Federal Court of Australia

Jahani, in the matter of Ralan Property Services Pty Ltd (receivers and managers appointed) (in liq) [2023] FCA 738

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to ss 37AF and 37AG of the Federal Court of Australia Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice:

(a)    Section L, consisting of paragraphs 105 to 126 of the affidavit affirmed by Said Jahani on 21 June 2023 (Supporting Affidavit);

(b)    the confidential exhibit marked “SJ-2” to the Supporting Affidavit (Confidential Exhibit SJ-2);

(c)    the confidential exhibit marked “RJB-2” to the affidavit affirmed by Rodney James Bretag on 26 June 2023 (Confidential Exhibit RJB-2);

(d)    the submissions filed in support of this application on 23 June 2023 marked “Plaintiffs’ Confidential Submissions”; and

(e)    the transcript of that part of the hearing on 26 June 2023 from which members of the public were excluded under s 17(4) of the Federal Court of Australia Act 1976 (Cth),

be marked “Confidential” on the electronic court file and not be published or accessed other than by duly authorised staff of the Court for the purpose of their work for the Court, until the final determination of both of proceedings numbered NSD579 of 2022 and NSD583 of 2022 in this Court (or any appeals therefrom) or further order of the Court in this proceeding.

2.    Pursuant to s 477(2B) of the Corporations Act 2001 (Cth) (Act), the First Plaintiffs and the Second Plaintiffs be granted approval nunc pro tunc to enter into and perform their obligations under (and to cause one or more of the Third to Sixth Plaintiffs to enter into and perform their obligations under):

(a)    a litigation funding agreement in the form of the agreement which is in Confidential Exhibit RJB-2;

(b)    a second litigation funding agreement in the form of the agreement located at pages 147 to 181 of Confidential Exhibit SJ-2;

(c)    a third litigation funding agreement in the form of the agreement located at pages 182 to 189 of Confidential Exhibit SJ-2 (Beaconsfield Deed).

(d)    a law firm engagement agreement with Norton Rose Fulbright Australia dated 18 October 2022 located at pages 190 to 203 of Confidential Exhibit SJ-2;

(e)    a second law firm engagement agreement with Norton Rose Fulbright Australia dated 30 May 2023 located at pages 204 to 219 of Confidential Exhibit SJ-2; and

(f)    a third law firm engagement agreement with Norton Rose Fulbright Australia dated 30 May 2023 located at pages 220 to 235 of Confidential Exhibit SJ-2.

3.    Pursuant to section 90-15 of the Insolvency Practice Schedule (Corporations) 2016 (being Schedule 2 to the Corporations Act) (IPS), the First Plaintiffs are justified in entering into and performing (and causing the Third, Fourth and Sixth Plaintiffs to enter into and perform) the obligations of the First, Third, Fourth and Sixth Plaintiffs under the Beaconsfield Deed, including:

(a)    the use of funds held in the liquidation of the Fourth Plaintiff for the purposes of funding the First, Third, Fourth and Sixth Plaintiffs’ claim in proceeding numbered NSD583 of 2022 in this Court; and

(b)    the possible payment of a funding commission to the Fourth Plaintiff from any successful recovery made from the First, Third, Fourth and Sixth Plaintiffs’ claim in proceeding numbered NSD583 of 2022 in this Court.

4.    Pursuant to section 90-15 of the IPS, the First Plaintiffs and the Second Plaintiffs are respectively justified in causing the Third Plaintiff and the Fifth Plaintiff to pursue claims (in proceeding numbered NSD579 of 2022 in this Court) that may fall within the security interest held by the entities listed in the Second Schedule over the property of the Third and Fifth Plaintiffs.

5.    The costs of this application be costs in the liquidations of the Third to Sixth Plaintiffs, jointly and severally.

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

REASONS FOR JUDGMENT

STEWART J:

Introduction

1    Said Jahani and Philip Campbell-Wilson, the first plaintiffs, are the joint and several liquidators of Ralan Property Services Pty Ltd (receivers and managers appointed) (in liquidation) (RPS), Ralan Beaconsfield Pty Ltd (in liquidation) (Beaconsfield), and Ralan Dumaresq No. 2 Pty Ltd (in liquidation) (Dumaresq).

