SPL bid founders as judge queries “onerous” fee

Coming before a judge with an incompletely charted special purpose liquidator (SPL) application must be considered to be a fraught exercise.

But when the aspiring SPL’s proposed funder also demands an ogre-sized serving of any proceeds of litigation well, why bother incurring the filing fee?

In this case those applicants – Philip King’s Rockgold Holdings and BVI-registered Ever Tycoon Limited controlled by Singapore property entrepreneur Ching Chiat Kwong – have run aground upon the unyielding shoal that is Justice Ashley Black of the NSW Supreme Court, with his honour this month rejecting their application to have Hall Chadwick partner Sule Arnautovic appointed SPL of Jabiru Satellite Ltd (Jabiru) and NewSat Ltd (NewSat).

The applicants had brought the application because for reasons not disclosed In the matter of Jabiru Satellite Limited (in liq) and NewSat Limited (in liq) [2022] NSWSC 459, they were unwilling to continue to fund incumbent general purpose liquidator (GPL) Glenn Livingstone of WLP Restructuring.

The funding – of which King has reportedly provided up to $3.5 million so far – is to allow Arnautovic to continue proceedings against various of Jabiru and NewSat’s secured creditors which King and Ching commenced with Livingstone’s consent in the Supreme Court of Victoria in 2021.

Those proceedings stalled and with no agreement between the applicants and the GPL on further funding a circuit breaker was needed.

Somehow Arnautovic came onto the scene and the application to appoint him was paired with an application to enter into a funding deed with the very recently incorporated NewSat Funder No 2 Pty Ltd (NewSat Funder).

It was the terms this funding deed to which Arnautovic was prepared to bind himself that moved Justice Black to make specific comment.

“Mr Arnautovic’s affidavit indicated that he was in the process of negotiating a funding agreement with NewSat Funder for the funding of the Proceedings but did not address the matters which he had taken into account in doing so or provide any support for the proposition that his appointment would be in the interests of the Companies’ creditors generally,” Justice Black said.

“Mr Arnautovic also expresses the view, which seems to me unconvincing in the circumstances, that the proposed Funding Deed should be entered into.

“He observes, with a degree of understatement, that the proposed Funding Fee payable to NewSat Funder is “a higher funding fee that [sic] I have previously seen in other funding arrangements in which I have been involved”.

Understatement indeed. His honour helpfully discloses that the term “Funding Fee” as defined in the deed is the higher of twice the Costs so far as they are paid or payable by the Funder or the “Percentage Payment”.

This percentage payment in turn is defined as 70% of the “net Resolution Sum” and any additional amount payable to NewSat Funder in respect of any appeal NewSat Funder might also bankroll.

“It follows that at least 70% of the net Resolution Sum would be payable to NewSat Funder, if that amount exceeds twice the costs incurred, regardless of the extent of the costs that NewSat Funder incurs and without any cap on the amount payable to maintain any proportionality with the actual costs incurred,” the judge said.

An absence of proportionality however wasn’t the only problem the judge had with the arrangement Arnautovic and his backers were proposing.

NewSat Funder has no assets. It’s a very recently conceived subsidiary of Rockgold Holdings and neither King or Ching had provided Arnautovic with any personal guarantees to assure the court that Funder could respond to a costs order in the event that those secured creditors targeted in the Victorian proceedings ultimately won the day.

The judge was also unwilling to be swayed by the submission from the applicants’ counsel David Sulan SC that because Livingstone consented to the SPL application, he must have been content with the terms of the funding deed.

” …. it is not apparent whether he (Livingstone) had been advised of the magnitude of the Funding Fee to be charged by NewSat Funder before taking that position, and, in any event, the Court must reach its own decision as to the appointment of the SPL, having regard to the relevant matters including those which I have addressed above,” the judge said.

“Mr Sulan submits and I also accept that Mr Arnautovic is highly experienced, including with complex litigation, but that experience is no substitute for an adequate review of the alternatives to entering a Funding Deed on these onerous terms.”