Liquidator granted Court’s approval pursuant to section 477(2B) of the Corporations Act 2001 (Cth)
MPH Lawyers recently successfully acted for a liquidator seeking the Court’s approval under section 477(2B) of the Corporations Act 2001 (Cth) (Act) for approval to enter agreements which required performance more than three months after the date on which those agreements were entered.
The parties to the proposed agreements were the company’s directors immediately prior to the liquidator’s appointment, several related companies and a secured creditor (to the one of the agreements). The effect of the agreements would be to discharge potential claims against the company’s directors and resolve potential voidable transactions which had been identified by the liquidator following his investigations into the affairs of the company.
In making order pursuant to section 477(2B) Musikanth J had regard to:
- the liquidator had:
- given notice of his intention to apply for the Court’s approval under section 477(2) of the Act;
- provided copies of the draft agreements,
to all of the creditors of the company in liquidation;
- the absence of any objection from any creditor or stakeholder;
- the consent of the secured creditor, who was the largest creditor of the company by a substantial margin, to the proposed agreements;
- the liquidator’s commercial judgment that entering the agreements was in the interests of creditors for the agreements to be entered in light of:
- the absence of any known assets owned by the directors or their related companies to enforce any judgment;
- the likely time and costs involved in prosecuting an insolvent trading claim or otherwise voiding certain transactions under the Corporations Act 2001 (Cth);
- the secured creditor, who would otherwise have priority to funds recovered in the liquidation before any dividend was payable to unsecured creditors, accepted a large compromise (less than 10% of the liability due to it in April 2023);
- the absence of any interest from creditors to fund a claim against the directors or to unwind the voidable transactions or for the liquidator to obtain litigation funding; and
- the real prospect that any judgment entered against the directors and/or the related entities would result in those parties becoming insolvent with no return to unsecured creditors; and
- there was no evidence that the liquidator was acting in bad faith or with an improper motive and, in fact, there were sound reasons supporting the entry into the two agreements which would support some return to the unsecured creditors of the company.