2    Mr Jahani and Graham Killer, the second plaintiffs, are the joint and several liquidators of Ralan Paradise No. 1 Pty Ltd (receivers and managers appointed) (in liquidation) (RP1).

3    For convenience, Messrs Jahani, Campbell-Wilson and Killer are referred to collectively as the liquidators. Also, RPS, Beaconsfield, RP1 and Dumaresq, which are the third to sixth plaintiffs respectively, are referred to collectively as the company plaintiffs.

4    Following their investigations, the liquidators have (together with one or more of the company plaintiffs) commenced two sets of proceedings in this Court:

(1)    proceeding NSD 579 of 2022 (Qiu proceeding) brought by the liquidators, RPS, Beaconsfield and RP1 against Zhang Fu Qiu (also known as Geoff Qiu) and Xiao Hui Liu (also known as Lily Qiu and Lily Liu); and

(2)    proceeding NSD 583 of 2022 (ATO proceeding) brought by the liquidators, RPS, Beaconsfield and Dumaresq against the Commissioner of Taxation (ATO).

5    At a hearing on 26 June 2023, the liquidators and the company plaintiffs sought orders pursuant to s 477(2B) of the Corporations Act 2001 (Cth) and s 90-15 of the Insolvency Practice Schedule (Corporations) 2016 (IPS) which may be broadly described as being:

(1)    for approval for the liquidators to enter into an external litigation funding agreement with respect to the claims brought by the liquidators, RPS, Beaconsfield and RP1 in the Qiu proceeding (Qiu Funding Agreement);

(2)    for approval for the liquidators to enter into an external litigation funding agreement with respect to the claims brought by the liquidators, RPS, Beaconsfield and Dumaresq in the ATO proceeding (ATO Funding Agreement);

(3)    for approval for the liquidators to enter into a litigation funding deed with Beaconsfield with respect to the claims brought by the liquidators, RPS, Beaconsfield and Dumaresq in the ATO proceeding (Beaconsfield Deed);

(4)    for approval for the liquidators to enter into three retainer and costs agreements with Norton Rose Fulbright Australia (Retainer Agreements);

(5)    for directions that the liquidators are justified:

(a)    in entering into and performing, and causing RPS, Beaconsfield and Dumaresq to enter into and to perform, their obligations under the Beaconsfield Deed; and

(b)    in causing the RPS and RP1 to pursue the claims in the Qiu proceeding.

6    The application for the direction in [5(5)(a)] above arises in particular because, as will be seen, in circumstances where Beaconsfield’s funds are to be used as part of the funding to progress the claims in the ATO proceeding, Beaconsfield may also receive a funding commission from any successful recovery made in that proceeding.

7    The application for the direction in [5(5)(b)] above arises in particular because the claims in the Qiu proceeding may fall within the security interest held by the secured creditors of the plaintiff entities in the proceeding and the receivers appointed by those creditors do not wish to pursue the claims themselves and do not support the liquidators pursuing them.

8    At the conclusion of the hearing I was satisfied that orders should be made, and I made orders along the lines of those that had been sought. These are my reasons for doing so.

9    Notice of the hearing was provided to the creditors of the company plaintiffs (other than Mr Qiu), the receivers of RPS and RP1 (as well as other of the companies), as well as to the Australian Securities and Investments Commission (which is a requirement of r 2.8 of the Federal Court (Corporations) Rules 2000 (Cth)).

10    At the hearing, no creditors sought leave to be heard on the application.

11    I also made orders under ss 37AF and 37AG of the Federal Court Act 1976 (Cth) with respect to confidential portions of the affidavit of Mr Jahani affirmed 21 June 2023 and a confidential exhibit to that affidavit on the basis that such orders are necessary to prevent prejudice to the proper administration of justice. That confidential information is not otherwise publicly available. It outlines the liquidator’s lines of inquiry with respect to obtaining funding for the Qiu proceeding and the ATO proceeding (the two extant proceedings referred to above) and the terms of the funding arrangements. Suppression orders of this kind are commonly made where a liquidator has obtained litigation funding for recovery proceedings or to investigate the possibility of claims being available in a winding up, and I am satisfied that the relevant information in this case deserves protection on the same basis, ie, not to prejudice the liquidators in their pursuit of the claims: Woods, in the matter of Paladin Energy Ltd (Administrators Appointed) [2017] FCA 836 at [34]; Krejci (liquidator), in the matter of Community Work Pty Ltd (in liq) [2018] FCA 425 at [58]-[64]; Hancock (liquidator), in the matter of South Townsville Developments Pty Ltd (in liq) [2019] FCA 71 at [10]; Pascoe (Liquidator), in the matter of Matrix Group Ltd (in liq) (Trustee) [2019] FCA 1844 at [58]-[60].

