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Special Purpose Liquidators
What area(s) of law does this episode consider? | Special purpose liquidators (SPLs) appointed under the Corporations Act 2001 (Cth) Schedule 2 Section 90-15 of the Insolvency Practice Schedule. |
Why is this topic relevant? | Special purpose liquidators are a rare type of insolvency appointment that are commenced by order of the Court under s 90-15 of the Insolvency Practice Schedule. Special purpose liquidators carry out a specific task that’s not appropriate for the general purpose liquidators to do so themselves. Usually, a special purpose liquidator steps in when there is a conflict of interest that prevents the general purpose liquidator from fulfilling a certain task, such as pursuing litigation against a person that they owe a duty towards. Legal professionals involved in, or interested in, the insolvency space should be aware of the role and function of a special purpose liquidator to enhance their understanding of the insolvency process. |
What legislation is considered in this episode? | Corporations Act 2001 (Cth) (‘Corporations Act’) |
What cases are considered in this episode? | Queensland Nickel Pty Ltd (in liq) v QNI Metals Ltd & Ors [2021] QCA 138
CGU Insurance Limited v One.Tel Limited (In Liquidation) (2010) 242 CLR 174
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What are the main points? |
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What are the practical takeaways? |
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David Turner:
1:00 | Hello and welcome to Hearsay, a podcast about Australian laws and lawyers for the Australian legal profession, my name is David Turner. As always, this podcast is proudly supported by Assured Legal Solutions, a boutique commercial law firm making complex simple. Our guest today, Stephen Parbery, has worked on some of Australia’s most high profile and publicised corporate collapses, Ansett Airlines, HIH Insurance, ABC Childcare, One Tel, Lehman Brothers and more. As an experienced insolvency practitioner, Steve has extensive experience with many of the insolvency appointments we’ve discussed on this show before, from liquidation to voluntary administration. But today Steve is here to share his experience with a rarely used type of insolvency appointment – special purpose liquidation. Steve’s most recent experience is as a special purpose liquidator of Queensland Nickel, appointed to pursue litigation against prominent businessmen and former politician Clive Palmer. Stephen Parbery, thanks so much for joining me today on Hearsay. |
Stephen Parbery | Thank you. |
DT: | Steve, you’re one of Australia’s preeminent insolvency practitioners, tell us a bit about your career. |
SP:
| Yes I entered into the world of insolvency in a smaller firm at the time, called BO Smith and Son, in the 70s. By the 80s I’d finished all of my studies and had become a chartered accountant and commenced our own practice with two other partners in 1983 and was with that firm, PPB Advisory which it became known, up till 2016 the chairman of that firm for the past 8 years, so I’ve spent more entire professional career doing insolvency work. |
DT: 2:00 | PPB Advisory only relatively recently merged with PricewaterhouseCoopers Australia as well and you were with the firm for that step as well. |
SP:
| Yes, I didn’t transfer across to PwC and it was offered to me. At that stage I was consulting with the firm but I had one major outstanding matter which was Queensland Nickel. PwC had a conflict, and so I wasn’t able to go across with the team, across to PWC. So I’ve ended up still continuing partially in practice these days with Kroll which is a start-up restructuring firm that’s global and just helping out a few former colleagues, creating that practice here in Australia. |
DT: | With a very strong insolvency and forensic accounting brand in the United States and the UK as well. |
SP: | Yes, absolutely. Kroll has been around for some time. They’re very strong on forensic accounting, cyber security. And in the United States they’re doing a lot of business valuation work as well. So it’s got a broader spectrum of services than, you know, just Australian insolvency. |
DT: 3:00 | Now we’re here today to talk about your appointment as special purpose liquidator of Queensland Nickel, not your first appointment as a special purpose liquidator of a high-profile insolvency, but your most recent. Now special purpose liquidators are usually appointed by the court to carry out a specific task where it’s not appropriate that the general purpose liquidator undertake that task, for example, because of a conflict of interest in the general purpose liquidator undertaking that task. Perhaps it involves pursuing litigation against a person that they have some interest or duty towards. Why was it necessary to appoint you a special purpose liquidator in the Queensland nickel case? |
SP:
4:00
5:00
