Federal Court judge Michael Lee wasn’t going to let a funding agreement between Westpac and Forum Finance Group’s liquidators pass without comment when the draft deed came before his honour last Friday.
The agreement, which will enable liquidators Jason Preston, Jason Ireland and Kathy Sozou of McGrathNicol to pay their remuneration and expenses, contained two elements upon which his honour was quick to pounce.
The first was so-called clause 5a which, in its unamended form, would have potentially prevented the Forum Group’s liquidators from using any funds provided by Westpac to pursue an action inimical to the bank’s interests.
“The expression ‘adverse to the funders rights and interests’ is so broad that I can see circumstances consistent with the administrators’ duties that might be perceived as being adverse to the commercial interests of the funder so I wouldn’t be prepared to approve an agreement with the terms of 5A.” Justice Michael Lee.
Given the conflict such a clause would create in respect of a liquidator’s statutory duties, his honour wasn’t having it.
“The expression ‘adverse to the funders rights and interests’ is so broad that I can see circumstances consistent with the administrators’ duties that might be perceived as being adverse to the commercial interests of the funder so I wouldn’t be prepared to approve an agreement with the terms of 5A,” he said.
“A term expressed with such breadth as this is just inappropriate,” the judge said. “It’s very difficult to see what the limits are to it.”
An amended form of words was proffered and deemed acceptable, leading to discussion of the second element of the funding agreement which had so perturbed the judge, that being the mechanism by which the Forum liquidators would pay their remuneration and expenses.
The funding agreement provided for the presentation of invoices and whilst remuneration would be invoiced for only after the necessary court or creditor approvals had been obtained, no such safeguards were evident in respect of legal fees.
No doubt imagining the cacophony generated by a horde of Minters partners picnicking, his honour expressed his unease before delivering his decree.
“One of the things that concerns me about cases such as this and that’s not a reflection on any of the parties but the amount of legal costs expended in cases such as the present include the possibility of unnecessary legal costs being incurred and it is for that reason that I do not make orders such as those proposed in prayer three of the proposed orders,” the judge said.
“The legal expenses incurred by someone acting as an officer of the court are within the court’s power to control and I just want the liquidators to be aware that there’ll be scrutiny of those costs at some stage,” his honour concluded.