“unacceptable provision” an independence threat

A bid to restrain Dentons from acting simultaneously for a creditor and a liquidator inadvertently led this week to the exposing of an independence-quelling clause in a funding agreement.

In the NSW Supreme Court on Monday judge Ashley Black was hearing an application brought by GR Capital director Ms Lan Liu seeking to have Dentons restrained from acting for SV Partners executive director and GR Capital liquidator Jason Porter in insolvent trading proceedings Porter had commenced against her.

Liu’s argument was that Denton’s was intolerably conflicted because before it had been engaged by Porter it had been retained by GR Capital creditor Mr Jianhua Yan, the man funding Porter to pursue the insolvent trading claim.

Liu’s application however got off to a bad start when the judge, having been told Porter and Dentons’ restructuring partner Justin Bates were present for cross examination, refused to grant leave on the basis that this was an interlocutory application and the first he’d heard about an intent to cross-examine anyone.

Nor was the judge minded to indulge the argument that Dentons should be restrained from acting for Porter on the basis the firm was already acting for Yan because such promiscuity disadvantaged the general body of creditors.

Even when the court heard that the agreement meant Yan would be potentially privy to the same information as Porter in respect of the insolvent trading proceedings and planned public examinations the judge was unmoved.

But if Bates and Porter were feeling any inkling of triumph Justice Black soon recalibrated their mood.

In discussing the funding agreement the judge advised that he had identified an “unacceptable provision” which, if given effect, would lead Porter to be in breach of his statutory duties, not something expected of an ARITA board member but hey, maybe Dentons drafted the agreement before Porter engaged them?

The provision required Porter to seek approval from Yan before entering into any settlement in respect of the insolvent trading proceedings, a provision wholly unacceptable to any liquidator who prizes his or her independence, as Porter no doubt does.

Porter’s barrister Dom Delaney from Alinea Chambers immediately inquired of Porter’s solicitor before reassuring the judge Porter would be discussing the need to amend the agreement urgently.

iNO asked Porter and Bates who drafted the funding agreement and what steps were being taken to delete the unacceptable provision.

In an email response yesterday Bates confirmed that Porter and the funder had on Monday agreed that “the Liquidator’s independence is paramount’ and that the offending clause would be removed.