After nearly 20 years, the long running Bell litigation is almost over, with the Supreme Court of Western Australia having approved the settlement between the liquidators of the Bell group of companies and the syndicate of banks involved in the litigation (Re Bell Group (In Liq); Ex Parte Antony Leslie John Wooding as Liquidator of the Bell Group Ltd (In Liq)  WASC 409).
The background to the Bell proceeding is well known. The proceeding was commenced in 1995 and primarily related to whether the Bell group’s banking syndicate was aware that the Bell group was insolvent at the time they took security over some $265 million in assets of the group. In October 2008, the trial judge found in favour of the liquidators and ordered the banks to pay approximately $1.6 billion to the Bell group. The decision was upheld in the Supreme Court of Western Australia Court of Appeal, with the amount payable to the Bell group increased to approximately $2.3 billion.
In December 2012, the banking syndicate agreed to pay $718 million to the liquidators in relation to an undisputed portion of the judgment. The banking syndicate had filed an appeal before the High Court, however, prior to that hearing taking place, the case settled on a confidential basis and subject to, amongst other things, Court approval being obtained.
Under the Corporations Act 2001 (Cth), a liquidator requires approval from the Court, the committee of inspection or the creditors prior to compromising a debt exceeding $100,000 (s477(2A)) and to enter into an agreement with a term of more than three months (s477(2B)). Although the terms of settlement are confidential, it is clear that in the present case, approval was required under both sections.
In determining whether approval should be granted, the Court is not concerned with the commercial desirability of the transaction in question. Instead, the Court focuses on whether the transaction was entered into in good faith and whether there is some error or other substantial ground for doubting the prudence of the proposed conduct of the liquidator.
In the present case, his Honour Justice Allanson was constrained in his reasons as much of the material before him was confidential. However, his Honour did confirm that the following matters were relevant in the Court determining to grant approval:
- First, the liquidator had made a commercial and legal assessment that the settlement was appropriate. The liquidator relied on not only their own commercial judgment, but also the legal advice of senior counsel with respect to the appropriateness of the settlement.
- Secondly, there was overwhelming support for the settlement amongst the creditors of the Bell group, with two of the major creditors being party to the settlement agreement.
- Thirdly, the Court was satisfied based on the evidence of the liquidators that the settlement was in the interests of creditors and that it was likely to expedite the completion of the winding up.
For those reasons, his Honour was satisfied that the transaction was entered into in good faith and that approval should be given under both s477(2A) and (2B).
The liquidators also sought a direction that they had acted, and will continue to act properly and justifiably in entering the settlement deed. The purpose of such a direction is to protect a liquidator from allegations that he or she has acted improperly or unreasonably. Such a direction is likely to protect a liquidator from any subsequent breach of duty claim.
In the circumstances, Allanson J was satisfied that there was a proper basis to give such a direction. Given the size of the judgment debt and complexity of the Bell proceeding, his Honour considered that it was appropriate to provide the liquidators with the protection of a direction from the Court.
In granting approval or giving directions, the Courts are generally unwilling to go behind the commercial decisions of liquidators or give directions in relation to matters of commercial judgment. Notwithstanding this limitation, the power to seek directions is an important tool available to liquidators. Provided liquidators have acted in good faith and in the interests of creditors, they can be confident that approval will be granted when required under section 477(2A) and (2B).