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8:00 | Well, in Queensland Nickel it was one of three companies in a joint venture arrangement which was conducting nickel processing in a processing plant at Townsville. Queensland Nickel went into voluntary administration and the two other joint venture partners didn’t. TIP: Voluntary administration is a type of insolvent external administration that usually begins under s 439A of the Corporations Act, when a company’s directors resolve that the company is insolvent or may become insolvent at some future time, and that it’s appropriate for an administrator to be appointed. The administrator is an independent registered liquidator who takes control of the company, often including continuing to trade the company’s business, and dealing with its employees, creditors and suppliers, and in some cases even pursuing litigation on the company’s behalf. The voluntary administration provides the company with a reprieve, or a moratorium, on enforcement action by creditors, to try to find a way to save the company and help its business continue. That usually occurs when the directors or a third party agree to contribute funding to help pay creditors which is documented in what’s called a deed of company arrangement. If it’s not possible for a contributory to come up with a plan to save the company, then the company will pass from voluntary administration to liquidation, and the liquidator will realise the company’s assets and distribute the proceeds amongst its creditors. So, in the case of Queensland Nickel, voluntary administrators were appointed and continued trading Queensland Nickel’s business but practically that can be difficult where a joint venture is in place, as Steve will soon explain. By the way, if you want to know more about voluntary administration, there’s a Hearsay episode for that – try my interview with Professor Jason Harris on just that topic after this. For various reasons, there were arrangements between those parties for conducting the ongoing business of processing nickel. Certain arrangements were entered into between those companies to allow it to continue operating including the administrator taking security over the other joint venture companies. When it looked like the company was going into liquidation, disputes arose between the owners of the other joint venture companies, which was ultimately Mr Clive Palmer and the administrator. And at that stage it looked like the Commonwealth under its FEG scheme was going to become a major creditor. And we wanted to pursue, or there was a possibility of pursuing, certain claims against the other joint venture partners. There was a dispute between the partners and counter disputes, and so the Commonwealth didn’t want to get dragged into those disputes. TIP: You won’t find the term ‘special purpose liquidator’ in the Corporations Act. The power of the Court to appoint a special purpose liquidator is exercised through s 90-15 of the Insolvency Practice Schedule – that’s Schedule 2 of the Corporations Act for those playing at home. Section 90-15 confers a discretion on the Court to “make such orders as it thinks fit in relation to the external administration of a company”, either on its own motion or on the application of an interested person. If the test for when it’s appropriate to appoint a SPL isn’t in the Corporations Act, where is it? Well before the Insolvency Practice Schedule, s 511 of the Corporations Act and the cases that considered it said that the Court had the power to appoint an additional, or special purpose, liquidator if it was ‘just and beneficial’ to do so – and cases like Gleeson JA’s decision in Hemisphere Technologies and Farrell J’s decision in GDK Projects have confirmed that while s 90-15 doesn’t contain that language, in the words of Farrell J: “it is difficult to envisage circumstances where the power would be exercised if the Court could not be satisfied that it would be just and unless the applicant had demonstrated sufficient utility to the external administration.” But when is it just and beneficial to appoint an SPL? It might include conflicts of interest that prevent or might be perceived to prevent an appointed liquidator conducting investigations or litigation; or it might be the pursuit of particular claims at the behest of and backed by funding from a creditor, where the appointed liquidator, for one reason or another, is unwilling or unable to pursue that claim. Let’s get back to Steve’s explanation of why he was appointed as special purpose liquidator of Queensland Nickel. And saw it proper to seek me as an appointment of a special purpose liquidator for first of all, investigating their claims and then ultimately making those claims against the joint venture partners. |
DT:
9:00 | Now we’ve spoken on this show before about how a general purpose liquidator has so many competing responsibilities, and that’s true of a voluntary administrator as well. On the one hand, you have a responsibility to maximise the return to creditors. On the other hand, you have the responsibility to investigate the affairs of the company, report to creditors on the affairs of the company, its collapse, perhaps, wrongdoing by directors, you have a responsibility to report to ASIC and the ATO about wrongdoing and you have a responsibility to hold meetings, prepare reports, do a whole lot of things that sometimes pull you in different directions, but as a special purpose liquidator that’s not the case, you have a much narrower focus. And how does that narrow the focus towards the task at hand? Change your approach to your appointment? |
