Barilla & Barilla [2023] FedCFamC1F 261 (No 2) to (no 7): compromising liquidator claims
Matthew Beckmans
Special Counsel and Accredited Specialist in Family Law at Taussig Cherrie Fildes
Barilla & Barilla [2023] FedCFamC1F 261 (No 2) to (no 7)
The involvement of liquidators in family law proceedings generally adds to existing complexity caused through the insolvency (or apparent insolvency) of a party (or both) or their related entities.?Liquidators have at their disposal a variety of remedies they might pursue, yielded in equity (like tracing remedies) or under the Corporations Act 2001, such as under the voidable transaction scheme in Part 5.7B together with their power when navigating such claims under s 477.? There is also the difficulty about what forum is most appropriate to deal with all the issues at hand, and whether a transfer from one court to another should be considered: https://www.dhirubhai.net/pulse/re-farey-liquidation-resisting-transfer-family-court-matthew-beckmans/.
A series of decisions in Barilla & Barilla [2023] FedCFamC1F 261 (No 2) to (no 7) helpfully shows how a liquidator might navigate their involvement in family law proceedings.? Barilla also illustrates how the court may treat an application brought for a liquidator's release from proceedings in order to pursue claims in another court of competent jurisdiction, and if the request is denied, whether an anti-suit injunction is then appropriate.
The salient facts in Barilla – as gleaned – are as follows:
1.?????????????????? The parties to the matter are the husband and wife, together with the liquidator appointed for the corporate trustee (B Pty Ltd) of the parties’ family trust.? The liquidator was joined to the proceedings in August 2022.
2.?????????????????? The husband appointed the liquidator of B Pty Ltd without notice to the wife.? The liquidator determined that B Pty Ltd was insolvent and on preliminary enquiries owed creditors $490,000, largely made up of unpaid employee entitlements of $320,000 including unpaid superannuation.? Further, the main assets of B Pty Ltd were loans owed to the company by the husband and wife, which in turn, invited the liquidator to perform a tracing exercise.
3.?????????????????? In his statutory report to creditors, the liquidator indicated his intent to pursue the husband and wife in recovery of the loans owed by the husband and wife, which he believed were traceable to funds expended on the Suburb B real property.?
4.?????????????????? Notwithstanding his report to creditors indicating his intention to bring claims for further relief, in the present proceedings, the liquidator had not identified any claim/s he sought to bring despite requests for him to do so.? In this regard, the liquidator claimed his investigations were ongoing, and that he did not consider it viable for him to remain in the family law proceedings “due to the substantial further work to be done to settle on a quantum of claim”.? The husband contended that he had provided all relevant disclosure to the liquidator, including all information related to the purported loans.
The liquidator filed a Notice of Discontinuance which appears to have kicked off the series of decisions and movement towards a negotiated resolution.?
In Barilla (No 2)
The central issue was whether the liquidator be released from the proceedings.? In support of his application for release, the liquidator filed an affidavit which contended:
The court was then asked to consider if the liquidator was a necessary party to the proceedings, noting His Honour was satisfied he wished to be released from the family law proceedings to pursue a claim in another forum.? In rejecting the application, His Honour concluded “The rights of the liquidator, the parties’ legal and equitable interests and their obligations of debt arise in a common substratum of facts of transactions involving B Pty Ltd” and “This means both that the resolution of the liquidator’s claims is necessary to the determination of the s 79 proceedings and , as a colloroy, that the court holds the jurisdiction necessary to resolve the claims of the liquidator, whether they arise in debt or equity” [at 48 and 49].?
The wife also sought an anti-suit injunction against the liquidator as follows:
That Mr Marriott, including but not limited to in his role as Liquidator of B Pty Ltd, be hereby restrained from commencing and/or continuing any proceedings in any other jurisdiction against the Wife Ms Barilla without an Order of this Court.
The wife argued – to paraphrase – under the second limb of Lederer & Hunt [2007] FamCA 55, that it would be oppressive and vexatious for the liquidator to pursue a claim in another court.? In this case, the liquidator through his involvement in the proceedings to date had ’altered the court and timetable of the proceedings’ and had ‘exposed the parties to fragmented litigation and to the potential undermining of the proceeding.’
The court agreed that the restraint sought by the wife was too broad, narrowing its orders as follows:
The liquidator is hereby restrained by injunction from commencing or continuing a claim in debt or equity against the husband, wife or in relation to Suburb D connected with the liquidation of B Pty Ltd.
In Barilla (No 4) and (no 5)
The liquidator brought an application seeking approval for the court to approve a compromise with the wife in relation to her debt owed to B Pty Ltd. Whilst the wife supported the application, the husband objected to it.?
Approval of the compromise was sought under s 477(2A) and (2B) of the Corporations Act, noting the compromise was brought in the absence of notice being provided to creditors in a purported effort to avoid delay. ?
The liquidator filed an affidavit in support of his application which contained his report to creditors together with an advice from counsel.? The compromise proposed by the liquidator in settlement of all claims was a payment from the wife to him of $170,000, resulting in priority creditors receiving 3?cents in the dollar in relation to their claims and other creditors receiving nothing.
