The decision of Re Greatcell Solar Ltd (in liq) highlights the risks liquidators face when seeking retrospective approval under section 477(2B) of the Corporations Act 2001 (Cth).

While the Court approved the agreements in question, it refused to allow the liquidators’ costs of the application to be treated as expenses of the liquidation.

This decision serves as a reminder of the importance of obtaining prior approval for funding and costs agreements to avoid personal cost penalties.

Background

Greatcell Solar Ltd (in liq) ACN 111 723 883 and Greatcell Solar Australia Pty Ltd (in liq) ACN 131 374 064 (together, the Companies) were placed into liquidation on 17 April 2019.

In August 2022, the liquidators of the Companies conducted public examinations and identified potential claims against the Companies’ directors for insolvent trading.

Following the public examinations, the liquidators reached agreement with the Commonwealth of Australia acting through the Department of Employment of Workplace Relations for funding of the insolvent trading claims. The liquidators approached the Court for approval to enter into a funding agreement with the Commonwealth, as well as a costs agreement with their solicitors.

Following some opposition by the directors of the Companies, the liquidators reached a new agreement with the Commonwealth. They subsequently sought retrospective approval (by further amended originating process) to enter into a consolidated funding agreement with the Commonwealth, as well as an amended costs agreement with their solicitors.

Court’s Decision

His Honour Justice Yates approved the agreements, having considered that the Commonwealth’s involvement provided a measure of reassurance regarding the prudence of pursuing the insolvent trading claims, and that the terms of the agreements were commercially reasonable.

However, his Honour made several critical observations:

1. First, while a Court can grant retrospective approval under s 477(2B), Parliament’s intention is that approval be sought before an agreement is entered into.
2. A liquidator should be aware of their obligations and powers contained under s 477. The policy underlying s 477 is immediately defeated if a liquidator simply ignores the provisions by entering into an agreement which they know requires prior approval.
3. The liquidators of the Companies failed to provide any justification as to why it was necessary for them to enter into the initial funding agreement, and later, the consolidated funding agreement and amended costs agreement, prior to approval being sought.

While his Honour did not consider the above conduct to be such that approval should be declined, he declined to make an order that the liquidators’ costs of the approval application be costs in the liquidation, due to their failure in seeking the Court’s approval prior to entering into the relevant agreements.

Key Takeaways

1. Although the Court’s criticism in this case was directed towards the approval of funding and costs agreements, this decision acts as a reminder of the critical importance of liquidators understanding, and complying with, all statutory requirements.
2. Where appropriate, liquidators should seek approval pursuant to s 477(2B) prior to entering into the relevant agreement to avoid judicial criticism and potential cost penalties.
3. If retrospective approval is unavoidable, liquidators should ensure that there is a proper explanation as to why prior approval could not be sought.

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