SP
10:00
| Well, a special purpose liquidator’s powers are defined in the appointment. And so they’re far more measurable as to whether you succeed or not. And so ultimately you are very much focused. In the case of Queensland Nickel, we had certain claims that we had to investigate and if we thought they were recoverable, we would then focus on that recoverability. As you say, without having to have regard to all of the other aspects of the liquidation. In this case, it was a litigation. There’s three elements to a litigation having been experienced in this area for some time, one is getting very good prospects advice from counsel, and secondly, the major one is the ability to quantify the loss. Often with litigation people have got a head of steam about the rights and wrongs, but forget that the big issue is how do you quantify loss? And the third element is assessing the ability of the defendant to pay. So often it’s all very well to have a good claim and assess loss, but if the ability of the parties not to pay you is not there, well, you’ve got a failed assignment. So all of those elements allow you to focus on the matter at hand, which is far different to that role of the GPL. GPLs are often having to weigh up whether to litigate or not, or whether to pay dividends, to use the surplus funds to pay dividends, and that, in a sense, puts themselves in a difficult position. Special purpose liquidator normally is self-funded or is funded through a litigation lender or through, in my case, the Commonwealth in Queensland Nickel. |
DT: 11:00
12:00 | I want to come back to the Commonwealth funding of the appointment in a moment, but I really like that point you made about the measurability of the success of the special purpose liquidation. We’ve spoken on this show before with Jason Porter about identifying what is a good outcome in an insolvency, you know, is it a good outcome if the business survives? Is it a good outcome if there’s a higher return on cents in the dollar approach to creditors compared to a lower cent in the dollar approach where the business doesn’t survive? Is it a good outcome if offences are uncovered and reported to ASIC? Is it a good outcome if litigation is pursued successfully against directors? There’s many ways to measure the success of an insolvency appointment in that broader scope, but as you say, it’s very clear what success means for a special purpose liquidator. And of course where you’re appointed to pursue litigation, you do have to consider not only prospective success but also recoverability. Now you mentioned that in the Queensland Nickel case, you were funded by the Commonwealth government, that was as a consequence of the Commonwealth being a substantial creditor of Queensland Nickel, somewhere in the order of $66 million under Fair Entitlements Guarantee Scheme. Tell me a bit about the FEG scheme and how that resulted in the Commonwealth being a substantial priority creditor of the company. |
SP:
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14:00 | Yes. With Queensland Nickel I mentioned earlier, it previously was in voluntary administration. It then went into liquidation and there were insufficient surplus funds available to pay the employee entitlements which became due and payable. The employees were sacked and then therefore under the FEG scheme or legislation, they’re entitled to be paid by the government. The government then takes the role as a creditor with a subrogated right as a priority creditor in the shoes of those employees, which is what happened here. TIP: The Fair Entitlements Guarantee is a safety net scheme introduced in 2012, it replaced the earlier GEERS (general employee entitlements and redundancy) scheme that operated up to that point. If a company goes into liquidation and the company’s assets are insufficient to pay all of the employees’ liabilities, well the Commonwealth government makes up the difference through the FEG scheme. Australian citizens, permanent residents and other visa holders with an entitlement to work are eligible to make a claim through FEG. FEG is then subrogated to the priority position of the employees – in other words, FEG takes the place of those employees in the queue of creditors waiting to get paid by the liquidator. FEG is able to take the place of employees in the waterfall of creditor payments because of s 560 of the Corporations Act, which provides that anyone who makes an advance to a company on account of wages, superannuation contributions, or leave of absence or termination of employment under an industrial instrument, that person has the same right of priority as the creditors the advance was meant to pay. Section 560 applies to anyone who makes an advance like that, not just FEG, but FEG is probably the most common beneficiary of the section. To reduce the cost of the FEG scheme to the taxpayer and prevent abuse of the system, the Commonwealth government funds litigation to recover money for distribution to the creditors of companies that have received FEG advances – including funding a special purpose liquidator to pursue that litigation. The administrator became the liquidator, the general purpose liquidator. There was insufficient cash available to pay those entitlements, about $68 million I think in total was paid and therefore FEG wrote those checks to those employees and then became the creditor for that amount of money. |
