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

Supreme Court of NSW|2020-11-11|Before: Gleeson J, Black J

Solicitors: Watson Mangioni Lawyers (Plaintiffs) Advanta Legal (Defendants) File Number(s): 2016/98899

Judgment

GLEESON J: Application is made orally by Mr Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in liq) (330Co) for approval under ss 477(2A) and (2B) of the Corporations Act 2001 (Cth) to enter into a deed of settlement with the second defendant in these proceedings, Karen Lee Battaglia (Mrs Battaglia). The purpose of the deed is to resolve claims made by the liquidator and 330Co against Mrs Battaglia in an amended originating process and amended points of claim, both filed on 6 August 2018.
At the conclusion of the hearing (by telephone) on 11 November 2020, I made the orders as indicated at [30] below. These are my reasons for making those orders.

Section 477(2A)

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.
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].
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".
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].
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.
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).
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.
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)

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.
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.
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.
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).
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

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.
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.
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.
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

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

Corporations Act 2001(Cth)ss 477(2A)

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