12    A section of these reasons for judgment that is based on that confidential material will necessarily be redacted in the published version of the judgment. That section is identified below.

Factual Background

The company plaintiffs and the external administrations

13    The company plaintiffs are a small number of a much broader related group of companies (the Ralan Companies) that are in external administration. William Peter O’Dwyer was a director of each of the Ralan Companies (and the sole director of all but two of them) and he and entities related to him owned all of the shares in those companies. Consequently, prior to their external administration, Mr O’Dwyer had control over all the Ralan Companies (and he is said to have treated them as his alter ego).

14    In about April 1999, RPS commenced operations as a project marketing company in which it marketed for sale off-the-plan apartments for unrelated developers and also provided property management services.

15    From about 2008, RPS and other Ralan Companies established their own property development business, specialising in real estate development in New South Wales and, from about 2014, in Queensland. Between 2008 and 2019, various entities undertook over 30 property developments (which each development being carried out by a special purpose vehicle.

16    From the time when the Ralan Companies commenced their own development projects, the particular SPV offered purchasers and potential purchasers of the apartment developments in the developments the opportunity to obtain a return on any funds that they were willing to lend to the SPV company by way of an agreement to release, as a loan, the “off the plan” deposit paid by the purchaser for an apartment, pending completion of the development project. Interest on the released funds accrued at agreed rates of up to 12% or 15% per annum and was capitalised, with the loan being repaid at settlement of the purchase of the apartment by a reduction in the balance of the amount to be paid by the purchaser to complete the purchase. The funds were then advanced by the particular SPVs, by way of inter-company loan, principally to RPS and RPS QLD, and funds were then often on-lent by those entities to other Ralan Companies that needed cash.

17    This practice, known as the Deposit Release Scheme, occurred with increasing frequency with respect to the developments being carried out by the Ralan Companies. The accruing interest and the obligation to repay the loans with interest became a very substantial liability of RPS and, in turn, other Ralan Companies that had been on-lent the money. The cash flow generated by the Deposit Release Scheme became of vital importance to the survival of the Ralan Companies, with the ultimate result being a type of “Ponzi scheme”, where the repayment of deposits released from one development project were repaid (with interest) at its completion from the deposits released by purchasers of apartments in the next project before its completion (and so on).

18    Separately, the SPVs had borrowed monies from secured creditors, principally entities related to the Wingate Group Holdings Pty Ltd group of companies, which loans were guaranteed by RPS and secured over the assets of the relevant SPV and RPS. The release of purchaser deposits was contrary to the terms of facility agreements that the Ralan Companies had entered into with secured financiers, including Wingate.

19    The ultimate unravelling of the “Ponzi”-like structure of the Deposit Release Scheme appeared to be the catalyst for the collapse of the Ralan Companies and their entry into external administration.

20    On 30 July 2019, Messrs Jahani, Campbell-Wilson and Killer were appointed as administrators of the Ralan Companies. Shortly thereafter, Wingate appointed Jason Tracy, Timothy Heenan and Salvatore Algeri of Deloitte as joint and several receivers and managers of the assets and undertaking of RPS and RP1 (as well as certain other of the Ralan Companies).

21    On 17 December 2019, at the second meeting of the creditors of the Ralan Companies, the creditors resolved that those companies (other than RP1) be wound up and they were thereby placed into liquidation. The creditors resolved that RP1 enter into a deed of company arrangement but that DOCA was later terminated and, on 1 March 2020, RP1 was also placed into liquidation.

22    As the receivers had been appointed to the most substantial of the assets of the Ralan Companies, the liquidators have had limited funding to carry out investigations and pursue recovery actions. Nevertheless, the liquidators gathered together and reviewed a very large number of documents concerning the affairs of the Ralan Companies and have conducted public examinations under Pt 5.9 of the Corporations Act.

