Federal Court of Australia

White, in the matter of Twinza Oil Limited [2025] FCA 1054

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiffs have leave, pursuant to r 30.25 of the Federal Court Rules 2011 (Cth), to read the following affidavits filed and read in Federal Court of Australia proceeding WAD 247 of 2025:

(a)    affidavit of Stephen Richard Quantrill sworn on 23 July 2025;

(b)    affidavit of Hayden Leigh White sworn on 31 July 2025; and

(c)    affidavit of Kerrie Lee Papamihail sworn on 5 August 2025.

2.    Pursuant to s 424 of the Corporations Act 2001 (Cth), the plaintiffs would be justified in causing Twinza Oil Limited (ACN 111 551 403) (Receivers and Managers Appointed) to commence proceedings substantially in the form of those set out in the draft Originating Process which forms annexure “HW-20” to the affidavit of Hayden Leigh White affirmed on 25 August 2025.

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

REASONS FOR JUDGMENT

FEUTRILL J:

Introduction

1    The plaintiffs are the receivers and managers of certain secured property of the company, Twinza Oil Limited (receivers and managers appointed). They sought a direction, pursuant to s 424 of the Corporations Act 2001 (Cth), that they would be justified in causing the company to commence proceedings for relief that would have the effect of postponing a meeting a member of the company has called until after a creditors’ scheme meeting has been held and any application for approval of that scheme has been heard. I heard the receivers ex parte as urgent duty matter and made the orders sought on their application. These are my reasons for those orders. (All references in these reasons to sections, chapters, parts, divisions or schedules are references to the Corporations Act unless otherwise indicated.)

Proposed creditors’ scheme of arrangement

2    On 6 August 2025 the Court made orders in proceeding WAD 247 of 2025 pursuant to s 411(1) and s 1319 for the company to convene and hold a meeting of certain creditors for the purpose of considering, and if thought fit, approving a scheme of arrangement proposed to be made between the company, the scheme creditors and certain holders of subordinate claims against the company: Twinza Oil Limited (Receivers and Managers Appointed), in the matter of Twinza Oil Limited (Receivers and Managers Appointed) [2025] FCA 939.

3    An affidavit of Hayden Leigh White affirmed 25 August 2025 was read in support of the originating process. Leave was also granted under r 30.25 of the Federal Court Rules 2011 (Cth) for the plaintiffs to read in support of the originating process three affidavits that had been read at the first court hearing in proceeding WAD 247 of 2025. These were an affidavit of Stephen Quantrill sworn 23 July 2025, another affidavit of Mr White affirmed 31 July 2025 and an affidavit of Kerrie Lee Papamihail sworn 5 August 2025.

4    The following description of the background to the proposed scheme is set out and largely adopted from Twinza Oil (No 1) at [14]-[25] and taken from the affidavits read in that proceeding.

5    The company (Twinza Oil) is an Australian public listed company. It is the parent of Twinza Oil (PNG) Ltd, a company incorporated under the laws of the British Virgin Islands and registered as a PNG overseas company. Twinza PNG is the operator and 95% equity holder of the Pasca A natural gas project under development in the Gulf of Papua. A PNG state-owned enterprise, Mineral Resources Development Company Limited, holds the remaining 5% of the project with an entitlement to acquire up to 50% subject to certain conditions. In December 2024 the Government of Papua New Guinea, MRDC (through a special purpose vehicle) and Twinza PNG entered into a gas agreement in relation to the project which is central to attracting investment in the company.

6    The company is in the process of launching the second phase of its front-end engineering design process with a targeted completion on or before 30 June 2026. The anticipated date for completion of the last phase of feasibility studies and a final investment decision is not confirmed, but pursuant to the gas agreement, must take place by 19 June 2027 (subject to possible extension of that date).

7    Under a syndicated facility agreement certain senior lenders made funding available to the company in four tranches at an interest rate of 23% for three tranches and 30% for one tranche. From December 2024 the interest rate for all tranches increased to 35%. As of May 2025, the company was indebted to the senior lenders in the sum of USD324 million, was in default and interest was continuing to accrue at the 35% interest rate.

8    The authors of an independent expert report prepared for the purpose of the scheme meeting opined that if the proposed scheme does not proceed and the company is wound up within six months of the first court hearing, the value of the assets available to distribute to the senior lenders would be between USD179 and USD254 million. That equates to a shortfall of between USD145 and USD70 million in assets over liabilities. Further, the total debt is likely to hinder company from securing finance or attracting investment for the Pasca A project.

