Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in Liquidation) v Battaglia

Background

1. The parties to the deed are the liquidator, 330Co, and Mrs Battaglia. The recitals to the deed record that 330Co was wound up and the liquidator was appointed on 30 August 2013. On 1 April 2016 the liquidator and 330Co commenced proceedings against Mr Vince Battaglia, Mrs Battaglia and Fellmane Pty Ltd (Fellmane). Mr Battaglia is now a bankrupt and Fellmane is in liquidation. The claims against Mrs Battaglia relate to various payments made to her by 330Co totalling $800,777.54 in the period August 2011 to May 2013, comprising the Schedule A payments totalling $408,541.70, the Schedule B payments totalling $143,500, and the "Monardo" payments totalling $248,735.84.
2. The liquidator's written submissions identified four legal bases of the claims against Mrs Battaglia: 1. a claim for monies had and received on the ground that Mrs Battaglia had been unjustly enriched by all of the payments which are made at the expense of 330Co; 2. a claim to recover the Schedule B payments as a loan by 330Co to Mrs Battaglia; 3. a voidable transaction claim under s 588FF(1) of the Corporations Act to recover all of the payments as unreasonable director-related payments within s 588FDA; and 4. a compensation claim under s 1317H of the Corporations Act on the ground that all of the payments were received by Mrs Battaglia in circumstances where she was involved in contraventions by Mr Battaglia of his duties as a director of 330Co.
3. The proceedings have had a lengthy history. Following a four-day trial in February 2017, Barrett AJA delivered judgment on 17 March 2017 dismissing the proceedings against all defendants: Re ACN 092 745 330 Pty Ltd (in liq) [2017] NSWSC 241. An appeal by the liquidator and 330Co was successful and on 18 April 2018 the Court of Appeal remitted the matter for a retrial on all issues: Hillig v Battaglia [2018] NSWCA 67. The appeal took two days and a critical aspect of the reasoning was the credibility and probative value of new evidence obtained by the liquidator concerning statements made by Mr Battaglia to the Australian Taxation Office which directly contradicted his evidence given at trial.
4. The retrial was listed to commence on 10 November 2020 for four days. The liquidator deposed in his affidavit of 10 November 2020 that immediately before the commencement of the hearing, the parties negotiated a settlement in principle. The hearing before Black J was then adjourned until 9:45 am on 11 November 2020 to allow the parties time to prepare the deed and seek the necessary approvals under ss 477(2A) and (2B) of the Corporations Act.
5. The final form of the draft deed in Exhibit A provides that Mrs Battaglia will pay $700,000 to 330Co, however, 330Co and the liquidator agree to accept a lesser sum of $400,000 (the settlement amount) to be paid by four instalments, with time being of the essence: by 30 January 2021, a payment of $125,000; by 28 February 2021, a payment of $75,000; by 30 March 2021, a payment of $75,000; and by 30 April 2021, a payment of $125,000.
6. The deed provides that subject to the settlement amount being paid, the proceedings against Mrs Battaglia will be dismissed with no order as to costs. If there is non-compliance by Mrs Battaglia in payment of any of the instalments of the settlement amount, the liquidator and 330Co may enter judgment against Mrs Battaglia for the amount of $700,000. In that event, the deed provides that the liquidator and 330Co agree that the judgment may only be enforced in the amount of the judgment less any funds actually received by 330Co and the liquidator prior to entry of judgment.
7. The deed also provides for mutual releases to take effect, subject to court approvals under ss 477(2A) and (2B) of the Corporations Act, upon entry into the deed.
8. The liquidator deposed that during the settlement negotiations the legal representatives of Mrs Battaglia represented to him that any funds to meet any settlement would be from "friends and family" of Mrs Battaglia and that no security could be offered given the covenants and conditions of existing loans secured against the real properties owned by Mrs Battaglia. The liquidator said that he took into account the following matters: 1. these proceedings have been on foot since 2016; 2. the further costs that would be incurred on the retrial and enforcement of any judgment obtained against Mrs Battaglia; 3. the risk that Mrs Battaglia may appeal any adverse judgment in these proceedings or seek to delay enforcement of the judgment; 4. any delay in finalisation of the proceedings will delay finalisation of the winding up of 330Co; and 5. if the matter was to settle, Mrs Battaglia would primarily be sourcing the settlement sum from family and friends and would require some six months to pay.
9. The liquidator deposed that having obtained legal advice orally from counsel and his solicitors during the settlement discussions, the commercial considerations that led him to the view that the settlement was appropriate were as follows: 1. the deed provides certainty regarding the quantum of any judgment in the proceedings and is a fair and reasonable compromise; 2. the payment by instalments was agreed by the parties as a means to allow 330Co to obtain payments on a regular basis which could be monitored by the liquidator, but also reasonable and capable of being complied with by Mrs Battaglia; 3. the deed resolves the dispute, and avoids the need for 330Co to incur further costs and expenses in the proceedings; 4. it is likely that the finalisation of the winding up of 330Co will occur in about three months after the settlement monies are received; and 5. that unless 330Co is wholly successful against Mrs Battaglia for the amount sought in the proceedings (approximately $800,000) and in recovering costs of the proceedings against Mrs Battaglia, it is unlikely that there will be any dividends declared to any class of creditors of 330Co. That is because the amount repayable to the litigation funder, CVC Litigation Funding Pty Ltd (CVC), together with the costs and expenses incurred and/or likely to be invoiced to 330Co in respect of the proceedings is not less than $700,000 and CVC is entitled to 40 per cent of the amount awarded or received by 330Co less any funding advanced.
10. At a telephone conference later on 10 November 2020 with the two members of the committee of inspection of 330Co, the liquidator received the general agreement of the committee of inspection to the proposed settlement.

