Supreme Court New South Wales Equity Division

Supreme Court
New South Wales
Equity Division
Case Title:
In the matter of One.Tel Pty Ltd
Medium Neutral Citation:
[2014] NSWSC 457
Hearing Date(s):
14 April 2014 (in chambers)
Decision Date:
17 April 2014
Jurisdiction:
Corporations List
Before:
Brereton J
Decision:
Pursuant to s 511, special purpose liquidator
and general purpose liquidators of One.Tel
are justified in entering into and performing
the Deed of Settlement, and procuring
One.Tel to do so. Pursuant to s 477(2A)
and (2B), the liquidators have the approval
of the Court to compromise debts in
accordance with the Deed, and to enter into
the Deed notwithstanding that obligations
under it may be discharged by performance
more than three months after it is entered
into.
Catchwords:
CORPORATIONS – External administration
– liquidation - liquidator’s applications –
creditors voluntary winding up – special
purpose liquidator - application for
directions under Corporations Act s 511 –
principles and practice applicable – whether
court should retrospectively declare past
conduct to have been proper – held, it
should not – whether inclusion of release for
personal benefit of special purpose
liquidator inappropriate – held, not so where
no apparent viable claim against SPL applications for approvals under s 477(2A)
and (2B) – principles applicable
Legislation Cited:
(CTH) Corporations Act 2000, ss 477(2A),
-1-
477(2B), 506(1A), 511, 1317K.
(NSW) Trustee Act 1925, s 63.
Cases Cited:
SingTel Optus Pty Limited & Ors v Weston
[2012] NSWSC 674
Onefone Australia Pty Ltd v One.Tel Ltd
(2010) 78 ACSR 163
Re S&D International Pty Ltd (in liquidation)
(No 7) [2012] VSC 551
In the matter of 7 Steel Distribution Pty
Limited (in liq) (receivers and managers
appointed) [2013] NSWSC 669
Re HIH Insurance Ltd [2004] NSWSC 5
Re Spedley Securities Ltd (1992) 9 ACSR
83
Re G A Listing & Maintenance Pty Ltd
(1994) 15 ACSR 308
Stewart, in the matter of Newtronics Pty Ltd
[2007] FCA 1375
Re The Bell Group Ltd (in liq) [2009] WASC
235
Re United Medical Protection Ltd [2003]
NSWSC 237
Re Mineral Securities (Australia) Ltd [1973]
2 NSWLR 207
Re CIC Insurance Ltd (2001) 38 ACSR 181
In the Matter of 246 Arabella Investments
Pty Ltd (In Liq) [2012] NSWSC 1212
In the Matter of Adscaff Pty Ltd [2013]
NSWSC 1081
Re Opel Networks Pty Ltd [2013] NSWSC
1245
Dean-Willcocks v Soluble Solution
Hydroponics (1997) 42 NSWLR 209
Crawford v Oswald Park Pty Ltd (in liq)
[2006] NSWSC 987
S & D International v MIG Property Services
[2010] VSC 336
In the matter of Ian James Purchas as
liquidator of Astarra Asset Management Pty
Ltd (in liq) [2011] NSWSC 91
Re Timbercorp Limited (in liq) [2011] VSC
189
Re One-Tel Networks Holdings Pty Ltd
[2001] NSWSC 1065; (2001) 40 ACSR 83
Re Ansett Australia Limited and Korda
[2002] FCA 90; (2002) 115 FCR 409; 40
ACSR 433
Sanderson v Classic Car Insurances Pty
Limited (1985) 10 ACLR 115
-2-
Gerard Cassegrain & Co Pty Limited v
Cassegrain [2011] NSWSC 1156
In the Matter of Auzhair Supplies Pty Ltd (in
liq) [2013] NSWSC 1; (2013) 272 FLR 304;
(2013) 92 ACSR 554
Re GB Nathan & Co Pty Ltd (1991) 5 ACSR
673
Re Bell Group Ltd (in liq); Ex parte Antony
Leslie John Woodings as Liquidator of the
Bell Group Ltd (in liq) [2013] WASC 409
Re Luxtrend Pty Ltd [1997] 2 QdR 86
Re Tietyens Investments Pty Ltd (1999) 31
ACSR 1
Re Oliver Davey (Pacific) Pty Ltd [1999]
VSC 241
Empire (Aust) Nominees Pty Ltd v Vince
[2000] VSC 324; (2000) 35 ACSR 167
Re HIH Insurance Group Ltd [2001] NSWSC
308
Registrar of Aboriginal Corporations v
Bibelmen Mia Aboriginal Corp [2001] FCA
136
Re HIH Casualty & General Insurance Co
Ltd [2002] NSWSC 1036
Re Read [2007] FCA 1985; (2007) 164 FCR
237
Re FAI Traders Insurance Co Pty Ltd [2002]
NSWSC 1080
Texts Cited:
Category:
Substantive
Parties:
Representation
Counsel:
Solicitors:
File number(s):
Publication Restriction:
JUDGMENT
-3-
1
Mr Parbery, in his capacity as special purpose liquidator of One.Tel
Limited (In Liquidation) (“One.Tel”), and Messrs Sherman and Walker, in
their capacity as (general purpose) liquidators of One.Tel (together, “the
liquidators”), seek approval and directions under (CTH) Corporations Act
2001, ss 477(2A), 477(2B) and 511, to enter into a Deed of Settlement
which is a confidential exhibit in the proceedings.
2
The following summary of facts, on which the court’s decision is founded,
is derived principally from the affidavit of Mr Parbery sworn 11 April 2014,
which is an open document. While the court’s opinion and advice
necessarily takes into account certain confidential and privileged
information contained in exhibit SJP-2 to that affidavit, which has been
tendered on the application on the basis that it will remain confidential and
privileged, I have not found it necessary to go beyond what is contained in
the open documents to express my reasons, except in minor respects
which I do not think compromises the truly confidential aspects. However,
the liberty to apply that I will reserve will enable any application to made in
that respect before these reasons are published openly.
Background
3
One.Tel was a telecommunications company which commenced
operations in the mid-1990s. In or about 1999, companies associated with
the Packer family and the Murdoch family made a substantial investment
in One.Tel, following which the major shareholders in One.Tel were News
Limited (“News”) and Publishing and Broadcasting Limited (“PBL”) (now
Consolidated Media Holdings Limited (“CMH”)), and James Packer and
Lachlan Murdoch became directors. By early 2001, in addition to Mr
Packer and Mr Murdoch, the other directors of One.Tel were John David
Rich, Bradley Keeling, John Greaves, Mark Silbermann, Kevin Beck and
Rodney Adler. Peter Howell-Davies and Pirjo Kekalainen-Torvinen were
appointed to the board in March 2001, and Peter Macourt and Peter Yates
became directors on 17 May 2001.
