Outvoted by Related Creditors, Approved by the Court: Liquidators Get Late Green Light for Government-Funded Claims Investigation

In In the matter of (ACN 004 593 953) Pty Ltd (in liquidation) [2026] VSC 661, the Supreme Court of Victoria (Steffensen AsJ, Commercial Court, Corporations List) dealt with an application by the liquidators of a failed seating manufacturer. They sought the Court's retrospective approval to enter into a funding agreement with the Commonwealth and two costs agreements with their lawyers. Each agreement could run for more than three months, so under s 477(2B) of the Corporations Act 2001 (Cth) each needed approval from creditors or the Court. The creditors' vote had failed, and the only "no" votes came from related parties or from creditors who had given the company's director their proxy. The result was that approval was granted, retrospectively, in the terms sought ([33], [43]–[44]). The important point is that the Court looks at whether the agreement serves the liquidation and the creditors, gives real weight to the liquidators' commercial judgment, and will not deprive creditors of a potential benefit just because the liquidators were slow to apply ([30], [32], [40]). All paragraph references below are to the judgment.

Why it matters: When a company collapses, the people who ran it can sometimes use creditor votes to slow down an investigation into their own conduct. This decision shows how a court-approval route under s 477(2B) operates as a check on that, and how the Court assesses funding deals, "no win, uplift" legal costs and delay.

At a glance

• Court: Supreme Court of Victoria, Commercial Court (Corporations List), Associate Justice, at first instance
• Area of law: Corporate insolvency; liquidators' powers; litigation funding
• Decision type: Application for court approval under s 477(2B) of the Corporations Act 2001 (Cth) (alternatively s 90-15 of the Insolvency Practice Schedule)
• Outcome: Retrospective approval granted for the Funding Agreement (as amended) and both Costs Agreements
• Standard applied: The Court does not "rubber stamp", but it will not interfere with a liquidator's commercial judgment absent bad faith, error of law or principle, or real grounds to doubt prudence ([30])
• Costs: The judgment does not separately deal with the costs of the application

🧩 Facts and Issues

Background

The company designed, manufactured and installed ergonomic seating for stadiums, cinemas, theatres and similar venues ([8]). Administrators were appointed in April 2024, and in July 2024 creditors resolved that the company be wound up, with the same two practitioners becoming its liquidators ([9]–[11]).

The liquidators' early investigations suggested the company may have been insolvent from at least 1 July 2023, and estimated that a possible insolvent trading claim could be worth $2.5 to $3 million ([12]). Their later report said evidence might support an earlier insolvency date, and that the director and former director may have significant assets ([18]). These are the liquidators' views about potential claims. No claim has been brought, and the Court made no finding that anyone traded while insolvent or breached any duty.

Priority employee creditors were owed at least $3.25 million, reflected in a proof of debt lodged by the Commonwealth Department of Employment and Workplace Relations, and unsecured creditors were owed at least $12 million ([13]). The secured bank appeared to have been repaid in full from asset sales, although a related entity disputed this by asserting a security interest of about $4.18 million by assignment ([14]). Apart from potential claims, no other assets remained ([15]).

How the case got here

The Department first provided $50,000 for a short investigation. Because that arrangement lasted under three months, no approval was needed ([16]). After advice on prospects, the liquidators signed a larger Funding Agreement on 20 May 2025, expressly conditional on s 477(2B) approval ([17]).

On the eve of the creditors' meeting, the director lodged informal proofs of debt for himself and a related US entity, and further related-party proofs followed ([22]). At the reconvened meeting on 11 August 2025, the resolution approving the Funding Agreement received only 25% of votes by value, and the resolution authorising future agreements longer than three months received 50% by value. Both needed more than half in number and value, so both failed ([23]). Three of the five creditors voting against were related parties, and the other two had appointed the director as their proxy. Without the related-party votes, both resolutions would have passed ([23]).

The liquidators then changed solicitors, renegotiated the funding (Amendment Deed, January 2026), signed two Costs Agreements in May 2026, and filed this application in June 2026 with a 31-page affidavit and 849 pages of exhibits ([1], [24]–[25]). The Court made confidentiality orders over that affidavit, with a redacted version available to creditors ([2]). At the hearing, the Court required further evidence explaining the delay ([3]–[4]).

What each side argued

• The liquidators: The agreements were in creditors' interests, the claims were potentially valuable against people with means, and the delay had a proper explanation ([20], [24]–[25]).
• Creditors: None sought to be heard ([6]).
• The director: He did not oppose the application, but his solicitors asked that a letter be put before the Court. The letter questioned whether insolvency could be proved from July 2023, raised an "alleged valuable offsetting claim", and challenged the liquidators' view of the directors' finances ([39]).

The issues

• Should the Court approve the Funding Agreement and Costs Agreements under s 477(2B)?
• Should approval be given retrospectively, given the delay of about ten months after the failed vote?

⚖️ Applicable Law – Legislation, Rules and Principles

• Corporations Act 2001 (Cth), s 477(2B): a liquidator must not enter into an agreement on the company's behalf whose term may end, or whose obligations may be discharged, more than three months after it is made, "[e]xcept with the approval of the Court, of the committee of inspection or of a resolution of the creditors" ([27]).
• Purpose of s 477(2B): to stop long contractual commitments cutting across the expectation that a winding up will proceed as quickly as circumstances allow ([29]).
• Insolvency Practice Schedule (Corporations), s 90-15: the Court may make such orders as it thinks fit about an external administration. It was relied on in the alternative ([26], [28]).

