Federal Court of Australia

Bredenkamp (Liquidator), in the matter of Coolgardie Minerals Limited (in liq) [2025] FCA 404

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 477(2B) of the Corporations Act 2001 (Cth) (Corporations Act), the plaintiff as liquidator of Coolgardie Minerals Limited ACN 145 676 900 (in liq) (Company) has approval, nunc pro tunc, to enter into and to cause the Company to enter into the funding agreement which is attached to the confidential affidavit of Daniel Johannes Bredenkamp sworn 7 April 2025 (Confidential Affidavit) marked 'Tab-2' (Funding Agreement).

2.    Pursuant to s 477(2B) of the Corporations Act, the plaintiff as liquidator of the Company has approval to enter into and to cause the Company to enter into the costs agreement which is attached to the Confidential Affidavit and marked 'Tab-3' (Costs Agreement).

3.    Pursuant to s 1322(4)(a) of the Corporations Act, it is declared that the Funding Agreement is not invalid by reason of having been entered into by the plaintiff and the Company without the prior approval of the Court under s 477(2B) of the Corporations Act.

4.    Pursuant to s 1322(4)(d) of the Corporations Act, if and to the extent required, the period for making an application under s 477(2B) of the Corporations Act for the Court's approval of entry into the Funding Agreement is extended to 17 April 2025.

5.    Pursuant to s 90-15 of Schedule 2 to the Corporations Act, the plaintiff is justified or otherwise acting properly in performing and acting on the Funding Agreement as if that agreement had been entered into with the Court's prior approval under s 477(2B) of the Corporations Act.

6.    Subject to further or other order, pursuant to s 37AF(1) Federal Court of Australia Act 1976 (Cth), on the ground that it is necessary to prevent prejudice to the proper administration of justice, the Confidential Affidavit is to be marked 'confidential' on the electronic court file and is not to be capable of inspection pursuant to r 2.32 of the Federal Court Rules 2011 (Cth) by a person who is not a party to this proceeding until such time as all litigation relating to the subject matter of the proceeding WAD 64 of 2024, including any appeals from any judgment given in that proceeding, is concluded.

7.    The costs of the application are costs and expenses in the winding up of the Company.

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

REASONS FOR JUDGMENT

JACKSON J:

1    Coolgardie Minerals Limited (Company) has been in liquidation since 27 May 2020. The plaintiff, Mr Bredenkamp, is the liquidator of the Company. On 27 February 2025 he and the Company commenced a Proceeding in this Court against the Company's current and former directors, WAD 64 of 2025. In it, the liquidator seeks remedies for alleged insolvent trading.

2    The present application was heard on 17 April 2025. It was an application for approval under s 477(2B) of the Corporations Act 2011 (Cth) of a litigation funding agreement and a proposed legal costs agreement in connection with the prosecution of the Proceeding. At the time of that hearing, the originating process and other documents in the Proceeding had not been served, pending the outcome of the present application. The funding agreement had already been executed, so the approval of it was sought retrospectively. Ancillary orders were also sought.

3    I made the orders sought at the hearing on 17 April 2025. These are my reasons for doing so.

Background

4    The factual background appears in two affidavits that Mr Bredenkamp swore on 7 April 2025 in support of the present application. He seeks orders to protect the confidentiality of the contents of one of the affidavits. It annexes the funding agreement and the proposed legal costs agreement, and deposes to certain circumstances surrounding them.

5    From the affidavit that is not confidential, the following matters appear:

(1)    The winding up was the result of a vote of creditors on 27 May 2020 following the appointment of administrators to the Company under Pt 5.3A of the Corporations Act on 28 February 2019.

