Subject to your approval: conclusion of post-liquidation agreements – Insolvency / Bankruptcy / Restructuring



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This week’s TGIF examines a recent decision by the Federal Court of Australia in Re Aviation 3030 Pty Ltd (in cash) [2021] 1244 FCA on Article 477 (2B) of the Companies Act 2001 (Cth) (Corporations Act) and approval of a liquidator’s proposal to enter into a settlement agreement with obligations that extend beyond three months.

Key points to remember

  • The role of the Court in approving a proposed agreement under this section is not simply to “stamp” the assessment of a liquidator.
  • Yet the court will not withhold its approval unless the liquidator’s exercise of business judgment is misguided or improper in some way.
  • A key consideration is the impact that the agreement can have over the duration of a liquidation.

What happened?

Aviation 3030 was a land development company that raised funds from investors for the purchase and development of a large piece of land in Victoria. The investment was successful – the initial plot of land was purchased for $ 7.8 million and, after the land was rezoned, was subsequently sold for $ 135 million. Although a substantial down payment was made, the sales contract was not expected to be finalized until April 2023.

Shortly after the zoning change, however, Aviation 3030 issued shares to entities controlled by people with close family ties to two of the three directors for a pittance. This significantly diluted the shareholding of some of the original investors.

Following an investigation by ASIC, liquidators were appointed by the 3030 Aviation Tribunal for just and equitable reasons.

The initial procedure

Following investigations and public instructions, in March 2020 the liquidators initiated proceedings against seven defendants involved (or beneficiaries) of the disputed issue of shares. The liquidators sought to set aside the second share issue as an “unreasonable director-related transaction” under sections 588FDA and 588 of the Companies Act.

After an adjournment of the original partially heard proceedings and multiple attempts at settlement, the Taing parties, comprising four of the seven defendants, agreed to two draft settlement documents with the liquidators (Proposed acts).

The liquidators then sought court approval before entering into the proposed deeds under Section 477 (2B) of the Corporations Act. This was necessary because the proposed act contained obligations that would not be discharged for at least three months.


Justice Anderson approved the liquidators concluding the proposed deeds. Her Honor has helpfully considered the key factors and principles that should be considered by the Court in a Section 477 (2B) approval process. These include in particular:

  • court approval is not an approval of the proposed agreement, but rather an authorization for the liquidator to exercise his own business judgment;
  • the court should not withhold approval unless there appears to be a lack of good faith, an error of law or principle or other substantial grounds for doubting the business judgment of the liquidator;
  • the role of the Court is to approve or accept a proposal, and not to suggest alternatives which may seem preferable to the agreement reached;
  • the main consideration is whether an impact on the duration of a liquidation is reasonable in all the circumstances;
  • the terms of any agreement must be clear; and
  • ideally, a liquidator should seek court approval of a proposal before the agreement is executed, although retrospective approval may be obtained.


For Anderson JA, the main consideration in a Section 477 (2B) approval was whether the agreement could “unduly increase the duration of the liquidation”.

Here, His Honor accepted the view of the liquidators that the proposed acts would not affect the duration of the liquidation because, at a minimum, the liquidation would not be completed before April 2023, when the contract sales had to be settled.

Commercial base

Rather than justifying their business judgment, the liquidators were tasked with proving that the entry into the proposed acts was an “appropriate exercise” of their power and not inappropriate or ill-advised.

The reasons given by the liquidators for entering into the proposed acts included:

  • affidavit evidence and privileged legal advice considered by liquidators;
  • the net profit of 40 million additional shares for initial investors;
  • each investor profiting from his initial investment – an otherwise unsecured result;
  • that the settlement did not affect the pending claim against the other defendants;
  • that the settlement was the product of lengthy negotiations, having benefited from the evidence of the initial hearings of the original proceedings; and
  • evidence from the liquidators that the benefits of a settlement with some of the defendants outweighed the benefits of continuing litigation.

Noting that the role of the Court was neither to “stamp” or “approve” a trade deal, Justice Anderson broadly endorsed the views of the liquidators.

A review of the affidavits and relevant opinions had satisfied His Honor that the liquidators had exercised their powers and business judgment in an appropriate and responsible manner.

Other factors

Although the original proceedings remained complex, Anderson J. was convinced by the position of the liquidators that the terms and administrative steps of the settlement were clear and included contingencies for the possible outcomes of the proceedings vis-à-vis the other defendants.

On the basis of the evidence presented, Anderson J. concluded that there was no apparent or presented reason for rejecting the proposed acts.


The Court in that case appeared to have been influenced by the entire process that the liquidators had undertaken prior to exercising their business judgment – including obtaining advice from attorneys and lawyers involved in the adjudicated proceedings – which detailed for the Court in a confidential affidavit. Equipment.

Given the Court’s repeated insistence that its approval is not a ‘homologation’ process, it remains important for liquidators to ensure that they have properly documented their reasoning and that they have relied on expert advice, where appropriate, before seeking court approval.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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