-4-
4
In April 2001, it became apparent to the directors of One.Tel that it had
cash flow difficulties. In April 2001, Darren Miller and Martin Green, on
behalf of PBL, conducted an investigation into One.Tel's cash position,
and on about 7 May 2001 they reported to Mr Packer that One.Tel
required a cash injection of $126 million to achieve a cash flow break
even, including a cash buffer of $50 million.
5
On 17 May 2001, the directors of One.Tel resolved to implement a one-forone renounceable rights issue at 5 cents per share, to raise $132 million
(“the Rights Issue”). The Rights Issue was to be fully and unconditionally
underwritten by CMH, Consolidated Press Holdings Pty Limited (“CPH”),
News and their subsidiaries. The directors also resolved to make an
announcement to the Australian Stock Exchange (“ASX”) regarding the
Rights Issue, as soon as possible, and on the same day PBL, News and
One.Tel announced to the ASX that a subscription and underwriting
agreement had been entered into and that One.Tel would undertake the
Rights Issue. The underwriting was described as unconditional. However,
no written underwriting agreement was ever prepared by lawyers or
executed by the parties.
6
At a meeting of the board on 28 May 2001, the directors resolved to
appoint Brian Long of Ernst & Young to provide advice to One.Tel in
relation to its financial position. Mr Long completed his report (“the EY
Report”) on about 29 May 2001, concluding that absent the proceeds of
any asset sales, One.Tel required between $120 million and $170 million
to meet its then current obligations, and between $120 million and $150
million to meet its ongoing operations over the next six months: in other
words, that One.Tel had total cash needs of between $240 million and
$320 million.
7
At a board meeting on 29 May 2001, following the presentation by Mr Long
of the EY Report, Mr Howell-Davies, Mr Kekalainen-Torvinen, Mr Beck and
Mr Silbermann voted in favour of a resolution not to proceed with the
Rights Issue, on the basis that One.Tel would or would be likely to become
-5-
insolvent even after raising $132 million (“the Abandonment Resolution”).
Mr Packer, Mr Murdoch, Mr Macourt and Mr Yates participated in the
board deliberations, but abstained from voting. In addition, the directors
unanimously resolved to appoint Steven Sherman and Peter Walker of
Ferrier Hodgson as voluntary administrators. On 24 July 2001, the
creditors of One.Tel resolved that One.Tel be wound up and that Messrs
Sherman and Walker be appointed as liquidators (“the GPLs”). On the
same day, a committee of inspection was constituted (“the Committee”).
8
On 23 December 2003, on the application of certain creditors of One.Tel,
the Court appointed Mr Paul Gerard Weston as special purpose liquidator
(“the Former SPL”), for the sole purpose of investigating and if appropriate
prosecuting any causes of action relating to the Abandonment Resolution.
On 25 May 2007, the Former SPL instituted in this Court proceedings
255083/2007 (formerly 2902/2007) (“the Original Proceedings”), against
eighteen defendants, namely Mr Packer, Mr Yates, Mr Murdoch and Mr
Macourt; PBL/CPH, News and the subsidiary companies through which
they conducted their dealings with One.Tel; the other four directors of
One.Tel as at 29 May 2001; and certain professional advisers to One.Tel.
The statement of claim was not served at the time of filing, and six
extensions of time for its service were subsequently granted.
9
On 7 May 2010, the Former SPL executed an agreement with a litigation
funder (“the Funder”) to fund the Original Proceedings (“the Funding
Agreement”). On 20 and 21 May 2010, Barrett J (as his Honour then was)
delivered a confidential judgment in closed court giving reasons for
advising that the Former SPL's was justified in entering into the Funding
Agreement, and a further judgment in open court giving reasons for
advising that the Former SPL was justified in entering into the Funding
Agreement without the prior approval of the Committee or the creditors of
One.Tel, and without giving notice of the application to the Committee or
the creditors. His Honour also made orders granting the sixth and final
extension of time to serve the statement of claim in the Original
Proceedings.
-6-
10
In September 2010, the statement of claim having been served, the
defendants applied to set aside the six extensions of time for service. On
13 May 2011, Ward J (as her Honour then was) declined to set aside the
orders granting the first four extensions of time, but under UCPR r
12.11(1)(e) discharged the fifth and sixth extension orders, and
consequently dismissed the Original Proceedings and made orders that
the Former SPL pay the defendants' costs. On 12 April 2012, the Court of
Appeal granted leave to appeal but dismissed the appeal from her
Honour’s judgment, and ordered the Former SPL to pay the respondents'
costs of the appeal. On 7 September 2012, the High Court of Australia
refused special leave to appeal.
11
Meanwhile, on 12 October 2011, the Former SPL executed an Amending
Agreement with the Funder to fund the proposed Equitable Proceedings,
referred to below, conditional upon a direction or order of the Court that the
Former SPL was justified in entering into and being bound by the
Amending Agreement. On 21 December 2011, Barrett J made an order
permitting the Former SPL to enter into the Amending Agreement.
12
On 28 May 2012, on the application of the Former SPL, I made orders
expanding his powers, to permit him to commence, serve and prosecute
new proceedings on behalf of One.Tel. On 6 June 2012, One.Tel at the
direction of the Former SPL commenced proceedings 2012/179407 (“the
Equitable Proceedings”) against Mr Packer, Mr Murdoch, CMH, CPH,
Robbdoc Pty Limited, Toranaga Pty Limited, Cavalane Holdings Pty
Limited, News and Leteno Pty Limited (“the CMH/News Parties”). In the
proceedings, One.Tel claims equitable compensation for alleged breaches
by Mr Packer and Mr Murdoch of their fiduciary duties to One.Tel. In
outline, the basis for the claim is that (1) Mr Packer was a director of some
of the corporate entities that had agreed to underwrite any shortfall in the
Rights Issue (the “Associated Entities”) and was under a duty to act in their
best interests; (2) Mr Murdoch was a director of other Associated Entities
and was under a duty to act in their best interests; (3) Mr Packer and Mr
Murdoch were under a duty to act in the best interests of One.Tel; (4) it
-7-
was in One.Tel's interests to proceed with the rights issue (even if One.Tel
would have been insolvent after obtaining $132 million); (5) it was in the
Associated Entities' interests to extract themselves from the underwriting
agreement so that they would not be required to pay money to an insolvent
company; (6) Mr Packer and Mr Murdoch were therefore in a position of
conflict of interest and duty; (7) as a result, Mr Packer and Mr Murdoch
breached the duties they owed to One.Tel by preferring the interests of the
Associated Entities and their own personal interests to the interests of
One.Tel; (8) the directors should not have passed the Abandonment
Resolution; and (9) the directors should have appointed administrators and
allowed the administrators to deal with the rights issue and the
underwriting agreement. Against the Associated Entities, it is alleged that
they participated in, assisted or procured the alleged breaches of duty by
Mr Packer and Mr Murdoch. One.Tel claims the loss of $132 million,
compensation for the loss of the opportunity to have a profitable business,
and an account of profits (being the gains allegedly made by the
defendants from the alleged breaches).
