FEDERAL COURT OF AUSTRALIA

Cathro, in the matter of Cubic Interiors NSW Pty Ltd (in liq) v Cubic Interiors NSW Pty Ltd (in liq) [2024] FCA 877

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 477(2B) of the Corporations Act 2001 (Cth), the plaintiff is authorised to enter into, on behalf of the defendants, the Deed of Indemnity dated 23 April 2024 with the Commonwealth of Australia.

2.    Pursuant to s 588FF(3)(b) of the Corporations Act, the time for the plaintiff to make any application or applications for orders under s 588FF of the Corporations Act against any party be extended to 22 April 2025.

3.    Liberty to apply on 3 business days’ notice is reserved to any person affected by a proceeding under s 588FF of the Corporations Act commenced under order 2 to vary or discharge that order.

4.    Subject to further order, pursuant to ss 37AE, 37AF, 37AG and 37AH of the Federal Court of Australia Act 1976 (Cth), Confidential Exhibit SC-2 to the affidavit of Simon John Cathro sworn 16 May 2024 be treated as confidential until 2 August 2027.

5.    The plaintiff’s costs of this application be costs in the winding up of the defendants.

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

REASONS FOR JUDGMENT

CHEESEMAN J:

INTRODUCTION

1    These reasons concern an originating application brought by Simon Cathro in his capacity as Liquidator of Cubic Interiors NSW Pty Ltd (in liq), Bigmig Pty Limited (in liq), Cubic Holdings Pty Ltd (in liq), Cubic Contracting NSW Pty Ltd (in liq), Cubic NSW Pty Ltd (in liq) and Cubic Interiors Sydney Pty Ltd (in liq) (together, Companies) seeking orders extending the time pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth) within which to make an application under s 588FF(1) of the Corporations Act. The Liquidator also seeks an order pursuant to s 477(2B) of the Corporations Act authorising him to enter into, on behalf of the Companies, a Deed of Indemnity with the Commonwealth of Australia dated 23 April 2024. The Liquidator also seeks various ancillary orders including suppression of confidential materials and costs.

EVIDENCE AND MATERIALS

2    The hearing was conducted ex parte after notice was given by the Liquidator to the Companies’ known creditors and potential creditors. Save for two creditors, no responses were received. The Liquidator also gave notice to the Australian Securities and Investments Commission, which has not expressed any opposition to the application. No person sought to be heard on the application, other than the Liquidator.

3    In support of the application, the Liquidator relies upon:

(1)    his affidavit sworn on 15 May 2024, together with exhibit SC-1 and confidential exhibit SC-2 (in respect of which a confidentiality order is sought); and

(2)    an affidavit of his solicitor, Nicholas Chase Berry, affirmed on 20 June 2024.

4    Two additional documents were tendered during the hearing, being correspondence dated June 2024 and July 2024 between the Liquidator and a creditor of Cubic Interiors Sydney, Erect Safe Scaffolding (NSW) Pty Limited.

5    Following questions posed during the hearing, the Liquidator tendered additional evidence after the hearing, being:

(1)    correspondence from the Department of Employment and Workplace Relations (DEWR) to the Liquidator’s solicitors dated 23 April 2024 approving the contents of this application and Mr Berry’s supporting affidavit; and

(2)    an updated schedule of potential preference claims identified by the Liquidator as at 2 August 2024.

6    Detailed written submissions were provided by the Liquidator and supplemented by oral submissions at the hearing. A copy of the Liquidator’s written submissions have been placed on the Court file.

BACKGROUND

7    The Companies were part of a larger group of companies known as the ‘Cubic Group’, which comprised at least 11 companies specialising in commercial building across Australia. Felice Roberto Migliorino has been the sole director of each of the Companies since their incorporation.

8    Cubic Interiors NSW and Cubic Interiors Sydney were the main sources of revenue for the Cubic Group until around late-2021, when the Companies faced several financial and operational challenges in response to COVD-19. The Liquidator has concluded that amongst other things the Companies could not ultimately recover from losses due to delays arising from lockdowns associated with the COVID-19 pandemic. The Liquidator has formed the preliminary view, based on his investigations to date, that each of the Companies was insolvent by no later than mid-2021. Further investigations are required to establish the exact date or dates on which the Companies became insolvent due to, amongst other things, related party loan accounts and the availability of financial assistance from within the broader Cubic Group and in particular those Cubic Group companies which continued to trade.

9    On 22 November 2021, the Liquidator was appointed as liquidator of the Companies by resolution of their members pursuant to section s 491(2)(b) of the Corporations Act. Following his appointment, the Liquidator carried out a number of inquiries and investigations about the affairs of the Companies and collected some, but not all, books and records of the Companies.

