Federal Court of Australia

Rocke (Liquidator), in the matter of Melodiol Global Health Limited (in liq) [2025] FCA 1532

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), approval is granted to the plaintiffs, as liquidators of the Company, to enter into the agreement entitled 'Insolvency Funding Agreement' in the terms annexed to the confidential affidavit of Clifford Stuart Rocke sworn on 25 November 2025 (pages 255 to 304), on behalf of the Company.

2.    To the extent necessary, and pursuant to s 477(2B) of the Corporations Act, approval is granted to the plaintiffs, as liquidators of the Company, to enter into the agreement entitled 'Engagement Agreement' in the terms annexed to the confidential affidavit (pages 226 to 242).

3.    To the extent necessary, and pursuant to s 477(2B) of the Corporations Act, approval is granted to the plaintiffs, as liquidators of the Company, to enter nunc pro tunc into the document titled 'Insolvency Funding Term Sheet' dated 22 October 2025, in the terms annexed to the confidential affidavit (pages 243 to 254).

4.    Pursuant to s 37AG of the Federal Court of Australia Act 1976 (Cth), on the ground 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of justice as provided in s 37AG(1)(a), the following documents be marked 'confidential' on the Court file, and are not to be published, disclosed or accessed by any person other than the plaintiffs and their legal advisers until the earlier of the conclusion of the liquidation of the Company or further order of the Court:

(a)    the confidential affidavit and its annexures; and

(b)    the written submissions filed 3 December 2025 (save for a redacted version of those submissions which must be provided for lodgement on the Court file).

5.    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    The plaintiffs are the liquidators of Melodial Global Health Limited (in liquidation). They seek three substantive orders under s 477(2B) of the Corporations Act 2001 (Cth).

2    First, they seek an order approving their entry into a litigation Funding Agreement expected to last longer than three months. Second they seek approval (to the extent it is required) to enter into an Engagement Agreement with solicitors, Blackwall Legal LLP. Third, having entered into an 'Insolvency Funding Term Sheet' on 22 October 2025 with the proposed litigation funder, they also seek approval to enter into it, to the extent it is required, with retrospective effect.

3    Relevantly, 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.

4    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.

Background

5    The liquidators were previously the company's administrators, having been appointed on 3 December 2024 pursuant to s 436A of the Corporations Act. In that capacity they published a report to creditors, as required by Div 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth).

6    The report to creditors set out that the administrators considered the company was insolvent from at least 31 December 2023 and that there were potentially claims that might be pursued by a liquidator in relation to unfair preferences, unfair loans and breach of directors' duties. The administrators recommended that the creditors resolve to place the company in liquidation.

7    No deed of company arrangement was proposed and the administration proceeded to a creditors' voluntary winding up.

8    The liquidators have subsequently published a report to creditors, as required by Div 70-40 of the Insolvency Practice Rules. In the report they explain that:

(a)    a relatively small amount of cash was recovered from a related party borrower (approximately $65,000);

(b)    there were documents indicating the existence of secured creditors, but the liquidators were at that time unable to determine the validity and priority of their positions;

(c)    unsecured creditors likely totalled $9,708,295;

(d)    investigations into potential claims were ongoing, but it was unlikely that any dividend would be paid to any class of creditor; and

(e)    cash at hand as at the date of the liquidators' report was $37,031.57.

9    Following publication of the report, the liquidators continued their investigations into potential claims against third parties with respect to the management and operation of the company before their appointment. They have determined, based on those investigations but subject to further investigations, that there are multiple commercially viable claims against several defendants.

10    The liquidators consider the company's available resources are insufficient to fund further investigations and the pursuit of those claims. Accordingly, they have taken steps to secure litigation funding with a view to conducting further investigations, conducting negotiations, and if necessary, commencing proceedings.

11    In support of this application, the liquidators provided details of the steps taken, an analysis of the prospects of any claims and the terms of the proposed Funding Agreement in an affidavit sworn by Mr Rocke on 25 November 2025, but over which suppression orders are sought having regard to s 37AG of the Federal Court of Australia Act 1976 (Cth). Suppression orders are sought on the basis that the information in the affidavit is confidential and disclosure would not be in the interests of the administration of justice. The liquidators similarly sought suppression orders in relation to the written submissions filed in support of this application, but provided a set of proposed redacted submissions which they undertook to file.