13
The CMH/News Parties deny any wrongdoing and liability. The issues in
the proceedings include (but are by no means limited to) whether there
was a binding underwriting agreement; if so, whether it could be rescinded
because One.Tel misled the underwriters as to its true financial position (it
being alleged by the defendants that the position was in truth materially
worse than had been represented); whether Mr Packer and Mr Murdoch
breached their fiduciary duties by participating in the board deliberations
on the Abandonment Resolution, notwithstanding that they abstained from
voting; and whether the claim is barred by laches, or by analogy with the
six-year limit imposed by Corporations Act, s 1317K.
14
On 19 June 2012, Bergin CJ in Eq made orders removing the Former SPL
as special purpose liquidator of One.Tel and appointing Mr Parbery in his
place (“the SPL”). Between the date of his appointment and his removal,
the Former SPL incurred costs of approximately $14 million [SingTel Optus
Pty Limited & Ors v Weston [2012] NSWSC 674, [169]].
-8-
15
Following Mr Parbery’s appointment as SPL, he made applications for the
variation of the confidentiality orders regarding the Funding Agreements, to
permit him to disclose them to the members of the Committee. However,
they remain subject to confidentiality orders that prevent him or his legal
advisers from disclosing them to anyone else.
16
On 30 August 2013, Rein J set the Equitable Proceedings down for trial to
commence on 13 October 2014 for 10 weeks, to resume on 2 March 2015
for a further two weeks, and made directions for the preparation of the
matter for trial, including for the defendants to serve any expert evidence
on which they rely on or before 31 March 2014. One.Tel and its legal
advisors have continued to undertake work in order to comply with those
directions and otherwise to prepare the Equitable Proceedings for hearing.
That work has required, and will continue to require, One.Tel and its funder
to incur significant expense: One.Tel’s estimated costs from this point to
the conclusion of the trial are approximately $5 million, and of any appeal
to the Court of Appeal approximately a further $700,000.
17
On or around 14 February 2014, the SPL - having formed the view that
there were significant risks in continuing to prosecute the Equitable
Proceedings and that a settlement, if one could be achieved, would likely
produce a more favourable outcome for One.Tel's creditors than
prosecuting the Equitable Proceedings to finality (including any appeals) retained Mr Zwier, solicitor of Arnold Bloch Liebler to act for him for the
purposes of attempting to resolve the Equitable Proceedings consensually,
and to facilitate discussions to that end between the defendants to the
Equitable Proceedings, the GPLs and the SPL. Mr Zwier in turn retained
the Hon Ray Finkelstein QC. As a result of the negotiations that ensued,
on 9 April 2014 the parties executed the Deed of Settlement, the approval
of which is sought in these proceedings (“the Deed”).
18
The Deed provides that the settlement and the consequential dismissal of
the Equitable Proceedings is wholly conditional upon certain approvals
being obtained from the Court within a prescribed timeframe of 30 days, or
-9-
waiver of that condition by the SPL. The settlement resolves all matters as
between One.Tel and the CMH/News Parties arising from or related to the
circumstances giving rise to the Rights Issue, with no admissions as to
liability. One.Tel and the CMH/News Parties release each other and other
named persons, including the GPLs, from any Claims in relation to the
Settled Matters. One.Tel and the GPLs release the SPL and his advisers
from any claims One.Tel may have against them arising from the SPL's
role as special purpose liquidator of One.Tel generally, and in entering into
the Deed in particular. Further assurance is provided by One.Tel and the
CMH/News Parties in relation to third party claims. The CMH/News
Parties will pay the Settlement Sum, of $40 million, to One.Tel. The
CMH/News Parties also agree not to prove in the liquidation of One.Tel.
The Equitable Proceedings will be dismissed, by consent, with no order as
to costs, and the $4 million held by way of security for costs released. The
parties agree to keep the terms of the settlement confidential and are not
permitted to disclose them, except in specific circumstances set out in the
Deed. On satisfaction or waiver of the condition precedent for court
approval, the parties will make a media announcement in the form
attached to the Deed.
19
The SPL has been advised (by the GPLs) that One.Tel has approximately
$338 million of ordinary unsecured creditors; that to date, the liquidators
have distributed approximately 23 cents in the dollar to the ordinary
unsecured creditors; and that each further distribution to the ordinary
unsecured creditors of One.Tel of 1 cent in the dollar "costs" between $3.25
million and $3.5 million.
20
However, distribution of the Settlement Sum is governed, in the first
instance, by the Funding Agreement, pursuant to which the beneficial
interests in the trust of the Net Proceeds are the SPL and One.Tel as to
25%, and the Funder as to 75%, as the settlement has been reached 36
months after the date of Court approval of the Funding Agreement, and
subject to the "three times rule" referred to below. Accordingly, the
Settlement Sum will be distributed:
- 10 -
(1)
to reimburse the Funder for all costs paid or to be paid for
funding the Original and Equitable Proceedings;
(2)
to refund the Funder GST;
(3)
$5 million to the creditors. This will generate a further
dividend of approximately 1.5 cents in the dollar;
(4)
the remainder is the Net Proceeds, and must be distributed
to the Funder as the Funder would otherwise receive in total
less than three times the total sum paid by it for funding the
Original Proceedings and the Equitable Proceedings.
21
The only scenario under which ordinary unsecured creditors would receive
any further dividend would be if the Settlement Sum were to increase by a
further $40 million.
The relief sought
22
The SPL and the GPLs seek approval of the Deed pursuant to
Corporations Act, s 477(2A) and (2B), and directions pursuant to s 511.
23
Section 477(2A) provides that except with the approval of the Court, of the
committee of inspection or of a resolution of the creditors, a liquidator of a
company must not compromise a debt to the company if the amount
claimed by the company is more than $100,000. The winding up of
One.Tel is a creditor’s voluntary winding up, and s 477(2A) applies to the
liquidators and the special purpose liquidator by operation of s 506(1A).