DT: | And FEG often pays out in asset-less liquidations where there’s a number of employees with outstanding entitlements, but this is one of the larger FEG payouts, isn’t it? |
SP: 15:00 | It is. I think it is the largest payout under the scheme at the time, and therefore, as a result of that it had quite a bit of focus obviously from the government’s point of view, that they didn’t want to pay out that money unnecessarily without some right of claim to be repaid. |
DT: | Now, at the outset, we should acknowledge that the special purpose liquidation of Queensland Nickel has concluded and concluded with the claims which you were appointed to pursue being settled. Some of the terms of that settlement were public, many are confidential, and of course that settlement is without any admission of liability whatsoever, acknowledging that fact, give us a description of the litigation which you were appointed to pursue against Queensland Nickel and its officers. |
SP:
16:00 | Yes well, there was a cascade of different claims all together, but primarily the claims were around the area of dispute and interpretation of the joint venture agreement. There were three companies in that joint venture agreement: Queensland Nickel was the manager, and the holders of the assets were two other companies that weren’t in administration. So when Queensland Nickel went into, eventually, liquidation, we had a company with a number of liabilities but with no assets. There was a major claim which was part of that agreement which was a form of indemnity claim against the two other joint venture partners. Another important part of the claim was that on an annual basis, the joint venture companies themselves would write off particular intercompany loans and so loans were made to various inter-companies and for tax purposes they were written off. And they formed other parts to the claims that we made at the time. So they were measured in two key areas, but there are other claims as well in relation to directors’ duties etc. But they really were to do with the major parts of the indemnity claim. |
DT: 17:00 | The principal parts were that claim under the indemnity against the other joint venture parties and also the intercompany loans from Queensland Nickel. |
SP: | Yes, and as you said, we settled those matters prior to that being determined. |
DT:
| Now some of those other ancillary claims, if you like, involve cross-border or international transactions, and with any litigation of this size and scale, there’s an enormous degree of factual complexity. Even in the claim under the indemnity and the related party transactions, I imagine there’s an enormous amount of factual complexity in unpicking how those transactions came to pass, and how those were recorded. What are some of the practical challenges of pursuing litigation of this scale as a special purpose liquidator? |
SP:
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20:00 | Well in this particular matter, there was number of practical elements. One being that we had a very wealthy defendant ultimately in Mr Palmer and the various companies that he controlled. TIP: Now the case of Queensland Nickel no doubt sparked some conversations among the general public and perhaps even the business community about the separate legal personality of companies. As I hope most of you listening already know, companies have the same rights as natural persons and its members and directors are not usually liable for the debts incurred by the company. But let’s recap on the justification for separate legal personality – which is useful if you ever have to explain it at a dinner party. The common justification is that, without this protection, few people would be willing to accept the role of company director, or even just start a new business in corporate form, because they’d be exposed to the liabilities of an inherently risky enterprise. Now in very limited instances, a court will ‘pierce the corporate veil’ – and hold a director or shareholder responsible for the actions of the corporation as if it were the actions of that person. Australian courts have recognised a number of discrete causes that may lead to a piercing of the corporate veil, and without going into every one of the discrete causes of action which might give rise to a reason to pierce the veil, they all fall into one the following five categories: (a) agency; (b) fraud; (c) sham or façade; (d) unfairness/justice; and finally (e) group enterprise. Now, back to Queensland Nickel and Mr Palmer. He’s a very experienced litigator, and he was also very experienced at utilising his skills with the press. We had what looked like fairly complex matters