The court was concerned with it being obliged to follow the procedure as provided under s?477 and was conscious of creditors being provided with notice in this regard, so as to ensure consideration of their attitude, wishes and interests [at 13]. The court concluded there was no ‘cogent reason being articulated to not place the creditors on notice’ [at 15].
The court was also asked to determine whether the advice from counsel be kept confidential from the parties.? The basis for the confidentiality order was cast on the basis the parties would have an unfair forensic advantage if approval of the compromise was not forthcoming.? The court, upholding the request for the advice to remain confidential, pointed to the material having the potential to undermine the liquidators claims, and that in insolvency proceedings, such information is routinely subject to a confidentiality regime [at 8].?
In Barilla (No 7)
Following notice being provided to creditors of the proposed compromise, the court was then in a position consider the making of order under s 477(2A) and (2B) with respect to the compromise, along with directions pursuant to?section 90-15?of Schedule 2 of the?Corporations Act 2001 with respect to the liquidators costs and expenses, and that the liquidator was justified to compromise in the manner proposed.
A link to s 477 of the Corporations Act is as follows https://classic.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s477.html
Following receipt of notice, three creditors including the husband opposed the compromise.? Notice to creditors in the form of a report confirmed that total debts were $609,809.23, and against those liabilities, the husband had assets of $422,306.57, the wife $370,611.41 and equity in suburb D was $157,434.42, although there was some overlap between the parties’ net property and equity in suburb D.
In his objection, the court noted the husband provided no proper explanation, whilst Mr M and Mr F provided arguments that did not appear to materially assist the court in this regard.? On the other hand, the liquidator identified an estimate of his further litigation expenses would be in the range of $150,000 to $180,000 and that he had no apparent source of litigation funding [19]. The liquidator also argued the litigation was complex and that difficulties arose through the failure of the company to keep adequate records.?
The court approved the compromise.?
As foreshadowed, the liquidator also sought directions with respect to compromising the claims.? That is a direction that the liquidator was justified in compromising the claims. The court noted that directions were not required to be made as a pre-requisite, however, Cheesman J in Krejci, in the matter of Union Standard International Group Pty Ltd (No 8)?[2023] FCA 1054? said ‘a direction under s 90-15…serves to exonerate the liquidator from personal liability….and in giving the kind of direction in the present proceeding, the court should be satisfied that the liquidators decision is, in all the circumstances, a proper one before issuing the direction sought’ [25].? Relevantly, Cheesman J went onto further highlight the anticipated de minimus return to creditors which was relevant here:
Another factor that informs my conclusion that it is appropriate to make a direction substantially as sought, is that it is apparent that the Liquidators may be criticised at some later stage for having continued the proceedings in light of the likely?de minimis?dividend rate to individual creditors. In those circumstances, I am satisfied that it is appropriate for the Liquidators to have sought judicial guidance and that providing a direction as sought will be in the interests of the beneficiaries of the Statutory Trust as well as serving to exonerate the Liquidators from personal liability:?Re KSK Holdings?at [18] to [20].
His Honour was persuaded to make the relevant direction justifying the compromise where the liquidator estimated his total legal costs to be $320,000 to $350,000, where he may not achieve a better result and the court’s doubts as to his ability to recover costs under s 117 of the Family Law Act in the event he was successful.
Along with the orders under s 477 and directions under s 90-15, relevant final orders were:
1.?????????????????? The Wife shall pay to the Intervening Party the all-inclusive sum of $170,000 ("the Settlement Sum") in full satisfaction of the Intervening Party’s claims against the Husband and the Wife and the Suburb D Property, including for the repayment of the Loans.
2.?????????????????? The Wife hereby grants a charge to the Intervening Party over the Suburb D property as security for payment of the Settlement Sum and will do all things necessary within 14 days of these orders being made to execute a deed of charge reflecting this interest in favour of the liquidator.
3.?????????????????? Sale of Suburb D in the event the wife defaults on the payment of the Settlement Sum (paraphrased).
END
Barrister I Nationally Accredited Mediator I Non-Executive Director
10 个月Matthew, thanks for sharing with your network!
Owner - Registered Liquidator and ARITA Fellow at Beacon Advisory
1 年It has certainly been an interesting matter Matthew. As the Liquidator of the subject company and it appears the chief protagonist, what this case highlights perhaps more than anything else is the lengths to which a Liquidator must go in seeking to litigate matters before the FCFCOA - perhaps more so than the Federal Court - in the absence of any co-operation between the Corporations Act and Family Law Act (contrast this with the arrangements under the Bankruptcy Act). It was a mostly arduous matter which had some very interesting and useful takeaways for liquidators and family lawyers alike.
Director & Accredited Family Law Specialist at Gale Family Law
1 年A cogent and well-distilled note of some very complex litigation Matthew Beckmans! Innis Cull - RITP , this may be of interest to you!