Federal Court of Australia

Clifford Constructions Pty Limited (in liquidation) v Lucca Rd Pty Ltd [2025] FCA 897

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), on the ground specified in s 37AG(1)(a) of that Act, Confidential Exhibit B be kept confidential and not be published, made available or disclosed to any person other than the Court or the parties to this proceedings and their legal representatives until 5 August 2026.

2.    Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), the Court approves nunc pro tunc the plaintiffs’ entry into of the Heads of Agreement dated 29 May 2025 and the Deed of Settlement and Release dated 1 July 2025, copies of which were Annexure A to the affidavit of Stewart William Free sworn 4 July 2025, and Exhibit A, respectively.

3.    The plaintiffs’ costs of this application be costs in the liquidation of the first plaintiff.

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

REASONS FOR JUDGMENT

Delivered ex tempore, revised from transcript

OWENS J:

1    Before it was placed into liquidation, the first plaintiff, Clifford Constructions Pty Ltd (in liquidation), was engaged in the business of constructing large retail buildings for commercial clients. The second plaintiff was appointed liquidator of that company on 4 June 2020, having earlier, on 3 April 2020, been appointed voluntary administrator.

2    The shares in Clifford Constructions were at all relevant times owned by the corporate trustee of a trust associated with the second defendant, Mr Abbott, and his wife. They each owned 50% of the shares in the trust company, and Mrs Abbott was its sole director from 14 August 2015 onwards.

3    Mr Abbott had been a director of Clifford Constructions since June 2000, and its sole director since 13 November 2015.

4    In 2013 the trust company acquired all of the shares in another company, and Mr Abbott became a director of that company (and its sole director from 13 November 2015). That company operated from premises on Lucca Road in Wyong. On 23 September 2016, that land was purchased by the first defendant, Lucca Road Pty Ltd. Lucca Road is the trustee of Mr and Mrs Abbott’s superannuation fund, and they each owned 50% of its shares, and were each a director.

5    The plaintiffs alleged that from December 2017 onwards, significant construction work was undertaken at the Lucca Road property, all of which was supervised by an employee of Clifford Constructions, and all costs of which were paid for by Clifford Constructions. It was further alleged that the costs incurred by Clifford Constructions in performing work for the benefit of Lucca Road were at least $487,811.21, and that no amount whatsoever was paid to Clifford Constructions in respect of those costs.

6    The plaintiffs contended that Mr Abbott breached the duties he owed to Clifford Constructions as a director, that Lucca Road was knowingly involved in those breaches of duty, and that Clifford Constructions was accordingly entitled to damages. They also sought an order against Lucca Road pursuant to s 588FDA of the Corporations Act 2001 (Cth). The relief claimed included damages, and a variety of declarations and other orders, including a declaration that the Lucca Road property was held on trust for Clifford Constructions and an order charging the Lucca Road property with payment of any amounts owing by it. The total amount claimed was $487,811.21, plus interest and costs. (For completeness, I note that Lucca Road also brought a cross-claim against Clifford Constructions, on the basis that the latter had been unjustly enriched by its use of part of the property in various respects.)

7    Shortly before the trial of these proceedings was scheduled to commence, the parties reached an in-principle settlement of their dispute, reflected in a document dated 29 May 2025, and entitled “Heads of Agreement”. The agreement was expressed to be “conditional on the parties entering into a deed”. That occurred on 1 July 2025.

8    The key elements of that settlement are:

(a)    the parties will seek orders by consent from the Court for, inter alia, judgment against the defendants in favour of the plaintiffs in the amount of $750,000 (including interest and costs);

(b)    steps will be taken to sell the Lucca Road property by 10 November 2025, and the liquidator will have certain rights in relation to the sale process;

(c)    if the Lucca Road property is not sold by 10 November 2025, the liquidator will be appointed as receiver over the property; and

(d)    the judgment sum will be paid out of the proceeds of sale of the Lucca Road property.