9    The proposed scheme involves restructuring the company’s debt and equity. Three tranches of debt are proposed to be swapped for equity and the interest rate on the last tranche will be reduced to 10% (or 12% if in default). On 19 February 2025 the company and a subset of the senior lenders made a scheme implementation deed. The other senior lenders signed a side letter deed expressing support for the proposed scheme. The receivers have received funding support and the company the benefit of a standstill agreement to maintain its liquidity during the scheme implementation process.

10    The key components of the proposed scheme are as follows.

(a)    The senior lenders will provide a release of up to 92% of the senior debt. The senior debt will be reduced to USD30 million.

(b)    The company will issue new ordinary shares to the senior lenders. The senior lenders will hold 85% of the ordinary shares on issue.

(c)    The company will issue new ordinary shares to holders of convertible redeemable preference shares in the company by which the preference shares will be replaced and substituted with ordinary shares in the company. The holders of preference shares will hold 10% of the ordinary shares on issue.

(d)    Current shareholders will hold 5% of the ordinary shares on issue.

(e)    The facility agreement will be amended by reducing the senior debt, reducing the interest rate on the balance of the debt, removing a subset of senior lenders from the agreement, removing the existing fee structure and associated amendments.

(f)    There will be provision that ensure the scheme, if implemented, will not effect employees or List A creditors (ordinary course of trade creditors).

Clough intervenes

11    At the first court hearing two companies associated with William McCrae Clough were granted leave to appear as interested parties. The companies applied for an adjournment of the first court hearing.

12    Mr Clough is the sole director and member of WM Clough Pty Ltd and McRae Clough Pty Ltd. WM Clough as trustee for the WM Clough Family Trust is the holder of preference and ordinary shares in the company. McRae Clough claims to be an unsecured creditor of the company. Mr Clough as trustee of the WM Clough Superannuation Fund is also the holder of ordinary shares.

13    The Clough companies supported their application for adjournment on the ground that they were members of classes entitled to vote at a separate scheme meeting regarding the proposed scheme. They submitted that the proposed dilution of the current members’ interest in the company from 100% to 5% gave them rights to vote on the proposed scheme at a separate scheme class meeting. Further, the stripping preference shares of ‘preference’ status and replacement with ordinary shares also entitled holders of preference shares to vote on the proposed scheme at a separate scheme class meeting. The Clough companies submitted that the question of class should be determined before orders were made to convene the scheme meeting and their legal representatives required additional time to consider the materials filed in support of the company’s (Twinza Oil’s) application for convening of the scheme meeting.

14    On 6 August 2025, at the first court hearing, the Court dismissed the application for adjournment and made orders for convening and holding the scheme meeting on 12 September 2025. Further, any second court hearing to approve the proposed scheme will be held on 23 September 2025.

15    Following the Court order to convene the scheme meeting, by notice dated 14 August 2025, WM Clough gave notice to the company under s 203D of its intention to move a resolution to remove three directors at a general meeting of the company. The directors the subject of the notice are Mr Quantrill, Stefan Vincent White and Stuart Anthony Brown. Mr Quantrill is the executive chair and executive director of the company and had an important role in negotiating key agreements relating to the Pasca A project.

16    Section 203D(1) of the Act provides that a public company may by resolution remove a director from office. Section 203D(2) provides:

Notice of intention to move the resolution must be given to the company at least 2 months before the meeting is to be held. However, if the company calls a meeting after the notice of intention is given under this subsection, the meeting may pass the resolution even though the meeting is held less than 2 months after the notice of intention is given.

(Emphasis added.)

17    On 18 August 2025 WM Clough gave the company a notice of general meeting called by it as a member holding at least 5% of the issued shares in the company under s 249F together with proposed resolutions to remove the three directors and replace them with three other directors including Mr Clough at a meeting to be held on 17 September 2025. It follows that the proposed date for hearing of the general meeting convened under s 249F will fall between the date of the scheme meeting and the date of any second court hearing for approval of the scheme. Further, the company was given notice less than two months before the meeting is to be held.

18    The notice of meeting included an explanatory statement in which the following reason was given for calling the meeting.

…

WM Clough has called the General Meeting to consider changes to your Company's Board in circumstances where your Executive Chairman has recently written to shareholders in relation to a Creditor's Scheme of Arrangement which has been proposed by your Company's Board, the effect of which would result in the aggregate shareholding of Ordinary Shareholders being diluted from 100% of the ordinary shares in the Company to 5% of the ordinary shares in the Company, without Ordinary Shareholders being given an opportunity to vote in relation to the proposed Scheme of Arrangement.