The various proceedings

23    As noted above, following those investigations, the liquidators have (together with one or more of the company plaintiffs) commenced two sets of proceedings in this Court: the Qiu proceeding and the ATO proceeding. The liquidators have retained Norton Rose Fulbright to provide legal services to the company plaintiffs. Three retainer agreements have been entered into – one dated 18 October 2022 and two dated 30 May 2023 (one for each of the Qiu proceeding and the ATO proceeding).

The Qiu Proceeding

24    The Qiu proceeding is still in an embryonic stage – pleadings have not closed. The claims in the proceeding are complex. In broad terms, the plaintiffs allege that Mr Qui, who was the Head Sales Agent, received (either in his own right and/or as a trustee of the KMW Qiu Family Trust) substantial payments of money over the course of many years from RPS, ostensibly as sales commissions, and that these payments are recoverable from RPS.

25    It is also claimed that Mr Qiu purchased or was the transferee (either in his own right and/or as a trustee of the KMW Qiu Family Superannuation Fund) of real property from Beaconsfield and RP1 for no consideration or at an undervalue, which are voidable transactions pursuant to Pt 5.7B of the Corporations Act, and that Mr Qui assisted Mr O’Dwyer to carry out the Deposit Release Scheme, causing loss to RPS.

26    It is alleged that Ms Liu, who was (and is) the wife of Mr Qiu, received (as a trustee of the Qiu Family Trust) substantial payments of money over the course of many years from RPS (which are voidable or otherwise recoverable for the same reasons as in the case of Mr Qiu) and also purchased or was the transferee (either in her own right and/or as a trustee of the Qiu Family Superannuation Fund) of real property from Beaconsfield and RP1 at an undervalue, which are voidable transactions pursuant to Pt 5.7B of the Corporations Act.

27    The monetary claims against Mr Qiu with respect to the ostensible sales commissions are in the sum of $11,461,540.33. The undervalue sale claims are for about $3 million. The other claims have not yet been quantified but are said to be substantial. The evidence of Mr Jahani is that there are assets to satisfy any judgment that might be entered.

28    Mr Jahani’s evidence is that the liquidators are of the view that the claims in the Qiu proceeding have good prospects and will result in a valuable return for creditors of RPS, Beaconsfield and RP1 and, as a consequence of inter-company indebtedness, those benefits may well be shared amongst creditors of the Ralan Companies more broadly.

The ATO Proceeding

29    In the ATO proceeding, the plaintiffs seek to recover unfair preference payments made to the ATO in the total sum of $2,276,291.78 and payments made by RPS to the ATO with respect to personal tax liabilities owing to the ATO by Mr O’Dwyer and his wife, Joanne O’Dwyer, which together total $2,334,122.25, as unreasonable director-related transactions or uncommercial transactions.

30    As with the Qiu proceeding, the liquidators are of the view that the claims in the ATO proceeding have good prospects and will result in a valuable return for creditors of RPS, Beaconsfield and Dumaresq and, as a consequence of inter-company indebtedness, those benefits may well be shared amongst creditors of the Ralan Companies more broadly.

Funding the proceedings

31    The evidence of the liquidators is that since October 2022, they have sought funding to enable the claims in the proceedings to be prosecuted. Wingate declined to fund the claims. Many external litigation funders were then approached. Initially, funding was sought to pursue all of the claims as a single suite; however, it became apparent that different funders wished to fund different claims in the proceedings (rather than a single funder willing to fund all of the claims).

32    In December 2022, the Commonwealth of Australia acting through the Department of Employment and Workplace Relations (which administers the Fair Entitlements Guarantee Scheme) expressed a desire to fund many of the claims in the Qiu proceeding. After discussions and negotiations, an in-principle agreement was reached.

33    Mr Jahani has deposed that the funding provided by the Qiu Funding Agreement is the best available litigation funding for the Qiu proceeding, for reasons outlined in the confidential material.