24
Section 477(2B), provides that, except with the approval of the Court, of
the committee of inspection or of a resolution of the creditors, a liquidator
of a company must not enter into an agreement on the company’s behalf if
the term of the agreement may end, or obligations of a party to the
- 11 -
agreement may, according to the terms of the agreement, be discharged
by performance, more than 3 months after the agreement is entered into
(even if the term may end, or the obligations may be discharged, within
those 3 months). This section also applies to the liquidators and the
special purpose liquidator by operation of s506(1A) [Onefone Australia Pty
Ltd v One.Tel Ltd (2010) 78 ACSR 163, [4], [7]; Re S&D International Pty
Ltd (in liquidation) (No 7) [2012] VSC 551, [63]; see also In the matter of 7
Steel Distribution Pty Limited (in liq) (receivers and managers appointed)
[2013] NSWSC 669, [16] (where Black J assumed, without deciding, that s
477(2B) applies in a creditor’s voluntary winding up)].
25
There are obviously enough common features to the two provisions. As
Barrett J (as his Honour then was) explained in Re HIH Insurance Ltd
[2004] NSWSC 5 (at [15]):
Although the two provisions deal with different aspects of a
liquidator’s powers, both are concerned 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. The court’s assessment must be
made in light of the purposes for which liquidators’ powers exist.
One overriding purpose is to serve “the interests of those
concerned in the winding up – here the creditors” (Re Spedley
Securities Ltd (1992) 9 ACSR 83 per Giles J); the other is to do
whatever needs to be done “for the proper realisation of the assets
of the company” or to assist its winding up (Re G A Listing &
Maintenance Pty Ltd (1994) 15 ACSR 308 per Young J).
26
The principles applied to applications for approval under s 477(2B) have
been helpfully summarised by Gordon J in Stewart, in the matter of
Newtronics Pty Ltd [2007] FCA 1375 (at [26]) and by Hasluck J in Re The
Bell Group Ltd (in liq) [2009] WASC 235 (at [57]-[58]), in terms that are
equally applicable to applications under s 477(2A). The role of the court is
to grant or deny approval to the liquidator’s proposal, not to reconsider
every issue considered by the liquidator, nor to develop some alternative
proposal which might seem preferable. In reviewing the liquidator’s
proposal, the court pays due regard to his or her commercial judgment and
knowledge of all of the circumstances of the liquidation, but satisfies itself
- 12 -
that there is no error of law or ground for suspecting bad faith or
impropriety, and evaluates whether the proposal is consistent with the
expeditious and beneficial administration of the winding up. Importantly,
the Court's approval is not an endorsement of the proposed agreement,
but merely permission for the liquidator to exercise his or her own
commercial judgment in the matter. Thus the approval confers, or
completes, the liquidator’s power to enter into the transaction, but does not
amount to the court approving the transaction itself. The distinction is
material, because it means that – unlike a direction under s 479(3) or s
511 – an approval under s 477(2A) or (2B) alone does not exonerate the
liquidator from personal liability.
27
However, while it has been said that the approach under each provision is
“much the same” [Re United Medical Protection Ltd [2003] NSWSC 237;
Re HIH Insurance Ltd, [15]; Re S&D, [83]], the two provisions deal with
different aspects of a liquidator’s powers [Re HIH Insurance Ltd, [15]], and
this means that the relevant considerations under each provision differ.
28
Section 477(2A) is concerned with the compromise of debts due to the
company, which would otherwise be assets in the administration, and has
the effect that the liquidator cannot compromise substantial without the
approval of the committee of inspection, the creditors, or of the Court.
Essentially, its purpose is to ensure that the interests and wishes of those
affected by a compromise, chiefly the creditors, are a major consideration
in making such a compromise. As Giles J said in Re Spedley Securities
Ltd (1992) 9 ACSR 83:
The court pays regard to the commercial judgment of the
liquidator. That is not to say that it rubber stamps whatever is put
forward by the liquidator but, as is made clear in Re Mineral
Securities (Australia) Ltd [1973] 2 NSWLR 207 at 231–2, the court
is necessarily confined in attempting to second guess a liquidator
in the exercise of his powers, and generally 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.
- 13 -
29
Thus while the court does not exhaustively or closely consider the
commercial merits or otherwise of the transaction [Re CIC Insurance Ltd
(2001) 38 ACSR 181], which it largely entrusts to the liquidator, some
examination of the merits of the compromise cannot be avoided [In the
Matter of 246 Arabella Investments Pty Ltd (In Liq) [2012] NSWSC 1212].
However, if the liquidator expresses the opinion that it is an appropriate
commercial compromise, and there does not appear to be any such lack of
good faith, error in law or principle, or real or substantial ground for
doubting the reasonableness of the liquidator’s view (as referred to in Re
Mineral Securities Australia Ltd (in liq) [1973] 2 NSWLR 207), the court will
generally give its approval [In the Matter of Adscaff Pty Ltd [2013] NSWSC
1081, [5]].
30
Section 477(2B), on the other hand, is concerned with long-term
agreements which might protract the liquidation, and has the effect that the
liquidator cannot enter such agreements without the approval of the
committee of inspection, the creditors, or of the Court. Its rationale is that
that the interests and wishes of those affected, particularly creditors,
should be highly influential in determining whether the liquidator should
assume a contractual obligation that could interfere with the expeditious
completion of the winding up [Re G A Listing & Maintenance Pty Ltd
(1994) 15 ACSR 308; Re CIC Insurance Ltd; Re HIH Insurance Ltd, [15]].
Thus in considering giving approval under s 477(2B), the main
consideration is the impact of the agreement on the duration of the
liquidation, and whether that is, in all the circumstances, reasonable in the
interests of the administration [Re Opel Networks Pty Ltd [2013] NSWSC
1245].
31
Section 511(1)(a) provides that a liquidator may apply to the Court to
determine any question arising in the winding up of a company, and s
511(2) provides that the Court, if satisfied that the determination of the
question will be just and beneficial, may accede wholly or partially to any
such application on such terms and conditions as it thinks fit or may make
such other order on the application as it thinks just.
- 14 -
32
Applications under s 511 are of the same nature as applications in a court
ordered winding up under s 479(3) [Dean-Willcocks v Soluble Solution
Hydroponics (1997) 42 NSWLR 209, 212; Crawford v Oswald Park Pty Ltd
(in liq) [2006] NSWSC 987, [10]; S & D International v MIG Property
Services [2010] VSC 336, [7]; In the matter of Ian James Purchas as
liquidator of Astarra Asset Management Pty Ltd (in liq) [2011] NSWSC 91,
[33]; 7 Steel Distribution, [20]]. The jurisdiction is analogous to the judicial
advice jurisdiction under (NSW) Trustee Act, s 63. The effect of a direction
under s 511 is to sanction a course of conduct on the part of the liquidator
so that he or she may adopt that course free from the risk of personal
liability for breach of duty [Purchas, [36]; Re Timbercorp Limited (in liq)
[2011] VSC 189, [3]; Re S&D, [88]].
