August 2010

The Court of Appeal has endorsed Justice Barrett’s recent rulings and observations concerning the powers, role and functions of a Committee of Inspection (“COI”) in a Creditors’ Voluntary Winding Up (“CVL”) process.  In so doing, liquidators in a CVL have been provided with a strong basis upon which to decide to keep confidential from a COI, and from creditors generally, the details of any commercially sensitive agreements as well as to make any court applications for approval of such agreements without notice to a COI or to creditors generally.

Our June 2010 article, “The Role of a Committee of Inspection in a Creditors’ Voluntary Winding Up”, highlighted a recent series of judgments by Justice Barrett in which he made a number of important rulings and observations concerning the powers, role and functions of a COI in a CVL process.

One of those judgments was delivered on 20 May 2010 (“20 May Judgment”) in the matter of Onefone Australia Pty Limited v One.Tel Ltd [2010] NSWSC 498 (“Onefone Proceedings”).  As noted in our previous article, upon application by some members of the COI of One.Tel Limited (In Liquidation) (“One.Tel”) and other parties who are admitted creditors of One.Tel, one question arising from the 20 May Judgment was removed to the Court of Appeal for determination.

The Court of Appeal has now heard that question and delivered its judgment in the matter of Deloughery & Ors v Weston [2010] NSWCA 148 (“the Application”) on 1 July 2010.

Background to the Application

In the 20 May Judgment, Justice Barrett held that:

• the Special Purpose Liquidator of One.Tel (“SPL”) was justified in making an application, in the absence of notice to the COI of One.Tel or the creditors of One.Tel and without their prior approval, to seek the Court’s approval of agreements relating to the funding of Court proceedings to be instigated by the SPL (“SPL Proceedings”); and
• neither the COI OF One.Tel nor the general body of creditors of One.Tel had any right or interest that would be affected by the application brought by the SPL, by the orders of the Court in respect of that application, or by any steps that might be taken by the SPL pursuant to the Court’s approval granted in the 20 May Judgment.

Following the 20 May Judgment, the Applicants in the Application (being three of the four members of the COI of One.Tel and one group of creditors of One.Tel) sought a number of orders from the Court, including an order that the 20 May Judgment be set aside.  Ultimately, at the hearing before the Court of Appeal, the Applicants only pressed for an order that they be granted immediate access, on such confidentiality arrangements as the Court thought appropriate, to the evidence put before the Court in support of the SPL’s application that was the subject of the 20 May Judgment.

Importantly, the order sought by the Applicants would have, if granted, had the result of allowing the Applicants access to a range of material, including the Funding Agreements themselves, which material would otherwise be of both a commercially confidential and sensitive nature.

The Issues

In hearing the Application, the Court of Appeal was required to give consideration to the preliminary issues of:

• whether members of a COI or creditors in a CVL had a general right to be heard in respect of an application for approval by the Court made pursuant to s477 of the Corporations Act 2001 (Cth) (“Corporations Act”); and
• if there is no such general right to be heard, whether the Applicants had, in the circumstances of the 20 May Judgement and the Application, any special interest which otherwise gave rise to a right to be heard.

The Decision

In a unanimous decision, the Court of Appeal ruled against the Applicants and in favour of the SPL on both issues and dismissed the Application. 

In so doing, the Court of Appeal:

• agreed with Justice Barrett’s finding in the 20 May Judgment that the subject matter of the SPL’s application was of a commercially confidential and sensitive nature and therefore it was in the public interest that the hearing in respect to that application be held in closed Court;
• confirmed that a COI in a CVL has no general right, interest or expectation that gives rise to a right to be heard in respect of an application to the Court for approval of an agreement pursuant to s477 of the Corporations Act;
• determined that, in view of the confidential nature of the material provided to Justice Barrett during the course of the hearing that led to the 20 May Judgment (which material was reviewed by the Court of Appeal in chambers before they gave judgment in the Application), the Applicants had no special interest nor was there any basis that gave rise to an expectation to a special entitlement to be heard on such an application; and
• found that Justice Barrett had correctly determined that the Applicants did not have any right to be heard by the Court. As a result, the Applicants also did not have any right to be heard on the question of whether members of the COI of One.Tel or other creditors of One.Tel had any relevant interest in the SPL’s application that led to the 20 May Judgment.

In reaching its judgment, the Court of Appeal has delivered a strong endorsement of the rulings and observations of Justice Barrett contained in the 20 May Judgment and of his earlier judgments noted in our June 2010 article on the powers, role and functions of a COI in a CVL process.

O’Neill Partners – Commercial Lawyers have been the legal advisors to the Special Purpose Liquidator throughout all proceedings relating to the One.Tel liquidation.

O’Neill Partners – Commercial Lawyers has a wealth of experience in providing practical and expert advice to all stakeholders involved in corporate insolvency administrations, including administrators, liquidators, officeholders, creditor committees and creditors, regarding their roles and responsibilities.

This article has been prepared by Colin Brown, a member of our insolvency litigation team, and we invite you to contact either Colin or our Chairman and senior partner, Michael O’Neill, for further information about the matters discussed.

The contents of this article are intended to provide only a general summary on matters of interest and are not comprehensive, nor does this article constitute legal advice.  You should seek legal or other professional advice before acting or relying on any of the content of this article.

© O’Neill Partners – Commercial Lawyers, 2010