A syndicate of banks that secured an $800 million charge over assets of ABC Learning Centres Limited just months before the childcare provider went into administration has failed in its bid to keep confidential thousands of documents sought by the litigation funder, IMF (Australia) Ltd in the Federal Court of Australia.
Westpac, NAB, ANZ, Bank of America, Citibank, Mizuho Corporate Bank and Bank of Western Australia had lent ABC Learning $1.3 billion without security.
In June 2008, ABC Learning determined to sell 60% of its business in the United States. The bank syndicate agreed to consent to the sale, subject to ABC Learning granting a fixed and floating charge in favour of the banks. The charge was granted five months before administrators were appointed to ABC Learning.
As well as securing a charge over assets, the banks also received $500 million in debt repayments, funded by the sale of ABC Learning assets.
The liquidators for ABC Learning claim that the charge and debt repayments constitute unfair preferences or uncommercial transactions, and are voidable transactions under section 588FE(2B) of the Corporations Act.
The bank syndicate opposed an application by ABC Learning's liquidators, to disclose 10,000 bank documents (consisting of 60,000 pages) to IMF. The liquidators claimed that the documents were necessary to determine the strength of the liquidators' claim against the banks, which would then determine whether IMF was willing to fund the litigation.
The bank documents were obtained by the liquidators during public examinations of ABC Learning and bank officials in 2011. The liquidators had given an undertaking to the Court not to disclose to IMF the documents produced by the banks, and sought an order releasing them from this undertaking.
The banks opposed the application for disclosure on the basis that:
- the liquidators should remain bound by their previous agreement not to disclose the relevant documents;
- the documents were confidential and of a commercially sensitive nature - including policies and procedures of the banks, which would not ordinarily be revealed to clients, third parties or other banks; and
- the bank was concerned that:
- the documents may be used by IMF for purposes beyond making a decision whether or not to fund the current litigation; and
- the confidentiality of the documents could not be properly safeguarded.
Cowdroy J held that the liquidators were justified, subject to terms of confidentiality, in providing to IMF copies of documents provided by the banks during the public examinations.
His Honour released the liquidators from their undertaking not to disclose the banks' documents to IMF.
Cowdroy J held that, generally, an undertaking to the Court should be maintained unless there are very sound reasons or 'special circumstances' for altering or discharging it. His Honour found that such 'special circumstances' existed in this case. He stated (at 51):
"As part of their statutory duties the liquidators are required to investigate the affairs of ABC Learning. In such investigation the question arises whether the charge might be voidable. Such enquiry can only be effective provided funding is available from IMF. IMF will not provide funding unless it is satisfied that there are justifiable reasons for doing so. This can only be determined by IMF assessing the documents. For this reason the Court does not consider that the banks' interests in the continuation of the undertaking outweighs the broader interests of enabling the liquidators to fulfil their statutory duties."
Interestingly, His Honour did not consider that the undertaking by the liquidators not to disclose the banks' documents to IMF was a permanent arrangement.
With respect to the banks' submission that the documents were of a confidential and commercially sensitive nature, Cowdroy J recognized that this may be so but stated (at 82);
"Nevertheless, such consideration does not outweigh the greater public interest in ensuring that the liquidators fulfil their statutory obligations, to make recovery for the interests of the creditors and shareholders of ABC Learning wherever that is practicable and to institute proceedings wherever a valid cause of action may exist."
Cowdroy J dismissed the banks' concern that the confidentiality of its documents would not be safeguarded. His Honour was satisfied that the arrangements in place, that is, that the documents would be viewed by only 4 employees of IMF who had signed confidentiality undertakings and agreed to use the documents solely for the purpose of considering whether IMF will fund the litigation, were sufficient to protect the banks' interests.
Documents not required in public examination
It should be noted that the bank syndicate had a small win over the liquidators.
Amongst the documents which the liquidator sought to disclose to IMF were documents relating to the internal operations and activities of the banks. The bank syndicate argued that such documents were not required for the public examination and should not be allowed to be disclosed to IMF.
Cowdroy J agreed. He held that these documents were not within the ambit of examinable affairs of ABC Learning Group and that they should not be disclosed.
This decision demonstrates the power of the Court to order disclosure of confidential or commercially sensitive documents. More importantly, it evidences the power of the Court to vary a previous undertaking given by a party to court proceedings.
It is interesting to note that in this case the Court considered that the undertaking given by the liquidators was not a 'permanent arrangement'. Notwithstanding this, it appears that the Court will retain the ability to alter an undertaking, even a permanent one, where 'special circumstances' justify such alteration.
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