FEDERAL COURT OF AUSTRALIA

Goyal, in the matter of Tiaro Coal Limited (In Liquidation) [2017] FCA 1252

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to ss 477(2B) and 506(1A) of the Corporations Act 2001 (Cth), approval be granted for Rahul Goyal and Martin Madden, in their capacity as joint and several liquidators of the second plaintiff, and the second plaintiff to enter into and cause the second plaintiff to enter into:

(a)    the litigation funding agreement that appears at pages 189 to 221 of exhibit RG-1 to the affidavit of Rahul Goyal sworn 23 October 2017; and

(b)    the deed that appears at pages 222 to 231 of exhibit RG-1 to the affidavit of Rahul Goyal sworn 23 October 2017.

2.    Pursuant to ss 37AF(1)(b), 37AG(1)(a) and 37AJ of the Federal Court Act 1976 (Cth), the following documents are to be marked “confidential” on the electronic Court file and are not to be published or accessed, except pursuant to an order of the Court, until such time as any litigation (including any appeal) arising out of the winding up and affairs of Tiaro Coal Ltd (in liquidation) is concluded:

(a)    the affidavit of Rahul Goyal sworn 23 October 2017 in this proceeding and exhibit RG-1 thereto;

(b)    the supporting written outline of submissions dated 23 October 2017; and

(c)    any transcript of the hearing of this application on 23 October 2017.

3.    The grounds for Order 2 are that it is necessary to prevent prejudice to the proper administration of justice.

4.    Costs of this proceeding be costs in the liquidation of the second plaintiff.

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

MARKOVIC J:

1    This is an application made pursuant to ss 477(2B) and 506(1A) of the Corporations Act 2001 (Cth) (Corporations Act) for an order approving the entry by the second plaintiff, Tiaro Coal Limited (in liquidation) (Tiaro), into a litigation funding agreement and a deed, the details of which are explained below. In support of the application the plaintiffs rely on an affidavit sworn by Rahul Goyal on 23 October 2017. Mr Goyal is one of the liquidators of Tiaro.

2    The plaintiffs also seek orders under ss 37AF(1)(b), 37AG(1)(a) and 37AJ of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) to the effect that the affidavit of Mr Rahul, the exhibit thereto, the submissions provided by counsel in support of the application and any transcript of the hearing be kept confidential.

3    After hearing from counsel appearing for Tiaro, I am satisfied that I should make the orders sought by the plaintiffs. My reasons for doing so are briefly stated below.

background

4    Tiaro was placed into voluntary administration on 31 March 2015 pursuant to s 436A of the Corporations Act. On 10 December 2015, at the second creditors’ meeting, the creditors resolved pursuant to s 439C(c) of the Corporations Act that Tiaro be wound up and that, pursuant to s 499(2A), Mr Goyal, David Winterbottom and Martin Madden be confirmed as liquidators, they having previously been appointed as voluntary administrators.

5    Mr Winterbottom ceased as a liquidator of Tiaro on 11 July 2017 and Messrs Goyal and Madden continue as liquidators.

6    Since their appointment as administrators and then as liquidators, the liquidators have undertaken certain investigations based upon which they have identified particular causes of action that are available to Tiaro. In light of that, they have sought, from a number of prospective parties, funding to enable Tiaro to pursue the causes of action that have been identified. They have now entered into a funding agreement with a party to whom I shall refer as the Funder. That agreement is conditional upon Court approval under s 477(2B) of the Corporations Act.

7    The liquidators previously received funding from another party (Former Funder) to fund, among other things, the investigations that led to the identification of the causes of action. The liquidators, the Funder and the Former Funder have entered into a separate deed in relation to the obligations of the liquidators and Tiaro under the former funding arrangement. That deed is also conditional upon Court approval under s 477(2B) of the Corporations Act.

8    Mr Goyal’s affidavit provides detailed evidence about the nature of the arrangements that have been entered into with the Funder and the Former Funder and the effect of the proposed funding on Tiaro and its creditors. Given the orders that I propose to make about the confidentiality of the content of that affidavit and the exhibit thereto, I do not propose to set that evidence out in any detail.

consideration

9    Section 477(2B) of the Corporations Act relevantly provides that:

477     Powers of liquidator

…

(2B)     Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company’s behalf (for example, but without limitation, a lease or a (sic) an agreement under which a security interest arises or is created) if:

(a)     without limiting paragraph (b), the term of the agreement may end; or

(b)     obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;

more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.

