FEDERAL COURT OF AUSTRALIA

Sino Group International Limited v Toddler Kindy Gymbaroo Pty Ltd (in liq) (Final Orders) [2023] FCAFC 119

ORDERS

THE COURT ORDERS THAT:

1.    The name of the parties be amended to reflect the fact that the First Respondent is in liquidation.

2.    The respondents pay the appellants’ costs of proceeding VID 153 of 2022, including any reserved costs, as agreed or, failing agreement, assessed on a lump sum basis by a Registrar of the Court.

3.    The respondents pay the appellants’ costs of the appeal, except for the costs of the interlocutory application by the appellants dated 23 August 2022 which were awarded to Second and Third Respondents, as agreed or, failing agreement, assessed on a lump sum basis by a Registrar of the Court.

4.    The Second and Third Respondents, in their former capacity as Deed Administrators, are not entitled to be indemnified or reimbursed by the First Respondent, or by its creditors, in relation to:

(a)    the costs that they are required to pay pursuant to orders 2 and 3 above; or

(b)    their own costs of and incidental to proceeding VID 153 of 2022 and the appeal.

THE COURT NOTES THAT:

5.    To avoid any doubt, order 4 does not restrict the Second and Third Respondents, in their former capacity as Administrators, seeking to claim on their indemnity in that capacity under the deed of company arrangement executed on 28 March 2022 by Messrs Rathner and Sweeny, in their then capacity as Administrators of Gymbaroo, in relation to their own costs of and incidental to proceeding VID 153 of 2022: see Reasons for Judgment at [87].

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

INTRODUCTION

1    These reasons relate to the final orders to be made following the Full Court’s decision in Sino Group International Limited v Toddler Kindy Gymbaroo Pty Ltd [2023] FCAFC 110, which was an appeal from Sino Group International Limited v Toddler Kindy Gymbaroo Pty Ltd [2022] FCA 630 (Primary Judgment or PJ). These reasons should be read with the reasons in Sino Group – familiarity with the reasons in Sino Group is assumed. Defined terms used in these reasons have the same meaning as in Sino Group.

2    These reasons address the sequela of the termination of a deed of company arrangement executed on 28 March 2022 by Messrs Gideon Rathner and Matthew Sweeny, in their then capacity as Administrators of Gymbaroo (the DOCA).

3    The appellants are Sino Group International Limited and Beijing Yingqidi Education and Technology Corporation Ltd (together, the Sino Creditors). The respondents to the proceedings below and on the appeal are Toddler Kindy Gymbaroo Pty Ltd, Messrs Rathner and Sweeny, and Dr Janet Williams, the Deed Proponent.

4    Messrs Rathner and Sweeny have acted in a number of capacities relevant to the present appeal:

(1)    They were the Second and Third Defendants in their respective capacities as joint and several Administrators or Deed Administrators of Gymbaroo in the proceedings VID 153 of 2022 below. They enjoyed success at first instance in proceedings VID 153 of 2022 but not on appeal;

(2)    They were the plaintiffs in their respective capacities as joint and several Administrators of Gymbaroo in proceedings VID 732 of 2021. Those proceedings were dismissed by the primary judge with costs reserved. The appeal does not directly concern proceeding VID 732 of 2021;

(3)    On 22 November 2021, Messrs Rathner and Sweeny respectively, were appointed as the Administrators of Gymbaroo pursuant to a resolution of directors under s 436A of the Corporations Act 2001 (Cth) (Act);

(4)    On 28 March 2022, Messrs Rathner and Sweeny respectively, became the Deed Administrators under the DOCA;

(5)    On 14 July 2023, they became the liquidators of Gymbaroo when the DOCA was terminated by an order of this Court by operation of s 499(2D)(b) of the Act.

5    In these reasons, we will refer to the Deed Administrators as ‘the Deed Administrators’, notwithstanding that they became the liquidators of Gymbaroo on 14 July 2023. The conduct of Messrs Rathner and Sweeny as Deed Administrators is in issue in relation to any order for costs and their right to an indemnity under the DOCA. Messrs Rathner and Sweeny’s conduct during the period that they were acting as Administrators leading up to the execution of the DOCA is also relevant when this Court comes to consider the exercise of its discretion to make orders in relation to costs having regard to all of the circumstances.

6    Gymbaroo and the Deed Administrators shared common legal representation at the hearing below and on the appeal. The Deed Proponent was separately represented below and on the appeal.

7    The Sino Creditors successfully overturned the decision of the primary judge to dismiss their application to terminate the DOCA under s 445D of the Act. Because the appellants succeeded on the appeal grounds relating to the termination of the DOCA, it was not necessary for this Court to determine the other three grounds of appeal which were of broader compass: Sino Group at [147] to [149].

8    On 14 July 2023, this Court allowed the appeal, set aside the order of the primary judge made below, ordered that the DOCA be terminated, and reserved costs. The Court afforded the parties an opportunity to be heard in respect of costs. The parties took up the opportunity and the matter was listed for argument on 18 July 2023. At that hearing, the parties sought to ventilate a number of other issues, in addition to costs, including the appointment of alternate liquidators to Gymbaroo and whether the Deed Administrators’ right of indemnity should be limited or denied.

9    Pursuant to r 2.8 of the Federal Court (Corporations) Rules 2000 (Cth), the Sino Creditors were required to notify the Australian Securities and Investments Commission (ASIC) of their application made under s 90-20 of the Insolvency Practice Schedule (Corporations) (Sch 2 to the Act) (the IPS) for relief under s 90-15. They did not do so.

10    The Court, upon becoming aware after the hearing on 18 July 2023, that the Sino Creditors had not complied with r 2.8, ordered the Sino Creditors to give the requisite notice to ASIC. The Sino Creditors did not comply with that order. After further communication from the Court, the Sino Creditors finally took steps to bring the application to the attention of ASIC. That the Sino Creditors’ legal representatives did not take steps to comply with the requirements of the relevant rules, with which they should be familiar, and then failed to comply with an order of the Full Court is, to say the least, regrettable. It should not have occurred.

11    As a result of the Sino Creditors’ actions, ASIC was not notified of the Sino Creditors’ claim for relief under s 90-15 pursuant to their standing under s 90-20 until late on 20 July 2023. It was then necessary to extend the time afforded to ASIC to communicate its position as to whether it would seek to be heard on this issue. Having regard to the obligations imposed on participants in litigation in this Court with respect to the overarching purpose embodied in s 37M of the Federal Court of Australia Act 1976 (Cth) (the FCA Act) and in the context of the particular issue, concerning the right of indemnity of deed administrators, being raised for the first time at intermediate appellate level under the IPS, this was unsatisfactory. In the end result, on 24 July 2023, ASIC informed the Court that it did not seek to be heard on the issue.

