FEDERAL COURT OF AUSTRALIA

Van der Velde (Liquidators), in the matter of Launcells Feedlot Systems Pty Ltd (in liq) [2014] FCA 1309

THE COURT ORDERS THAT:

ORDERS UNDER S 477(2B) CORPORATIONS ACT 2001 (CTH)

1.    The Applicants have leave for the application filed 13 October 2014 seeking relief under s 477(2B) of the Corporations Act 2001 (Cth) (Corporations Act) to be made and determined without notice to any person.

2.    Pursuant to s 477(2B) of the Corporations Act, the liquidators of Launcells Feedlot Systems Pty Ltd (in liq) (“the Liquidators” and “the Company” respectively) may enter into the following agreements in the forms which respectively became the following exhibits in the hearing of the application:

(a)    Exhibit 1 – the proposed Funding Agreement with A&B Grains Pty Ltd;

(b)    Exhibit 3 – the proposed Deed of Mutual Confidentiality and Common Interest with A&B Grains Pty Ltd;

(c)    Exhibit 2 – the proposed Professional Services Agreement with Russells, a firm of solicitors.

3.    To prevent prejudice to the administration of justice:

(a)    this Application;

(b)    the supporting Affidavits of Anne Meagher dated 8 October 2014 and 16 October 2014, and of Timothy Russell dated 4 September 2014;

(c)    the further materials tendered and marked as follows as exhibits in support thereof being a proposed Funding Agreement (Exhibit 1), proposed Deed of Mutual Confidentiality and Common Interest (Exhibit 3) and a proposed professional services agreement (Exhibit 2), each to be entered into by the Liquidators, and solicitors’ advice on prospects of success dated 24 June 2014 (Exhibit 4);

(d)    the Outline of Submissions;

(e)    the Transcript of this hearing; and

(f)    this Order;

be confidential, be placed in an envelope on the file and sealed, and not be made available for inspection except by the Applicants or their lawyers or until further order of the Court.

ORDERS FOR SUMMONSES FOR PROVISION OF DOCUMENTS AND EXAMINATION

4.    Pursuant to s 596A of the Corporations Act, that the following persons be summonsed for examination about the examinable affairs of the Company and the summons be issued against those persons in the form of the draft Summonses at pages 23 to 32 of Exhibit “AM-1” to the Affidavit of Anne Meagher dated 8 October 2014:

(a)    Jennifer Anne Sturrock; and

(b)    Duncan Clark Sturrock.

5.    Pursuant to s 596B of the Corporations Act, that the following persons be summonsed for examination about the examinable affairs of the Company and the summons be issued against those persons in the form of the draft Summonses at pages 33 to 39 of Exhibit “AM-1” of the Affidavit of Anne Meagher dated 8 October 2014:

(a)    Vinod Kalyan; and

(b)    Lee Janelle Turner;

(together with Jennifer Anne Sturrock and Duncan Clark Sturrock, “the Examinees”).

6.    Pursuant to s 596D(2) of the Corporations Act, the Examinees be directed to produce at the examination the books specified in each of the draft Summonses being at pages 23 to 39 of Exhibit “AM-1” in their possession relating to the Company or its examinable affairs.

7.    Pursuant to s 597(9) of the Corporations Act, the following parties in terms of the draft directions being at pages 40 to 60 of Exhibit “AM-1” of the affidavit of Anne Meagher dated 8 October 2014, be directed to produce at the examination the books in their possession relating to the Company or its examinable affairs:

(a)    Sturrock Grazing Pty Ltd, by its proper officer;

(b)    Suncorp-Metway Limited, by its proper officer;

(c)    FP Accountants Pty Ltd, by its proper officer;

(d)    Shine Lawyers Pty Ltd, by its proper officer; and

(e)    Jon Broadley.

8.    The examination be held before a Registrar of the Federal Court of Australia at Harry Gibbs Commonwealth Law Courts Building, 119 North Quay, Brisbane in the State of Queensland.