Section 477(2A)

1. Section 477(2A) of the Corporations Act provides that, except with the approval of the Court, the committee of inspection or a resolution of the creditors, a liquidator of a company must not compromise a debt to the company if the amount claimed by the company is more than, relevantly, the prescribed amount of $100,000: Corporations Regulations 2001 (Cth), reg 5.4.02.
2. Section 477(2A) applies only in relation to a "debt" strictly so called: Re Luxtrend Pty Ltd (in liq) (1996) 135 FLR 170; [1997] 2 Qd R 86; Re Tietyens Investments Pty Ltd (in liq) (rec and mgr apptd) [1999] FCA 206; (1999) 31 ACSR 1 at [86]-[94]; Re HIH Insurance Ltd and related matters [2004] NSWSC 5 at [12]. However, the course of dismissing a s 477(2A) application on the basis that the particular claim is not, strictly speaking, a "debt" should only be followed in a clear-cut case: Re HIH Insurance Ltd at [12].
3. In written submissions, the liquidator sought approval of the Court under s 477(2A) insofar as the amount claimed by 330Co involves an allegation that the Schedule B payments totalling $143,500 constitute loans made by 330Co to Mrs Battaglia. In oral argument, counsel for the liquidator also sought approval, if necessary, in relation to all of the payments to Mrs Battaglia if the claim for monies had and received was considered a "debt".
4. The liquidator took the position, correctly, that the voidable transaction claim under s 588FF(1) in relation to unreasonable director-related transactions, and the compensation claim under s 1317H are not regarded as a debt: Re One.Tel (in liq) [2014] NSWSC 457; (2014) 99 ACSR 247 at [64]; Re Tietyens Investments Pty Ltd at [90]-[94].
5. The claim by 330Co against Mrs Battaglia in respect of the Schedule B payments answers the description of a "debt", as does the claim for monies had and received. In Alexander v Ajax Insurance Co Ltd [1956] VLR 436 at 445, Scholl J said that the expression "debt or liquidated demand" includes, among others, any claim "for which an indebitatus (or 'common') count would lie". That would include a claim for money had and received by the defendant to the use of the plaintiff: The Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (No 2) 14 ACLC 939; 20 ACSR 170 at 179; Mason & Carter's Restitution Law in Australia (2nd ed, 2008) at [117]. The compromise contained in the release by 330Co in the deed of "all claims" against Mrs Battaglia would include those debts.
6. The essential purpose of the requirement of approval under s 477(2A) is to ensure that the interests and wishes of those affected by a compromise, chiefly the creditors, are a major consideration in making such a compromise: Re One.Tel Limited at [28]. As I said in Re Rubix Investments Group Pty Ltd (in liq) [2018] NSWSC 1184 at [26], s 477(2A) is concerned to ensure that the Court exercises some oversight of the liquidators' actions, and the Court's assessment must be made in light of the purposes for which liquidators' powers exist: Re HIH Insurance at [15] (Barrett J). One overriding purpose is to serve "the interests of those concerned in the winding-up - here, the creditors": Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85 (Giles J). The other is to do whatever needs to be done "for the proper realisation of the assets of the company" or to assist its winding-up: Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 at 311 (Young J).
7. The Court does not concern itself with the commercial desirability of the transaction. As Giles J said in Re Spedley Securities Ltd (in liq) at 85: The court pays regard to the commercial judgment of the liquidator (Re Chase Corporation (Australia) Equities Ltd (1990) 8 ACLC 1118). That is not to say that it rubber stamps whatever is put forward by the liquidator, but, as is made clear in Re Mineral Securities Australia Ltd [1973] 2 NSWLR 207 at 231-2, the Court is necessarily confined in attempting to second-guess the liquidator in the exercise of his powers, and generally will not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct.
8. Similarly, in Re One.Tel Limited, Brereton J said at [26]: … The role of the court is to grant or deny approval to the liquidator's proposal, not to reconsider every issue considered by the liquidator, nor to develop some alternative proposal which might seem preferable. In reviewing the liquidator's proposal, the court pays due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, but satisfies itself that there is no error of law or ground for suspecting bad faith or impropriety, and evaluates whether the proposal is consistent with the expeditious and beneficial administration of the winding up. …