In the case of Preference Shareholders, the Scheme of Arrangement separately proposes that Preference Shareholders be required to exchange their preference shares for ordinary shares representing collectively 10% of the ordinary shares in the Company, without Preference Shareholders being given an opportunity to vote in relation to the proposed Scheme of Arrangement.

As a major shareholder in the Company, WM Clough believes that the composition of your Company's Board should be changed to ensure shareholders have majority representation on the Board.

…

19    The calling of a general meeting of the company for the purpose of removing and replacing directors has a number of adverse implications for completion of the proposed scheme. In particular, it has the potential to place the company in a position in which it cannot satisfy certain of the conditions precedent to implementation of the proposed scheme, may be in breach of certain of the terms of the scheme implementation deed, and is vulnerable to the senior lenders terminating the deed. Having regard to the position WM Clough adopted at the first court hearing and the reasons for convening the general meeting together with the events described later, it may be inferred that to jeopardise the completion of the proposed scheme was a purpose of WM Clough calling the meeting under s 249F.

20    Clause 2.1 of the scheme implementation deed provides that the scheme will not become effective and the obligations of the company and senior lenders to complete implementation of the scheme will not be binding until each of the conditions of that clause are either satisfied or waived in accordance with cl 2.5. The conditions include that there are no resignations of existing directors of the company or new appointments of directors of the company and no voluntary administrators or liquidators are appointed to the Company: cl 2.1(i), cl 2.1(j). However, each of those conditions may be waived by the senior lenders under cl 2.5 of the scheme implementation deed. The terms of the proposed scheme of arrangement also include a provision that the scheme is conditional upon and will have no force or effect until the satisfaction (or waiver) of conditions precedent that include those set out in cl 2.1 of the scheme implementation deed. Further, amongst other things, cl 7.2 of the scheme implementation deed provides that the senior lenders may terminate the scheme implementation deed if the company appoints liquidators, or the company, its directors and (or) shareholders to take steps to call a meeting pursuant to s 249D and (or) s 249F. Additionally, in accordance with cl 2.2 the company must use its best endeavours to procure that the conditions in cl 2.1 are satisfied and cl 4, in effect, obliges the company to use all reasonable endeavours to bring about implementation of the proposed scheme.

21    The explanatory statement that accompanied the notice of general meeting does not explain any of the potential impacts that the meeting or proposed resolutions would have on the scheme implementation deed and proposed scheme. It also does not contain any explanation of the implications for members if the proposed scheme is not implemented, including the likely return to members if the company is wound up. Similarly, the explanatory statement does not provide any indication of the manner in which it is contended that the interests of members would be better served through removal of the three directors in circumstances in which, due to the appointment of the receivers, the function of the directors of the company at the present time is quite limited. The explanatory statement is also inaccurate in that it asserts that the directors proposed the scheme whereas it was the receivers that caused the company to propose the scheme.

22    On 19 August 2025 the solicitors for the senior lenders sent a letter to the receivers’ solicitors expressing concern on their clients’ behalf about the meeting called under s 249F and the proposed resolutions. A particular concern was that the proposed resolutions were contrary to cl 2.1(i) and cl 7.2(b) of the scheme implementation deed and proposed the removal of ‘the key Twinza executives responsible for negotiating the terms of agreements with the PNG state and MRDC parties’ and the appointment of other directors. The letter ended with an encouragement of the company’s board to exercise power under cl 9.8 of the constitution to postpone the general meeting until a date which follows the two-month notice period in s 203D(2) or seek appropriate relief from the court.

23    Clauses 9.3 and 9.5 – 9.8 of the company’s constitution are in the following terms.

9.3    Notice of General Meeting

(a)    Subject to the Listing Rules and to the provisions of the Corporations Act 2001 relating to special resolutions and agreements for shorter notice, at least 28 days' notice (exclusive of the day on which the notice is served or deemed to be served and of the day for which notice is given) specifying the place, day and the hour of the meeting and, in the case of special business, the general nature of that business, must be given to such persons as are entitled to receive notices from the Company for the purposes of receipt of proxy appointments the notice must specify a place and fax number and may specify an electronic address.

(b)    The non-receipt of notice of a general meeting by, or the accidental omission to give notice of a general meeting to, a person entitled to receive notice does not invalidate any resolution passed at the general meeting.