12    The issues arising for determination are as follows:

(1)    The appropriate costs orders on the appeal and the hearing below, including with respect to whether there should be any apportionment between the parties ordered to pay costs;

(2)    Whether this Court should deprive the Deed Administrators of their right of indemnity — whether pursuant to the Court’s power to award costs under s 43 of the FCA Act or s 90-15 of the IPS; and

(3)    Whether this Court should appoint persons other than the Deed Administrators as the liquidators of Gymbaroo, and if so, who should be so appointed.

THE COMPETING RELIEF SOUGHT BY THE PARTIES

The Sino Creditors

13    The Sino Creditors sought the following orders:

(1)    The respondents pay the Sino Creditors’ costs of:

(a)    proceeding VID 153 of 2022, including any reserved costs; and

(b)    the appeal,

in such amount as may be agreed or, failing agreement, to be taxed; and

(2)    Pursuant to s 90-15 of the IPS, the Second and Third Respondents are not entitled to be indemnified or reimbursed by Gymbaroo, or by its creditors, in relation to the costs that they are ordered to pay or in relation to their own costs.

14    As mentioned above, Messrs Rathner and Sweeny, were named as Second and Third Respondents on the appeal in their dual respective capacities as joint and several Administrators or Deed Administrators.

15    In addition, the Sino Creditors included in their proposed orders, an order under s 499(2D) of the Act appointing Messrs Robert Scott Woods and David Mansfield, of Deloitte Financial Advisory Pty Ltd, to be the joint and several liquidators for the purpose of winding up the affairs of Gymbaroo.

16    In Sino Group at [146], this Court noted that any such application, which at that time had been foreshadowed but not made, and which the respondents had indicated they would oppose, should be brought in the Court’s original jurisdiction.

17    For this reason, the Sino Creditors, sought in the alternative an order that the question of whether to appoint “a person” under s 499(2D) of the Act should be referred to a judge in the Court’s original jurisdiction for hearing at the earliest opportunity.

The Deed Administrators

18    The position advanced by the Deed Administrators and Gymbaroo is that:

(1)    There be no order as to costs in proceeding VID 153 of 2022, being the proceedings below;

(2)    The respondents pay the Sino Creditors’ costs of the appeal in such amount as may be agreed or, failing agreement, as taxed, except for the costs of an interlocutory application made by the Sino Creditors dated 23 August 2022 which were awarded to the Deed Administrators; and

(3)    They oppose the orders sought by the Sino Creditors and the Deed Proponent which would deny them indemnity out of Gymbaroo’s assets.

The Deed Proponent (Dr Williams)

19    The Deed Proponent by her proposed orders, seeks the following:

(1)    Pursuant to s 499(2D) of the Act, Messrs Daniel Juratowitch and Sam Kaso, of Cor Cordis, be appointed as the joint and several liquidators for the purpose of winding up the affairs of Gymbaroo;

(2)    The Second and Third Respondents pay the Sino Creditors’ costs of the appeal, in such amount as may be agreed or, failing agreement, to be taxed; and

(3)    Pursuant to s 90-15 of the IPS, the Second and Third Respondents are not entitled to be indemnified or reimbursed by Gymbaroo, or by its creditors, in relation to the costs that they are ordered to pay or in relation to their own costs.

20    The Deed Proponent’s proposed form of orders were silent on the issue of the costs in proceeding VID 153 of 2022.

BACKGROUND

21    The background to the proceedings is set out in detail in Sino Group at [11] to [57].

22    The following additional matters of background are relevant to the present application.

23    Gymbaroo was placed into voluntary administration pursuant to s 436A of the Act by resolution of the directors: Sino Group at [1]. The directors of Gymbaroo are siblings. They are members of the Sasse Family – Bill Sasse, Peter Sasse and Dr Janet Williams: Sino Group at [14]. As mentioned, Dr Williams is also the Deed Proponent. The directors and their father, Harry Sasse, are creditors of Gymbaroo, the Related Party Creditors: Sino Group at [14]. Dr Williams holds a power of attorney for Harry. The trigger for the directors of Gymbaroo placing the company into voluntary administration was the calling up of the debt owed by Gymbaroo to Harry: Sino Group at [57]. Gymbaroo was under the control of the Administrators from 22 November 2021 (date of appointment) to 28 March 2022 (date of execution of the DOCA): s 435C(1)(b) of the Act.

24    Gymbaroo reverted to the control of its the directors upon entry into the DOCA, subject to cl 2.9 which provides for a restriction on selling and is not presently relevant: DOCA, cl 2.8(a). The powers of the Gymbaroo directors were reinstated upon execution of the DOCA: DOCA, cl 2.8(b).

25    The Related Party Creditors each executed a Subordination Deed in the same form with Gymbaroo on 11 April 2022, which was the first day of the hearing before the primary judge: Sino Group at [55]. At the time the four Subordination Deeds were executed, Gymbaroo was under the control of its directors. Each of the Subordination Deeds include a recital to the effect that Gymbaroo had requested the Related Party Creditor, who was relevantly the counterparty to the Subordination Deed, to subordinate his or her debt to the claims of unsubordinated creditors of Gymbaroo: Recital A in each of the Subordination Deeds. The four Subordination Deeds were executed on behalf of Gymbaroo by Dr Williams in her capacity as a director of Gymbaroo and by Peter in his capacity as “director/secretary” of Gymbaroo. As mentioned, Gymbaroo was represented at this time, and at all times thereafter, by the legal representatives who were also acting for the Deed Administrators, and the Administrators.

26    The Sino Creditors’ submissions on the issue of costs and the Deed Administrators’ indemnity under the DOCA rely on the observations and findings made in Sino Group at [69] to [70], [95], [105] to [106], [112], [123] and [128]. In Sino Group, ‘Administrators’ was used to refer to Messrs Rathner and Sweeny acting in their capacity as Administrators during the period from 22 November 2021 (date of appointment) to 28 March 2022 (date of execution of the DOCA) and thereafter acting in their capacity as Deed Administrators. It is convenient to extract the key paragraphs of Sino Group relied on by the Sino Creditors and the Deed Proponent for ease of reference:

69.     In the context of applications to terminate a DOCA made under s 445D(1), the administrator is the appropriate person to perform the function of contradictor. However, that is subject to the proviso that it is proper in the circumstances for the administrator to make an active defence: Sydney Land Corporation Pty Ltd v Kalon Pty Ltd (1997) 142 FLR 188 at 189; Cresvale Far East v Cresvale Securities (No 2) [2001] NSWSC 791 at [77]. Where it is appropriate to make an active defence, the administrator stands in a similar position to a liquidator who is defending an “appeal” from a decision to reject a proof of debt of a putative creditor. In such a case, the liquidator is in the role of an adversary, cast in the role of defending the assets available for distribution, but while adversarial, the liquidator is nonetheless “required to act fairly in conducting the litigation”: Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 340 to 341.