9.    The examination is to commence and, each of the summonses and directions to produce books relating to the Company, be returnable on a date to be fixed by the Registrar.

10.    Pursuant to s 596F(1)(e) of the Corporations Act, the Applicants and the Applicants’ solicitors may uplift from the Court and inspect and take copies of the documents produced to the Court.

11.    Pursuant to s 597(13) of the Corporations Act, questions to the Examinees and answers given by the Examinees at the Examination are to be recorded in writing (the “Transcript”) and the Transcript is to be authenticated by each Examinee signing the bottom of each of the pages of the Transcript that relates to his or her Examination.

12.    Pursuant to s 596F(1)(d) of the Corporations Act, the Examinees be excluded from the Examination until their own Examination is completed.

13.    Pursuant to s 596F(1)(f) of the Corporations Act, the Examinees not discuss their own Examination with another Examinee until each of their Examinations is concluded.

14.    Publication of the reasons for judgment be suspended for 7 business from the date of provision to the Applicants, within which the Applicants are to make any application for confidentiality orders with respect to these reasons.

15.    Liberty to apply.

16.    The costs of this application are costs in the winding up of the Company and may be paid out of the assets of the Company.

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

REASONS FOR JUDGMENT

1    The liquidators of Launcells Feedlot Systems Pty Ltd in liquidation (the company) have applied for the issuing of summonses, either to give evidence or produce documents or both, and also for the approval of their entering into certain agreements. The need for that approval arises because the agreements concerned may end or the obligations of a party to the agreements may be discharged more than three months after entering into those agreements. There is, therefore, a need, in light of that, for the liquidators to seek and obtain the Court’s approval under s 477(2B) of the Corporations Act 2001 (Cth) (Corporations Act).

2    The nature of the proposed examinations and productions is such as to be inherently intertwined with a proposed course of recovery for the benefit of the creditors at the company by litigation or reasonable compromise. That intertwining is such that to disclose those who are proposed to be examinees or subject to an obligation to produce documents or both, would have a tendency to prejudice the administration of justice in terms of either successful recovery by litigation or successful recovery by compromise of litigation.

3    In so far as the application touches upon proposed examinations and obligations to produce documents, I am satisfied that there are persons proposed for examination whose examination the liquidators are entitled, as a right, to seek by virtue of s 596A of the Corporations Act and others in respect of whom I am satisfied, for the purposes of s 596B, that they may be able to give information about the examinable affairs of the corporation. That satisfaction extends to persons falling within the latter class who may be able to give evidence as to the worth of a potential defendant so as to enable the liquidators better to make a practical value judgment as to the likelihood of a return to the company in the event of the commencement of the litigation proposed: see as to the latter consideration, Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 at 306-307.

4    I am also satisfied, in so far as production alone is sought, that the proposed recipient of a summons to produce is someone who may be able to produce documents which are relevant to the examinable affairs of the company. In expressing satisfaction in respect of the summonses I have expressly taken into account the scope of the obligation entailed, which appears respectively in the schedule to each of the summonses.

5    The proposed summonses are, in draft form, exhibited to an affidavit made on behalf of the liquidators by one of them, Ms Anne Meagher. Each of the summonses bears an appropriate annotation excluding from the obligation which is entailed in compliance that the summons that which is subject to legal professional privilege.

6    The more difficult question is whether to approve a number of proposed agreements to which the liquidators would become parties. Those agreements have become exhibits in the proceeding and are, respectively:

    Exhibit 1, a proposed funding agreement as between the liquidators, the company and a particular creditor, and Russells, the solicitor’s firm which acts for the liquidators (Russells);

    Exhibit 2, a proposed professional services agreement as between Russells and the liquidators; and

    Exhibit 3, a deed of mutual confidentiality and common interest as between the liquidators, the company in liquidation and that same creditor.