…

9.5    Requisitioned Meeting

A general meeting shall also be convened on requisition as is provided for by the Corporations Act 2001 or in default may be convened by such requisitionists as empowered to do so by the Corporations Act 2001.

9.6    Objects of Requisitioned Meeting

The requisition for a general meeting must state any resolution to be proposed at the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents if the working at the request is identical in each copy each signed by one or more of the requisitionists.

9.7    Expenses of Requisitioned Meeting

Any reasonable expenses incurred by the requisitionists by reason of the failure of the Directors to convene a general meeting must be paid to the requisitionists by the Company and any sum so paid may be recovered by the Company in the manner provided in Section 249E(5) of the Corporations Act 2001.

9.8    Postponement or Cancellation of Meeting

The Directors may postpone or cancel any general meeting whenever they think fit (other than a meeting convened as the result of a requisition under clause 9.6).

24    The directors of the company subsequently convened a meeting of directors to consider resolving to exercise the directors’ powers under cl 9.8 of the constitution to postpone the s 249F general meeting. As at the time of the hearing, that meeting had not been held, however, there was an email in evidence from Mr Quantrill to the receivers’ solicitors in which it was said that the directors had agreed that, ‘subject to written advice from TG Law to support that legal proposition, the Board would be seeking a postponement of the meeting called by WM Clough to allow 60 days[’] notice to shareholders and to seek a supplementary information memorandum that details the intentions of the incoming directors and potential consequences of the changes to the Board including the potential impact on all stakeholders of the Company’.

25    On 19 August 2025 McRae Clough sent a statutory demand to the company under s 459E. In that demand McRae Clough asserts an entitlement to be paid $496,395.02.

26    On 20 August 2025 WM Clough made an application to the Takeovers Panel concerning the proposed scheme. In substance, WM Clough asserts that there were unacceptable circumstances in relation to the proposed scheme because implementation of the scheme would result in a change of control without compliance with Ch 6.

27    Amongst other orders made on 6 August 2025, the Court ordered, pursuant to s 411(16), all further proceedings in any action or civil proceedings against the company (either directly or indirectly) be restrained, except by leave of the Court and subject to such terms as the Court imposes. The receivers submit that, at least, the application to the Takeovers Panel is a civil proceeding commenced in defiance of the order of the Court and the statutory demand is a precursor to an application to wind up the company which would also be in defiance of the order of the Court.

28    It is not necessary for the purposes of this application to determine whether McRae Clough or WM Clough, or their directors, officers and agents, (including legal representatives), are in breach of orders of the Court. It is sufficient to observe the actions are contrary to the spirit, if not the letter, of the scheme orders and are generally consistent with a course of conduct that has the potential to disrupt or prevent implementation of the proposed scheme.

Proposed proceeding

29    The proposed proceeding is an originating process for:

(a)    a declaration that any decision of the directors of the company to postpone the general meeting called by WM Clough for 17 September 2025 under cl 9.8 of the constitution is valid and effective; and

(b)    an injunction under s 1324 restraining WM Clough whether by itself, its servants, agents or otherwise from holding a general meeting of members of the Company on 17 September 2025: (i) for not complying with the applicable notice requirements or requirements of s 203D or both; and (or) (ii) for contravention of s 232.

30    The proposed declaration does not require further explanation. However, it may be observed that there will be, no doubt, competing constructions regarding cl 9.8 of the constitution and whether a meeting called under s 249F, as opposed to a meeting called by operation of s 249D and 249E, is a meeting ‘the result of a requisition under clause 9.6’. Accepting that competing constructions of the provisions of the constitution are open, assuming the directors exercise their power and there is a dispute about the validity of that exercise, the proposed claim for declaratory relief would have reasonable prospects of success.

31    Section 1324 of the Act provides:

1324    Injunctions

(1)    Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:

(a)    a contravention of this Act; or

(b)    attempting to contravene this Act; or

(c)    aiding, abetting, counselling or procuring a person to contravene this Act; or

(d)    inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or

(e)    being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or

(f)    conspiring with others to contravene this Act;

the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.

32    Again, the asserted non-compliance with the notice requirements of s 203D does not require further explanation. Notice under s 203D was given to the company on 18 August 2025, less than two months before 17 September 2025. However, assuming notice of the meeting called under s 249F was given after 18 August 2025, a question may arise as to whether that notice falls within the meaning of ‘the company [calling] a meeting after the notice of intention is given’ for the purposes of the qualification in s 203D(2) if the resolution is passed at a meeting held less than two months after the notice of intention is given. Accepting that there are competing constructions, that claim for injunctive relief for a contravention of s 203D(2) also has reasonable prospects of success.

