Federal Court of Australia

Hodgson (Liquidator), in the matter of ACN 009 068 473 Pty Ltd (in liq) [2025] FCA 410

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), the plaintiffs, as liquidators of ACN 009 068 473 Pty Ltd (In Liquidation) (ACN 009 068 473) (Company) be granted approval to enter the agreement entitled “Funding Agreement”, in the terms annexed to the confidential exhibit DMH-8 to the confidential affidavit of David Mark Hodgson sworn 14 April 2025 at pages 13 to 42, on behalf of the Company.

2.    Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), on the grounds that the order is necessary to prevent prejudice to the proper administration of justice as provided in s 37AG(1)(a), the following documents be marked confidential on the Court file, not be published, disclosed or accessed by any person other than the plaintiffs and their legal advisers until the conclusion of the liquidation of the Company or until further order of the Court, whichever is the earlier:

(a)    the confidential affidavit of David Mark Hodgson sworn 14 April 2025 and its annexures; and

(b)    the written submissions made in support of this application and dated 15 April 2025 save for a redacted version of the written submissions which is to be provided forthwith for lodgement on the Court file.

3.    The costs of and incidental to this application be costs in the liquidation of the Company.

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

REASONS FOR JUDGMENT

BANKS-SMITH J:

1    Mr David Hodgson and Mr Andrew Hewitt are the joint liquidators of ACN 009 068 473 Pty Ltd (in liquidation), formerly known as Mrs Mac's Pty Ltd (Company).

2    The liquidators were appointed on 9 November 2022 and since that time have conducted investigations into the affairs of the Company and have provided the usual statutory reports to creditors.

3    Relevantly, the liquidators have evaluated any possible voidable transactions that occurred prior to their appointment. In particular they have formed the view that there is a potential voidable transaction under Part 5.7B of the Corporations Act 2001 (Cth) by way of an unfair preference claim for payments made by the Company to the Commissioner of Taxation in the amount of $3,828,635.

4    The liquidators brought an application for an order pursuant to s 477(2B) of the Corporations Act for approval to enter into a litigation Funding Agreement as liquidators of the Company to enable them to pursue the claim against the Commissioner. They also sought an order under s 37AF of the Federal Court of Australia Act 1976 (Cth) supressing the details of the Funding Agreement. I heard the application on 24 April 2025 and made orders essentially in the terms sought by the liquidators.

5    These are my reasons for doing so.

Principles

6    A liquidator has the power to do all such things as are necessary for winding up the affairs of the company and distributing its property: s 477(2)(m) of the Corporations Act.

7    That power is qualified by s 477(2B), which requires approval from the Court, a committee of inspection or the creditors for a liquidator to enter into an agreement on the company's behalf, if the term of that agreement or obligations under it extend for more than three months.

8    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).

9    The power to approve an agreement under s 477(2B) of the Corporations Act has been described as granting 'a discretion to permit an administrative step to be taken which would otherwise be prohibited': Brown v DML Resources Pty Ltd (In liq) (No 2) [2001] NSWSC 590; (2001) 52 NSWLR 685 at [55].

10    In this case it is clear that the Funding Agreement includes obligations that will extend beyond three months. It is on this basis that the liquidators seek relief.

11    The application of the principles in the context of a litigation funding agreement are well known and referred to in many authorities. It is sufficient for present purposes to respectfully adopt Wigney J's summary in Hundy (liquidator), in the matter of 3 Property Group 13 Pty Ltd (in liquidation) (No 2) [2023] FCA 173:

[18]    The reason that approval is required in respect of agreements which may operate or involve obligations that extend beyond three months is that such agreements tend to cut across the general expectation that the winding up of a company will proceed expeditiously: Re HIH Insurance Ltd [2004] NSWSC 5 at [15]; Re Golden Sands Hospitality Pty Ltd (in liq) (No 2) [2017] NSWSC 450 at [15], [17].

[19]    The requirement to obtain approval of such agreements affords some protection against ill-advised or improper actions on the part of the liquidator: Empire (Aust) Nominees Pty Ltd v Vince (2000) 35 ACSR 167; [2000] VSC 324 at [12]. The Court's task is not to second guess the liquidator's commercial judgment, but rather to determine whether there are grounds for suspecting a lack of good faith, some error of law or principle, or some other good reasons to intervene: Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-86; Leigh, re AP and PJ King Pty Ltd (in liq) [2006] NSWSC 315 at [23]; Stewart, re Newtronics Pty Ltd [2007] FCA 1375 at [26]; Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher & Barnet (2015) 89 NSWLR 110; [2015] NSWCA 85 at [125] (Bathurst CJ, with Beazley P, Macfarlan, Meagher and Barrett JJA agreeing).

