Liquidator gives up the bitter(s) fight

Boardman (liquidator) v Australian Boutique Spirits Pty Ltd, in the matter of Europa International Pty Ltd (in liq) [2021] FCA 1520 (1 December 2021)

Halley J made orders approving the liquidator’s entry into a settlement agreement on behalf of the company in liquidation and maintaining its confidentiality.

This case demonstrates the leeway that courts may afford liquidators trying to negotiate a settlement for the benefit of creditors, in challenging circumstances, including permitting retrospective approval.

Europa International Pty Ltd (Europa) manufactured aromatic bitters and other alcoholic products. In 2016, Europa lost proceedings that it commenced against various parties and was ordered to pay those parties’ costs, including to one Mr Kingham.

By 2016, a dispute as to the quantum of those costs had not been resolved. In that year, a new company (ABS) was incorporated. Europa advised its suppliers that its business had been sold to ABS. A document purported to effect the sale of the business for $626,000.

In late 2018, a liquidator was appointed to Europa. Despite the liquidator’s enquiries, he was unable to discover how the purchase price was determined. He formed the view that the sale of business transaction may have been voidable.

The next year, the liquidator sought to issue demands on Europa’s related party debtors and was met with responses challenging the accuracy of the books and records maintained by Europa’s directors. The liquidator also attempted to examine the family members that controlled Europa, but had difficulties serving them. Then the liquidator attempted to apply to extend the limitation period for certain actions, but that application was opposed.

The liquidator viewed the family as providing stout resistance to every enquiry he sought to make and that they appeared well-resourced to continue that resistance.

The liquidator, without funds – having unsuccessfully pursued avenues for funding – held a mediation with the family, which resulted in a settlement agreement that was recorded in a deed dated 19 November 2021.

That settlement provided for the payment of a material sum, and for mutual releases, on the condition that the settlement sum is paid to Europa. The family, however, were concerned that making the terms of the settlement deed public, could negatively impact ABS, which was in the initial stages of a public offering.

The liquidator applied:

• under s 477(2B) of the Corporations Act 2001, for approval to enter into the settlement agreement on Europa’s behalf (such approval being necessary because the settlement sum exceeded $100,000: s 477(2A)); and

• under s 37AF of the Federal Court of Australia Act 1976, for orders that the terms of the settlement remain confidential.

Mr Kingham, who neither consented to nor opposed the liquidator’s application was joined.

Halley J affirmed the relevant principles, that whilst the courts do not rubber stamp whatever the liquidator puts forward, they pay regard to the commercial judgment of the liquidator and interfere only where there is some lack of good faith, error in law or substantial grounds for doubting the prudence of the liquidator’s conduct.

His Honour concluded that approval was appropriate given that the settlement provided an immediate and certain financial return.

His Honour also accepted that the court had power to grant the approval retrospectively in respect of a deed that had already been entered into. He thought it prudent to make an order under s 1322(4) of the Corporations Act 2001, to the effect that the deed was not invalid by reason of it having been entered into with the Court’s prior approval.

His Honour also agreed to make the confidentiality orders sought by the liquidator, because it was consistent with the proposition that the court will aid the proper efforts of liquidators to negotiate settlements of claims in the interests of creditors.