34    Separately, the liquidators continued to progress discussions with potential funders with respect to funding the claims in the ATO proceeding – obviously the Commonwealth was not interested in funding claims against the ATO. Ultimately, on 6 June 2023, an agreement was reached with LCM Operations Pty Ltd (LCM) (a well-known commercial litigation funder) to fund these claims. In addition, and as set out further below, further funding for the ATO proceeding (over and above that provided by LCM) is proposed to be made available by Beaconsfield. Again, Mr Jahani has deposed that the funding provided by the ATO Funding Agreement and the Beaconsfield Deed is the best available litigation funding for the ATO proceeding.

Legal Principles

Section 477(2B) approval

35    The applicable principles with respect to s 477(2B) are well-established, including in the context of approvals of litigation funding agreements. In Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375 at [26] (a passage which has been frequently applied by subsequent authorities), Gordon J made the following observations as to the assessment of the proposed agreement sought to be approved by the liquidator:

(1)     The court does not simply “rubber stamp” whatever is put forward by a liquidator.

(2)     The court will not approve an agreement if its terms are unclear.

(3)     The role of the court is to grant or deny approval to the liquidator’s proposal. Its role is not to develop some alternative proposal which might seem preferable.

(4)     In reviewing the liquidator’s proposal the task of the court is not to reconsider all of the issues weighed by the liquidator in developing the proposal, and substitute its determination in a hearing de novo, but to pay due regard to the liquidator’s commercial judgment and knowledge of all of the circumstances of the liquidation, satisfying itself there is no error of law or grounds for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene in terms of the expeditious and beneficial administration of the winding up.

(5)     In judging whether or not a liquidator should be given permission to enter into a funding agreement, whether retrospective or not, it is important to ensure, amongst other things, that the entity or person providing the funding is not given a benefit disproportionate to the risk undertaken in light of the funding that is promised or a “grossly excessive profit”.

(6)     Generally the court grants approval under s 477(2B) of the Act only where the transaction relates to the proper realisation of the assets of the company or otherwise assists in the winding up of the company.

36    The plaintiffs directed the Court to recent authority that suggests that s 477(2B) may not apply to an agreement between a liquidator in that capacity and a firm of solicitors: Frigger v Kitay (No 2) [2020] FCA 497; 143 ACSR 655 at [47]‑[51] per Charlesworth J (although her Honour did not express a concluded view about the matter and gave approval to the extent that it was necessary). This reasoning was referred to in Lewis (liquidator), in the matter of Concrete Supply Pty Ltd (in liq) [2020] FCA 841; 145 ACSR 459, but White J decided, at [20], to proceed on the basis that approval under s 477(2B) was needed (again, without expressing a concluded view) for the following three separate reasons: (a) it is at least reasonably arguable that liquidators enter into the retainer as agents for the company in liquidation; (b) the very nature of the legal services to be provided were (for the most part) for the benefit of the company not the liquidators personally; and (c) on an ex parte application, it is appropriate for the Court to act out of an abundance of caution.

37    The plaintiffs submit, and I accept, that each of those reasons is applicable in the present case and provides a reason to make orders as to the retainers. In any event, in Re Mudgee Dolomite and Lime Pty Ltd (No. 4) [2021] NSWSC 393 at [51], Williams J accepted that the better view was that a costs agreement with a solicitor falls within the ambit of s 477(2B). As tempting as it may be, it is unnecessary for me to reach a concluded view on this point.

Judicial directions

38    Section 90-15 of the IPS confers on the court the ability to make orders with respect to a question arising in the external administration of a company, including in connection with the performance or exercise of an external administrator’s functions or powers: Reidy, in the matter of eChoice Ltd (Administrators Appointed) [2017] FCA 1582 at [26]-[27].

39    The provision of judicial directions in respect of entry into a litigation funding proposal was considered by Gleeson J in Krejci (liquidator), Re Community Work Pty Ltd (in liq) [2018] FCA 425, where her Honour made the following observations:

[48] A litigation funding proposal has some special elements that distinguish it from other commercial arrangements: Hall v Poolman [[2009] NSWCA 64; 71 ACSR 139] at [134]. The decision to enter into a litigation funding agreement is not treated as a purely commercial decision because it affects the administration of justice and the efficient winding up of companies: Hall v Poolman at [171].