33    The other asserted non-compliance is evidently for failing to give 28 days' notice of the meeting in accordance with cl 9.3 of the constitution. That assertion appears to be founded on an assumption that notice of the meeting was not received by members before 22 August 2025. There was no evidence before the Court to support that assertion. It is a cause that, as matters stand, is speculative.

34    As to asserted contravention of s 232, the foundation for that claim is not obvious. However, for the reasons that follow the underlying facts upon which that assertion is based support the relief claimed on other grounds.

35    Section 232 is in Pt 2F.1 which contains provisions relating to oppressive conduct of the affairs of a company. Section 234 provides that certain persons may apply for an order under s 233. The persons who may apply are essentially members or certain former or prospective members of the company and persons who ASIC thinks appropriate in certain circumstances. None of these categories apply to the proposed plaintiffs (the company and the receivers), therefore, they have no standing under s 234. Otherwise, s 233(1) provides that the Court may make any order that it considers appropriate in relation to a company, including an order in the nature of an injunction.

36    Section 232 of the Act provides:

232    Grounds for Court order

The Court may make an order under section 233 if:

(a)    the conduct of a company’s affairs; or

(b)    an actual or proposed act or omission by or on behalf of a company; or

(c)    a resolution, or a proposed resolution, of members or a class of members of a company;

is either:

(d)    contrary to the interests of the members as a whole; or

(e)    oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.

37    It follows that it is not obvious how the existence of the circumstances described in s 232 standing alone and divorced from an application under s 233 and s 234 meet the description of a contravention of the Act for the purposes of s 1324.

38    Nonetheless, the receivers submitted that the act of WM Clough calling a general meeting under s 249F is contrary to the interests of the members as a whole or is relevantly oppressive, prejudicial or discriminatory in its operation to the members because it jeopardises implementation of the scheme which is manifestly in the best interest of the members as a whole. Although framed as a contravention of s 232, in substance, the underlying complaint is that WM Clough has not exercised the power conferred on it under s 249F in good faith for a proper purpose because it is to be inferred from the circumstances surrounding the calling of that meeting that its purpose was to prevent the company from satisfying the conditions of cl 2.1 of the scheme implementation agreement and (or) to bring about termination of that deed by the senior lenders under cl 7.2.

39    There are a number of foundations for that inference. First, the attempt to adjourn the first court hearing and prevent a convening of the scheme meeting in the form the company had proposed. Second, the fact of calling the meeting triggers a right of the senior lenders to terminate the scheme implementation agreement. Third, if the directors were removed at the proposed meeting the company would not be able to satisfy the conditions precedent to implementation of the scheme. Given the directors proposed to be removed are seen as key persons from the perspective of the senior lenders, they may not be prepared to waive non-satisfaction of that condition. Third, the directors of the company currently have very limited functions due to the appointment of the receivers. Their powers are limited to residual powers and these largely relate to matters of insolvency such as defending winding up proceedings and appointing administrators and the like. In those circumstances, it is very difficult to see what could be achieved from a change of the composition of the board of directors while the receivers control the company’s undertaking. Fourth, as already mentioned, the explanatory statement in which it is said that the company’s board proposed the scheme of arrangement is incorrect. Therefore, the proposed resolution is evidently founded, at least in part, on a false premise. Fifth, the issue of the statutory demand suggests it may be a precursor to an application to wind up the company or the appointment of an administrator. These are matters that would fall within the residual power of the directors and may lead to non-satisfaction of other conditions for implementation of the proposed scheme. Last, the application to the Takeovers Panel is another action taken to attempt to prevent implementation of the proposed scheme.

40    Section 249Q provides that a meeting of a company’s members must be held for a proper purpose. There are authorities in support of the proposition that a member calling a meeting in the exercise of the power conferred under s 249F is to be regarded as a quasi-official of the company and subject to the same supervision as directors calling a meeting, so that they must act for the benefit of the company as a whole and not for some ulterior purpose: see, e.g., the discussion in Reefton Mining NL v Kimbriki Nominees Pty Ltd [2007] FCA 17; 61 ACSR 72 and Humes Ltd v Unity APA Ltd (No 1) [1987] VR 467. Therefore, although an inferential case, taking the facts deposed in the affidavits in support of the application at their highest, I accept that there are sufficient facts to plead a reasonably arguable cause of action for actual or prospective contravention of s 249Q and injunctive relief under s 1324 and (or) for injunctive relief to restrain a fraud on a power.