Section 477(2B)

1. Under s 477(2)(a), a liquidator of a company may bring or defend any legal proceedings in the name of and on behalf of the company. Under s 477(2)(b), a liquidator of a company may appoint a solicitor to assist him in his or her duties.
2. However, under section 477(2B), except with the approval of the Court, of the committee of inspection or a resolution of creditors, a liquidator of a company must not enter into an agreement on the company's behalf if the term of the agreement may end, or obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance, more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.
3. Here, the terms of the deed may last longer than three months given the instalment payment arrangement provides that the last payment to be made by Mrs Battaglia is by 30 April 2021.
4. The object of the approval process under s 477(2B) is to ensure that contractual provisions as to timing do not cut across the general expectation that the winding up will proceed in an expeditious fashion as circumstances allow: Re HIH Insurance Ltd at [15] (Barrett J); Re HIH Overseas Holdings Ltd (in prov liq) [2001] NSWSC 426 at [5] (Barrett J).
5. The considerations relevant when deciding whether to grant approval under s 477(2B) include: the interests of creditors concerned in the winding up, which is the controlling consideration; the court pays regard to the commercial judgment of the liquidator; whilst the court is not a rubber stamp for whatever the liquidator puts forward, it is not the role of the court to independently appraise the commercial desirability and commercial terms of the transaction; the court will generally not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or some real and substantial ground for doubting the prudence of the liquidator's proposal: Re Spedley Securities Ltd (in liq) at 85-6; State Bank (NSW) v Turner Corporation Ltd (1994) 14 ACSR 480 at 483; Re HIH Insurance Ltd at [15], Re G A Listing & Maintenance Pty Ltd at 311; Re One.Tel Ltd [at [29] (Brereton J); In the matter of Neil Robert Cussen as liquidator Total Hoarding Supplies Pty Ltd (in liquidation) [2019] NSWSC 887 at [12] (Black J).

Decision

1. Counsel for the liquidator provided detailed written submissions drawing the Court's attention to all matters relevant to the grant of approval under ss 477(2A) and (2B). I accept that it is not feasible for the liquidator to seek approval from 330Co's creditors in circumstances where the hearing is currently on foot and is to proceed if approval cannot be secured quickly.
2. Having considered the reasons given by the liquidator for the compromise and the terms of the deed, I am satisfied that the deed is an appropriate compromise; it is commercially realistic and sensible; and there is nothing to suggest any lack of good faith, error in law or principle, or real substantial grounds for doubting the prudence of the liquidator's proposal. The timeframe for payment of the settlement amount is not unreasonable given that the amount to be paid is not insignificant for an individual and the time that is ordinarily required to obtain finance. Nor is the timeframe inconsistent with the orderly finalisation of the winding up of 330Co.
3. Whilst Mrs Battaglia has not provided security over her two real properties to support her contractual promise to pay, the liquidator and 330Co have the benefit of asset preservation orders which preclude Mrs Battaglia from dealing with or charging her real properties to a third party. Those orders will remain in place pending compliance by Mrs Battaglia with her payment obligations under the deed. As indicated, it is not for the Court to develop some alternative proposal which might seem preferable. I accept that the liquidator has provided cogent reasons for the terms of the deed, as negotiated.
4. One further matter should be mentioned. That the whole of the settlement amount of $400,000 is to be received by the litigation funder is obviously a matter which causes the Court to pause when considering whether the compromise is appropriate. Counsel for the liquidator informed the Court that both the initial the litigation funding agreement, and two extensions of that agreement, were approved by the committee of inspection. Given the lengthy history of the proceedings, it is not surprising that the legal costs and expenses of this hard-fought litigation are substantial. That the creditors will not directly benefit from the settlement sum if paid by Mrs Battaglia, is not a reason to refuse the approvals sought by the liquidator.

Orders

1. For the above reasons, I made the following orders on 11 November 2020. The Court: 1. Pursuant to s 477(2B) of the Corporations Act, 2001 (Cth), grants approval for the first plaintiff (Liquidator), as the liquidator of the second plaintiff (Company), to enter into, and to cause the Company to enter into, a Deed of Settlement, in substantially the same terms as the draft Deed of Settlement (Draft Deed) which is Exhibit A in the proceedings. 2. Pursuant to s 477(2A) of the Corporations Act, 2001 (Cth), grants approval for the liquidator, as the liquidator of the company, to compromise all debts owing by the second defendant to the Company upon the terms set out in the Draft Deed. 3. Stand over the proceedings before Black J at 9.45 am on 11 November 2020 with a view to the parties providing confirmation to his Honour that the Deed in the form of Exhibit A has been exchanged.

Amendments 16 November 2020 - [2] - amend date to read "11" November 2020; amend "[29]" to read "[30]"; [30] - amend date to read "11" November 2020. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 November 2020