(2)    On the basis of the liquidator's investigations, he believes that the Company was insolvent from at least 16 September 2018. Whether that is so may, of course, be an issue in the Proceeding and it is not appropriate to canvass the evidence Mr Bredenkamp presents in any detail. Mr Bredenkamp summarises what he says is evidence of various matters, such as an alleged significant deficiency in working capital from March 2018 to February 2019, allegedly worsening losses over that period, and an alleged insufficiency of cash on hand to pay trade creditors within their trading terms. He also refers to what he says is almost AU$16 million in debts that the Company incurred between September 2018 and February 2019, and which remain outstanding. It is enough to say if this evidence is accepted (acknowledging that the defendants to the Proceeding have not yet had a chance to contradict it), there is a basis for the liquidator to pursue the directors for remedies arising out of alleged contraventions of s 588G of the Act, that is for insolvent trading.

(3)    There are five present and former directors of the Company who were directors during the period of its alleged insolvency and who are named as defendants in the Proceeding.

(4)    Mr Bredenkamp and those advising him took the view that the period for commencing the Proceeding may arguably have been due to expire. He therefore instructed solicitors, HWL Ebsworth Lawyers, to prepare an originating process and supporting affidavit to commence the Proceeding within time, which they did.

(5)    Almost all of the recoverable assets of the Company (setting aside the claims made in the Proceeding) have been realised for the benefit of a secured creditor by receivers and managers appointed by that creditor. The liquidator is unaware of any other assets that could be recovered and realised. As a result, in the absence of a different source of funding, the liquidator lacks the funds to prosecute the Proceeding.

(6)    While one creditor of the Company expressed a possible interest in funding the claims that were subsequently made in the Proceeding, nothing came of that. Despite having reported on the claims to creditors on at least two occasions, no creditor has been prepared to provide funding to pursue them.

6    On the basis of those matters, Mr Bredenkamp expresses the opinion that executing the funding agreement was necessary to permit him and the Company to investigate and pursue the claims made in the Proceeding. His view is that this is in the best interests of the Company and its creditors, essentially because if the Proceeding is not pursued, no material assets will be available to unsecured creditors, while if it is pursued successfully, a dividend of up to 50 cents in the dollar may be payable. To be clear, that estimate assumes full recovery of all amounts claimed, so a range of lesser dividends is of course possible, depending on the extent to which judgment is entered in favour of the plaintiffs in the Proceeding and depending on the extent to which any judgment sums are recoverable from the defendants.

7    Mr Bredenkamp further expresses the opinion that the terms of the funding agreement are commercially reasonable.

8    Mr Bredenkamp expands on that subject in his confidential affidavit. As I have said, in that affidavit he also says more about the circumstances in which the funding agreement was entered into, and on the proposed legal costs agreement (which is with HWL Ebsworth). The funding agreement as executed and the legal costs agreement as proposed are annexed to the confidential affidavit.

9    At the hearing of the present application, I decided that it was necessary to prevent prejudice to the administration of justice to make an order under s 37AF of the Federal Court of Australia Act 1975 (Cth) to protect the confidentiality of that second affidavit. That is because it is necessary in applications like the present one for applicants to be confident that they can make full and frank disclosure to the Court without risking the damage to the prospect of the litigation that could result if the terms on which they are funded, or the terms on which they are paying their lawyers, are disclosed to the defendants to the litigation. That could give those defendants strategic advantages in the litigation which are not ordinarily available, and which could damage the interests of the Company and its creditors. This is an accepted basis for a confidentiality order of the kind made: see for example Livingstone; Re NewSat Ltd (in liq) [2022] FCA 1559 at [68]-[69] (Stewart J) and the authorities cited there.

Legal principles

10    It is convenient to repeat the summary of principles which I recently had occasion to give in Wenwii Australia Pty Ltd (in liq) v Montague Estate Pty Ltd [2025] FCA 280:

[11]    Section 477(2B) of the Corporations Act 2001 (Cth) relevantly requires liquidators of companies to obtain the approval of the Court before entering into an agreement on the company's behalf where the term of the agreement may end more than three months after the agreement is entered into. Both of the agreements of which approval is sought meet that description.

[12]    The purpose of s 477(2B) is 'to ensure that the court exercises some oversight of the liquidator's actions and, in effect, confers or completes the necessary power only where it sees that a case for exercise of the power in the particular circumstances has been sufficiently shown': Re HIH Insurance Ltd [2004] NSWSC 5 at [15] (Barrett J).