10    On 20 June 2022, the Liquidator applied for funding from the Commonwealth, acting through DEWR, to undertake public examinations into the examinable affairs of the Companies. That funding has been secured and approved by creditors of each of the Companies on 31 August 2023. Since that time, the Liquidator has applied for additional funding for the purpose, amongst other things, of making this application. The agreement in relation to that additional funding is the subject of the orders sought pursuant to s 477(2B) in this application. Whereas the previous funding agreement was approved by the creditors, the Liquidator took the view that because of the need to apply to the Court for a shelf order, it would be more economical and efficient to seek Court approval in this instance rather than convene a meeting of creditors for that purpose.

11    An application for the issue of summonses for examination and production orders was filed on 16 November 2023. On 26 February 2024, the Court issued eight summonses for examination, and 76 orders for production. The examinations were held on 30 and 31 May 2024. A significant volume of material has been produced in answer to those orders for production.

12    On the basis of the information available to date, the Liquidator has:

(1)    issued demands and resolved claims against the Commissioner of Taxation with respect to each of Cubic Holdings, Bigmig, Cubic Interiors NSW and Cubic Interiors Sydney;

(2)    identified and settled claims against Mr Migliorino and related Cubic Group entities, following a successful mediation in May 2024; and

(3)    identified substantial potential preference claims against a broad group of entities which are detailed in the evidence before me and in respect of which the Liquidator wishes to undertake further investigation to test the strength of the claims and any available defences.

13    The updated schedule of preference claims was adjusted to reflect settlement of some of the potential preference claims which were included in the original schedule. The updated schedule supports the Liquidator’s position that the potential preference claims he wishes to further investigate are substantial in monetary value and involve a large number of creditors of Cubic Interiors NSW, Bigmig and Cubic Interiors Sydney:

LEGAL PRINCIPLES

Section 477(2B)

14    The principles in relation to the Court’s approach to applications for approval under s 477(2B) are well-established. They are summarised at paragraphs [15] to [19] of Kogan, in the matter of Rogulj Enterprises Pty Ltd (in liq) [2021] FCA 856 and paragraphs [8] to [12] of Kogan, in the matter of Rogulj Enterprises Pty Ltd (in liq) (No 2) [2021] FCA 1504 and need not be repeated here.

15    The Liquidator also referred to Deputy Commissioner of Taxation, in the matter of Italian Prestige Jewellery Pty Limited (in liq) ACN 116 031 022 v Italian Prestige Jewellery Pty Limited [2018] FCA 983 at [43] to [45] (Markovic J), Needham, in the matter of Bruck Textile Technologies Pty Ltd (in liq) [2016] FCA 837 at [30] (Gleeson J) and Goyal, in the matter of Tiaro Coal Limited (In Liquidation) [2017] FCA 1252 at [13] to [15] (Markovic J). I adopt and apply those principles in considering this application.

Section 588FF(3)(b)

16    The principles applicable to the grant of a “shelf order” are succinctly summarised in Cussen, in the matter of Monarch Tower Pty Ltd (in liquidation) [2023] FCA 192 at [16] (O’Callaghan J):

The power to make a shelf order is a discretionary one. In exercising the discretion, the court should consider the following factors:

(a)     the adequacy of the liquidator’s explanation for the delay in commencing proceedings;

(b)     a preliminary view of the merits of the proposed proceedings; and

(c)     a balancing of the case for granting the extension against any actual prejudice to the respondents that is likely to arise from granting the extension.

See Re Cohalan & Mitchell Roofing (in liq) [2020] VSC 222 at [30]‑[33] (Sifris J).

17    In Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2015] HCA 10; 254 CLR 489, the High Court explained the nature of the discretion to be exercised on an extension application (at 505 [24]):

The function of s 588FF(3)(b), which reflects its immediate purpose, is to confer a discretion on the court to mitigate, in an appropriate case, the rigours of the time limits imposed by par (a). That is a discretion to be exercised having regard to the scope and purposes of Pt 5.7B, characterised in the Harmer Report as the continuing "policy" which underpinned its recommendations. That policy included the avoidance of transactions by which an insolvent company has disposed of property in circumstances that are regarded by the legislature as unfair to the general body of unsecured creditors. It is, however, a policy qualified in its application by the requirement that liquidators be placed under a reasonable time limitation for taking action under the voidable transaction provisions. A purpose of that qualification, expressed in "clear and emphatic" terms, is to favour certainty for those who have entered into transactions with the company during the periods in respect of which designated transactions may be voidable… The section provides for the exercise of discretion by the court. Questions of what is a reasonable or an unreasonable prolongation of uncertainty and the scope of such uncertainty are more appropriately considered case-by-case in the exercise of judicial discretion than globally in judicial interpretation of the provision.

CONSIDERATION

Section 588FF

18    The Liquidator observes that the relation-back day in respect to the winding up of the Companies is 22 November 2021, and on that basis, any application in respect to transactions that he considers to be voidable pursuant to s 588FF of the Corporations Act must be commenced by 22 November 2024, unless otherwise extended. The extension sought is for five months, until 22 April 2025.

