Introduction
It is common knowledge that liquidators of a company must apply to the Court to obtain approval (or, alternatively, obtain a resolution of the creditors of the company in liquidation), if the terms of a litigation funding agreement exceed a period of 3 months: see section 477(2B) of the Corporations Act 2001 (Cth) (Act).
However, section 477(2B) of the Act applies more broadly to other agreements (such as, for example, a leasing agreement or settlement deed) where the terms or obligations under those agreements, as they apply to the company in liquidation, exceed a period of 3 months.
Notably, in the case of Re Great Southern Ltd (In Liq); Ex Parte Great Southern Ltd (In Liq) & Others Named in the Schedule[1] (Great Southern), the Supreme Court of Western Australia re-visited the principles governing the Court’s decision to approve a liquidator entering into settlement deeds pursuant to section 477(2B) of the Act.
Great Southern - key facts
Great Southern Ltd (GSL) was a listed public company whose principal activities involved the development, marketing and management of managed investment schemes (MIS) across a range of agricultural products.
Great Southern Finance (GSF) was a wholly owned subsidiary of GSL. GSL’s business was to provide finance to investors in the group’s MIS, manage the loans made to the investors and sell loans through securitisation agreements with third parties.
Great Southern Managers Australia Ltd (GSMAL) was a wholly owned subsidiary of GSL. GSMAL was the responsible entity for all the group’s MIS.
GSL, GSF and GSMAL are collectively referred to as the Great Southern Group companies.
On 16 May 2009, administrators were appointed to the Great Southern Group companies.
On 19 May 2009, receivers and managers were appointed over all of the assets and undertakings of GSL, GSMAL and certain other wholly owned subsidiaries of GSL.
On 19 November 2009, the creditors resolved to wind up the Great Southern Group companies.
The liquidations of the Great Southern Group Companies were largely unfunded.
In or around July 2012, the liquidators of the Great Southern Group Companies entered into negotiations with a funder with respect to the funding of investigations and prosecution of any claims available to the each of the Great Southern Group Companies and/or the liquidators.
On 17 September 2012, in the Federal Court, Gilmour J authorized the Liquidators’ entry into a litigation funding agreement.
As a result, numerous proceedings were commenced in the ordinary course of the liquidations and the parties to the litigation entered into settlement negotiations resulting in a deed of settlement and release being executed which contained (amongst other things) confidentiality clauses.
The issue
The primary question in the case of Great Southern was whether the liquidators were justified in entering into and performing their obligations under the various settlement deeds pursuant to sections 477(2A), 477(2B) and 511 of the Act.
Relevant principles
Section 477(2B) of the Act is principally concerned with preventing long-term agreements which might protract liquidations. With that in mind:
The decision
Whilst noting that the settlement deeds contained some provisions that would operate for a period longer than three months (most notably the releases, covenants not to sue and the confidentiality obligations), the Court found that those obligations would not unduly protract the liquidation.
Rather, the settlement facilitated by the deeds would significantly accelerate the finalisation of the liquidation.
Lavan Legal comment
In order for an application under section 477(2B) of the Act (whether it relates to litigation funding agreements or some other form of agreement or deed) to be granted:
The evidence provided to the Court should assist it in ensuring that the liquidation can be carried out as expeditiously as possible having regard to all of the circumstances surrounding that particular liquidation.
Without detailed evidence, it is unlikely that such an application will be successful.
[1] [2015] WASC 171
[2] Re Spedley Securities Ltd (1992) 9 ACSR 83 per Giles J.
[3] Re Great Southern Ltd (In Liq); Ex Parte Great Southern Ltd (In Liq) & Others Named in the Schedule [2015] WASC 171 at [34].
[4] Re Spedley Securities Ltd (1992) 9 ACSR 83 per Giles J; Re Mineral Securities Australia Ltd (in Liq) [1973] 2 NSWLR 207 at 231-2; Re Great Southern Ltd (In Liq); Ex Parte Great Southern Ltd (In Liq) & Others Named in the Schedule [2015] WASC 171 at [34].
[5] Re GA Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 per Young J; Re CIC Insurance Ltd (2001) 38 ACSR 181.
[6] Re One.Tel Ltd (in liq) [2014] NSWSC 457; (2014) 99 ACSR 247 at [30].
[7] Re Great Southern Ltd (In Liq); Ex Parte Great Southern Ltd (In Liq) & Others Named in the Schedule [2015] WASC 171 at [34].