[13]    The central issue is whether any prolongation of the winding up that may be caused by the proposed agreement is warranted by the offsetting benefits that would flow from it: Re City Pacific Ltd [2017] NSWSC 784 at [13], [29] (Brereton J). That is in the context of a general expectation that winding up will proceed expeditiously: see HIH Overseas Holdings [2001] NSWSC 426 at [5]; Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89 at [40] (Emmett, Nicholas and Robertson JJ).

[14]    In Fortress Credit at [40] the Full Court said:

In considering whether to give approval under s 477(2B) and to give directions under s 479(3), the Court must consider the purposes for which the powers of a liquidator exist. One overriding purpose is to serve the interests of those concerned in the winding up, relevantly, in the present circumstances, the creditors. Another purpose is to do whatever needs to be done for the proper realisation of the property of the company or to assist its winding up …

[15]    The Court should not act as a rubber stamp for the liquidator, but it is not the role of the Court to appraise the commercial desirability or terms of the transaction. Generally, the Court will not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct: see Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-86 (Giles J); State Bank (NSW) v Turner Corporation Ltd (1994) 14 ACSR 480 at 483 (Tamberlin J); HIH Insurance at [15]; Pascoe; Re Matrix Group Ltd (in liq) [2011] FCA 1117 at [7] (Jacobson J).

[16]    Approval under s 477(2B) may be granted retrospectively in an appropriate case: Vickers and Others v Australian Securities and Investments Commission [2011] FCA 1028; (2011) 196 FCR 479 at [27] (Gordon J).

Consideration

11    I was satisfied in the present case that the potential benefits of the funding agreement with the litigation funder and the proposed legal costs agreement with HWL Ebsworth justified giving the Court's approval to them, even though they are likely to run for longer than three months and so are likely to reflect (if not cause) a prolongation in the course of the liquidation before the affairs of the Company can be wound up.

12    That is because, on the factual basis set out above, there will be no return to unsecured creditors unless the Proceeding is pursued to some measure of recovery of funds from the defendants. There are no other assets available to meet the claims of those creditors and there will be no funding available to pursue the Proceeding in the absence of the funding agreement. While it is not possible or appropriate to give any prognosis as to the outcome of the Proceeding, I have already expressed the view that if Mr Bredenkamp's evidence is accepted, it discloses a basis to bring it.

13    Mr Bredenkamp has expressed the opinion that the terms of the funding agreement are commercially reasonable and that it is in the interests of the Company to enter into the proposed legal costs agreement. I reviewed both of those agreements and nothing in their terms gave me any cause to doubt that opinion.

14    Beyond that, on the principles just set out it is not the proper role of the Court to appraise the commercial desirability of the agreements. Nor, by extension, is it for the Court to assess the risks inherent in the Proceeding or the likelihood that it will bear fruit. It is enough to say that on the face of the evidence there is no lack of good faith, or error of law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct.

15    As for whether it was appropriate to give the Court's approval to the funding agreement retrospectively, I was satisfied that it was, for two reasons. First, the funding agreement was expressly conditional on the Court's approval being granted. Second, the liquidator and those advising him considered it advisable to commence the Proceeding before a certain time, and this provided support for the view that it was in the interests of creditors and the Company to enter into the agreement before Court approval could be obtained.

16    For those reasons, I made the orders set out at the beginning of this judgment, including an extension of time and a related declaration and direction all aimed at confirming the validity of actions taken by the liquidator in respect of and on the basis of the funding agreement. For as Lindgren J said in Chamberlain v RG&H Investments Pty Limited, in the matter of Hardy Bros (Earthmoving) Pty Limited (in liq) (No 2) [2009] FCA 1531 at [24] (emphasis in original): 'No doubt in giving approval nunc pro tunc and extending time under s 1322(4)(d) and giving a direction under s 479(3) and making a declaration under s 1322(4)(a), I am being excessively cautious, but this does no harm'.

Associate:

Dated:    23 April 2025