70.     Where, as here, the administrator undertakes an active defence of an application to terminate a DOCA, the Court is entitled to assume that the administrator has formed the view that to do so is consistent with the administrator’s duty to act independently and impartially in the administration of that company’s affairs. Further, the Court is entitled to assume and expect that the administrator will conduct the defence fairly. It is incumbent upon administrators to ensure that information within their knowledge that is relevant to the Court reaching a just outcome is brought to the attention of the Court. If that is not through direct tender of evidence of that information, then it must be by disclosure of that information to the party seeking to challenge the deed of company arrangement. Consistently with the duty to act fairly and impartially discussed in Bovis Lend Lease v Wily at [123] to [141], the submissions advanced by an administrator on an application such as this must be balanced, accurate and not one-sided.

    …

95.     Neither the Administrators’ Report, nor the Remuneration Report, discloses that by the time these reports were issued, the Administrators had commenced proceeding VID 732 of 2021 and the Sino Creditors had applied to remove the Administrators by interlocutory application. The Administrators’ Report does not disclose if, or the extent to which, the estimated fee of $310,000 includes the legal costs of VID 732 of 2021. The absence of that information from the Administrators’ Report tends to reinforce the impression that a return of 100 cents in the dollar in the DOCA scenario was very likely, or so much more likely than the worst case scenario that it was not necessary to provide a comparison based on the worst case scenario. The opacity of the information given in relation to the worst case in the DOCA scenario is not dispelled by the Remuneration Report. The Administrators explain in their Remuneration Report that the “capped” amount of $310,000 used in the Administrators’ Report was based on “no further court matters” and that they “cannot confirm if there will be any further court matters in relation to Sino under a Deed of Company Arrangement scenario”. In order to protect their position in relation to fees, the Administrators sought approval of their fees in a DOCA scenario on a worst case scenario — a scenario which was not expressly referenced in the Administrators’ Report. Yet it was in the Administrators’ Report that one would expect to find the relevant information to enable creditors to undertake a critical comparison of the DOCA as against a winding up for the purpose of exercising their vote.

    …

105.    The statement in the Administrators’ Report to the effect that it was estimated that unrelated creditors would receive a dividend of 100 cents in the dollar under the proposed DOCA was misleading. Although the assumptions underpinning that estimate were identified and creditors were able to determine the worst case scenario by reading the Administrators’ Report together with the Remuneration Report, creditors were not directed to read the Remuneration Report for the purpose of undertaking their own analysis of the worst case in a DOCA setting. The Administrators’ Report does not expressly state why the Administrators did not include a worst case comparison for the purpose of assessing the DOCA scenario, as they had done in the winding up scenario. The absence of a worst case analysis for the DOCA scenario, coupled with the lack of an explanation for why no worst case scenario was included, causes the Administrators’ Report to convey the impression that a return of 100 cents in the dollar was highly likely, and that the worst case scenario was so unlikely it did not bear mention in the Administrators’ Report. Ultimately, this rendered the estimated headline return of 100 cents in the dollar misleading both at the time it was made and in the context of the subsequent events that occurred before the hearing below.

106.     The Administrators’ Report was also misleading because it did not disclose that there was continuing litigation, VID 732 of 2021, and that costs had been incurred in those proceedings (in the sum of $42,229.37, excluding GST) that were not accounted for in the best case DOCA scenario estimate in the Administrators’ Report. Likewise, the Administrators’ Report did not take into account approximately $40,000 in costs that had been estimated would be incurred even if there were no continuing or future litigation or disputes.

    …

112.     As mentioned, the landscape changed at the end of the first day of the hearing below when the Related Party Creditors executed the Subordination Deeds. At the very least, it was incumbent upon the Administrators, acting impartially, independently and fairly, to consider if completion of the DOCA remained in the best interests of the creditors as a whole after the Subordination Deeds were made. The Administrators did not do that. Instead, they advanced a submission before the primary judge to the effect that, notwithstanding the Subordination Deeds, the unrelated creditors were in a better position under the DOCA, as at the hearing, than in a winding up and continued to stand to receive 100 cents in the dollar under the DOCA.

    …

123.     In these circumstances, the submission made to the primary judge to the effect that, as at the date of the trial, unrelated creditors would receive 100 cents in the dollar was not supported by the evidence then available. Consistently with the Administrators’ duty of independence, impartiality and fairness, the disconcordance in the underlying assumptions informing the two scenarios addressed by the aide memoire should have been clearly exposed. That it was not has led the primary judge into House v R error which opens the door to appellate review.

    …

128.     The Administrators’ submissions concerning the likely returns under the DOCA obscured the significance of the Subordination Deeds from the primary judge in terms of the impact these deeds had on the unrelated creditors’ likely recovery if the DOCA was terminated. The primary judge was led into error in that respect.

CONSIDERATION

Issue 1: The appropriate costs orders

Applicable principles

27    The Court has a broad discretion as to costs under s 43(2) of the FCA Act. In the ordinary course, costs follow the event, meaning that the unsuccessful parties pay the successful parties’ costs of the proceeding in the first instance and in the appeal.

28    In Les Laboratoires Servier v Apotex Pty Ltd [2016] FCAFC 27; 247 FCR 61, the Full Court said the following at [297] to [298], [301] and [303], which was applied more recently by the Full Court in El-Debel v Micheletto (Trustee) (No 2) [2021] FCAFC 146 at [4]:

297.     There are two general approaches to the award of costs that have general application and have been the subject of numerous decisions:

(1)    The successful party is generally entitled to its costs. That is, costs usually follow the event.

(2)    It is also the case that a successful party may be awarded less than its costs, or there may be an order apportioning costs, on the basis of success on the issues.

298.     This has been recently reiterated by the High Court (per French CJ, Kiefel, Nettle and Gordon JJ) in Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 90 ALJR 270 at [6], where their Honours observed that if the event of success cannot be seen as contestable, having regard to how separate issues have been determined, then:

There are no special circumstances to warrant a departure from the general rule, and good reasons not to encourage applications regarding costs on an issue-by-issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like.

    …

301.     On the other hand, Courts have been increasingly concerned, generally, to use all proper means to encourage parties to consider carefully what matters they will put in issue in their litigation. This has led to decisions whereby the successful party does not recover all of its costs where it has been unsuccessful on a discrete issue or in what is decided to be an unmeritorious objection. While it is acknowledged that, ordinarily, costs follow the event, the wide discretion in awarding costs has led to circumstances where a successful party who has failed on certain issues may be ordered to pay the other party’s costs of them (as discussed in Hughes v Western Cricket Association (Inc) [1986] ATPR 40-748 per Toohey J), although warnings have been stated that care should be taken in such a course and consideration be given to whether the issues on which the successful party failed are clearly dominant or separable (Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328 at 330-331 per Mahoney JA) and to whether the issues involved different factual enquiries in the one proceeding or multiple causes of action, even if based on a common substratum of fact.

    …

303.     … However, the Courts have been slow to order a successful party to pay the costs where it has been unsuccessful on some issues. In Mok v Minister for Immigration, Local Government and Ethnic Affairs (No 2) (1993) 47 FCR 81, Keely J was of the view (at 84) that, without attempting to fetter the discretion, this power ought to be exercised only where the Court, on a consideration of all of the circumstances, has concluded that the raising of an issue by the applicant on which it has failed was so unreasonable that it is fair and just to make the order.