that we had to try to distil, you know, to the public or to the courts, and so there was some particular issues that we had to deal with. The other continual issue that we had is that the two joint venture companies that we were pursuing had closed for business and were in basically in care and maintenance so that if we were successful in having claims against those companies, how were we going to get paid back the sum of money that was owed back to the Commonwealth and now the creditors? So that was always in the back of our mind as one of the practical problems of this particular matter. One thing I would like to say though is I always kept, and our team always kept, a pretty open mind for settlement discussions. And we always made it very clear that we were playing the ball, not the man, and I always kept, I think, a reasonable relationship with the defendants, including Mr. Palmer, so that we could have proper discussions from time to time about possible settlement. |
DT:
| I think it’s, going back to that recoverability point that you made earlier, that it’s all well and good to identify what perhaps you’ve been advised is a claim with good prospects, but unless there’s some path to a practical recovery for creditors, and even as a special purpose liquidator, that’s ultimately your goal – a recovery in the interest of creditors, there’s really no point pursuing that to finality, and it would make sense to be pursuing those settlement discussions early and often. |
SP: 21:00
| Yes I mean look, any litigation is always fraught with risks. You as a liquidator only have evidence from what you take in the written records from the company or from statements and affidavits. The defendants have the benefit that they were on the scene at the time and will have direct counter evidence sometimes to your claims, which may be more reliable than your knowledge. So it’s not until you get into the litigation itself that you realize there might be two sides to the story and that your claim mightn’t necessarily have the strength that you first thought. |
DT:
22:00 | Tell me a bit about that dynamic. I’ve always thought it’s an interesting one and it applies to general purpose liquidators as well that while you have access to the books and records of the company, you have all of that information without context, and it’s almost a historical exercise to piece together a story from these disparate records, perhaps they’re complete, perhaps more often, they’re incomplete. Whereas you are facing counter-litigants who have that context, who have the benefits of experiencing the facts that you’re trying to piece together. In an ideal world, you have pro-rata and you have the opportunity to conduct public examinations that give you some of that context, but we know that that’s more an ideal than a reality. In your experience as a special purpose liquidator and in other appointments, how do you piece together that story and how do you leave room to accommodate that asymmetry of information? |
SP:
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24:00 | Well, it’s really down to your own experience after a period of time. One, you can talk to creditors that have dealt with the company and get their view of the circumstances. You can talk to employees, and as you mentioned you take public examinations. And through a number of different sources, you can get a feeling as to what was going on in the company. TIP: Special purpose liquidators have all of the same tools as a general purpose liquidator available to them to collect information about a company. They can:
Unless they conduct examinations, however, the special purpose liquidator, just like the general purpose liquidator, will probably have to rely on the Report On Company Activities and Property, or the ROCAP, produced by the company’s directors – which used to be called the RATA, or Report As To Affairs, for those playing at home, so you might still hear that term every now and then too. Since it’s produced by the company’s directors, the quality of this information can vary widely – so you can imagine why liquidators, special and general, are sometimes at an information disadvantage. You are, of course, at a disadvantage because the defendant will have absolute knowledge and recollection of events which maybe differ from the views of others, and so I think it’s just a matter of your own experience in trying to judge the information that you obtain yourself as to how you weigh that up compared to what’s being told to you on the other side. But often you don’t know what the defence is until you end up in court and you actually find out the real circumstances. So sometimes you get some surprises. |
DT: | And don’t litigators love those! |
SP: | Absolutely. |
DT: 25:00
| Litigators and litigants. Now in insolvency litigation there’s often funding issues on both sides of the fence. Often directors have pumped as much money as they possibly could into helping the business survive before its ultimate demise. Often liquidators are trained to fund the litigation out of the assets of the company, which are finite which might be funded through a litigation funding agreement which comes at a high price. Here, though, it was a bit of a clash of the Titans really, wasn’t it? You had a very well-funded defendant, but also a very well-funded plaintiff in the form of the Commonwealth funding that you received. And of course the litigation was also conducted during a federal election. How does the profile of litigation like this change your approach to it? |
