The recent Federal Court decision of Jones v Great Southern
Ltd (in liq)1 is a good reminder that liquidators
seeking Court approval of a litigation funding agreement should
ensure sufficient evidence is presented to the Court to satisfy all
of the matters relevant to the Court's discretion.
In this case, the liquidators of three related companies sought
the Court's approval of a funding agreement in relation to four
potential claims, namely:
two potential claims in respect of possible breaches of
a potential claim against the companies' auditors, and
a potential claim against unidentified third parties in
relation to the exchange of an interest in a managed investment
scheme for shares.
At the time of their application, the liquidators had been in
office for approximately three years and had already received
funding from an alternative litigation funder to fund the
investigation into potential claims in respect of the breaches of
directors'' duties. Monies advanced by that alternative
funder were used to carry out those investigations which,
accordingly to the oral evidence of one of the liquidators,
included the conducting of examinations of directions under the
Corporations Act. That alternative funder had declined to
provide further funding in respect of the further investigation of
those potential claims.
The liquidators in the Great Southern case sought the
Court's approval for the funding agreement pursuant to section
477(2B) of the Corporations Act. That section requires
approval by the Court, approval by the committee of inspection, or
resolution of the creditors, in order for a liquidator to enter
into an agreement of more than three months.
In Great Southern, Justice Siopis endorsed the list of factors
summarised by Austin J in Re ACN 076 673 875 Ltd 
NSWSC 578 as relevant to the exercise of the Court's discretion
in approving a funding agreement, namely:
the liquidator's prospects of success in the
the interests of creditors other than the proposed
possible oppression in the bringing of proceedings,
the nature and complexity of the cause of action,
the extent to which the liquidator has canvassed other funding
the level of the funder's "premium",
the risks involved in the claim, including the amount of costs
likely to be incurred in the conduct of the action and the extent
to which the funder is to contribute to those costs and the extent
to which the funder is to contribute towards the costs of the
defendant in the event that the action is not successful, or
towards any order for security for costs by the Court before which
the action is to be heard, and
the liquidator's consultations with the creditors of the
The first, second and sixth factors were the ones of
significance in the Great Southern case, where Justice Siopis
dismissed the liquidators' application for approval of the
funding agreement in light of the following issues:
No evidence was adduced by the liquidators demonstrating there
were any prospects of success of the litigation.
In circumstances where the liquidators had been in office for
three years and had already received litigation funding to
investigate potential claims, the Court considered that the
liquidators were in a position to make some assessment of the
prospects of success of the potential claims.
No evidence was adduced detailing the further avenues of
investigation to be pursued in relation to the potential claims to
be brought by the liquidators.
No evidence was adduced of the estimated value of the potential
claims to allow the Court to assess (among other things) the
reasonableness of the funder?s ?premium?.
The Great Southern case is an example of why liquidators seeking
Court approval of a litigation funding agreement must ensure
sufficient evidence is gathered and presented to the Court as part
of their application. The eight factors outlined by Austin J, and
endorsed by Justice Siopis in this case, should provide useful
guidance for liquidators who are uncertain as to what the Court
will consider relevant to its discretion in this area.
1Jones v Great Southern Ltd (in liq) 
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This was an interlocutory decision about the appointment of a tutor for the child appellant, to carry on his proceedings.
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