33
While the ability of a liquidator to approach the Court for directions is
intended to facilitate the liquidator’s functions and should be interpreted
widely to give effect to that intention [Re One-Tel Networks Holdings Pty
Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83], it is insufficient to justify
giving such directions that the liquidator wants reassurance about a
commercial decision; some such issue as a question of law or procedure,
of power, propriety or reasonableness, is required to justify approaching
the court for directions, as was explained by Goldberg J (in the context of a
voluntary administrator’s application for directions under s 447D) in Re
Ansett Australia Limited and Korda [2002] FCA 90; (2002) 115 FCR 409;
40 ACSR 433, [65]:
The prevailing principle adopted by the courts, when asked by
liquidators and administrators to give directions, is to refrain from
doing so where the direction sought relates to the making and
implementation of a business or commercial decision, either
committed specifically to the liquidator or administrator or well
within his or her discretion, in circumstances where there is no
particular legal issue raised for consideration or attack on the
propriety or reasonableness of the decision in respect of which the
directions are sought. There must be something more than the
making of a business or commercial decision before a court will
give directions in relation to, or approving of, the decision. It may
be a legal issue of substance or procedure, it may be an issue of
power, propriety or reasonableness, but some issue of this nature
- 15 -
is required to be raised. It is insufficient to attract an order giving
directions that the liquidator or administrator has a feeling of
apprehension or unease about the business decision made and
wants reassurance.
34
In Sanderson v Classic Car Insurances Pty Limited (1985) 10 ACLR 115,
Young J said (at 117) that the cases in which directions might properly be
given fell into four categories, namely guidance on matters of law,
guidance on questions of legal procedure, whether a liquidator should
postpone a sale in order to achieve a better price, and where there are two
competing offers for assets and a liquidator wishes to gain court directions
in order to avoid a subsequent allegation that he or she has acted
improperly in choosing one over the other. However, these categories are
not exhaustive, and as Giles J said in Re Spedley Securities (at 85),
immediately after noting that a Court will not make a liquidator’s
commercial decision for him, “It is nonetheless common for a liquidator to
seek directions as to whether he is justified in entering into a particular
compromise”.
35
Thus, while the Court will not generally give a direction where the matter
relates to the making or implementation of a business or commercial
decision, or where no legal issue is raised and there is no attack on the
propriety or reasonableness of the liquidator’s decision, it may do so in the
context of a proposed compromise [Re Spedley Securities, 85], and/or
where the decision is likely to be contentious [Re Ansett, [65]; 7 Steel
Distribution, [20]; Re S&D, [58]-[59]]. But the fact that a direction under s
511 – unlike an approval under s 477(2A) or (2B) - exonerates the
liquidator from personal liability, means that a closer examination of the
liquidator’s decision is required than under s 477. In short, the court
should not make a direction the effect of which is to exonerate the
liquidator from personal liability in respect of a commercial judgment that
the liquidator is concerned may prove contentious, unless satisfied that the
liquidator’s decision is, in all the circumstances, a proper one.
36
Accordingly, I do not agree that the court will give a direction that a
liquidator is justified in pursuing a certain course of action unless there is a
- 16 -
lack of good faith, an error of law or principle, or real and substantial
grounds for doubting the prudence of the liquidator’s conduct (as might be
suggested by Re The Bell Group Ltd (at [47])). While the court’s function
under s 511 does not involve it in reconsidering every factor that has
informed the liquidator’s decision, let alone developing alternatives or
deciding whether the court would have made the same decision, the court
needs to be satisfied, before making a direction, that the decision is proper
and reasonable; at least usually, this will necessitate consideration of the
liquidator’s reasons, and the process by which the decision has been
reached. Because this is a wider inquiry than is required by s 477(2A) and
(2B), it is convenient to address it first.
The s 511 application
37
In substance, the question is whether the liquidators are justified in
entering into and procuring One.Tel to enter into and perform the Deed.
38
Mr Parbery holds the view that the entry into the Deed is in the best
interests of One.Tel and its creditors, for the following reasons:
(1)
The uncertainty of the outcome of the Equitable Proceedings,
having particular regard to the opinions provided by the Hon. Ray
Finkelstein QC and Ian Jackman SC;
(2)
The certain albeit small return for the ordinary unsecured creditors;
(3)
Even if One.Tel succeeds in the Equitable Proceedings, the
creditors of One.Tel will not receive any distribution unless One.Tel
recovers a further $40 million from the defendants to those
proceedings;
(4)
The costs and time associated with a lengthy trial and any appeals
even though the Funder must bear them;
- 17 -
(5)
The (confidential) expert opinion recently obtained by the liquidator;
(6)
The likelihood of an appeal by the CMH/News Parties if the
Equitable Proceedings are decided in One.Tel's favour, which
would increase the litigation and liquidation costs, any further delay
distributions to creditors.
39
At the heart of these reasons is the first, namely the uncertainty of the
outcome of the Equitable Proceedings. The quantum of the settlement
sum, relative to the amount of the claim, implies a judgment that while the
proceedings are not devoid of prospects of success, they are attended by
very considerable risk. In my view, significant risk, to a greater or lesser
extent, attends One.Tel’s case in at least the following respects.
40
First, that there never was a concluded subscription and underwriting
agreement. It appears clear that there was no written agreement. While –
having regard to the announcement to the ASX – it is arguable that there
was nonetheless an agreement, this issue could defeat One.Tel’s case at
the outset.
41
Secondly, that the defendants were misled about the true state of
One.Tel's financial position, and on that account were entitled to rescind
the subscription and underwriting agreement, if there was one. A key
issue concerns the financial position of One.Tel at the time the
Abandonment Resolution was passed. The SPL has been advised that,
since 17 May 2001 (the date on which the directors of One.Tel resolved to
undertake the Rights Issue), a number of third party advisors, including
Ernst & Young and Pricewaterhouse Coopers, have prepared reports in
relation to the financial position of One.Tel and have estimated that at the
time of the resolution to conduct the Rights Issue, in order to remain
solvent, One.Tel had cash requirements of between $240 million and $332
million – significantly more than was represented at the time of the Rights
Issue. In this respect, I have also taken into account what is said by Mr
Jackman SC and attributed (by Mr Parbery) to Mr Lipman, the solicitor with
the carriage of the Equitable Proceedings, to be the effect of the further
- 18 -
(confidential and privileged) expert evidence obtained by the SPL for the
proceedings.
42
Thirdly, that Mr Packer and Mr Murdoch did not breach their fiduciary
duty, because they abstained from voting on the Abandonment
Resolution. Establishing a breach will depend upon showing that despite
their abstention from the vote, their participation in the preceding
discussions was somehow such as to constitute a breach.