SP: 26:00
27:00 | Yes, well it’s a very good point. We had a defendant who was very experienced and had the capacity, financial capacity, to undertake the litigation and defend the litigation. We had something like 60 interlocutory applications to deal with. Now that becomes very expensive. And of course, we were successful in all of those applications, but we still had to deal with them. Now I think the issue at hand is that we always had to keep in balance what our claim was, the prospects of that claim, and our ability to get repaid at all times. We had, notwithstanding the strength of both parties, we had to keep the reality that we still had to get success out of it. And that’s what I was going to get measured on. Whether this can be successful or not, it could have been a very, very expensive outcome if we’ve got no return or if we’ve got a claim through the courts but didn’t get a payment. So we always had to weigh up the cost. We were running budgets all the time for the litigation. And the government, even though it was funding it, it wasn’t an open cheque book. We had to go through the normal processes of accounting back to them. |
DT:
28:00 | It’s an important point, isn’t it? That funds available to fund the litigation might not be available to fund the payment of a judgment at the end of it. TIP: This is a common dilemma in any litigation – the risk that you spend time and money to achieve a successful result, only to find that by the time you’ve won, either the costs have outweighed the financial return, or the opposing party has become insolvent and is unable to satisfy that judgment debt. It’s always worth remembering that not every case with good legal prospects of success is worth pursuing if the fruits of the action cannot be recovered. Now as I said, this is common concern in litigation, but can be heightened in insolvency-related litigation, and where the person that’s funding the litigation, whether that be a private litigation funder, a creditor, or even the Commonwealth government like in this case, requires a cost benefit analysis to ensure the expected return will outweigh the cost of funding, well that concern can even present a threshold issue that you have to overcome before you can get the funding to start the proceedings. Back to Steve. Now, Queensland Nickel is not your first appointment as a special purpose liquidator of a very significant corporate collapse. You were also a special purpose liquidator of One Tel in 2012. Tell us a bit about the One Tel appointment. How did you come to be appointed as a special purpose liquidator there? |
SP:
29:00 | Yeah that was quite, quite different. There was a previous special purpose liquidator appointed in that matter, and litigation had actually commenced. But what transpired was that a number of the major creditors of One Tel basically had a view that they wanted to replace the special purpose liquidator and I took on that role and was so appointed by the courts. The difference to the matter was not only the fact that litigation had started, but quite different to Queensland Nickel was quantifying not only whether we had a claim that was of high prospects, but two quantifying what the loss or the damage was. Whereas in Queensland Nickel we could clearly identify the loss because of the outstanding creditors and which we attributed to the indemnity that should have been paid so that those creditors shouldn’t have been outstanding. In One Tel it was a matter of claims for damages caused by the actions of the directors prior to the appointment of the liquidator. And so those claims were questioned as to how you work out the damages. So there were two distinct differences. |
DT: | And how did you overcome that challenge? |
SP: 30:00
| Well because we were already in the litigation, what I determined upfront was we kept the team of lawyers that were involved that were running the litigation. I brought in my own separate lawyers to review the position, but I also brought in a third party which was a negotiation lawyer to assist with settlement. Again, I kept the view that at all times I’d keep the door open and have discussions with the defendants. We had wealthy high-profile defendants. And so I formed the view that if we could continue to have discussions and open dialogue with them, notwithstanding the litigation as continuing, we would get to a point at some stage of possibly settling, and in fact that’s what happened. As the matter became very close to having expert witness reports put and filed, we got to a point where it was becoming pretty serious, and so the parties could see a way clear to agree to a settlement. |