29    The above principles are well established: PDP Capital Pty Ltd v Grasshopper Ventures Pty Ltd (No 2) [2021] FCAFC 147 at [8], citing Idenix Pharmaceuticals LLC v Gilead Sciences Pty Ltd (No 2) [2018] FCAFC 7 at [3]. Notwithstanding, we recognise the force of Perram J’s observation that the empirical evidence to support the potential for issue by issue costs awards to motivate parties to focus on the real issues is thin: Boomerang Investments Pty Ltd v Padgett (Costs of the Liability Phase) [2021] FCA 385 at [20].

30    Where there has been a mixed outcome, and it is appropriate to apportion costs as between different issues in the proceedings, the apportionment will be carried out on a relatively broad-brush basis, and largely as a matter of impression and evaluation by the Court: Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 346; 26 IPR 261 at [29], cited with apparent approval in Tramanco Pty Ltd v BPW Transpec Pty Ltd (No 2) [2014] FCAFC 58 at [2]. In the context of discussing the apportionment of costs as a matter of discretion for the trial judge, the Full Court in Dodds Family observed that mathematical precision is illusory and the exercise of the discretion will often depend upon matters of impression and evaluation.

31    That an apportionment may well be rough and ready, lacking in precise arithmetical apportionment of the costs as between the winner and loser of discrete issues, in an appropriate case, will have the virtue of being fairer and more reasonable than the product of the mindless application of the usual rule: Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [5].

32    As a result of the stance adopted by the Deed Proponent in relation to the apportionment of costs payable by the respondents as between the respondents, it is necessary to have regard to the principles that apply in relation to the apportionment of the liability to pay costs between the parties liable to pay. As Besanko J observed in Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 6) [2020] FCA 928 at [99]:

99.     There is a general rule that where a costs order is made against several parties, the liability is joint and several. If there is any difference in relative responsibility, then that is a matter for contribution between the parties who are liable. However, the rule is no more than a general rule and there are circumstances in which the Court will apportion costs having regard to an unsuccessful party's contribution to the costs incurred by the successful party. Generally speaking, at the apportionment stage, the ruling consideration is the conduct of the parties in the litigation, not the conduct giving rise to the litigation (Probiotec Ltd v University of Melbourne [2008] FCAFC 5; (2008) 166 FCR 30 at [62], [71] and [77] per Rares J; at [91] per Besanko J; see also Dal Pont at 11.2-11.7).

Relevant context

33    In the present proceedings, the respondents were each active participants at the hearing below and on the appeal. As mentioned, both below and on appeal, Gymbaroo and the Deed Administrators shared common representation. The representatives for Gymbaroo and the Deed Administrators took the substantive running of the conduct of the trial and appeal for all of the respondents.

34    Dr Williams was separately represented in her capacity as the Deed Proponent. The Deed Proponent gave evidence and was cross-examined before the primary judge: PJ at [90] to [104]. Her counsel adopted the submissions made by the Deed Administrators in final address at the hearing below. Similarly, on the appeal, the Deed Proponent adopted in her written and oral submissions, the submissions made by the Deed Administrators. In addition, counsel for the Deed Administrators made brief submissions in relation to the effect of the Subordination Deeds: Sino Group at [56].

35    The Deed Proponent was a director of Gymbaroo. Throughout these proceedings, Gymbaroo has been under the control of its directors, and was represented in the proceedings by the Deed Administrators’ representatives.

36    The hearing below was listed, and lasted, for two days. It came on for hearing relatively quickly after it was commenced. At the end of the first day of the hearing, the relevant landscape in which the relief fell to be determined changed as a result of the Related Party Creditors (including the Deed Proponent) executing the Subordination Deeds: Sino Group at [112].

37    The Deed Proponent was one of the Related Party Creditors of Gymbaroo. She was party to one of the Subordination Deeds in her own right. She executed another of the Subordination Deeds in her capacity as attorney for her father, Harry: Sino Group at [55]. She executed all of the Subordination Deeds on behalf of Gymbaroo, in her capacity as a director of Gymbaroo.

38    In the proceedings below, the Sino Creditors sought relief on two bases. First, as already mentioned, that the DOCA be terminated, relevantly under s 445D of the Act. It was this issue that was the subject of the appeal. The primary judge described the application to set aside or terminate the DOCA as the principal issue for determination: PJ at [11]. Secondly, that the remuneration of the Administrators be referred to a Judicial Registrar for assessment. This second issue was not the subject of the appeal. It was described by the primary judge as a secondary issue: PJ at [11]. The primary judge dismissed the relief sought in relation to review of the remuneration for reasons that were briefly stated: PJ at [159] to [161]. The bulk of the hearing was occupied with the Sino Creditors’ attack on the DOCA, an issue on which they prevailed on appeal.

39    The proceedings below were instigated by the Sino Creditors on the day after the DOCA was executed. The proceedings were commenced in circumstances where the Administrators had commenced proceedings VID 732 of 2021 seeking orders under s 447A of the Act and s 90-15 of the IPS to the effect that they would be justified and acting reasonably in proceeding on the basis that the preservation orders made against Gymbaroo in the Arbitration Proceeding not be recognised or enforced against them as Administrators: Sino Group at [30]. In proceeding VID 732 of 2021, the Sino Creditors had filed an interlocutory application to have the Administrators removed pursuant to ss 447A and / or 447B(2) of the Act and / or s 90-15 of the IPS: Sino Group at [31]. The issues raised in proceeding VID 732 of 2021 had not been determined as at the date the DOCA was executed. It was in that context that the present proceedings were instituted by the Sino Creditors against, inter alia, the Deed Administrators, who were the former Administrators, immediately after the DOCA was executed: Sino Group at [54].

40    Following execution of the DOCA, pursuant to s 435C(1)(b) of the Act, the administration came to an end. Senior counsel then appearing for the Sino Creditors informed the primary judge that the Sino Creditors no longer pressed their interlocutory process seeking to have the Administrators removed. That application had been overtaken by Gymbaroo’s entry into the DOCA. The primary judge dismissed the Sino Creditors’ interlocutory process in proceeding VID 732 of 2021 and reserved the costs of and incidental to that interlocutory process: PJ at [8]. The primary judge ordered that proceeding VID 732 of 2021 be heard with proceeding VID 153 of 2022 and that the evidence in one proceeding be evidence in the other. The matters were listed to be heard together commencing on 11 April 2022: PJ at [9]. At the commencement of the hearing on 11 April 2022, the Administrators informed the primary judge that as a consequence of the DOCA being executed, the relief which they sought in proceedings VID 732 of 2021 was no longer of any utility. As with the Sino Creditors’ interlocutory process, the relief sought by the Administrators was rendered inutile by the supervening event of the DOCA being executed. As a consequence, proceeding VID 732 of 2021 was dismissed and costs were reserved: PJ at [10].