43
Fourthly, the limitation defence: in my view there is significant risk that the
court would apply the six-year limitation period in section 1317K of the
Corporations Act by analogy [cf Gerard Cassegrain & Co Pty Limited v
Cassegrain [2011] NSWSC 1156; In the Matter of Auzhair Supplies Pty Ltd
(in liq) [2013] NSWSC 1; (2013) 272 FLR 304; (2013) 92 ACSR 554].
44
While there also, to a greater or lesser extent, answers to at least some of
these matters, the cumulative risk associated with the four amply warrants
an assessment that the proceedings are attended by a high degree of risk
for One.Tel.
45
The settlement is the result of a process of negotiation between
commercially astute and informed parties. While the settlement sum is
very much lower than the SPL’s previous (without prejudice) negotiating
position, it is also much higher than offers previously made (also without
prejudice) by the defendants.
46
The liquidator has obtained advices from Mr Jackman SC (who appears
for One.Tel in the Equitable Proceedings), and the Hon Ray Finkelstein
QC. Those advices have been tendered on this application, but on the
basis that they remain privileged. For present purposes it suffices to say
that both strongly endorse the settlement of the Equitable Proceedings as
an appropriate one in the circumstances.
47
On 10 April 2014, the Committee unanimously approved the compromise
of the Equitable Proceeding. Members of the Committee were also
- 19 -
advised that if any opposed the compromise and wished to be heard on
this application, they should contact Mr Zwier. None has done so.
48
Against that, Mr Parbery’s concern that he may be criticised for having
compromised the Equitable Proceedings on the terms of the Deed is
informed, in particular, by two potential arguments. The first is that the
Funder bears all costs and risks associated with the Equitable
Proceedings, and thus on one view the creditors of One.Tel are only
exposed to the upside of the litigation, in circumstances where the
compromise set out in the Deed will produce for them only a further 1.5
cents in the dollar. However, the creditors are also exposed to the risk that
the litigation may wholly fail, in which case they would receive nothing; the
modest dividend that this settlement will produce is preferable. The
second is that the legal and other costs associated with both the Original
Proceedings and the Equitable Proceedings exceed $40 million, which
means that the proceedings will have generated no net benefit to the
creditors once account is taken of all the associated costs. However, while
that may, with the benefit of hindsight, cast doubt on the benefit of
instituting the proceedings, it affords no reason for continuing to prosecute
them. Moreover, both those arguments are significantly impacted by the
circumstance that only by improving on the offer by a further $40 million
would any additional benefit to creditors be gained.
49
However, the potential for those arguments demonstrate that Mr Parbery’s
concerns, that the reasonableness, if not the propriety, of his decision may
be called into question, are legitimate. Moreover, the decision of Mr
Parbery and the GPLs involves more than the making of a commercial
decision, but also the exercise of legal judgment, namely assessing the
merits of the settlement against the prospects of success in the
proceedings to determine whether it is appropriate to compromise
One.Tel’s claims. I am therefore satisfied that, having regard to the
principles discussed earlier, this is a proper case for judicial advice,
notwithstanding that it also involves questions of commercial judgment.
- 20 -
50
I have been troubled by clause 12 of the Deed, by which the GPLs and
One.Tel release the SPL and his Advisers from any Claims One.Tel may
have against them arising from the SPL's role as Special Purpose
Liquidator of One.Tel generally, and in entering into the Deed in particular.
This provision means that there is a personal benefit for the SPL in
entering into the Deed, and one that goes well beyond the protection that
the SPL would gain from a s 511 direction that he is justified in entering
into the settlement with the CML/News Parties (not least because it
extends to his role as SPL generally). I cannot perceive any consideration
moving from the SPL for, nor benefit to One.Tel from, that release.
51
On the other hand, the release quells the possibility of further disputation
and litigation protracting the administration. There is nothing to suggest
that there are any viable claims against the SPL or his advisers. This is
because, even if the hindsight view that instituting the Original
Proceedings and the Equitable Proceedings produced no net benefit for
creditors be sustained, that would not of itself bespeak negligence in
instituting or prosecuting them. Moreover, it was the Former SPL, not Mr
Parbery, who instituted the proceedings, and he had a well-reasoned
opinion from senior counsel that the Equitable Proceedings had
reasonable prospects of success; in any event, the Former SPL is not
released by the Deed. By the time of Mr Parbery’s appointment, the costs
of the Original Proceedings had already been incurred, and the Equitable
Proceedings were on foot, and the issue for him was not whether they
should be instituted, but how to achieve the optimal result in them, in the
interests of the creditors. Ultimately, I am mindful that the release is given
by the GPLs, who are commercially astute and independently advised.
52
Accordingly, though not without reservations, I have concluded that the
inclusion of clause 12 in the Deed, and the circumstance that it involves a
personal benefit for the SPL, does not render his entry into the Deed
inappropriate.
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53
In my judgment, given (1) the risks attendant upon the Equitable
Proceedings, (2) the process of commercial negotiation between welladvised parties that has led to the settlement, (3) the advice of senior
counsel, (4) the benefits to creditors of a prompt settlement and a certain if
small dividend, (5) the Committee’s approval of the compromise, (6) the
circumstance that under the Funding Deed, there would be no additional
benefit to creditors unless the outcome exceeded the settlement sum by a
further $40 million, and (7) that the release of the SPL by the GPLs does
not appear to involve the release of any viable claim against the SPL, the
liquidators would be justified in entering into and performing the Deed, and
in procuring One.Tel to do so.
54
However, the particular directions under s 511 sought in the originating
process go beyond that, and are to the effect:
(a)
that the SPL and GPLs were justified in entering into and in
procuring that One.Tel enter into and perform the Deed;
(b)
that the SPL and GPLs otherwise acted properly and
reasonably in entering into the Deed and in procuring the
One.Tel to enter into the Deed;
(c)
approving the SPL and GPLs proceeding under the Deed;
(d)
approving the Deed; and
(e)
that the terms of clause 2.1 of the Deed (which provides that
the settlement of all Claims, and the dismissal of the
Proceeding, in the terms provided for in the Deed, is wholly
conditional upon the Court Approvals being obtained or the
requirement to obtain the Court Approvals being waived) are
satisfied.
55
As with judicial advice to trustees, the court is usually conservative in the
advice it gives to liquidators under s 479(3) and s 511, and such advice is
- 22 -
conventionally expressed in terms that “the liquidator would be justified” in
adopting a particular course of action. The jurisdiction to give such
directions is concerned with affording protection to the liquidator in
connection with proposed future action, not with ratifying action that the
liquidator has already taken. This view of the jurisdiction is supported by
the following observations of McLelland J, as he then was, in Re GB
Nathan & Co Pty Ltd (1991) 5 ACSR 673, (at 678):
… the only proper subject of a liquidator's application for directions
is the manner in which the liquidator should act in carrying out his
functions as such, and that the only binding effect of, or arising
from, a direction given in pursuance of such an application (other
than rendering the liquidator liable to appropriate sanctions if a
direction in mandatory or propitiatory form is disobeyed) is that the
liquidator, if he has made full and fair disclosure to the court of the
material facts, will be protected from liability for any alleged breach
of duty as liquidator to a creditor or contributory or to the company
in respect of anything done by him in accordance with the
directions.
