In the matter of One. Tel Limited  NSWSC 457
One. Tel Limited (In Liquidation) (One. Tel) was a telecommunications company which commenced operations in the mid-1990s. In or about 1999 News Limited (News) and Publishing and Broadcasting Limited (PBL) (now Consolidated Media Holdings Limited) (CMH) became major shareholders of One. Tel, with James Packer and Lachlan Murdoch (among others) becoming directors of One. Tel.
One. Tel started experiencing cash flow difficulties from April 2011. On 17 May 2011 the directors of One. Tel resolved to implement a one-for-one renounceable rights issue at five cents per share to raise $132 million (Rights Issue). The Rights Issue was to be fully and unconditionally underwritten by CMH, Consolidated Press Holdings Pty Ltd (CPH), News and their subsidiaries. However, no written underwriting agreement was ever prepared or executed by the parties.
On 24 July 2001, the creditors of One. Tel resolved that One. Tel be wound up and that general purpose liquidators (GPLs) be appointed. On 23 December 2003, on the application of certain creditors of One. Tel, the Court appointed a special purpose liquidator (First SPL).
Various proceedings were commenced by One. Tel against (among others) Mr Packer, Mr Murdoch, PBL, CPH and News. In May 2012 the First SPL commenced proceedings against Mr Packer, Mr Murdoch, CMH, CPH, Robbdoc Pty Ltd, Toranaga Pty Ltd, Cavalane Holdings Pty Ltd and Leteno Pty Ltd (CMH/News Parties) (Equitable Proceedings). The issues arising in the Equitable Proceedings included (among other things):
On 19 June 2012 the special purpose liquidator (SPL) was appointed to replace the First SPL. Meanwhile, the Equitable Proceedings was set down for a trial to commence in October 2014 for ten weeks and to resume in March 2015 for a further two weeks.
On or around 14 February 2014 the SPL formed a view that there were significant risks in continuing to prosecute the Equitable Proceedings and that a settlement would likely produce a more favourable outcome for One. Tel’s creditors, than proceeding with the Equitable Proceedings to finality. As a result of the negotiations which ensued, on 9 April 2014 the parties executed the Deed of Settlement (Deed).
The Deed provided (among other things) that:
The liquidators brought an application pursuant to section 511 of the Corporations Act 2001 (Cth) (Act) seeking orders to the following effect:
The Court held that a direction that the liquidator was justified in entering into and implementing the Deed, and procuring One. Tel to do so was all that was necessary. The Court found that the balance of the orders sought by the liquidator were inappropriate and did not conform to the principles and practice applicable to section 511 of the Act.
In particular, Brereton J emphasised that the Court’s role under section 511 is to provide advice as to whether the liquidator is justified in taking a particular course of action (i.e whether to enter into the Deed), not declaring that he has otherwise generally acted properly in doing so. Brereton J said that to make the direction sought would necessarily involve a much wider enquiry into the whole of the liquidator’s conduct in and about the negotiation and procuring of the Deed.
In addition, in His Honour’s judgment, Brereton J provided reminders to liquidators when seeking a declaration under section 511. They are as follows:
Lavan Legal comment
Practitioners need to be mindful of this decision when seeking direction from the Courts. The decision of Brereton J is a warning to liquidators that an application for directions under section 511 of the Act should not be used as a means of seeking the Court’s imprimatur regarding the detail of commercial decisions made by the liquidator.