Costs of and incidental to the appeal

41    The position in relation to costs of and incidental to the appeal is substantially agreed — the respondents concede that costs of the appeal should follow the event save for two discrete matters.

Costs order of 26 August 2022

42    The first matter is with respect to a costs order made on 26 August 2022 in the appeal proceedings by which the appellants were ordered to pay the respondents’ costs of an interlocutory application made by the appellants dated 23 August 2022. By that interlocutory application, the appellants sought an injunction to restrain the Deed Administrators from taking any step to bring about the termination of the DOCA and from making any distribution of any part of the Deed Fund (as defined in the DOCA) to any Participating Creditors (as defined in the DOCA). The First to Third Respondents do not oppose an order that they pay the costs of the appeal but submit that the costs order of 26 August 2022 should not be disturbed. The Sino Creditors did not advance any reason as to why the costs order of 26 August 2022 should be disturbed. The Sino Creditors’ proposed orders are not directed to setting aside the costs order of 26 August 2022. That being so, we do not see any basis on which to disturb the costs order of 26 August 2022.

Costs order against Deed Proponent and Gymbaroo

43    The second matter is raised by the Deed Proponent, Dr Williams. The Deed Proponent contends that the appropriate order on the costs is that the Deed Administrators (and not Gymbaroo or the Deed Proponent) pay the Sino Creditors’ costs of the appeal.

44    The Deed Proponent submits that it would be appropriate to depart from the usual course that costs follow the event because even though the Deed Proponent was an unsuccessful party by strict definition, in her submission, the main protagonists in the proceeding are the Sino Creditors and the Deed Administrators. The Deed Proponent submits that her participation in the proceedings below and on appeal was extremely limited.

45    The Deed Proponent further submits that:

(1)    The relief sought by the Sino Creditors at hearing and on appeal, was relevant to their claim against Gymbaroo and the Deed Administrators, not the Deed Proponent; and

(2)    The Sino Creditors’ application to terminate the DOCA and the costs of the application, along with the associated costs of the subsequent appeal, are attributable to conduct of the Deed Administrators — relying on the findings in Sino Group at [69] to [70], [95], [105] to [106], [112], [123] and [128] (extracted above).

46    For these reasons, the Deed Proponent submits that a departure from the usual costs order, that costs follow the event, should be made in respect of the Deed Proponent. The Deed Proponent did not advance any submissions in support of her contention that the costs order should not be made against Gymbaroo.

47    As a fall back, the Deed Proponent submits that if any adverse costs order is made against her, it should be limited to not more than 5% of the Sino Creditors’ costs, with the balance, 95%, being awarded against the other respondents. The submission made in support of an apportionment of 5:95 in favour of the Deed Proponent is that it would be appropriate on the basis of the extent of the active participation in the trial below, and on account of the participation on the appeal.

48    For the following reasons, the Deed Proponent’s submissions are rejected.

49    First, the Deed Proponent elected to be represented and appear at the appeal. The Deed Proponent called evidence and made submissions. The fact that in doing so the Deed Proponent adopted the submissions made by the other respondents does not detract from the fact that the Deed Proponent actively joined in making the submissions advanced by Gymbaroo and the Deed Administrators. It may not be surprising that the Deed Proponent took that stance having regard to the fact that she was also a director of Gymbaroo, which was under the control of the directors at the time of the hearing below and the appeal, and Gymbaroo shared representation with the Deed Administrators. The attempt by the Deed Proponent to distance Gymbaroo and the Deed Proponent from the findings made in relation to the submissions advanced to the primary judge concerning the effect of the Subordination Deeds is rejected. The Subordination Deeds were between Gymbaroo and each of the Related Party Creditors (including the directors of Gymbaroo and the Deed Proponent). The Subordination Deeds are not complex in their terms. The parties to the Subordination Deeds must be taken to have known that the deeds effected an immediate, unconditional subordination and forbearance for a term of three years of the debts of each of the Related Party Creditors. It is in this context that Gymbaroo’s promulgation of, and the Deed Proponent’s adoption of, the Deed Administrators’ submissions falls to be assessed.

50    Secondly, the Deed Proponent was the party who had the greatest interest in holding on to the DOCA. Having proposed the DOCA, the Deed Proponent was interested in defending it. The Deed Proponent took steps to be in a position to defend the DOCA, independently if need be, from the Deed Administrators. As it was, the Deed Proponent’s defence of the DOCA piggybacked on Gymbaroo and the Deed Administrators’ defence of the DOCA. We see no reason in making an order for costs to distinguish in terms of responsibility between the Deed Proponent and the other respondents, with whom she was in lock step.

51    We are not satisfied that there are special circumstances to justify the departure from the general rule that costs orders are made jointly and severally against the unsuccessful parties. Apportionment is the exception — it is not warranted here.

52    In conclusion, in relation to the costs of the appeal, we will make an order that the respondents pay the Sino Creditors’ costs of and incidental to the appeal, excluding the costs that are the subject of the order made on 26 August 2022.

Costs of the hearing below

53    The Sino Creditors seek an order that the respondents pay their costs of proceeding VID 153 of 2022, being the proceedings below, including any reserved costs. Gymbaroo and the Deed Administrators submit that there should be no order as to costs in proceeding VID 153 of 2022. Although the proposed orders submitted on behalf of the Deed Proponent make no provision in relation to the costs of the hearing below, the written and oral submissions made on her behalf appeared to adopt the same position as had been adopted in relation to the costs of the appeal in relation to the costs of the hearing below.

54    The submissions advanced on behalf of Gymbaroo and the Deed Administrators in support of their contention that there should be no order for costs below were as follows:

(1)    The hearing below included the claim for relief in relation to the review of the Administrators’ remuneration, which was dismissed by the primary judge, and not the subject of the appeal. As we apprehend it, this is relied on to support a contention that there was ultimately a mixed result where the two camps each enjoyed some success, such that the appropriate order is that there be no order as to costs for the hearing below; and

(2)    The case advanced on appeal is said to have borne little resemblance to the case below and succeeded on appeal, partly as a result of the admission of further evidence, and thus it is submitted that a just and appropriate order would be that there is no order as to the costs of the proceeding below.

55    In the alternative, Gymbaroo and the Deed Administrators submit that the costs of the proceeding below should be apportioned to reflect their success in resisting the relief concerning their remuneration as Administrators. They submit that such an approach produces a result that is fairer than giving the Sino Creditors the whole of the costs of the proceeding below. Given the ultimate relative success of the parties on the matters agitated in the proceeding below, Gymbaroo and the Deed Administrators submit that the Court should adopt a rough and ready assessment giving rise to an apportionment. On this alternative basis, they submit that an appropriate order would be that the First to Third Respondents pay 50% of the appellants’ costs of proceeding VID 153 of 2022 including any reserved costs.