56
In Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as
Liquidator of the Bell Group Ltd (in liq) [2013] WASC 409, Allanson J was
confronted with an application in terms not dissimilar to the present, as
said:
[43] I have some reservations whether it would be a proper
exercise of the power under s 479(3) to give a direction that each
plaintiff “was” acting properly and justifiable in entering into the
settlement deed. The function of directions is to advise the
liquidator as to the proper course for him to take in the liquidation.
It is essentially concerned with future action: Re Murphy & Allen;
Re BPTC Ltd (in liq) (1996) 19 ACSR 569. With an agreement that
is subject to a condition precedent, the distinction between what
was done in entering it, and before satisfaction of the condition,
and what will be done in performing it, may not always be neatly
compartmentalised into past and future. I have had regard to the
condition precedent in the settlement deed, both the way in which
it operates and the wording of the approvals and directions it
requires. I am not sure why the wording of the relevant clause in
the settlement deed has not been followed. I will make directions
that, in substance, meet the requirements of that clause. I am not
satisfied that requires an order in the terms of the minute.
57
It would not conform with the principles and practice applicable to s 511 to
make direction (c) (in terms “approving the Deed”), or direction (d)
- 23 -
(approving the liquidators proceeding under the Deed”), even if there were
jurisdiction to do so. A direction that the liquidators are justified in entering
into and implementing the Deed is all that is necessary to confer on them
the requisite protection, and all that is appropriate.
58
It would also be entirely inappropriate to make a direction, on an
application under s 511, that the condition precedent contained in clause
2.1 of the Deed has been satisfied. Whether such approvals as the court
may give satisfy that condition could potentially be the subject of dispute
between the parties to the Deed and could only properly be resolved in
inter-partes litigation.
59
It would not (in the terms of s 511(3)) be just and beneficial to determine
the questions involved in directions (c), (d) and (e), none of which are
contemplated by the Deed, which describes the approvals upon which it is
expressed to be conditional (in addition to those under s 477(2A) and
(2B)), in the terms:
Directions under s 479(3) or s 511 of the Corporations Act (as the
case may be) to the effect that the SPL and the Liquidators have
acted, and will continue to act, properly and are justified in:
(A) entering into, and causing One.Tel to enter into, this deed; and
(B) performing, and causing One.Tel to perform, their respective
obligations under this deed; …
60
The Deed has already been executed. However, I agree, with respect,
with the view expressed by Allanson J in the passage cited above, that in
the case of an agreement that is subject to a condition precedent, the
distinction between what was done in entering it and before satisfaction of
the condition, and what will be done in performing it, may not always be
neatly compartmentalised into past and future. As the Deed is conditional
upon the Court’s giving directions under s 511, a direction that the
liquidators are justified in entering into and implementing it does not
involve ratifying past acts, as in the absence of such a direction there will
be no relevant act, the condition precedent having, on that hypothesis,
failed.
- 24 -
61
It would not, however, be consistent with the principles and practice to
which I have referred, to make direction (b) in terms “that the SPL and
GPLs otherwise acted properly and reasonably in entering into the Deed
and in procuring the One.Tel to enter into the Deed”. What the court does
is to provide advice as to whether the liquidator is justified in taking a
particular course of action (ie entry into the Deed), not declaring that he
has otherwise generally acted properly in doing so. To make the direction
sought would necessarily involve a much wider inquiry into the whole of
the liquidator’s conduct in and about the negotiation and procuring of the
Deed, and would be quite unsuited to a s 511 inquiry, such that it would
not (in the terms of s 511(3)) be just and beneficial to determine that
question.
62
Like Allanson J, I have had regard to the terms of clause 2.1 of the Deed
and the approvals for which it stipulates. In my view, however, in so far as
it goes beyond a direction that the liquidators are justified in entering into
and implementing the Deed, to seek a direction to the effect that they have
acted and will continue to act properly in doing so, it goes beyond the
proper and appropriate scope of a s 511 direction of this nature. That the
parties have stipulated for such an approval cannot make it appropriate for
the Court to give it. It may well be that the parties will accept the direction
that I propose to give as satisfying the intent of clause 2.1, and/or that the
SPL will waive any requirement for a further direction, but lest they do not
there will be liberty to apply.
The section 477(2A) application
63
Section 477(2A) applies only in relation to a “debt” strictly so called [Re
Luxtrend Pty Ltd [1997] 2 QdR 86; Re Tietyens Investments Pty Ltd (1999)
31 ACSR 1; Re HIH Insurance Ltd, [12]; Re S&D, [66]]. If the relevant
claim is unquestionably not a “debt” as such, the correct approach is to
dismiss any application under s 477(2A) as unnecessary [Re Luxtrend; Re
Tietyens Investments; Re HIH Insurance Ltd, [12]; cf Re Oliver Davey
(Pacific) Pty Ltd [1999] VSC 241]. However, the course of dismissing a s
- 25 -
477(2A) application on the basis that the particular claim is not, strictly
speaking, a “debt” should be followed only in a clear cut case [Re HIH
Insurance Ltd, [12]; Re Timbercorp, [17]-[18]].
64
The Equitable Proceedings do not involve a claim for debt, and their
compromise is not the compromise of a debt. The main subject matter of
the Deed is not a debt, but a claim for damages or equitable compensation
the compromise of which not require approval under s 477(2A). However,
approval under s 477(2A) is sought out of an abundance of caution, given
the broad definition of “Claims” in the Deed of Settlement. If the Deed did
no more than compromise the Equitable Proceedings, the approval of the
court would be unnecessary. However, it also involves releases of “all
Claims”, thus including debts.
65
The question for the court under s 477(2A) is whether insofar as the Deed
involves the compromise of the debt, that compromise is in all the
circumstances a proper and reasonable step for the liquidator to take.
That is a different question from whether the compromise of the Equitable
Proceedings (which do not involve a claim for debt) is proper and
reasonable, though not unconnected to it. Because what is prohibited
without the Court’s approval is the compromise of a debt, the Court’s main
concern under s 477(2A) is the compromise of the debt, not the other
matters covered by the Deed – although the other terms may obviously
bear on the reasonableness of the compromise of the debt [cf 246 Arabella
Investments, [10]].