12    Having read them, I accept that it is appropriate to make a suppression order in relation to the confidential affidavit and the unredacted written submissions. Such orders are not uncommon in circumstances where disclosure of information by liquidators about matters such as the strategy or prospects for proposed litigation may have a prejudicial effect on proceedings and so on the interests of creditors. Disclosure might accord prospective defendants an advantage in responding to a claim if they know the terms of any funding, being information not ordinarily available to opposing parties in litigation.

13    I add that Mr Rocke also provided a second affidavit in support of the application over which no suppression order was sought.

14    Mr Rocke by the confidential affidavit disclosed to the Court a number of important matters. Relevantly, the liquidators in their personal capacity obtained legal advice in relation to potential actions they might undertake. That advice is self-evidently privileged and has not been disclosed. The liquidators have also undertaken further investigations. Those investigations and a number of inferences that fairly arise from them are detailed in the confidential affidavit.

15    Having regard to the advice and those investigations, the liquidators wish to enter into the Funding Agreement and the Engagement Agreement. The circumstances under which the funder has been identified and selected have been disclosed to the Court. The reasons for the selection of the particular funder appear to be commercially appropriate. The liquidators did not consult with creditors in relation to the funding agreement but have provided a reasonable explanation for refraining from doing so.

Principles to be applied

16    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).

17    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].

18    Whether approval is required in relation to entry into retainer and costs agreements between solicitors and liquidators has also been the subject of considerable attention, the potential point of distinction being the fact that such agreements are often entered into personally by liquidators, rather than as agent for the company. In Kitay v Frigger (No 2) [2024] WASC 113 at [79]-[91], Hill J analysed the position and concluded (at [91]):

…I consider that approval under s 477(2B) of the Act is required for agreements entered into by the liquidator as agent for or representative of the company, as well as agreements in the name of the company. However, approval is not required for entry into agreements by the liquidator in their own name. In determining whether the agreement has been entered into by the liquidator as agent for or representative of the company or in their own name, it is necessary to consider the substance of the agreement, whether the company is a party to the agreement or appears to have the status of a party under the agreement, and who receives the benefit of the services provided under the agreement.

19    See also Tonks (Liquidator), in the matter of Vaucluse 29 Pty Ltd (in liq) [2025] FCA 1306 at [19] (Owens J).

20    There is also a body of authority addressing the question of the grant of approval effective nunc pro tunc. There is no doubt that in appropriate circumstances such an order may be made: Tonks at [21]-[27]. Relevant factors include the explanation for the delay; the presence or absence of prejudice to the company or it creditors; the length of the delay; and whether the liquidator has acted honestly: Tonks at [22]-[23].

21    I have applied these principles in considering the three central orders sought by this application.

Consideration

22    The term of the Funding Agreement is expected to exceed three months. I am satisfied that its key terms are clear, and cover the essential matters that one would expect to find in such an agreement or similar agreements. I consider the balance of rights in the Funding Agreement between the liquidators, the company and the funder is fair and appropriate in the circumstances. I take into account that the liquidators have considered and obtained legal advice about the matters it is intended to cover. Mr Rocke's confidential affidavit indicates that the liquidators with their legal advisors have carefully considered whether the Funding Agreement is in the interests of creditors, and have determined that is the case on reasonable grounds. I am satisfied that the approval requested should be granted.

23    As to the Engagement Agreement, on its face there is no requirement for approval, having regard to the effect of the decision in Kitay v Frigger (No 2). It is not proposed that the Engagement Agreement purport to be made with the liquidators on behalf of the companies. Rather, it is intended to be entered into with the liquidators in their personal capacity. There remains, however, a risk that arguments might be put in the future to the effect that the retainer extends in some manner to the position of the company, so as suggested by counsel for the liquidators and for the avoidance of doubt, I consider it appropriate to grant approval, to the extent it is required. The Engagement Agreement is likely to be operative for greater than three months. The terms of the Engagement Agreement are clear on their face, and its purpose is to assist the liquidators to pursue claims and realise assets for the benefit of creditors in the liquidation.

24    As to the Term Sheet, it is somewhat unclear whether approval is required. Its purpose has been disclosed to the Court. It has also been entered into with the liquidators in their personal capacity and so, as with the Engagement Agreement, whether any approval was required by the liquidators to enter into it is somewhat moot. Approval has been sought, to the extent it is required, after only a relatively short delay. There is no suggestion that the delay in seeking approval has caused any prejudice or reasonably could cause any prejudice to any party. There is no suggestion that the liquidators have acted dishonestly. It is appropriate that the approval be granted nunc pro tunc such that it operates from the date of execution, being 22 October 2025.

Orders

25    Orders have been made accordingly.

Associate:

Dated:    4 December 2025