Section 424: applicable principles

41    Section 424(1) provides that a controller of property of a corporation may apply to the Court for directions in relation to any matter in connection with the performance or exercise of any of the controller’s functions and powers as controller. The receivers are privately appointed receivers and managers of property of the company and are ‘controllers’ for the purposes of s 424(1): see s 424(2) and s 9.

42    The purpose of s 424 is to provide a procedure for a controller to obtain guidance from the Court in the conduct of the controllership and, thereby, obtain protection against a claim for breach of duty or an allegation of improper or unreasonable action. Subject to the controller making full and fair disclosure of the material facts, the order sanctions a proposed course of conduct. The power to make directions is intended to facilitate the work of a controller and s 424 should be interpreted liberally: Re Mirabela Nickel Ltd (receivers and managers appointed) (in liq); Ex Parte Madden [2018] WASC 335 at [85]-[86] (Vaughan J).

43    In Preston, in the matter of Sandalwood Properties Ltd [2018] FCA 547 Colvin J explained the history, provenance and operation of s 424 in detail. In Re Mirabela Nickel Vaughan J distilled the following relevant principles primarily from Sandalwood Properties in terms in I largely and respectfully adopt.

(1)    The directions that may be provided are a form of personal guidance or advice; they articulate the approach the controller is justified in taking having regard to the known circumstances and relevant legal principles: Sandalwood Properties at [47], [108] ; Re Mirabela Nickel at [89(1)].

(2)    The power in s 424 has some similarity to applications by trustees for judicial advice and, as a result, authorities concerning trustee applications for directions have been considered in adjudicating applications under s 424. The power has been described as comparable to the applicable provisions in the Trustees Acts of the States and Territories: Sandalwood Properties at [38]; Re Mirabela Nickel at [92].

(3)    The power is to give ‘directions’ in relation to the matters identified in s 424(1). The relevant matters are described in broad and general terms, especially given the words ‘in connection with’. So too the words ‘in relation to’ are of ‘the widest import’. Thus, the permissible subject matter of a direction will include the actions of the controller but is not confined to such actions. Section 424 applies where the controller has to consider the appropriate action to take in undertaking functions or exercising powers in circumstances in which a third party is claiming that a right, interest or entitlement of that third party must be acknowledged or respected in exercising those functions or powers: Sandalwood Properties at [22], [42], [43] ; Re Mirabela Nickel at [89(2)].

(4)    There must be an issue calling for the exercise of legal judgement. That is, a legal issue of substance or procedure or an issue of power, propriety or reasonableness. It must be more than a business or commercial decision. However, the fact that a legal question may have significant commercial consequences does not make the giving of directions inappropriate. The Court does not give advice as how the controller should act but rather whether there is legal justification to so act: Sandalwood Properties at [51]-[54], [67]; Re Mirabela Nickel at [89(3)].

(5)    Once the jurisdictional requirement is satisfied the Court has a discretion whether to provide advice of the kind contemplated by the statutory provision: Sandalwood Properties at [35]; Re Mirabela Nickel at [89(5)].

(6)    The making of directions is not an adjudication. It will not be determinative of parties’ rights. The Court is not determining the rights of persons and has no power to provide directions that would have that consequence: Sandalwood Properties at [47], [70], [36], [40]. Thus, a direction under s 424 does not bind third parties in relation to substantive issues: Re Mirabela Nickel at [89(6)], [90].

(7)    A direction is given in the context of the circumstances presented to the Court at the time it is made; it will not extend to materially different circumstances that arise in the future. The form in which the direction is expressed should be consistent with it being provided by way of judicial advice: Sandalwood Properties at [109], [105]; Re Mirabela Nickel at [89(8)].

44    In Blatchford as administrator of the estate of the late Voitto Tapio Laine v Laine [2018] WASC 207 Vaughan J considered the principles that apply in circumstances in which a trustee seeks directions to the effect that it would be justified in prosecuting or defending legal proceedings. Given the similarity between the power in s 424 and the equivalent power to give directions to trustees in s 92 of the Trustees Act 1962 (WA) his Honour’s consideration of those principles is instructive. Relevantly, his Honour summarised the principles in the following manner (footnotes omitted).

57    Otherwise, in the context of an application for directions as to the position a trustee should take in relation to litigation, the relevant principles may be summarised as follows:

(1)    There is a 'jurisdictional bar' under s 92(1). However, that is simply that the applicant must point to a question respecting the management or administration of trust property or a question respecting the interpretation of a trust instrument. The jurisdiction is enlivened when the question raised for directions is whether the trustee is justified in prosecuting or defending a particular claim.