56    The submissions advanced by Gymbaroo and the Deed Administrators are rejected for the following reasons.

57    First, the principal issue to be determined below was in respect of the relief claimed in relation to the DOCA. The primary judge expressly recognised this. The primary judge’s reasons are principally directed to this issue. The issue in relation to the review of the Administrators’ remuneration was a secondary issue, recognised as such by the primary judge, and was despatched in short order by the primary judge. In circumstances where the parties have not filed evidence which could inform the basis on which an apportionment might be justified, we do not see that a departure from the usual order is warranted in this case. That is consistent with the impressionistic approach required, particularly from the perspective of an appeal court.

58    Secondly, we are not persuaded by the submission made by Gymbaroo and the Deed Administrators as to the difference in the case run at trial and the case run on appeal. The fact is that the factual landscape changed significantly at the end of the first day of the two-day hearing as a result of the execution of the Subordination Deeds. The aide memoire provided to the primary judge and the submissions made in reliance upon it led the primary judge into error: Sino Group at [123]. That weighs heavily in favour of the Sino Creditors being awarded their costs below. Moreover, when it was recognised in the oral arguments made on behalf of the respondents on the appeal, that the effect of the Subordination Deeds was that the payout ratio for unrelated creditors in a hypothetical winding up would have been higher. As we observed in Sino Group at [110] to [111], in the absence of the Subordination Deeds, the Sino Creditors’ contention that the DOCA should be terminated on public policy grounds would have been compelling.

59    The submissions made by the Deed Proponent in relation to the costs of the hearing below, mirrored the submissions made by the Deed Proponent in relation to the costs of the appeal, and are rejected for the same reasons.

60    For these reasons, we will make an order in favour of the Sino Creditors in relation to the costs of the hearing below.

Issue 2: The Deed Administrators’ right of indemnity

Applicable principles

61    In Adelaide Brighton, Besanko J said (at [155]):

155.     A deed administrator generally has a right of indemnity under the deed of company arrangement appointing him or her to the position, and may also have a right of indemnity under the general law. The debts covered by the right of indemnity are given a certain priority in the winding up of a company (s 556(1)(dd) of the Corporations Act). The termination of a deed of company arrangement does not affect "the previous operation of the deed" (s 445H). A deed administrator does not have a right of indemnity under s 443D. That section does not in its terms ("the administrator of a company under administration …") apply to a deed administrator under a deed of company arrangement. This was the view of Austin J in Cresvale Far East (at [67]) and is a view with which I respectfully agree. It was not altered by anything said by the Court on the appeal (Kirwan v Cresvale Far East).

62    In this case, it was common ground between the parties that the Court has jurisdiction under s 90-15 of the IPS to determine whether the Deed Administrators’ right of indemnity should be denied or otherwise limited.

63    We are satisfied that the Court has jurisdiction to make an order which impacts the Deed Administrators’ right of indemnity either by reason of the power to make orders as to the costs of the proceeding under s 43 of the FCA Act or under s 90-15 of the IPS: Adelaide Brighton at [31] to [33], applied in Re Bluechain Pty Ltd (Administrators Appointed) (No 3) [2021] VSC 420 at [55]. The Court may exercise the power under s 90-15 of the IPS on its own initiative or on an application under s 90-20: s 90-15(2). By reference to either source of jurisdiction, the Court has a broad discretion, which must be exercised judicially, in all of the relevant circumstances.

64    Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge: s 43(2) of the FCA Act.

65    The IPS takes effect pursuant to s 600K of the Act. Section 90-15 of the IPS does not limit the Court’s powers under any other provision of the Act, or under any other law: s 90-15(7).

66    The relevant provisions of s 90-15 concerned with inter alia costs are 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.

…

Examples of orders that may be made

(3)     Without limiting subsection (1), those orders may include any one or more of the following:

…

(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;

…

…

Costs orders

(5)     Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include an order that:

(a)     the external administrator or another person is personally liable for some or all of those costs; and

(b)     the external administrator or another person is not entitled to be reimbursed by the company or its creditors in relation to some or all of those costs.

67    Section 90-15 confers power on the Court to order that the Deed Administrators are not entitled to be reimbursed by Gymbaroo in relation to the costs of the present proceedings, effectively limiting or denying the Deed Administrators’ right of indemnity under the DOCA.

68    In Re Bluechain Delany J observed at [54], [59] and [61] that:

54.     … The power in s 90-15(1) is a very broad power to make such orders as the court thinks fit. Section 90-15(3) provides expressly that orders may be made in relation to the costs of an action taken by an administrator or of another person in relation to the external administration. Section 90-15(5) of the Act confers express and specific power to order an administrator to be personally liable for costs and that the administrator not be reimbursed by the company in relation to all or some of those costs.

…

59.     However, the language of ss 90-15(3)(d) and 90-15(5) of the IPS goes beyond indemnity for adverse costs orders against administrators. It includes power to order that administrators are not entitled to be reimbursed by the company or its creditors in relation to ‘some or all of those costs’; ‘those costs’ being a reference to ‘an order in relation to the costs of an action’.

…

61.     Sections 90-15(3)(d) and 90-15(5) of the IPS do not give guidance as to the circumstances in which an order depriving an administrator of the right of indemnity might appropriately be made. Clearly the Court has a broad discretion, to be exercised judicially, in the same way that the Court is bound to act when exercising the costs discretion in s 24 of the SCA and in the Rules.

69    In City & Suburban Pty Ltd v Smith, Liquidator of Conpac (Aust) Pty Ltd (in liq) [1998] FCA 933, Merkel J observed in the context of an application to remove liquidators that (at 5):

Where a liquidator chooses to defend his conduct, as he or she is fully entitled to do, on a factual basis which is successfully challenged by the applicant for removal, it would be an odd result that the liquidator is able to do so at the expense of the company in liquidation, or more accurately, its creditors.

70    In Re Bluechain, Delany J made observations to a similar effect (at [58]).

Application

71    In Adelaide Brighton at [25], Besanko J observed that it is important to distinguish between a claim by deed administrators that they are entitled to be indemnified with respect to a costs order against them, and a claim by deed administrators that they are entitled to be indemnified with respect to their own costs. The Sino Creditors and the Deed Proponent address both these matters in the one order. They seek an order that has the effect that the Messrs Rathner and Sweeny in their successive capacities as Administrators and Deed Administrators have no recourse to the rights of indemnity conferred on them in these roles under the DOCA in respect of costs awarded against them in favour of the Sino Creditors, or for their own costs of the proceedings.

72    It is relevant to note immediately, that the Messrs Rathner and Sweeny’s involvement on the appeal was exclusively in their capacity as Deed Administrators. Their role in the proceedings below was principally in their capacity as Deed Administrators but, as noted above, also included a secondary role in their capacity as Administrators, which was directed to defending the application by the Sino Creditors to refer the Administrators’ remuneration to a Judicial Registrar for assessment. This issue was not the subject of the appeal and as outlined above did not occupy a substantial part of the hearing below.

73    The relevant clauses of the DOCA are as follows.

74    Clauses 1.2, 3.1 and 4.1 provide that the Deed Administrators are to establish the Deed Fund ($600,000) from certain funds of Gymbaroo (Company Funds) plus a Deed Contribution from the Deed Proponent (up to $600,000 depending on the amount of Company Funds).