10    Pursuant to s 506(1A) of the Corporations Act, s 477(2B) also applies to the liquidators.

11    In Re One.Tel Ltd (2014) 99 ACSR 247; [2014] NSWSC 457 (Re One.Tel) Brereton J considered ss 477(2A) and (2B). At [25] his Honour noted that there were common features between those two provisions and referred to the judgment of Barrett J in Re HIH Insurance Limited [2004] NSWSC 5 (Re HIH) at [15]. In Re HIH Barrett J noted that, while the two provisions dealt with different aspects of a liquidator’s powers, both were concerned to ensure that a court exercises some oversight of a liquidator’s actions and, in effect, confers or completes the necessary power only where it sees that a case for exercise of a power in the particular circumstances has been sufficiently shown. His Honour further noted that the court’s assessment must be made in light of the purposes for which a liquidator’s powers exist, one such overriding purpose being to serve the interests of those concerned in the winding up, including the creditors.

12    At [26] of Re One.Tel Brereton J said:

The principles applied to applications for approval under s 477(2B) have been helpfully summarised by Gordon J in Stewart, Re; Newtronics Pty Ltd [2007] FCA 1375 at [26] and by Hasluck J in Re Bell Group Ltd (in liq) [2009] WASC 235 at [57]-[58] (Bell Group), in terms that are equally applicable to applications under s 477(2A). The role of the court is to grant or deny approval to the liquidator's proposal, not to reconsider every issue considered by the liquidator, nor to develop some alternative proposal which might seem preferable. In reviewing the liquidator's proposal, the court pays due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, but satisfies itself that there is no error of law or ground for suspecting bad faith or impropriety, and evaluates whether the proposal is consistent with the expeditious and beneficial administration of the winding up. Importantly, the court's approval is not an endorsement of the proposed agreement, but merely permission for the liquidator to exercise his or her own commercial judgment in the matter. Thus the approval confers, or completes, the liquidator's power to enter into the transaction, but does not amount to the court approving the transaction itself. The distinction is material, because it means that – unlike a direction under s 479(3) or s 511 – an approval under s 477(2A) or (2B) alone does not exonerate the liquidator from personal liability.

13    In Needham, in the matter of Bruck Textile Technologies Pty Ltd (in liq) [2016] FCA 837 (Bruck Textiles) Gleeson J made orders approving the entry into a funding agreement by the liquidators. At [27] her Honour summarised the principles relating to s 477(2B) of the Corporations Act as follows:

The standard imposed under s 477(2B) concerns an assessment by the Court that entry into the agreement is a proper exercise of power and not ill-advised or improper on the part of the liquidator, rather than being a matter of the Court exercising commercial judgment: McGrath & Anor re HIH Insurance Ltd & Ors [2010] NSWSC 404; (2010) 78 ACSR 405 (per Barrett J).

14    At [29] her Honour noted that the Court’s task was to satisfy itself, having regard to the liquidator’s commercial judgment, that there is no error of law, grounds for suspecting bad faith or any other good reason to intervene.

15    At [30] her Honour set out the factors relevant to doubting the good faith or prudence of a proposed litigation funding agreement, which her Honour said include:

(1)    the liquidator’s prospects of success in the litigation;

(2)    the nature and complexity of the cause of action;

(3)    the extent to which the liquidator has canvassed other funding options;

(4)    the level of the funder’s premium;

(5)    the liquidator’s consultation with creditors; and

(6)    the risk involved in the claim, including the amount of costs likely to be incurred in the proposed litigation and the extent to which the funder is to contribute to the defendant’s costs if the action is not successful or towards any order for security for costs.

16    Having regard to Mr Goyal’s evidence and the documents to which I was taken by counsel appearing for the liquidators and Tiaro and, in particular, the terms of the funding agreement and the deed with the Former Funder, I am satisfied that entry into the funding agreement serves the overriding purpose of the liquidation, namely, to recover funds for the benefit of creditors and that the funding agreement will serve the interests of creditors.

17    Moreover, by reference to the factors referred to by Gleeson J in Bruck Textiles at [30] and listed at [15] above, I am satisfied that there is nothing that would lead me to doubt the good faith or prudence of the entry into the proposed funding agreement or the deed with the Former Funder. Indeed, I have reached quite the opposite conclusion having regard to those factors and the evidence of Mr Goyal.

18    In those circumstances, I am satisfied that the orders sought approving entry into the funding agreement and the deed with the Former Funder should be made.

19    I am also satisfied that the orders sought for confidentiality of the material relied on in support of the plaintiffs’ application should be made pursuant to ss 37AF, 37AG and 37AJ of the Federal Court Act. Mr Goyal has set out in his affidavit why those orders are sought and I am satisfied that such orders are necessary to prevent prejudice to the proper administration of justice. As Gleeson J noted in Bruck Textiles at [38], the public interest in the due and beneficial administration of the estates of insolvent companies for the benefit of creditors was a relevant consideration in favour of an order being made pursuant to s 37AF in that case. The same holds true in this case. Accordingly, I will make the orders sought by the plaintiffs.

Associate:

Dated:    29 November 2017