FEDERAL COURT OF AUSTRALIA

Trenfield (Liquidator), in the matter of Ostwald Bros. Pty Ltd (In Liq)

[2019] FCA 558

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), the applicants be given leave to enter into a funding agreement with the Department of Jobs and Small Business in, or substantially in, the form exhibited at “CONFIDENTIAL KT-5” to the affidavit of Kelly-Anne Lavina Trenfield sworn 20 March 2019.

2.    Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), the affidavit of Kelly-Anne Lavina Trenfield be marked “Confidential”, be supressed on the Court’s Electronic Court File.

3.    An order that the Applicants be indemnified from the second applicant’s assets for the costs of these proceedings.

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

EX TEMPORE REASONS FOR JUDGMENT

GREENWOOD J:

1    This is an application made by Kelly-Anne Lavina Trenfield and John Richard Park as joint and several liquidators of Ostwald Bros. Pty Ltd (in Liquidation) for orders under s 477(2B) of the Corporations Act 2001 (Cth) (the “Act”) by which the applicants seek approval for a particular funding agreement in order to enable an insolvency report to be obtained as part of steps necessary to prosecute certain proceedings against approximately six creditors of the company. The funding agreement in question is one between the company, the liquidators, and the Commonwealth of Australia in its incarnation as the “Department of Jobs and Small Business”.

2    The purpose of the funding is to enable liquidators to obtain an insolvency report as a step along the way to possibly taking proceedings against six creditors or one or more of six creditors on the footing that one or more of those creditors has received a preferential payment in the relevant period. The brief background to the matter is this. On 25 August 2017, Derick Vickers and Sam Marsden were appointed as the voluntary administrators of the company. Subsequently, on 30 November 2017 at a meeting of creditors it was resolved that the company be wound up and that Mr Vickers and Mr Marsden be appointed as joint and several liquidators. By order of the Court on 29 June 2018, Kelly-Anne Trenfield and Mr Park were appointed as the replacement liquidators for Mr Vickers and Mr Marsden.

3    The former liquidators have outstanding claims for professional fees for work done in the course of the liquidation of particular amounts which are identified at paras 7 and 8 of the affidavit of Ms Trenfield in support of the application. The former liquidators are yet to make an application to the Court for approval of this particular remuneration. Ms Trenfield says that the present liquidators are expecting a payment of $36,804.17 in respect of a first and final divided for an outstanding debt owed by M20 Water Pty Ltd (in Liq) to the company within the next few weeks. This receipt is the only asset of the administration.

4    The company has priority unsecured creditors of $12,952,646.96 and ordinary unsecured creditor claims of approximately $66,841. The immediate point of relevance is that there is a schedule in Ms Trenfield’s affidavit at para 16 in which she sets out the circumstances in relation to six payments made to particular creditors which are said to be unfair preference payments. The relevant relation back period for this liquidation is between 25 February 2017 and 25 August 2017. The schedule in the affidavit sets out some particulars of those matters and Ms Trenfield deposes to the proposition that each of those creditors have raised contentions of good faith defences, and they have also asserted that at the relevant moment in time the company was not insolvent.

5    The affidavit also attaches the body of letters written to the creditors and the responses asserting those propositions. It becomes clear, then, in order to commence proceedings against these creditors in which the unfair preference claims will be made, that an insolvency report is required to be obtained. The purpose of the funding agreement is to provide funds to the liquidators to enable that report to be obtained. The proposed funding agreement is not one which is designed to provide funding for the litigation itself. It is to enable the liquidators to obtain an insolvency report as an aspect of steps anterior to the proceedings. I have had the benefit of reading the draft agreement attached to Ms Trenfield’s affidavit.

6    The agreement is, of course, a document of some confidentiality and I accept that the agreement ought to remain confidential. Section 477(2B) of the Act provides that except with the approval of the court or the approval of the committee of inspection or by reason of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company’s behalf if the term of the agreement may end, or obligations of a party to the agreement may, according to its terms, be discharged by performance more than three months after the agreement is entered into.

7    The question of obtaining the insolvency report may involve steps which would go beyond the three month period and, thus, it is necessary for the liquidators to seek the approval of the Court or, alternatively, the approval of the committee of inspection or, alternatively, a resolution of the creditors. Ms Trenfield says in her affidavit that she has taken this question to the committee of inspection and the committee has elected not to give its approval almost entirely because some members of the creditors feel that they would be conflicted in making that decision. Accordingly, the liquidators have made this application to the court.

8    I am satisfied that the main consideration to be applied in the exercise of the discretion to give or withhold an approval to the liquidators on the application is the impact of the agreement on the duration of the liquidation and whether it is, in all the circumstances, reasonable, in the interests of the administration, that the approval be given. I am satisfied that it is entirely appropriate to do so as the agreement will enable the liquidators to obtain an insolvency report with a view to seeking to recover or at least determine whether an assertion of an entitlement to recover, on behalf of all of the creditors, particular preference claims or the contended preference claims, can be made good. The amount in question seems to be of the order of about $1,450,000, as I understand the schedule at para 16 of the supporting affidavit.

9    There are some other considerations which should be mentioned. The first is that this application is not an application for approval for funding of the litigation itself. It is an application for approval in relation to the anterior step. There is nothing oppressive about granting the approval as sought. The particular classes of litigation which might flow in due course are not complex matters. They are claims for recovery of moneys said to be characterised as an unfair preference. It is clear from the affidavit that other options have been canvassed by the liquidators, however, the committee of inspection has elected to take the course that it has, resulting in this application.

10    And in that sense other options have also been canvassed by the liquidators. I am satisfied that the considerations I have mentioned which derive from Re City Pacific Limited [2017] NSWSC 784, Brereton J at [10] are the relevant considerations and I am satisfied that having regard to the dominant consideration that the interests of the administration are advanced by granting the approval, I grant the approval.

Associate:

Dated:    4 April 2019