75    Pursuant to cl 4.2, the Deed Fund does not form part of the assets of Gymbaroo.

76    The Deed Administrators’ liability is limited by cl 8.4 of the DOCA which provides:

8.4    Limitation of Deed Administrators’ liability

To the extent permissible under the Act, in the performance of the Deed Administrators’ functions and duties and the exercise of the Deed Administrators’ powers as Administrators of this Deed, the Deed Administrators will not be personally liable for:

(a)     any debt payable by or liabilities incurred by the Deed Administrators being debts or liabilities payable or incurred on behalf of the Company in relation to the administration of the Company during the Deed Period; or

(b)     any loss or damage caused by any act, default or omission by the Deed Administrators or on behalf of the Deed Administrators (other than fraud, wilful and gross misconduct or gross negligence) in the performance of the Deed Administrators' powers, functions and duties as Deed Administrators of the Company during the Deed Period.

77    The Deed Administrators’ liability to pay the Sino Creditors’ costs and to pay their own costs may fall within the description of “debts or liabilities payable or incurred on behalf of the Company in relation to the administration of the Company during the Deed Period” insofar as the debt in respect of their own costs, and liability in respect of the Sino Creditors’ costs are reasonably and properly incurred in defending the DOCA on behalf of Gymbaroo. In circumstances where Gymbaroo was a party in its own right and the legal representatives were appearing for Gymbaroo and the Deed Administrators, it is not clear whether any separate costs have been incurred that were not otherwise incurred on behalf of Gymbaroo and for which the Deed Administrators alone are liable.

78    The DOCA includes the following clause which relevantly provides in respect of the indemnification of the Administrators and Deed Administrators (cl 8.5):

Subject to the Act, the Administrators and the Deed Administrators are each indemnified by the Company against any liability arising from or incidental to the administration during the Administration Period and the administration contemplated by this Deed except where the liability is incurred as a result of negligence, fraud or breach of any duty on the part of the Administrators or the Deed Administrators.

79    Clause 8.5 is subject to the power of the Court to make an order in respect of costs under s 90-15 of the IPS which cuts across the right of indemnity in cl 8.5.

80    Clause 8.6 of the DOCA provides that the Deed Administrators are not personally liable for any debts, claims or liabilities incurred by or in respect of Gymbaroo on and after the Effective Date, being the date the DOCA was executed. This clause does not assist the Deed Administrators in respect of a costs order made against them or their own costs. No party is seeking an order that the Deed Administrators should be personally liable for any costs awarded against Gymbaroo.

81    Section 444A(5) of the Act provides that a deed of company arrangement is taken to include the prescribed provisions except so far as the deed provides otherwise. Schedule 8A to the Corporations Regulations 2001 (Cth) provides for prescribed provisions in the case of a deed of company arrangement and reg 5.3A.06 provides that for s 444A(5) of the Act, the prescribed provisions are those set out in Sch 8A. The DOCA provides in cl 1.3, that Sch 8A of the Regulations does apply except in particular respects not presently relevant.

82    In Adelaide Brighton, Besanko J observed at [163]:

163.     The prescribed provisions in Sch 8A include a provision to the effect that in exercising the powers conferred by this deed and carrying out the duties arising under this deed, the administrators are taken to act as agent for and on behalf of the company. This means that the deed administrator owes fiduciary obligations to the company. In Cresvale Far East, Austin J set out provisions of the deed of company arrangement in issue in that case (at [75]) and then said (at [76]):

While those provisions do not, in terms, incorporate the limitation that the right of reimbursement is available only where the administrator acts properly and reasonably (in other words, the limitation explained in Adsett v Berlouis), it seems to me that such a limitation must be implied, because of the fiduciary nature of the administrator’s office. As an agent and a fiduciary, an administrator must exercise his or her powers subject to equitable limitations. Nothing in the DCA purports to exclude such a limitation.

In my respectful opinion, his Honour is correct and the fiduciary nature of the deed administrators’ position means that the same limitation on their right of indemnity under the general law applies to their right of indemnity under the DOCA.

83    We have extracted at paragraph [26] above, the observations we made in Sino Group at [69] to [70] as to the Court’s expectations in relation to the conduct of a deed administrator in undertaking an active defence of an application to set aside or terminate a DOCA. It is incumbent on the deed administrator to conduct the defence fairly and to ensure that information within their knowledge that is relevant to the Court reaching a just outcome is brought to the attention of the Court. The submissions advanced by a deed administrator must be balanced, accurate and not one-sided. The submissions advanced by the Deed Administrators fell short in two critical respects. First, before the Subordination Deeds were entered, the Deed Administrators embarked on defending the DOCA notwithstanding that the terms of the DOCA were such that Gymbaroo was likely to remain insolvent following completion of the DOCA. Secondly, after the Subordination Deeds were executed, the submissions advanced by the Deed Administrators, as encapsulated in the aide memoire, were one-sided and were not balanced or accurate. We have concluded that the costs incurred by the Deed Administrators can readily be characterised as not reasonably and properly incurred in defending the DOCA.

84    We are satisfied that in the exercise of our discretion on costs, under s 43 of the FCA Act, as supplemented by the power conferred by s 90-15 of the IPS, it is appropriate to deny the Deed Administrators recourse to the right of indemnity in respect of the adverse costs order made against them and in respect of their own costs of and incidental to the proceedings below and the appeal.

85    Our reasons are as follows:

(1)    The indemnity conferred by cl 8.5 is expressly subject to the Act. Section 90-15 of the IPS does not require findings of impropriety or of the failure to take reasonable care on the part of an external administrator in order that the power under ss 90-15(3)(d) and 90-15(5) be exercised. An order will appropriately be made in cases where the application and therefore the costs of it, were the consequence of the conduct of the Administrators: Re Bluechain at [62].

(2)    Messrs Rathner and Sweeny’s conduct (as Administrators), in the preparation of a report that was materially misleading or that contained material omissions and that recommended that the creditors approve the DOCA on terms that would result in Gymbaroo remaining insolvent, caused or contributed to the necessity for the Sino Creditors to commence proceedings for an order that the DOCA be set aside or terminated. Further, in the absence of the Subordination Deeds, it was highly likely that the DOCA would have been terminated or set aside on public policy grounds. Therefore, the costs of the DOCA termination aspect of the proceedings can be attributed to the conduct of Messrs Rathner and Sweeny (acting as Administrators) that resulted in execution of the DOCA and, then, acting as Deed Administrators, in the defence of proceedings that were highly likely to end in the DOCA being set aside or terminated.

(3)    After the Subordination Deeds took effect, the continued defence of the application to terminate the DOCA and the costs of it can readily be attributed primarily to the conduct of the Deed Administrators having regard to the findings made in Sino Group at [112], [123] and [128]. That conduct continued after the judgment below and extended to participation in active and substantive resistance to the Sino Creditors’ appeal.

