administration of the company; … (d) an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company; … Matters that may be taken into account (4) Without limiting the matters which the Court may take into account when making orders, the Court may take into account: (a) whether the liquidator has faithfully performed, or is faithfully performing, the liquidator's duties; and (b) whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and (c) whether an action or failure to act by the liquidator is in compliance with an order of the Court; and (d) whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and (e) the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group. … Section does not limit Court's powers (7) This section does not limit the Court's powers under any other provision of this Act, or under any other law. 67 By virtue of s 90-20(1)(d) of the Insolvency Practice Schedule and paragraph (d) of the definition of "officer" of a corporation in s 9 of the Corporations Act, Mr Kerr is authorised to apply for directions under s 90-15 of the Insolvency Practice Schedule. 68 The principles applied in determining applications for directions under the now repealed ss 497(3) and 511 of the Corporations Act are a useful guide on applications of this kind, albeit that s 90-15(1) is more broadly expressed than the former s 511 of the Corporations Act: see GDK Projects Pty Ltd, in the matter of Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541 at [33] (Farrell J); Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed) [2017] FCA 486 at [32]-[41] (Gleeson J). 69 The Court accepts that the following principles enunciated by Brereton J in In the matter of One.Tel Ltd [2014] NSWSC 457 at [32]-[35] and [55] should guide the determination of Mr Kerr's application for directions: … The jurisdiction is analogous to the judicial advice jurisdiction under (NSW) Trustee Act, s 63. The effect of a direction under s 511 is to sanction a course of conduct on the part of the liquidator so that he or she may adopt that course free from the risk of personal liability for breach of duty [Purchas, [36]; Re Timbercorp Limited (in liq) [2011] VSC 189, [3]; Re S&D, [88]]. While the ability of a liquidator to approach the Court for directions is intended to facilitate the liquidator's functions and should be interpreted widely to give effect to that intention [Re One-Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83], it is insufficient to justify giving such directions that the liquidator wants reassurance about a commercial decision; some such issue as a question of law or procedure, of power, propriety or reasonableness, is required to justify approaching the court for directions, as was explained by Goldberg J (in the context of a voluntary administrator's application for directions under s 447D) in Re Ansett Australia Limited and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433, [65]: … The prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. In Sanderson v Classic Car Insurances Pty Limited (1985) 10 ACLR 115, Young J said (at 117) that the cases in which directions might properly be given fell into four categories, namely guidance on matters of law, guidance on questions of legal procedure, whether a liquidator should postpone a sale in order to achieve a better price, and where there are two competing offers for assets and a liquidator wishes to gain court directions in order to avoid a subsequent allegation that he or she has acted improperly in choosing one over the other. However, these categories are not exhaustive, and as Giles J said in Re Spedley Securities (at 85), immediately after noting that a Court will not make a liquidator's commercial decision for him, "It is nonetheless common for a liquidator to seek directions as to whether he is justified in entering into a particular compromise". Thus, while the Court will not generally give a direction where the matter relates to the making or implementation of a business or commercial decision, or where no legal issue is raised and there is no attack on the propriety or reasonableness of the liquidator's decision, it may do so in the context of a proposed compromise [Re Spedley Securities, 85], and/or where the decision is likely to be contentious [Re Ansett, [65]; 7 Steel Distribution, [20]; Re S&D, [58]-[59]]. But the fact that a direction under s 511 - unlike an approval under s 477(2A) or (2B) - exonerates the liquidator from personal liability, means that a closer examination of the liquidator's decision is required than under s 477. In short, the court should not make a direction the effect of which is to exonerate the liquidator from personal liability in respect of a commercial judgment that the liquidator is concerned may prove contentious, unless satisfied that the liquidator's decision is, in all the circumstances, a proper one. … As with judicial advice to trustees, the court is usually conservative in the advice it gives to liquidators under s 479(3) and s 511, and such advice is conventionally expressed in terms that "the liquidator would be justified" in adopting a particular course of action. The jurisdiction to give such directions is concerned with affording protection to the liquidator in connection with proposed future action, not with ratifying action that the liquidator has already taken. This view of the jurisdiction is supported by the following observations of McLelland J, as he then was, in Re GB Nathan & Co Pty Ltd (1991) 5 ACSR 673, (at 678): ... the only proper subject of a liquidator's application for directions is the manner in which the liquidator should act in carrying out his functions as such, and that the only binding effect of, or arising from, a direction given in pursuance of such an application (other than rendering the liquidator liable to appropriate sanctions if a direction in mandatory or propitiatory form is disobeyed) is that the liquidator, if he has made full and fair disclosure to the court of the material facts, will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him in accordance with the directions. 70 The Court considers that this application was appropriately brought by Mr Kerr and the relief sought should be granted having regard to all of the matters drawn to the Court's attention including: (1) Efforts already undertaken to resolve the Intercompany Indebtedness dispute and the issues likely to be raised in a New Appeal as discussed at [48(3)] above. (2) Determination of the Garnishment Proceeding may determine who will benefit from the determination of the Intercompany Indebtedness issue and the utility of bringing a New Appeal. (3) The fact that the Garnishment Proceeding has been set down for hearing shortly, commencing on 3 November 2019. (4) The difficult legal issues and costs attendant on any New Appeal having regard to the possibility (acknowledged by members of the Committee of Inspection and Admin's Liquidator) that determination of the Garnishment Proceeding may, as a practical matter, facilitate settlement of the Intercompany Indebtedness issue. (5) Particularly in circumstances in which a company in liquidation apparently has good prospects in relation to a claim, it is appropriate for a liquidator to obtain a direction that he or she is justified in refraining from instigating proceedings. For Mr Kerr to continue on the course of refraining from instigating proceedings without such judicial advice places him at risk of future allegations of breach of duty. (6) The apparently conflicting opinions of members of the Committee of Inspection discussed at [55] above concerning whether the Intercompany Indebtedness issue should be progressed, albeit that it appears that the members of the Committee of Inspection and Admin's Liquidators support deferring resolution of the Intercompany Indebtedness issue until after the Garnishment Proceeding has been determined and none of Octaviar's creditors has indicated opposition to that course. (7) The application is concerned with a future course of action by Mr Kerr as special purpose liquidator; it will not confer protection or immunity in respect of acts (or delays) which he has already undertaken. (8) The proposed course of action does not involve a business or commercial decision to be taken by Mr Kerr as special purpose liquidator. (9) There is no suggestion that Mr Kerr is acting other than properly in bringing the application. In saying that, the Court notes PTQ's suggestion that an alternative course would have been available, but that course would also have led to an application for a direction to Mr Kerr and the Liquidators and the Court is not persuaded that that course would have involved less cost.

Costs 71 The Court accepts the submission made by counsel that there is a well-established practice of trustees and liquidators obtaining judicial advice as to whether they would be justified in instituting or defending proceedings: see Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; 237 CLR 66, at [71]-[74] (Gummow ACJ, Kirby, Hayne and Heydon JJ); Re Octaviar Limited (in liq); Re Octaviar Administration Pty Ltd (in liq) [2016] NSWSC 16 at [25] (Brereton J). The Court is not aware of any conduct of Mr Kerr which would justify denying him the right of indemnity out of Octaviar's assets. Accordingly the Court will order that Mr Kerr's costs of this application be costs in Octaviar's winding up. I certify that the preceding seventy-one (71) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.