[49] A court would not be likely to decline to give directions concerning a litigation funding agreement solely on the ground that it should not make the liquidator’s commercial decisions for them: Hall v Poolman at [173]. Rather, the question whether to give directions or decline to given them will depend upon the nature of the directions sought and the facts of the instance case, and in particular the extent to which the funding agreement and the contemplated recovery proceedings raise issues capable of affecting the administration of justice: Hall v Poolman at [173]. It may be appropriate to exercise the power to give directions (now the power to make orders) where a liquidator apprehends being accused of acting unreasonably: cf. Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117.

40    In Livingstone, in the matter of NewSat Ltd (in liq) [2022] FCA 1559, at [44] I made the following observations as to the considerations to be taken into account with respect to an application for judicial directions as to the entry into a funding agreement:

[44] The matters taken into account in an application for approval of a funding agreement under s 477(2B) and in an application for judicial directions under s 90-15 are essentially the same, although additional questions will arise in an application for judicial directions concerning the appropriateness of the Court acceding to the application: Hall v Poolman [2009] NSWCA 64; 75 NSWLR 99 at [172] per Spigelman CJ, Hodgson JA and Austin J. The Court of Appeal approved what was said by Palmer J in the judgment under appeal, Hall v Poolman [2007] NSWSC 1330; 65 ACSR 123 at [386], with regard to the common criteria for approval of a funding agreement. It was held that the non-exhaustive list of factors which the court may take into account in determining whether the liquidator is justified in the proceeding include:

(1) the liquidator’s prospects of success;

(2) the amount of costs likely to be incurred in the conduct of the liquidator’s case and the extent to which the litigation funder is to contribute to them;

(3) the extent to which the funder is to contribute to the costs of the defendant if the liquidator’s action is not successful;

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

(5) the level of the funder’s “premium”;

(6) the risks involved in the claim; and

(7) the wishes of the creditors.

41    Furthermore, the Court may give a s 90-15 direction retrospectively: Re Octaviar Limited [2020] QSC 353.

Consideration

Funding agreements

42    Having regard to the principles set out above, I am satisfied that, pursuant to s 477(2B), approval should be granted to the three funding agreements for the reasons that follow.

43    The following section of these reasons is to be redacted in the version of these reasons published other than to the plaintiffs as it reveals details of the funding in respect of which I am satisfied that non-publication and suppression orders should be made.

[REDACTED SECTION BEGINS]

44    [Redacted]

45    [Redacted]

46    [Redacted]

47    [Redacted]

48    [Redacted]

49    [Redacted]

50    [Redacted]

51    [Redacted]

52    [Redacted]

[REDACTED SECTION ENDS]

Discussion

53    The terms of the Qiu Funding Agreement, the ATO Funding Agreement and the Beaconsfield Deed are clear and documented and plainly provide for the funding of both the Qiu proceeding and the ATO proceeding.

54    Mr Jahani, a very experienced liquidator, considers that the claims in both proceedings warrant being brought in the interests of creditors. Without the funding offered on the terms of the funding agreements, the liquidators would be without funds to prosecute the claims.

55    I am satisfied that the liquidators’ commercial judgement, in determining that entry into the funding arrangements are in the best interest of creditors, has been formed in circumstances where the claims in the proceedings constitute assets that have the potential to lead to the payment of a dividend to creditors of the company plaintiffs (and, in turn the Ralan Companies insofar as other companies are also creditors of some of the company plaintiffs such as RPS). Also, the liquidators’ judgement follows protracted exploration of potential funding on appropriate terms with many litigation funders.

56    The liquidators’ view is that the funding arrangements represent the best terms on which the Qiu proceeding and the ATO proceeding may be funded.

57    I am satisfied that, in practical terms, the funding offered is the only means of continuing the pursuit of the claims in the proceedings for the benefit of creditors.

58    Further, there is no basis, including in light of the above factors, to consider that the liquidators have acted in bad faith or with impropriety, or on some error of law, which might give me concern.

59    Entry into the funding agreements will, obviously enough, prolong the liquidations. However, that is because the funding arrangements will permit the claims in the proceedings to be prosecuted which has the not unduly remote potential benefit for the creditors of the company plaintiffs and will not cause them any detriment. In other words, the funding agreements are a price worth paying to potentially augment the assets in the winding of the company plaintiffs and the other Ralan Companies. Other than insofar as they facilitate pursuit of the claims, the funding arrangements will not prolong the liquidation of the Ralan Companies.

