The Federal Court has recently determined that, in circumstances where a liquidator has received committee of inspection approval to enter into a litigation funding agreement by a slim margin which required the liquidator to exercise a casting vote, it is a 'prudent and proper course of action' to seek court approval for entering the funding agreement.
In Walker and Moloney, in the matter of ZYX Developmental Learning Centres Pty Limited (in liq) (Receivers and Managers Appointed) [2011] FCA 1110, the liquidators of ZYX Developmental Learning Centres applied to the court under section 511 of the Corporations Act 2001 (Cth) for orders that the liquidators were justified in entering into a litigation funding agreement and seeking court approval under s477(2B) for them to enter into the agreement (it being an agreement of more than three months duration).
Although two meetings of the committee of inspection had been held seeking approval to enter into the litigation funding agreement, approval was not obtained at the first meeting and it was only obtained at the second meeting because a liquidator exercised his casting vote as chairman. The liquidators took the view that they should not place reliance on any such approval and instead should seek approval of the court for entry into the funding agreement. The court considered that to be a prudent and proper course of action for the liquidators to take in the circumstances. The liquidators gave evidence about the proposed claim and the terms of the funding agreement. The court gave approval under s477(2B) for the liquidators to enter into the funding agreement and also made a declaration under s511 that they were justified in doing so.
Tuesday, November 15, 2011
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There is a curiosity in this case that may have caused the judge to make his rather general comment on the usefulness of the committee's authorisation, which is, how the appointee came to exercise a casting vote in a committee of inspection meeting.
ReplyDeleteHorsley indicates that at common law it is necessary for their to be an express power to exercise a casting vote (para 14.14). While the appointee will normally chair the meeting (reg 5.6.17), a committe votes by number, not by value (s 549), so there will be no question of invoking the casting vote created by reg 5.6.21(4) if a poll is called - the poll will merely record by document the number of votes cast.
Section 549 requires that the committee "act by majority"; in the absence of a majority of those present (who must themselves be a majority of the members, under a flexible quorum requirement), it doesn't seem the circumstances for the exercise of a casting vote could ever arise.