(2)    The court has a discretion as to whether to provide a direction under s 92(1). Advice does not have to be provided.

(3)    The key question is to determine whether, on the material available, it would be proper for the trustee to prosecute or defend the proceedings. That in turn involves two issues. First, whether the legal issues are properly arguable. Second, whether there are sufficient prospects of success to warrant the trustee in proceeding with the litigation. These enquiries necessitate 'sufficient investigation' of the underlying issues.

(4)    The judicial advice proceedings are not to be treated as a trial of the issues that are to be agitated in the principal proceedings. The process is meant to be a summary one.

(5)    The court is not bound to investigate the evidence and make a finding as to whether the proposed proceedings would be successful. The question is whether the litigation is justified. The court is not finally resolving the merits of the underlying proceedings.

(6)    Relevant overlapping considerations include: (a) the prospects of success; (b) the means of the other party to satisfy any judgment; (c) the potential for the litigation to deplete the trust estate; (d) the likely adverse costs if the litigation is unsuccessful and whether those costs are likely to be proportionate; (e) the likely irrecoverable costs; and (f) the nature of the case and issues raised and what will be gained if the trustee succeeds in the action.

58    It is important to emphasise that examination of the trustee's likely prospects in the litigation at an 'exhaustive level' is neither necessary nor appropriate. The assessment is made at a 'preliminary level'. The court's role is not to try the issues themselves. The court's function is limited to being satisfied that the material before it is sufficient to determine the general range of the prospects of success; and determining whether it is appropriate to pursue the proceedings having regard to the prospects of success, the benefits of the litigation and the resources available. But there must be sufficient information before the court for it to be satisfied that the proposed action would be for the benefit of the beneficiaries as a whole and otherwise would be prudent to pursue.

45    Justice Vaughan went on to consider authorities that differed in the approach to the necessity for the applicant for directions to obtain and provide the court a legal opinion on the prospects of success: Blatchford at [59]-[65]. After considering the authorities, his Honour concluded (most footnotes omitted):

66    I accept that there will be cases where counsel's opinion is unnecessary. An example is provided by Read v Bowesco Pty Ltd [[2013] WASC 240]. There the judicial officer who heard the application for directions had earlier heard the applicant's defendant's summary judgment application in the substantive litigation. It was said that, while leave to defend was given against the applicant, it was a case where the application 'just failed'. In those circumstances counsel's opinion was not necessary as the nature of the issues was fully developed on the summary judgment application and a 'further opinion by counsel could not usefully advance the position'.

67    A trustee who obtains a direction from the court to the effect that he or she would be acting properly and justifiably in commencing or defending litigation obtains significant protection. Before making application for directions it is expected that, among other things, the trustee will take reasonable steps to identify whether, and give proper consideration to whether, he or she has reasonable prospects of succeeding in the proposed litigation; and that the likely benefits to be obtained by the litigation exceed its likely costs - weighing in that mix the risk of loss and its attendant costs. Accordingly, in the normal case it will be necessary for the trustee to obtain a legal opinion - preferably from counsel - before approaching the court for directions. The opinion should address the prospects of success and merits of the proposed litigation. If that course is not undertaken the reason for choosing not to follow the usual course should be explained.

68    The fact that an opinion has been obtained will ordinarily be recorded in the trustee's affidavit in support of the application for directions. The trustee may also inform the court that the opinion will be provided to the court on a confidential basis, preserving client-legal privilege, if the court considers that doing so is necessary to ensure that it is in a proper position to give the judicial advice as sought. Reception of the opinion on that basis then becomes a matter for the court.

46    Justice Vaughan refused to give the direction that the administrator was justified in commencing and prosecuting a counterclaim in the case before his Honour because he was not satisfied that reasonable steps had been taken, and all necessary consideration had been given, to commencing and prosecuting the counterclaim: Blatchford at [69].

Why the direction was made in this proceeding

47    While there is no question that the receivers have the power to cause the company to commence the proposed proceeding, having regard to the circumstances in which they are contemplating so doing, there is a not insignificant risk that the reasonableness or propriety of them causing the company to expend money on legal and other costs associated with the proceedings will be called into question, particularly if the prosecution of the proceedings is ultimately unsuccessful. I am satisfied that the jurisdictional threshold has been crossed and the receivers are not seeking ‘commercial’ advice from the Court. A decision to prosecute or defend legal proceedings is quintessentially a matter involving legal judgment.