60    I am satisfied that, to the extent necessary, the s 477(2B) approvals ought to be granted nunc pro tunc.

61    Turning to the appropriateness of the judicial direction which is only sought in relation to the Beaconsfield Deed, the evidence is that in the course of the negotiations with LCM, the liquidators became concerned that the amount of funding on offer was insufficient to fully fund the claims in the ATO proceeding up to and including a final hearing (and any appeal therefrom). Further, no other external funding was available. The liquidators therefore considered it appropriate that other funding be put in place to ensure that sufficient funding was available for that purpose – and only Beaconsfield was in a position to make such funding available. It is accepted, in that regard, that funding provided by Beaconsfield in the ATO proceeding will potentially be of benefit to all of the plaintiffs in that proceeding (and not just Beaconsfield).

62    The liquidators have (at least in Mr Jahani’s case) been appointed as the liquidator of each of the Ralan Companies. As such, the liquidators have duties to each company which, to the extent that funding provided by one company may benefit another company, have the potential to conflict with one another. Given the proposed funding arrangements, and the potential for a conflict of duty and duty, the liquidators are entitled to guidance and directions from the Court to avoid any allegation that their proposed method of funding from Beaconsfield unnecessarily favours either the other plaintiffs in that proceeding (as “free riders”) or Beaconsfield itself (because of the potential receipt of a funding commission). This is a circumstance in which courts will generally provide judicial directions to liquidators of related companies whose affairs are intermingled: Lewis & Templeton v LG Electronics Australia (No 2) [2016] VSC 63; 48 VR 450 at [152] per Sifris J; Re BBY Holdings Pty Ltd (receivers and managers appointed) (in liquidation) [2019] NSWSC 1272 at [6] per Rees J.

63    Having regard to the conflict, or potential conflict, of duty and duty in the context of the multiple liquidated estates, the liquidators deserve to receive the protection of a judicial direction before the Beaconsfield Deed is to become effective. I consider that that is so for the following reasons.

64    First, it is plainly desirable that sufficient funding be available for the prosecution of the ATO proceeding all the way to a final hearing (if that becomes necessary).

65    Secondly, Beaconsfield is the only entity amongst the plaintiffs to that proceeding that has funds available to it.

66    Thirdly, Beaconsfield has its own claim in the ATO proceeding. It is therefore not the case that a company in liquidation is providing funding to advance claims which do not belong to it (accepting that the funding provided by Beaconsfield will potentially be of benefit to all of the plaintiffs).

67    Fourthly, the funding to be provided by Beaconsfield is secondary funding and is only to be deployed after the primary funding from LCM has been utilised – as such, it may be that the funding from Beaconsfield is ultimately not required.

68    Fifthly, the commission payable to Beaconsfield (as a return for the funding it provides) has been structured in exactly the same terms as that payable to LCM – given that Beaconsfield is potentially providing funding for the ATO proceeding (and putting at risk those funds) not just for its own benefit for the benefit of the other plaintiffs, it seems to be fair and reasonable for Beaconsfield to enjoy an uplift on its invested capital which is commensurate with that potentially payable to LCM. Moreover, as Mr Jahani deposes, it may be that the payment of any commission will ultimately have a neutral (or largely neutral) effect on the other plaintiffs (either because they themselves are major creditors of Beaconsfield and/or because there may be a subsequent pooling of the assets of the Ralan Companies under Div 8 of Pt 5.6 of the Corporations Act).

69    I consider that in this case it is expedient for the proposed funding to be made available by Beaconsfield notwithstanding that it is both a funding party and a claimant. See Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89; 281 ALR 38 at [44] per Emmett, Nicholas and Robertson JJ, referring to Re McGrath (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; 266 ALR 642 at Appendix 1, [18]-[21] per Barrett J.

70    The liquidators also seek judicial directions with respect to the pursuit of some of the claims in the Qiu proceeding. As noted above, some of the causes of action belong to the liquidators personally (under Pt 5.7B of the Corporations Act) whereas other causes of action are “company claims” and are therefore likely to fall within the security interest granted by RPS and RP1 in favour of Wingate.