7    In addition to these exhibits, a further document was tendered and marked as an exhibit. This is an advice concerning proposed litigation furnished to the liquidators by Russells – Exhibit 4. I shall return to that advice in due course.

8    There is an application for confidentiality orders in respect of each of the exhibits, the material read in support of the application, the outline of submissions, the application and any order made on the application. The concern voiced by the liquidators which has led to the seeking of that order is the same as voiced to Justice Gilmour in Jones, Saker, Weaver and Stewart (Liquidators), in the matter of Great Southern Limited (in liq) (Receivers and Managers Appointed) [2012] FCA 1072 at [9] (Great Southern), save that in this case there is no consideration arising from the presence of confidential details of insurance policies. That aside, the affidavits of Ms Meagher and Exhibit 4, are replete with candid disclosures and considered professional value judgments, both by liquidators and lawyers, that no ordinary litigant would be required to disclose. That being so, and as Justice Gilmour observed in Great Southern at [9], the liquidators “as a matter of public policy … should not be required to publicly disclose by reason of the statutory requirement to seek directions of this Court”. As his Honour observed there, that consideration “affects, objectively, the administration of justice in contrast to the particular prejudice to the Companies and their creditors”.

9    His Honour’s judgment in Great Southern was given at a time when the power of the court to make orders forbidding or restricting publication was found in s 50 of the Federal Court of Australia Act 1976 (Cth) (Federal Court of Australia Act). Since then, that provision has been repealed and replaced by Pt VAA of the Federal Court of Australia Act. Within that part, div 2 makes extensive provision in relation to suppression and non-publication orders, including a requirement that a suppression order or non-publication order be made on one or more of the grounds that are set out in s 37AG(1).

10    In this instance, the ground found in s 37AG(1)(a) is present in that an order is necessary to prevent prejudice to the proper administration of justice. It may be, though, that merely to make orders directed to the ability of persons other than the liquidators and their lawyers and court staff to access, without leave of the court, the originating application, the material filed in support of it, the exhibits and the outline of submissions would still admit of the possibility that an informed, inquisitive person, perhaps one potentially the subject of the proposed recovery proceedings, could learn of the nature of the application made by a federal law search, which disclosed the terms of the order sought.

11    That particular candidate for confidentiality, namely the court order, does not, in terms, appear to have been addressed in div 2 of Pt VAA of the Federal Court of Australia Act. The court, though, has, quite apart from Pt VAA, in s 23 of the Federal Court of Australia Act, power in relation to matters in which it has jurisdiction to make orders of such kinds as the court thinks appropriate. Here I consider that it would be appropriate to make an order which, until further order, prevented persons other than those I have mentioned from conducting a search which would disclose the contents of the orders made today.

12    In coming to the view I have as to a need for confidentiality, I have expressly taken into account and adopt the very helpful discussion in Great Southern by Justice Gilmour at [15] - [17]. Here, and at the risk of repetition, it would be quite prejudicial to the interests of the company and its unsecured creditors, which the liquidators seek to advance and protect, were the contents of any of the supporting materials or the exhibits or the outline of submissions or the orders to be made publicly available without an order granting leave. In other words, for the present, I accept the submission of the liquidators that it would prejudice the administration of justice not to make a confidentiality order of the kind indicated.

13    I turn, then, to the particular question of whether to approve the liquidators’ entering into the agreements to which I have referred. The considerations which are pertinent are to be found summarised by Justice Gilmour in Great Southern at [29]. They are these:

1.    The role of the court is to grant or deny approval to the Liquidators’ proposal: Re The Bell Group Ltd (in liq) [2009] WASC 235 at [57].

2.    The task of the court is not to reconsider all of the issues which have been weighed up by the Liquidators or to second guess the Liquidators’ judgment. Thus the Court’s role is not to determine if the Liquidators’ proposal is the best available option, to develop some alternative proposal which might seem preferable or to substitute its own views for those of the Liquidators: Re The Bell Group Ltd (in liq) at [57]; Re Addstone Pty Ltd (In Liquidation) (1998) 83 FCR 583 at 593-594.