66
There is nothing to suggest that there is any debt, properly so called, owed
by any defendant to One.Tel. Insofar as the deed compromises all debts
owed by the defendants, it appears to compromise nothing of value.
Releases of “all claims” are a common feature of settlements, in order to
minimise the risk of future litigation and to ensure that all outstanding
issues are included in the compromise. That is a very small price to pay to
secure the settlement of the Equitable Proceedings in the terms of the
- 26 -
Deed, and in the context of the Deed as a whole the compromise of debts
is proper and reasonable.
67
While approval under s 477(2A) (and (2B)) should normally be obtained in
advance of the exercise of the power in question, it is now settled that the
court can give approval that has retrospective effect [Empire (Aust)
Nominees Pty Ltd v Vince [2000] VSC 324; (2000) 35 ACSR 167 (a s
477(2B) case); Re HIH Insurance Group Ltd [2001] NSWSC 308; Registrar
of Aboriginal Corporations v Bibelmen Mia Aboriginal Corp [2001] FCA
136; Re HIH Casualty & General Insurance Co Ltd [2002] NSWSC 1036,
[9]-[14]; Re Read [2007] FCA 1985; (2007) 164 FCR 237; Re Bell Group,
ex parte Woodings, [34]. Moreover, where the operation of the relevant
agreement is subject to conditions precedent of the kind contained in
clause 2.1 of the Deed, that is sufficient to justify the conclusion that,
pending its satisfaction or waiver, the act of agreement with which s
477(2A) is concerned should be regarded as not having occurred [see Re
HIH Casualty; Re FAI Traders Insurance Co Pty Ltd [2002] NSWSC 1080;
Re HIH Insurance Ltd, [3]].
68
As the Committee has approved the compromise, Court approval – which
is an alternative to the approval of the committee of inspection or a
resolution of creditors – for the liquidators to compromise the debts
included in it is unnecessary. However, there is no reason why a liquidator
cannot rely on multiple sources of authority under s 477(2A). While the
Court discourages unnecessary applications, in this case an application to
the Court under s 511 would have been necessary in any event; and as
clause 2.1 of the Deed stipulates for a Court approval under that section,
there may be utility in giving that approval.
69
Approval should be given under s 477(2A) to the liquidator compromising
debts in conformity with the terms of the Deed, insofar as it includes a
compromise of debts.
The section 477(2B) application
- 27 -
70
Approval is sought under s 477(2B) because some of the obligations under
the Deed of Settlement are continuing obligations which will only be
discharged by performance more than three months after the deed was
entered into. The obligations in this class are in the nature of releases,
discharges, covenants not to sue, and confidentiality obligations. The
persistence of those obligations will not unduly protract the liquidation and
are not inconsistent with its expeditious completion.
71
The discussion of retrospective approval in connection with s 477(2A) is
equally applicable to s 477(2B).
72
Approval of the Court under s 477(2B) appears to be unnecessary, as the
Committee of Inspection has approved the Deed. However, for the
reasons explained in connection with s 477(2A), there is likewise no harm,
and there may be utility, in giving such approval.
73
Approval should be given under s 477(2B) to the liquidators entering into
the Deed on One.Tel’s behalf notwithstanding that obligations of a party to
the Deed may, according to the terms of the Deed, be discharged by
performance, more than 3 months after the Deed is entered into.
Conclusion
74
My conclusions may be summarised as follows:
75
Given (1) the risks attendant upon the Equitable Proceedings, (2) the
process of commercial negotiation between well-advised parties that has
led to the settlement, (3) the advice of senior counsel, (4) the benefits to
creditors of a prompt settlement and a certain if small dividend, (5) the
Committee’s approval of the compromise, and (6) the circumstance that
under the Funding Deed, there would be no additional benefit to creditors
unless the outcome exceeded the settlement sum by a further $40 million,
the liquidators would be justified in entering into and performing the Deed
of Settlement, and in procuring One.Tel to do so. It would be just and
beneficial to give the liquidators directions under Corporations Act, s 511,
- 28 -
to that effect. However, it would not be just and beneficial, nor consistent
with the principles and practice that apply to applications for directions
under s 511, to give the additional directions sought in the originating
process.
76
Approval for the liquidators to enter into the Deed under s 477(2A) and
(2B) appears to be unnecessary, as the Committee of Inspection has
already approved the Deed. However, there is no objection to a liquidator
having multiple sources of authority under s 477(2A) and (2B), and as
clause 2.1 of the Deed stipulates for a Court approval under those
provisions, there may be utility in giving those approvals. Insofar the Deed
involves a compromise of debts due to One.Tel, the compromise is proper
and reasonable. That some obligations under the Deed (in the nature of
releases, discharges, covenants not to sue, and confidentiality obligations)
are continuing obligations which will persist more than three months after
the deed was entered into will not unduly protract the liquidation and are
not inconsistent with its expeditious completion. It is appropriate therefore
to approve the SPL and the GPLs entering into the Deed under s 477(2A)
and (2B).
77
Accordingly, the Court orders that:
(1)
Pursuant to (Cth) Corporations Act 2001, s 511, the first plaintiff,
second plaintiff and third plaintiff are justified in entering into and
performing, and in procuring that the fourth plaintiff enter into and
perform, the deed which is at Tab 8 of confidential Exhibit SJP-2 to
the affidavit of Stephen James Parbery sworn on 11 April 2014 (“the
Deed”);
(2)
Pursuant to (Cth) Corporations Act 2001, s 477(2B) (as applied by s
506(1A)), the first plaintiff, second plaintiff and third plaintiff have the
approval of the Court to enter into the Deed on behalf of the fourth
plaintiff, notwithstanding that obligations of a party to the Deed may,
- 29 -
according to the terms of the Deed, be discharged by performance
more than 3 months after the Deed is entered into.
(3)
Pursuant to (Cth) Corporations Act 2001, s 477(2A) (as applied by s
506(1A)), the first plaintiff, second plaintiff and third plaintiff have the
approval of the Court to compromise all debts owing to the fourth
plaintiff that are referred to in the Deed, upon the terms contained in
the Deed.
(4)
Pursuant to (NSW) Court Suppression and Non-publication Orders
Act 2010, s 8(1)(a), publication or disclosure of Exhibit SJP-2 to the
affidavit of Stephen James Parbery sworn on 11 April 2014, and of
any information which would directly or indirectly reveal or tend to
reveal any of the contents of that exhibit, other than in conformity
with paragraphs 10 or 24 of the Deed, is permanently prohibited.
Pursuant to s 11(2), this order applies throughout the
Commonwealth of Australia.
(5)
The plaintiffs’ costs of the application be costs in the liquidation of
the fourth plaintiff.
(6)
The plaintiffs have liberty to apply for further directions.
**********
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