[20]    In respect of funding agreements that require approval pursuant to s 477(2B) of the Corporations Act, the factors that may be relevant to assessing whether approval should be granted include: the manner in which the funding or indemnity will be provided under the agreement; the prospects of success of the proposed litigation; the risks involved in the claim; the interests of creditors other than the proposed defendant or respondent; possible oppression; the nature and complexity of the cause of action; the extent to which the liquidator has canvassed other funding options; the level of the funder's premium, if any; and the extent to which the liquidator has consulted with creditors: Leigh at [25]; Re ACN 076 673 875 Ltd (rec and mgr apptd) (in liq) (2002) 42 ACSR 296; [2002] NSWSC 578 at [16]-[34]; Hughes, in the matter of Sales Express Pty Ltd (in Liq) [2016] FCA 423 at [20].

12    I considered the factors collected in Hundy at [20] in considering whether it was appropriate to make the orders sought in this case.

Approval is appropriate

13    Mr Hodgson on behalf of the liquidators provided two affidavits.

14    The first affidavit was an open (non-confidential) affidavit that set out the relevant circumstances of the liquidators' appointment and investigation, their reports to creditors and communications with the Commissioner.

15    The second affidavit was described as confidential and addresses and annexes a copy of the Funding Agreement. It explains the reasons for seeking to enter into the Funding Agreement. It also informs the Court of the liquidators' views as to the prospects of success of the proposed proceedings against the Commissioner. It identifies key terms of the Funding Agreement and confirms that independent legal advice has been obtained in relation to the proposed proceedings.

16    As the open affidavit disclosed, in addition to their own inquiries, the liquidators have engaged in correspondence with the Commissioner specifically about the claim, and so have insight into the kind of matters that are likely to be relied upon by the Commissioner in seeking to resist it. They have been able to consider the prospects of success of the claim, informed by some knowledge of the Commissioner's likely arguments.

17    It is apparent from the second affidavit that the liquidators have carefully considered the potential distribution that might be available for unsecured creditors in different scenarios, including if the Funding Agreement is entered into and the proceeding is pursued. The liquidators have been cautious to ensure that creditors are not in a worse position should they be unsuccessful in the proceeding. The liquidators have considered if there are other methods by which the proceeding could be funded.

18    As the second affidavit also addresses, the liquidators have experience in entering into funding agreements for the purpose of litigation and have familiarity with what they consider to be appropriate terms. They have brought this experience to their negotiation and consideration of the terms of the Funding Agreement. For example, they have taken into account issues such as responsibility for control of the litigation and the allocation of risk under the Funding Agreement.

19    Having read both affidavits and reviewed the terms of the Funding Agreement, I have no reason to doubt that the liquidators formed their view that it is appropriate to enter into the Funding Agreement based on considered and sensible reasons, and having regard to legal advice. The liquidators have considered those factors referred to in Hundy at [20] that are relevant to this application.

20    I too considered those factors based on the information provided in the affidavits and was satisfied that it was appropriate to make an order authorising entry into the Funding Agreement.

Suppression order

21    The liquidators sought a suppression order over the second affidavit and also over the unredacted version of written submissions filed in support of the application.

22    Mr Hodgson deposed that if the terms and conditions of the Funding Agreement were disclosed to the prospective defendants, it could afford them an unfair advantage and so cause prejudice to the proper administration of justice. I accepted that this is a genuine concern, and one which arises frequently in relation to entry into such funding agreements by receivers and liquidators. It would be prejudicial to the proper administration of justice if liquidators and others were to be deterred from entering into agreements of this kind for fear that when the necessary approval is sought, their contents will be disclosed, in particular, to opposing parties to the relevant litigation: Livingstone; Re NewSat Ltd (in liq) [2022] FCA 1559 at [68]-[69] (Stewart J) and the authorities cited there.

23    Accordingly, I have been circumspect in limiting the nature of the disclosure I have made at [17]-[18] above. I made a suppression order over the second affidavit filed by Mr Hodgson and over a non-redacted version of the written submissions, on the ground that to do so is necessary to prevent prejudice to the proper administration of justice.

Orders

24    I made orders accordingly.

Associate:

Dated:    28 April 2025