71    No arrangement has been reached with Wingate. While there is a risk that Wingate may seek to recover some of the proceeds of any judgment or settlement reached in the Qiu proceeding (insofar as those proceeds reflect the causes of action falling with its security interest), the liquidators nevertheless consider that it is appropriate to pursue all available claims of RPS and RP1 for the following reasons.

72    First, many of the various causes of action in the Qiu proceeding overlap with respect to the same set of facts, such that there is only a small additional cost in pursuing the “company claims”.

73    Secondly, it is forensically advantageous to the plaintiffs in the proceeding to pursue all available causes of action together.

74    Thirdly, Wingate is most unlikely to pursue the claims itself (or cause the receivers to do so). Indeed, it has stated that it will not.

75    Fourthly, the Commonwealth, as funder, is prepared to proceed in that manner.

76    I accept that those reasons are compelling and favour the liquidators proceeding in the manner contemplated. However, because of the potential risk of criticism by unsecured creditors (if Wingate later seeks to assert that any proceeds of the claims fall within its security interest), the liquidators should have a judicial direction that they are justified in pursuing the claims. I note that despite having been given notice, Wingate has not sought to appear to oppose the relief sought by the liquidators. It has stated in correspondence that it does not consent to the liquidators pursuing “its” claims and that it does not relinquish its rights over its security or any potential claims may have, but it has done no more. It has not asserted that the liquidators require its consent. Absence of consent by the receivers would not disentitle the directors from pursuing the claims subject to the security: Deangrove Pty Ltd (Receivers and Managers Appointed) v Commonwealth Bank of Australia [2001] FCA 173; 108 FCR 77 at [40] per Sackville J. The same is true of the liquidators who have the power to bring legal proceedings in the name of the company (s 477(2)(a) of the Corporations Act), subject of course to the secured creditor’s security interest in any proceeds in due course.

Retainer Agreements

77    I accept that it was appropriate for Norton Rose Fulbright to be retained by the company plaintiffs with respect to the claims in the Qiu and ATO proceedings (and the liquidation generally). Norton Rose Fulbright have acted for the liquidators since the liquidators commenced investigations into the business and affairs of the Ralan Companies and I accept that they have an extensive and intimate knowledge of these matters (including the claims in the Qiu proceeding and the claims in the ATO proceeding).

78    The terms of the Retainer Agreements are clear. The hourly rates charged by Norton Rose Fulbright are, I understand, market related. Obviously, the retainer of Norton Rose Fulbright will assist the liquidators to pursue the claims for the benefit of creditors and if Norton Rose Fulbright was not to be retained some other firm would need to be. There is otherwise nothing exceptional about the terms of the Retainer Agreements: In the matter of Bellafountain Pty Ltd [2017] NSWSC 391 at [18] and [50] per Gleeson JA.

79    As such, there is no basis to infer that the entry into the Retainer Agreements was anything other than a proper exercise of the liquidators’ powers: Re 7 Steel Distribution Pty Ltd (in liq) [2013] NSWSC 669 at [25] per Black J. I accept that the brief delay between the dates on which the Retainer Agreements were entered into and the making of this application otherwise provides no basis to decline to make the orders approving the retainers under s 477(2B) on a nunc pro tunc basis.

80    I have reviewed the Retainer Agreements which contain detailed provisions as to the conduct of the proceedings. There is no reason to think that the entry into the Retainer Agreements is not a proper exercise of the liquidators’ powers and it is not my role to second guess the liquidators’ judgment in this regard.

Conclusion

81    The funding to be provided pursuant to the Qiu Funding Agreement and the ATO Funding Deeds will assist the liquidators with recovering money for the benefit of the unsecured creditors of the company plaintiffs. Without the funding provided by those agreements, the liquidators would not be prepared to carry on the Qiu proceeding or the ATO proceeding (as an adverse costs indemnity is provided by the Commonwealth and LCM respectively). The funders have the financial capacity to provide the funding and the adverse costs indemnity and the terms of the funding agreements reflect a fully negotiated process between the parties. Overall, the terms of the funding arrangements represent a reasonable commercial outcome for the company plaintiffs and their creditors.

Associate:

Dated:    4 July 2023

SCHEDULE OF PARTIES

NSD 594 of 2023