9    It may be observed that the settlement sum exceeds the principal value of the claim, and thus reflects, in addition, some recovery for interest and costs. The evidence included a valuation which indicates that the value of the property comfortably exceeds the settlement amount. While the property is subject to a mortgage, the liquidator considers it to be unlikely that the settlement amount could not be paid upon a sale of the property.

10    Because payment of the settlement sum may not be made, or other obligations (such as the appointment of the liquidator as a receiver) may not be performed, until after 10 November 2025, the settlement deed is an agreement subject to s 477(2B) of the Corporations Act (as is the heads of agreement to the extent that it is legally binding, and capable of operation following entry into of the deed).

11    On 7 July 2025, the plaintiffs filed an interlocutory application seeking approval, nunc pro tunc, to enter into the heads of agreement (to the extent necessary) and the settlement deed, and that application was listed for hearing before me yesterday. The hearing did not conclude yesterday because, in light of some issues that arose during the hearing, the plaintiffs wished to adduce further evidence and make further submissions today. The plaintiffs tendered various documents, and also relied on affidavits of:

(a)    Stewart William Free, the liquidator, sworn on 4 July 2025; and

(b)    Stephen Antonio Mattiussi, the solicitor for the liquidator, affirmed on 30 July 2025.

12    The Court has power under s 477(2B) to approve entry into an agreement retrospectively (Lewis (liquidator), in the matter of Concrete Supply Pty Ltd (in liq) [2020] FCA 841 at [22] (White J)), although it has been observed that the proper course is for approval to be sought in advance (Lindholm (liquidator), in the matter of Aviation 3030 Pty Ltd (in liq) [2021] FCA 1244 at [47] (Anderson J). The circumstance that, here, approval is sought only after the heads of agreement and the deed have been entered into does not provide a reason not to make the orders sought. There was an obvious attraction in achieving certainty as to the fact and terms of the settlement before approaching the Court for approval. The application for approval was filed promptly within a week of the execution of the deed.

13    The principles applied by the Court in considering an application for approval of an agreement under s 477(2B) have been summarised on many occasions, one convenient statement being that of White J in Lewis at [16]:

(a) the Court makes its assessment having regard to the purposes for which liquidators’ powers exist, including the serving of the interests of those concerned in the winding up, the achievement of what is necessary for the proper realisation of the assets of the company, and assisting in its winding up: Re HIH Insurance Ltd [2004] NSWSC 5 at [15]; Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375 at [26(6)];

(b) a primary consideration is the impact of the agreement on the duration of the liquidation and whether that is, in all of the circumstances, reasonable in the interests of the liquidation: Re Opel Networks Pty Ltd [2013] NSWSC 1245 at [7]; Re One.Tel Ltd [2014] NSWSC 457, (2014) 99 ACSR 247 at [30];

(c) the Court’s approval is not an endorsement of the proposed agreement but merely constitutes permission for liquidators to exercise their commercial judgment: Re Bell Group Ltd (in liq); Ex parte Woodings as liquidator of The Bell Group Ltd (in liq) [2009] WASC 235 at [58];

(d) again, generally, the Court does not refuse an approval unless there can be seen to be some lack of good faith, some error in law or principle or some real and substantial grounds for doubting the prudence of the liquidator’s conduct: Re Spedley Securities Ltd (in liq) (1992) 10 ACLC 1742 at 1745;

(e) a court may also refuse approval if the terms of the proposed agreement are unclear: Re United Medical Protection (No 4) [2002] NSWSC 516; (2002) 20 ACLC 1647 at [45];

(f) the role of the Court is to grant or deny approval to the liquidator’s proposal. It is not to develop some alternative proposal which might seem preferable: Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 16 ACLC 1642 at 1649; and

(g) nevertheless, the Court does not simply “rubber stamp” whatever is put forward by a liquidator: Re Stewart; Newtronics, at [26(1)].

