The Bell Scheme of Arrangement: Allowing Liquidator's related party votes to count

In the recent case of Ex Parte Bell Group Finance Pty Ltd (in liq) [2020] WASC 287, being the most recent determination in the 25 year history of the Bell Group litigation, the liquidator (Liquidator) sought directions from the court to cause certain related Australian Bell companies (Related Bell Companies), to which the Liquidator was also appointed, to vote in favour of resolutions to enter into a scheme of arrangement.

If successful, the scheme would bring about a resolution of the claims for the distribution of approximately $1.6 billion.  If the scheme was not approved, it was estimated that creditors would not receive any distributions until 2027 – although the Court stated that this was an optimistic estimate.

Application for directions

The application for directions was made pursuant to section 479(3) of the repealed Corporations Law (for those of the Related Bell Companies that were ordered to be wound up prior to June 1993) and 90-15 of schedule 2 of the Corporations Act. 

If the directions sought were made by the Court, the Liquidator would hold 75% of the creditors by value and 50% by number, meaning the Liquidator would effectively be able to approve the scheme by exercising the voting rights on behalf of the Related Bell Companies. 

The directions sought were in terms that the Liquidator would be acting properly and would be justified in causing the Related Bell Companies to vote in favour of the scheme.  Importantly, the Liquidator’s evidence noted the benefits which would flow to creditors if the scheme was approved.

The law 

It is well established that when a liquidator applies for directions, the liquidator must show:

something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, that decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised,

(per Goldberg J in Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 at [65]).

The purpose of the direction if given is as follows:

Subject to the liquidator making full and fair disclosure of the material facts, the effect of a direction is to protect the liquidator from claims that they have acted unreasonably, inappropriately, or in breach of their duties; it does not determine rights and liabilities that arise out of the proposed transaction. Put another way, the order of the court sanctions a proposed course of conduct by the liquidator.

(per Hill J in Ex Parte Bell Group Finance Pty Ltd (in liq) at [85]).

The decision

Here, Hill J found that the directions sought were justified.

First, the Court found that there was a potential conflict of interest in the duties the Liquidator owed as a liquidator of various companies within the Australian Bell Group. The liquidation has been ongoing for over 25 years and the parties have a history of litigation over that time.  As such, the Court held it appropriate for the Liquidator to receive the protection of the Court.

Second, the Court held that it was reasonable and appropriate for the Liquidator to facilitate the settlement through the scheme of arrangement to maximise the possibility of the scheme being approved and a distribution being made under the scheme.

In granting the directions sought by the Liquidator, Hill J made the following order (amongst others):

The Liquidator would be acting properly and is justified in causing those companies to attend any scheme meetings which they are eligible to attend and to exercise any rights to vote at such scheme meetings in favour of resolutions to agree to the schemes.

Lavan comment

This decision is another instance of the Court reinforcing the flexibility available to external administrators in seeking directions from the courts and the willingness of the courts, in appropriate circumstances, to protect external administrators from claims that they have acted unreasonably, inappropriately or in breach of their duties.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.