3.    Rather, the court must review the Liquidators’ proposal to “be satisfied that the liquidator is acting in good faith in the making of the commercial judgment in respect of which the Court is being asked to make an order”: Re Addstone Pty Ltd (In Liquidation) at 594. The Court’s approval of the proposal is thus not an endorsement of the proposed agreement. It is merely a permission to the Liquidators to exercise their own commercial judgment in the matter.

14    It is not for the Court, in respect of an application for approval, to micro-manage the commercial values judgments made by liquidators. Rather, as Justice Gilmour observed in Great Southern at [30] and by reference to pertinent authority:

If the court is satisfied that in entering into the Funding Agreement, the Liquidators have acted in good faith and for proper purposes the Court will give the Liquidators considerable latitude in exercising their commercial judgment.

15    Later, his Honour identified, at [32], in a non-inclusive way, factors which are relevant to the exercise of the court’s discretion:

1.    the nature and complexity of the matter and the risks involved in pursuing a claim or claims;

2.    the prospects of success of the proposed action;

3.    the amount of costs likely to be incurred in the conduct of the action and the extent to which the funder is to contribute to those costs;

4.    the extent to which the funder will contribute towards the opponent’s costs in the event that the action is not successful or towards any order for security for costs;

5.    the circumstances surrounding the making of the contract, including the ability of the funder to meet its obligations;

6.    the level of the funder’s premium;

7.    the extent to which the liquidators have canvassed other funding options and consulted with the creditors of the company;

8.    the interests of creditors and the effect that the funding agreement may have on creditors of the company;

9.    possible oppression to another party in the proceedings; and

10.    the extent to which the liquidators maintain control over the proceedings.

In the end, the Court has to exercise a discretion on the facts of a particular case and there can, therefore, be no exhaustive statement of factors which are pertinent.

16    In this case, and having regard to factors which have been regarded as relevant in the past, I make the following observations: nature of the matter, risks involved and prospects of success. For all of the reasons canvassed candidly, both on behalf of the liquidators, by one of them, Ms Meagher, and also in the advice of their solicitors (Exhibit 4), the liquidators propose, in the first instance, to conduct a series of public examinations. The persons proposed to be examined and required to produce documents are persons who logically, having regard to the advice and the proposed course of recovery proceedings, ought to be examined or ought to be required to produce documents.

17    It is a reasonable and responsible value judgment that the liquidators have made to take this preliminary step. That examination and production has yet to occur provides a necessary caveat in respect of prospects of success. Those prospects, though, are nonetheless, on present materials, canvassed in the solicitor’s advice. That advice canvasses both what one might term best- and worst-case scenarios. It is responsible for the solicitors so to advise and equally responsible for the liquidators to make a judgment by reference to each of those scenarios. The causes of action canvassed in the advice, as a matter of impression, appear to be causes of action that may well reasonably be open to the liquidators so as to recover funds for the benefit of, particularly, unsecured creditors.

Funders’ Contribution Costs

18    One of those unsecured creditors is disposed to fund the liquidator in respect of the recovery proceedings. There is no committee of inspection appointed in the liquidation of the company. A committee of inspection is but one pathway in respect of obtaining the approval for funding and the prosecution of recovery proceedings. Another is for the liquidators to seek the court’s approval in respect of funding derived from sources beyond those available in the administration itself.

19    Here, there are no funds to which the liquidators can look to prosecute the proposed litigation. The funding by the unsecured creditor is based on considered estimates as to costs. In turn, the liquidators have exercised a value judgment in respect of the costs obligation that would, in the first instance, fall on them as between solicitor and client. The terms of the costs obligation are set out in the proposed professional services agreement. The funding agreement that is proposed will cover the costs that are to be incurred.