📌 Authorities Relied On

• Re Newtronics Pty Ltd [2007] FCA 1375 at [26]: the Court approves or refuses rather than redesigns; it gives due regard to the liquidator's commercial judgment; the funder must not receive a disproportionate benefit or a "grossly excessive profit"; and unclear terms will not be approved ([30]).
• Hutchison v Hillcrest Litigation Services Ltd [2010] NSWSC 934 at [25]: approval may be given retrospectively ([31]).
• Re Vaucluse 29 Pty Ltd (in liq) [2025] FCA 1306 at [22]–[23]: factors for retrospective approval. These are whether the agreement was conditional on approval, prejudice, the length of delay, the quality of the explanation, and honesty ([31]).
• Re Kevin Jacobsen Pty Ltd (in liq) (2016) 113 ACSR 277 at [74]–[75]: s 477(2B) protects the liquidation and creditors and is not a tool to discipline tardy liquidators ([32]).
• Re HIH Insurance Ltd [2004] NSWSC 5 at [15]: the purpose of the three-month rule ([29]).

🧠 Analysis

Issue

Was entry into the funding and costs arrangements a proper step in the winding up, and should approval be granted after the event?

Rule

Approval is generally given where the transaction is a proper realisation of company assets or otherwise assists the winding up. The Court will not interfere with the liquidators' commercial judgment absent bad faith, legal error or real grounds to doubt prudence. Retrospective approval turns on the Vaucluse factors, bearing in mind that the provision is not punitive ([30]–[32]).

Application

Investigating potentially valuable claims is a proper step in a winding up

The tangible assets had gone to secured creditors. Without recovery action, unsecured creditors would get nothing ([35]). The Associate Justice was satisfied the agreements were "for the proper investigation and potential realisation of assets of the Company in the form of valuable claims for the benefit of creditors". The funder's willingness to pay was consistent with the claims being viable ([34]).

The failed vote carried little weight once its make-up was understood

All unrelated creditors, including the Australian Taxation Office, voted in favour. The only opposition came from related parties, entities controlled by the director, or creditors who appointed him as proxy ([37]–[38]). The Court noted that the director is a potential defendant and "thereby has an interest in avoiding the claims being investigated" ([38]).

The Court did not second-guess the liquidators on the merits of the claims

The director's letter raised points about proving insolvency and recovering a judgment. The Court's answer was that the liquidators had "a reasonable basis for their belief", that it is not the Court's role "to second-guess the liquidators' commercial judgment", and that if investigations show a claim is not worth pursuing, the liquidators must act accordingly ([39]–[40]). None of this involved any finding about the director's conduct.

No downside for creditors, and no excessive return for the funder

The investigations are partly funded and partly speculative, so there will be "no call upon the general funds of the liquidation" ([40]). The Department's return is interest at the statutory base rate, and any repayment reduces its own proof of debt, so its benefit was not disproportionate to its risk ([19], [41]). The conditional costs agreement includes an uplift fee if recovery succeeds, which the Court found "not disproportionate" given the lawyers' risk ([42]).

Late, but approved: the Vaucluse factors favoured the liquidators

The Funding Agreement was expressly conditional on approval. The liquidators gave a "candid explanation" for the delay (new solicitors, renegotiation and a large volume of material). There was no suggestion of dishonesty or deliberate delay, and creditors suffered no prejudice because, absent recovery proceedings, they would receive no dividend anyway ([24]–[25], [43]).

Conclusion

Approval was granted retrospectively for the Funding Agreement and both Costs Agreements, in the terms sought ([43]–[44]).

🏛️ Outcome, Orders and Costs

The Court made orders in the terms sought by the liquidators, approving entry into the Funding Agreement (as amended) and the two Costs Agreements with retrospective effect ([43]–[44]). The investigations can proceed. Any future litigation would be a separate step, with the Department holding a right of first refusal to fund it ([19]). The judgment does not separately address the costs of the application.

🧭 Practical Lessons

• For self-represented litigants: If you are a creditor and you receive notice of a liquidator's court application, you can ask to be heard. Here no creditor did, and a letter from a non-party was considered but did not change the outcome ([6], [39]).
• For self-represented litigants: A creditors' vote is not always the last word. Where related parties dominate a vote, the Court can approve the step anyway if it serves the creditors as a whole ([23], [37]–[38]).
• For practitioners: Make funding agreements expressly conditional on s 477(2B) approval. It is the first Vaucluse factor and it helped here ([17], [31], [43]).
• For practitioners: Apply promptly. If you are late, file evidence that explains the delay candidly and shows no prejudice. The Court required exactly that ([3]–[4], [43]).
• For practitioners: For funder returns and uplift fees, show proportionality to risk. Base-rate interest and a reduction in the funder's own proof of debt satisfied the Court here ([41]–[42]).

🧠 Take-Home Lesson

• Section 477(2B) protects the liquidation and its creditors; it is not there to punish slow liquidators.
• The Court defers to a liquidator's reasonable commercial judgment about which claims are worth investigating.
• Related-party votes against an investigation of the director will carry little weight.
• A potential claim is not a proven claim. Approval to investigate says nothing about whether anyone did anything wrong.

"A late application can still succeed: be conditional, be candid, and show the creditors lose nothing by the delay."

This digest is general information about a published judgment, not legal advice. For advice about your own situation, speak to a lawyer, Legal Aid or a community legal centre.