19    I am satisfied that it is appropriate to make an order pursuant to s 588FF(3)(b) of the Corporations Act for the detailed reasons advanced in the Liquidator’s submissions. For the present purposes, it suffices to summarise the basis for my conclusion that it is appropriate to, and that I should make orders as sought, as follows:

(1)    The affairs of the Companies were, to a large extent, intermingled, such that the provision of books and records of the Companies was delayed by the need to ensure that books of the other companies within the Cubic Group were not inadvertently provided to the Liquidator;

(2)    Whilst the Liquidator has made some recoveries in the winding up of the Companies, the Liquidator has otherwise been without significant funds to undertake detailed investigations until recently;

(3)    The Liquidator requires time to consider claims which may be available before issuing demands, including the unfair preference claims which the Liquidator considers are likely to be a significant source of recoveries in the winding up of the Companies. The Liquidator’s approach is consistent with the observations made by Lee J in Parker, in the matter of Worldwide Specialty Property Services Pty Limited (in liq) v Worldwide Specialty Property Services Pty Limited (in liq) [2017] FCA 687 at [19] to [21];

(4)    Demands will need to be prepared and issued in relation to viable claims in order to avoid incurring any costs in commencing proceedings unnecessarily; and

(5)    The Liquidator will require time to obtain litigation funding in respect of any preference claims in the event that further funding is not provided by the Commonwealth (noting that the public examinations are being funded by the Commonwealth, which has a first right of refusal in respect to most claims identified).

20    In addition, I am satisfied that on the basis of the information presently available to the Liquidator, and noting that the Liquidator has secured funding for the further investigations required, that on a preliminary basis the potential claims have sufficient merit to justify the making of the shelf order.

21    In summary, I accept that, in the absence of the extension of time sought, the Liquidator may not have sufficient time to properly consider the claims, obtain the necessary advice, deal with litigation funders, and commence proceedings before the current statutory deadline, with the result that creditors may be prejudiced. I am further satisfied that the period of the extension of time sought by the Liquidator is calibrated appropriately by reference to the work required to be undertaken by the Liquidator. Accordingly, I will make the orders sought.

Section 477(2B)

22    Having regard to the likely period within which the obligations the subject of the Deed of Indemnity are likely to subsist, approval is required under s 477(2B) of the Corporations Act. The Liquidator’s decision to apply directly for the Court for approval was sound in circumstances where the approval application was brought in conjunction with the application for a shelf order and is likely to have saved time and money. The evidence relied on by the Liquidator establishes a clear basis upon which to approve entry into the Deed of Indemnity. The Deed of Indemnity is directed to advancing creditors interests in that the funding will facilitate investigation and assessment of the viability of a range of potential claims. The evidence led on this application establishes there are a large number of potential claims which have the potential to result in substantial recoveries for the benefit of creditors.

23    The Liquidator is an experienced liquidator. He has taken steps to satisfy himself as to the terms on which the funding is provided and to ensure that his independence in conducting the liquidations, including in taking any recovery proceedings, is not compromised as a result of the Deed of Indemnity. The premium payable is in the expected range, consistently with the fact that the Commonwealth through the DEWR is the funder.

24    Having reviewed the evidence I am satisfied that there does not appear to be any lack of good faith, error of law or principle or want of prudence by the Liquidator in entering into the Deed of Indemnity.

25    I am satisfied that the small lacunas identified in the evidence were sufficiently addressed in oral submissions and by the additional material tendered after the conclusion of the hearing.

26    Accordingly, I am satisfied it is appropriate to make an order under s 477(2B) as sought by the Liquidator.

Confidentiality

27    A confidentiality order pursuant to ss 37AE, 37AF, 37AG and 37AH of the Federal Court of Australia Act 1976 (Cth) is sought in respect of the entirety of confidential exhibit SC-2. This exhibit contains earlier iterations of the Deed of Indemnity and the current iteration.

28    The Deed of Indemnity contains an express requirement that it be kept confidential, save for limited circumstances including for the purpose of making any application to the Court for approval pursuant to s 477(2B).

29    I am satisfied that it is appropriate that confidential exhibit SC-2 be kept confidential and will make orders accordingly. It is conventional and in the public interest to make confidentiality orders to protect the terms of funding arrangements between liquidators and funders: Hird (Liquidator), in the matter of Allmine Group Limited (in liq) [2018] FCA 781 at [47] to [48] (Gleeson J). The Liquidator has proposed that the confidentiality order expire in three years’ time. That is an appropriate time frame by which to limit the order, which I will include in the order I will make.

Costs

30    It is appropriate that the Liquidator’s costs be costs in the winding up of the Companies.

CONCLUSION

31    For these reasons, I will make orders substantially in accordance with the short minutes of order proposed by the Liquidator.

Associate:

Dated:    7 August 2024

SCHEDULE OF PARTIES