14    None of those considerations seem to me to supply a reason not to approve the entry into of the heads of agreement and the settlement deed here. The plaintiffs submitted that:

(a) the payment of the Judgment Debt (or receipt of equivalent funds upon sale) is a commercially positive outcome for the liquidation that does not involve a compromise of the quantifiable claim;

(b) a period of 4 months to progress the marketing and sale of an industrial property is not unreasonable;

(c) had the trial proceeded in June (albeit with the uncertainty of the outcome), the time taken for a judgment to be handed down and for any enforcement proceedings to be concluded would likely have extended beyond 10 November 2025;

(d) in the event that the sale does not proceed by November, the Liquidator and Ms Mos will be able to expedite the sale in their role as receivers;

(e) the Defendants do not own any other significant assets that are known to the Plaintiff; and

(f) the settlement removes the risk of litigation and the incursion of additional costs.

15    I accept those submissions (at least, in relation to (c), if the risk of an appeal is factored in). I make only a few additional observations by way of emphasis.

16    I agree with the following remarks of Kennett J in Binqld Finances Pty Ltd (in liq) v Binetter (settlement approval) [2025] FCA 811 at [13]-[14]:

First, it is at least normally in the interests of creditors of a company in liquidation for there to be a settlement of claims advanced on behalf of the company on sensible commercial terms rather than for costs to be incurred on litigation whose outcome is uncertain. Such a settlement coheres with the purposes for which the liquidator’s powers exist and works towards the timely completion of the liquidation process. …

Secondly, the final proposition set out in the extract from Lewis above (that the Court does not simply “rubber stamp” whatever is put forward) must be read with the fourth. The Court should not second-guess the liquidator’s judgment as to the wisdom of entering into the agreement; rather, assuming the terms of the agreement are reasonably clear, approval should only be refused if there is some reason to think that the liquidator’s judgment was not made genuinely or conscientiously in pursuit of the creditors’ interests.

17    In this case, there is nothing to suggest that there has been anything other than a genuine and conscientious pursuit of the creditors’ interests by the liquidator. The settlement sum represents full recovery of the principal amount claimed, along with a substantial recovery on account of interest and costs. Needless to say, if the trial had proceeded, the costs incurred by the plaintiffs would only have increased. The evidence disclosed a reasonable basis for thinking that the proceeds of the sale of the Lucca Road property will be sufficient to pay the settlement sum, but even if not, the defendants apparently do not have any substantial additional assets. The outcome for creditors seems on almost any view to be a good one.

18    Furthermore, the fundamental concern underlying s 477(2B) is the general concern that the winding up of a company be completed expeditiously: Naidenov, in the matter of AJW Interiors and Constructions Pty Ltd (in liq) [2024] FCA 25 at [85]-[86] (Cheeseman J); In the matter of One.Tel Limited [2014] NSWSC 457 at [30] (Brereton J). Here the advantages for creditors derived from being able to access the value of the Lucca Road property are obvious, and to realise that value will necessarily take time. I am satisfied that the period contemplated by the agreement is a reasonable one within which to secure a commercial sale of the property.

19    The interests of creditors are plainly a highly relevant consideration, and it is thus significant that the evidence demonstrated that notice of this application, including the interlocutory process itself, the affidavit of the liquidator, and the liquidator’s written submissions, were provided by email or post (depending on the contact details possessed by the liquidator) to all creditors of Clifford Constructions, along with an invitation to appear at the hearing of the application if they so wished. No creditor appeared, or otherwise communicated opposition to approval being granted.

20    For all these reasons, I am prepared to make orders approving entry into the settlement deed.

Confidentiality Orders

21    Confidentiality orders were sought over a valuation of the Lucca Road property that was tendered in evidence. I accept that having access to that document would provide potential purchasers of the Lucca Road property with an unfair advantage in the sale process. It is plainly in the interests of justice that parties be able to negotiate settlements of litigation on commercial terms, and in certain cases, of which this is an example, that will not be possible (or will be significantly hampered) if the parties are unable to maintain confidentiality over documents sought to be tendered in order to obtain necessary Court approvals in respect of the proposed settlement. In those circumstances I am satisfied that it is appropriate to make an order pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), on the ground specified in s 37AG(1)(a). Given the expected timeframe within which a sale of the property is expected to occur, I am satisfied that such an order should be for a period of 12 months.

Associate:

Dated:    5 August 2025