(4)    Where an administrator chooses to defend his conduct (as he or she is fully entitled to do) and the challenge is successful, it would be an odd result that an administrator is able to do so at the expense of the company, or more accurately its creditors: see City & Suburban at 5, cited with approval in Cresvale Far East Ltd v Cresvale Securities Ltd (No 2) [2001] NSWSC 791; 39 ACSR 622 at [90] and in Re Bluechain at [56] to [57]. Unless the Deed Administrators are denied their claim to be indemnified, the Sino Creditors, even though successful in obtaining an order for their costs, would end up bearing part of those costs in the form of a reduced return to all creditors in the winding up.

86    Accordingly, the Deed Administrators are not entitled to be indemnified or reimbursed by Gymbaroo, or by its creditors, in relation to the costs that they are ordered to pay to the Sino Creditors or in relation to their own costs in relation to the proceedings in the Court below or on appeal.

87    The parties did not develop reasoned submissions directly to the issue of Messrs Rathney and Sweeny’s right to be indemnified in relation to their own costs incurred in their capacity as Administrators in the proceedings below in relation to the remuneration review application. Messrs Rathney and Sweeny were successful in resisting the remuneration review application. The Sino Creditors did not appeal that part of the Primary Judgment. We have set aside the costs order made below and determined that the Sino Creditors should have their costs of the proceedings below. The issue of whether Messrs Rathney and Sweeny’s right to be indemnified in relation to their own costs incurred in their capacity as Administrators in the proceedings below in relation to the remuneration review application is a different issue. On the limited material available to us, we are not satisfied that it is appropriate to deny Messrs Rathney and Sweeny recourse to the indemnity in this limited respect. Accordingly, we will craft the orders in respect of the denial of the indemnity to carve out the Administrators’ costs incurred in relation to the separate issue of the remuneration review.

Issue 3: Appointment of liquidators other than the Deed Administrators

Relevant context

88    A consequence of the orders made on 14 July 2023 is that Gymbaroo has proceeded to liquidation as if it was placed in voluntary liquidation under s 491 of the Act, without the directors having made a declaration of solvency under s 494: s 446AA of the Act: see Sino Group at [140]. Although foreshadowed, no application was made, at the time of the appeal, for the appointment of a liquidator other than the Deed Administrators: Sino Group at [146]. Pursuant to s 499(2D) of the Act, in the absence of an order appointing a liquidator, the company is taken to have appointed the Deed Administrators to be the liquidators for the purpose of winding up the affairs and distributing the property of the company. The appointment of the Deed Administrators as liquidators took effect on 14 July 2023, being the time when the order was made terminating the DOCA under s 445D: s 446AA(1)(a).

89    At the hearing of the appeal, the respondents indicated that they would oppose any application by the Sino Creditors to appoint persons other than the Deed Administrators as liquidators on the basis that the costs and remuneration of any new liquidators are uncertain and may be significantly higher than those of the Deed Administrators in acting as liquidators. No application was in fact made prior to the Court delivering judgment on the substance of the appeal. In those circumstances, in the substantive judgment, the Court noted that any such application, if made, should be made in the Court’s original jurisdiction: Sino Group at [146].

90    At the hearing in relation to costs on 18 July 2023, an issue emerged as to whether this Court should appoint persons other than the Deed Administrators as the liquidators of Gymbaroo, and, if so, who should be so appointed.

The parties’ competing positions

91    The Sino Creditors sought to have Messrs Woods and Mansfield appointed as joint and several liquidators of Gymbaroo. The Deed Proponent sought to have Messrs Juratowitch and Kaso appointed. For each of the proposed liquidators, a declaration of independence, relevant relationships and indemnities (DIRRI) was provided shortly before or at the hearing on 18 July 2023.

92    At the hearing, the Deed Administrators, now the liquidators, informed the Court that they propose to resign from office, and effectively consider themselves to be acting in a caretaker capacity until alternate liquidators are appointed to the company.

93    Counsel appearing for the Deed Administrators and Gymbaroo speculated, without instructions, that alternate liquidators may be appointed by a vote of creditors in a meeting of creditors. Further, that this may avoid the need for the Court to engage in a beauty parade of alternate liquidators. An obvious potential obstacle to this course is that the voting rights of the Related Party Creditors, now subordinated, may prove to be controversial and give rise to a further application to the Court. The Deed Administrators submitted that if the issue of who is to act as liquidator is to be determined by the Court, it is appropriate that it be determined in the Court’s original jurisdiction.

94    Notwithstanding this Court’s observation that an application to appoint a liquidator not having been made, if made, should be made in the Court’s original jurisdiction (Sino Group at [146]), the Sino Creditors pressed to have this Court appoint a new liquidator pursuant to s 499(2D) of the Act, or alternatively to refer this issue for immediate determination by a single judge of the Court.

95    The difficulty with the Sino Creditors’ position is that at the time the order was made terminating the DOCA, there was no application for the appointment of an alternate liquidator, and when the matter came back for final orders, there was an issue as to which of the two alternate sets of joint liquidators should be appointed. Section 499(2D)(a) provides that “immediately” after the Court makes an order terminating a DOCA under s 445D, the Court may appoint a person to be the liquidator, and in the absence of such an appointment the deed administrator is appointed by default: ss 466AA(1)(a), 499(2D)(b)(i). The Sino Creditors mooted making such an application but did not make the application, and included no prayers directed to this relief in their Originating Process. Although some submissions were made to that effect before the primary judge, it was not until after judgment on the appeal was delivered that alternate liquidators were identified. In these circumstances, counsel for the Sino Creditors ultimately accepted that the issue of who should replace the Deed Administrators as liquidators was a matter that, if necessary to be determined by the Court, should be determined by the Court in its original jurisdiction.

96    Although the Deed Proponent sought to have her preferred liquidators appointed in lieu of those nominated by the Sino Creditors, she did not advance substantive submissions in support on this issue. Instead, the Deed Proponent submitted that in the absence of any party having a formal application on foot, the question should be dealt with by the Court in its original jurisdiction.

97    We adhere to our view that the appointment of alternate liquidators, not having been raised earlier in the proceedings, and clearly being contested as to who should assume the role, is a matter that should, if required to be determined by the Court, be determined in the Court’s original jurisdiction. There is no evidence as to the costs and the relative advantages or disadvantages as between the two nominated liquidators. The matters raised in oral argument by counsel for the Sino Creditors reinforced our view in that regard. That the Deed Administrators intend to retire and have informed the Court that they regard themselves as acting in a caretaker capacity cements our view that this issue should not be addressed on the fly. If the identity of the liquidators is required to be determined by a court, that issue should be heard with the benefit of evidence and considered submissions by the parties in the Court’s original jurisdiction.

CONCLUSION

98    For these reasons, we will make orders in accordance with our conclusions on each of the three issues ventilated in the hearing on 18 July 2023.

Associate:

Dated:    28 July 2023

SCHEDULE OF PARTIES