DT: 31:00 | It’s interesting, isn’t it? That on one end of the spectrum you might have essentially asset-less liquidation, where perhaps there’s a theoretical insolvent trading claim, and you and I know that many of those insolvent trading claims are settled just after public examinations, maybe just before them. But rarely is that litigation actually commenced, because there’s an acknowledgement that while it would be difficult to fund and pursue that litigation, it would also be difficult to fund and defend it. Even at this very opposite end of the scale, though, we’re still facing the same challenges. We’re still facing the same challenges of funding and recoverability and the same motivators are really driving those settlement discussions. |
SP:
32:00
| Very much so. The stakes are higher and usually it’s a matter of public knowledge. Again, because of the risk of litigation, you would try on most occasions, to try to always look to see if there’s some form of a settlement available. To continue right through a litigation is always a risk, it’s always some interpretation of the law and the appeal processes. The time it takes to run a litigation is long and creditors usually want a quick return. They’ve burnt some money, and so they want to get repaid and they don’t necessarily have the patience or the appetite for hanging around for a long running litigation. So you’ve got to keep those matters in mind, and that’s to the benefit of the defendants that they should know that. That whilst you have got a financial capacity to pursue them, the creditors by and large do want matters settled. You know, they start off easily angry, but as time goes on they can see benefit in getting paid their money rather than a long drawn-out litigation. |
DT: | I think you’ll especially find that with the funding creditor. |
SP: 33:00
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35:00 | Yeah, look, the funding creditor comes with a totally different set of rules. TIP: Sometimes, liquidators and special purpose liquidators are funded by a creditor of the company, as Steve was here, the Commonwealth Government was the creditor under the FEG scheme. Where no creditor is prepared to take that risk though, the alternative is a litigation funder – someone in the business of investing in the pursuit of litigation and partly or wholly funding the cost of it, in return for a portion of the proceeds if the action is successful. Now in medieval times, funding litigation that you didn’t otherwise have an interest in it in return for a share was unlawful and prohibited by the doctrines of maintenance and champerty, but fortunately for all liquidators who have a great claim to pursue but aren’t in funds to pursue it, litigation funding is now very much legal in Australia. Until very recently, you didn’t need an AFSL to be a litigation funder and litigation funding was excepted from the definition of a financial product or service under the Corporations Act, but since 22 August 2020, litigation funders now generally need to hold an AFSL license and each scheme needs to be registered as a managed investment scheme – though there are exemptions for litigation funding related to insolvency litigation, perhaps because of the potential for a creditor to engage in litigation funding in that context. The licensing changes also don’t apply retrospectively, so there are probably plenty of ongoing, non-insolvency related litigation funding schemes out there that commenced before 22 August 2020 but don’t need to comply with the new rules. Now this is anecdotal so estimates will differ, but most litigation funders require a three to five times return on their investment. This means that a liquidator must model out different outcomes to ensure that, if successful, the return in the litigation not only covers their costs and remuneration and the cost of funding, but also results in a return for the creditors – because otherwise what would be the point of pursuing it in the first place? They’re usually very, very experienced. There’ll be milestones in the agreement which sometimes drives their behaviour, so that if you get past certain points in time, they get higher returns and etc etc. So their behaviours can be quite different based on how the agreement is structured. |
DT: | Where you have an extant creditor of a of the company funding your appointment, does that change the dynamic at all? |
SP:
| That comes with its own challenges. I mean liquidations, generally, you’re balancing people’s expectations and you have a major creditor, again who may start off, in my experience, with a desire to pursue a claim, then as time goes on and costs go on, their appetite decreases. That’s generally the case. Generally people have an expectation that they’re going to get clarity and a fair result through the court system, which is true, but it just takes time and it does cost money. |
DT: 36:00 | Yeah, absolutely. We’ve discussed the fact that the Queensland Nickel matter settled, but those terms are public, at least some of them are, and it was quite a positive outcome for the creditors of the company. Tell me a bit about the recovery. |
SP:
| By and large the way that the settlement was structured is that the majority of all creditors had been paid. There were some disputed creditors plus some costs of the general purpose liquidator, which is still subject to litigation. By and large, the settlement was structured so that the creditors all received full payment and the Commonwealth received its full payment. So it was a very, very good result in terms of the outcome. |
DT: | And one that left the way open for the nickel refinery itself to re-commence operation. |
SP:
37:00 | Yes, I think that’s still a matter of finalising the current liquidation that the general purpose liquidator has. I presume once that is determined, there is a point in time when that is the case that the nickel plant could be up and operating again. One of the issues with that particular plant was the price of nickel, and that was part of the reasons that ran into financial difficulties. I haven’t been following the price of nickel of late, but like a lot of mineral prices once they start to rise, it all of a sudden becomes more viable for the company of the operations to start again. So that’s probably the case. |
DT:
| Steve, we’ve spoken about your experience in special purpose liquidations and the litigation that special purpose liquidators are instructed to pursue today, but many of the experiences you’ve had as a special purpose liquidator, would be familiar to general purpose liquidators or receivers or any other insolvency appointees who might be pursuing litigation that has a particularly high scale or a particularly high-profile in the media, or that is dealing with a particularly large amount of money. Having had that experience dealing with litigation of that scale, of that complexity, of that profile in both One Tel and in Queensland Nickel, what’s a tip that you’d leave our listeners with whether they’re insolvency practitioners, or lawyers advising insolvency practitioners, when dealing with litigation of this kind? |
SP: 38:00 | There’s probably 2 tips. So one of the three major matters that I’ve dealt with, I had a good working relationship with the general purpose liquidators. So don’t get ahead of yourself, and that’s probably the second part of the tip – don’t become arrogant just because you’ve been put into a unique role, and it might be high profile, but really make the point of playing the game and not the law. And really don’t take it personally against those defendants and you’re more likely to get an outcome. |
DT: | Absolutely, and probably a great tip for any appointee who’s dealing with co-appointees. Whether you’re a receiver dealing with deed administrators, or a receiver dealing with voluntary administrators or what have you, it’s probably always a tip. |
SP: | I’ve found over my career some of the best matters have been referred to me by fellow practitioners who would be regarded as my competitors. And usually that’s developed because you’ve got a good professional relationship and working relationship with them. So I think that’s a good thing for the profession as well. |
DT: 39:00 | Steve Parbery, thanks so much for joining me on Hearsay to share your experiences. |
SP: | Thank you David. |
DT:
40:00 | Thanks. As always, you’ve been listening to Hearsay The Legal Podcast. I’d like to thank our guest today Steve Parbery from Kroll for coming on the show. Now if you want more content like today’s episode you probably already know that Hearsay has plenty of insolvency law episodes, almost too many in fact! You could try our episode on voluntary administration with Professor Jason Harris, our episode on the basics of the PPSA with Nicholas Mirzai, our critical review of the new small business restructuring process with Professor Harris and Mark Wellard, our episode about public examinations with Jason Porter, Vince Pirina and Andy McEvoy, our episode on complex bankruptcy with Mark Robinson, or our episode on unreasonable director related transactions with David Armstrong. Or, if you’re looking for something that isn’t insolvency law related, you could listen to any other episode! If you’re an Australian legal practitioner, you can claim 1 continuing professional development point for listening to this episode. Whether an activity entitles you to claim a CPD unit is self-assessed, but we suggest that this episode entitles you to claim a substantive law point but as today’s episode is a little bit shorter than others, you should only claim that point if you’re also read the summary paper, taken the quiz and reviewed the infographic for this episode. More information on claiming and tracking your points on Hearsay can be found on our website. Hearsay The Legal Podcast is proudly supported by Assured Legal Solutions, a boutique commercial law firm making complex simple. You can find all of our episodes as well as our summary papers, transcripts, quizzes and more on our website. And if you’re a subscriber, we’ll let you know by email whenever we release a new episode. And by the way our free trial episodes are now available on Apple Podcasts and on Spotify, so if you like us give us a rating on your preferred platform and maybe tell a friend to listen to an episode there too. Thanks for listening and I’ll see you next time. |
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