20    I did not have evidence before me of the worth of the unsecured creditor. In some cases, that may well be a fatal defect in respect of an application of this kind. Here, though, the unsecured creditor concerned has already shown an ability to fund litigation and to make all of the value judgments about the costs of litigation entailed in that. Further, I place particular reliance on the considered opinion of the liquidators that it is in the interests of the company to enter into the agreement that is proposed. I infer they have taken into account the worth of the proposal, including, in that regard, the worth of an indemnity, which is a feature of the agreement in respect of costs that might fall on them in the event of some or all of the proposed litigation not being successful. I note also that there is provision for the liquidators up to a particular amount, the exact amount of which should not be mentioned in this judgment, to seek the comfort of a bank guarantee from the proposed unsecured creditor funder.

Interest of Creditors

21    The liquidators’ opinion is that it is in the interest of creditors for the investigations to be undertaken and, for the funding agreement, the professional services agreement and the deed of mutual confidentiality to be entered into. It is further part of that expression of opinion that it is only via this particular means that there are prospects, reasonably, for a return to unsecured creditors. Having regard to the affidavits of Ms Meagher and also to the advice from the liquidators’ solicitors, I consider that this opinion has a reasonable foundation. There is no question in my mind other than that the application made today by the liquidators has been made in good faith.

Funder’s Premium

22    The funding agreement provides for a stepped premium. By that I mean that the amount of the premium is variable according to the length of time that the proposed recovery proceedings are extant. There are two considerations at least that intrude in relation to the percentages which are expressed in the funding agreement and stepped. The first is the length of time that the funder is to be kept out of its money. The second is the risks of litigation. Taking each of those into account, the particular percentages which appear in the funding agreement and the steps in those percentages appear to me to be reasonable. In that regard, also, I am guided by but by no means bound by the view of the liquidators that the premium is reasonable.

Other Funding Options

23    The long and the short of it is though the liquidators, as is apparent from Ms Meagher’s affidavits, have considered other options, the best and perhaps even the only presently available option is that which is offered pursuant to the funding agreement.

Possible Oppression

24    As Justice Gilmour observed in Great Southern, this factor:

… is concerned with whether there may be oppression to another party in the proceedings or in the third-party proceedings arising from the approval of the funding agreement as a result of, for example, undue delay on the part of the Liquidators or because the Liquidators have not paid the costs of another party in a previous application.

As in that case, this factor is not relevant here.

Liquidator’s Control over the Proceedings

25    Again, as in Great Southern, the funding agreement expressly provides for the liquidator’s control over the proceedings that are under contemplation.

Acting in good faith and for proper purposes

26    I have already referred to this consideration and to my satisfaction that the application is made in good faith.

Ex Parte Application

27    This application was made ex parte. There is no need for the liquidators to give notice of this application for approval to any party: see Re The Bell Group Ltd (in liq); Ex parte Woodings [2009] WASC 235 at [58]. Not only did I hear the application ex parte, but I also directed, until further order, that the listing be designed not to disclose the name of the company, as opposed to a listing which referred neutrally to a corporations matter. That was by way of an apprehension on my part as to a possible need to preserve confidentiality so as not to subvert the administration of justice. As it transpired, that apprehended need has been amply shown indeed to be necessary.

28    There is a further consideration, which is that these reasons for judgment have necessarily been cast at a level of generality so as, again, not to prejudice the administration of justice.

29    The question arises as to whether the reasons for judgment themselves ought to be confidential. The view that I have reached in that regard is that, in the first instance, there ought to be a short period for the applicant liquidators to make any application for confidentiality orders in respect of the reasons. An order of that kind was made by Justice Gilmour in Great Southern in these terms:

Publication of the reasons for judgment be suspended for 7 business days from the date of provision to the applicants, within which the applicants are to make any application for confidentiality orders with respect to those reasons.

30    The nature of the orders that I have made today will be apparent enough, at least in generality, from these reasons for judgment. That generally, in my view, will serve the interests of justice.

Associate:

Dated:    8 December 2014