Australian Bullion Company (Jewellery) - Case Update

The Federal Court of Australia has granted retrospective approval for a funding agreement nearly a year after it was entered into by the liquidator, but has criticised the liquidator’s delay in bringing the application and the “opacity of the evidence” led on the application.

Australian Bullion Company (Jewellery) was a wholesale distributor of jewellery, precious metals and stones. It entered into voluntary liquidation in 2018 after the ATO assessed it as owing $136 million.

In March 2023, the liquidator entered into a funding agreement with Pallion Group, to fund the costs of investigating and challenging the tax liability. The agreement included a $250,000 success fee payable upon a reduction in the tax debt. Nearly a year later, the liquidator sought approval of the funding agreement.

The Court noted that the application had been listed for hearing twice. On the first occasion, the liquidator did not lead any evidence as to why the litigation to challenge the tax liability had merit, or why the success fee was included. The liquidator had also failed to disclose how much he had invoiced the funder under an earlier agreement whereby the funder agreed to pay the liquidator’s costs. As a result, the Court adjourned the application to allow the liquidator to lead additional evidence. The hearing resumed, and the liquidator was granted leave to file brief additional submissions, following which the proceeding was determined on the papers.

The Court expressed concern about “the delay in bringing this application, the opacity of the evidence led on the application and the necessity for the Court to interrogate the Liquidator to elucidate the issues about which the Liquidator should have been forthcoming from the outset.” However, the Court noted that the liquidator had eventually provided an explanation for the delay—namely his “fundamental misapprehension” of the obligation to obtain approval under s 477(2B), as well as his readiness to adopt a “wait and see” approach over a prolonged period (which the Court noted should have indicated approval was required).

The liquidator had also supplemented his evidence with legal advice as to the merits of the litigation and clarified that the success fee, if triggered, would be paid to the company, not to him personally. This addressed concerns about potential conflicts of interest.

Ultimately, the Court concluded that the funding arrangement was in the company’s interest, that it did not compromise the liquidator’s independence, and that the litigation had sufficient merit to proceed.

Read the decision HERE.