48    Where, as here, the receivers seek a direction that would justify prosecuting legal proceedings it is not sufficient that the proposed claim be arguable or even reasonably arguable. There must be sufficient prospects of success to justify the litigation. However, as Blatchford reveals there are many overlapping factors that require consideration and weighing to reach a conclusion on that matter. It is an evaluative not a scientific or mathematical exercise. For instance, a claim that if successful would result in a very substantial increase in the assets under control may be justified even if the prospects of success are relatively low. On the other hand, a claim that is a virtual certainty to win may not be justified because it is low value and the unrecoverable legal costs of prosecuting it would outweigh the claim. Blatchford is also authority for the proposition that, in general, to allow the administrator of a trust estate to reach an informed view about the merits of prosecuting or defending a claim counsel’s advice on prospects should be obtained. And, without such an opinion, the court may not be satisfied that the trustee’s proposed course of action is justified. Here, although a submission was made to the effect that the receivers had obtained counsel’s advice on the prospects of successfully prosecuting the proposed proceeding, there was no direct evidence before the Court to that effect.

49    Notwithstanding the strength of the admonition in Blatchford, Vaughan J also recognised that there ‘will be cases where counsel’s opinion is unnecessary’. There is little doubt evidence that the administrator of the trust estate (or a receiver) has obtained counsel’s opinion on prospects and, possibly provided it to the Court on a confidential basis, may provide powerful reasons for the Court to be satisfied that prosecuting or defending legal proceedings would be justified. But, I would not wish to lay down any hard and fast rule about the nature of the evidence that is necessary, at least, on an application under s 424 where controllers are professional insolvency practitioners usually operating in an environment with commercial demands and realities far removed from the circumstances of the administration of many trust estates. Within the bounds of full and fair disclosure, if the controller has placed material before the Court from which an assessment of the prospects of success of the proposed claim or defence may be made and weighed against the potential adverse costs and other consequences, the absence of direct evidence of the controller having obtained counsel’s advice on prospects ought not be an impediment to the Court giving a direction to the effect that prosecuting or defending the proceeding is justified.

50    In this case there were a number of factors that I took into account in reaching the conclusion that the receivers would be justified in causing the company to commence proceedings of the kind proposed.

(1)    The originating process was prepared, filed and heard on an urgent basis. The receivers are working in a fast moving and changing environment and are now engaged in proceedings or quasi-proceedings on multiple fronts as well as having to diligently proceed with the scheme process. It is to be expected that the proposed causes of action and claims may not be fully formulated at this time. Nonetheless, as already mentioned, while there are available counterarguments, most of the causes of action and proposed relief identified in the draft originating process have reasonable prospects of success on the basis of the facts disclosed to the Court.

(2)    The receivers have also engaged senior and junior counsel. I infer from senior counsel’s appearance on the application and his submissions that he settled the draft originating process. I infer that senior counsel has formed the view that there is a proper evidentiary and legal foundation for the relief and causes of action identified in the proposed originating process and that view has been conveyed to the receivers. Further, for the reasons given in the preceding paragraph, I expect that with additional time the causes of action and claims will be refined and the articulation of the legal foundation for the relief claimed improved because there is substance in the underlying complaints.

(3)    The terms of the scheme implementation deed oblige the company to use best endeavours to ensure that the conditions precedent to implementation of the proposed scheme are satisfied. As already mentioned, should the general meeting proceed and the directors be removed, the conditions precedent could not be satisfied and may not be waived. Based on the independent expert report, if the proposed scheme is not implemented and the company is wound up, its members and preference shareholders would not receive any return in that liquidation. Therefore, the receivers have a legitimate basis for considering that implementation of the proposed scheme is in the best interests of the company as a whole. Moreover, failing to prosecute the proceeding may expose the company to breach of the best endeavours clause of the scheme implementation deed.

(4)    Although there was no evidence of the likely costs of prosecuting the proposed proceeding or the total costs should it be unsuccessful, having regard to the relatively confined nature of the issues raised in the draft originating process, the likely costs of the proceeding are orders of magnitude less than potential financial harm to members and preference shareholders should the proposed scheme not reach implementation.

51    In sum, taking into account the urgent nature of the application, there was sufficient material before the Court to satisfy me at a preliminary level that prospects of the company succeeding on at least one of the proposed claims are sufficiently high when weighed against the advantages of success and disadvantages of failure to justify the receivers causing the company to commence the proposed proceeding.

Associate:

Dated:    2 September 2025