Supreme Court of Western Australia

214 In this case, ASIC had obtained leave to appear as amicus curiae on the application as it came to be considered by O'Callaghan J (see [4]).

215 Clearly, the application was brought on an urgent basis.

216 On 18 July 2017, orders had issued effectively by an agreement reached as between the administrators and ASIC in respect to resolving ASIC's concern over the involvement by KordaMentha - who had been acting as 'potential' or 'putative' administrators over the Ten Network corporations in their financial troubles at the time.

217 Urgent orders of the Federal Court came then to be issued as to relief, resolving ASIC's then concerns, reading:

Pursuant to s 447A of the Corporations Act 2001 (Cth) (the Act), Peter Gothard, a registered liquidator and partner of Ferrier Hodgson (Ferrier Hodgson), is appointed to:

(a) prepare a limited report for inclusion in the report required to be given to creditors of each of the [Ten Group Companies] pursuant to s 439A(4) of the Act... which considers the matters set out in regulation 5.3A.02 of the Corporations Regulations 2001 (Cth) and any other provision or law which may result in a recovery for creditors in a liquidation of [the Ten Group Companies], including, but not limited to:

(i) any claims arising from the conduct of the directors, officers, advisers (including Gilbert + Tobin) and/or KordaMentha as prospective administrators of each of [the Ten Group Companies] prior to the appointment of the First Plaintiffs; and

(ii) whether the remuneration received by KordaMentha in respect of the work undertaken by KordaMentha prior to the appointment of the First Plaintiffs are voidable preferences;

(b) supervise the First Plaintiffs' conduct so as to satisfy himself that the First Plaintiffs are acting consistently with their statutory duties and fiduciary obligations as administrators of [the Ten Group Companies] in relation to any claims which Ferrier Hodgson identify in the report prepared pursuant to this Order that the Plaintiffs may pursue or should further investigate.

218 ASIC's involvement as amicus curiae in that urgent application was over a 'principal issue' as stated by his Honour at [1]. This was:

... the terms upon which administrators appointed pursuant to s 436A of the Corporations Act 2001 (Cth) (the Act) may continue to act when, in their prior capacity as 'potential' or 'putative' administrators, they have had recent, long-term, substantial and remunerative involvement with the company or companies to which they are appointed. (my emphasis in bold)

219 As noted by his Honour at [56], KordaMentha had charged over $1 million in respect of work carried out prior to the appointment of voluntary administrators.

220 By the nature of the uncontroversial, rehabilitative relief orders as issued, O'Callaghan J appointed a third party (who was an independent registered liquidator, namely Peter Gothard) to prepare a limited report and, in a certain respect, to supervise the conduct of Messrs Korda, Vilani and Nettleton in the future discharge of their roles as joint and several administrators of the Ten Group Companies.

221 Such orders delivered the end result of appeasing the concerns of ASIC as regards allowing the three KordaMentha partners - Messrs Korda, Vilani and Nettleton - to continue to act as the Ten Network administrators notwithstanding an already very substantial prior private involvement by KordaMentha with the Ten Group Companies.

222 I pause to observe that for the facts as raised presently, that independent liquidators came to be appointed to both GD Pork and GDPH on resolutions of the creditors of 28 May 2019. Those persons have thus held full capacity to examine the prior affairs of both corporations and obviously then to pursue, as they see fit, any evaluated unfair preference or voidable transactions concerning the two corporations. Such opportunity aligns as going even somewhat beyond O'Callaghan J's order towards a commissioning of an independent report on such issues.

223 Consequently, some level of analogy can be drawn from out of the orders issued in Ten Network as regards meeting the policy concern as then expressed by ASIC - that payments to Ferrier Hodgson, or made by GD Pork to the grain supplier and unsecured creditor entity, Weston Milling Pty Ltd - might be challenged and be possibly set aside as potential unfair preferences or voidable transactions. Capacity and opportunity for such issues to be pursued by wholly independent liquidators, should they assess that action is appropriate and commercially justified, arises here as a close parallel rehabilitative course - if such payment considerations were the only concern as regards Messrs Jones and Smith taking up their appointments as voluntary administrators at 31 October 2018.

224 Plainly, ASIC is fully cognisant of the position as regards the independent liquidators being appointed here. But, unlike the Ten Network facts as regards a commissioning of a court-ordered report by the independent person possibly investigating voidable transaction issues around KordaMentha's prior fees, here ASIC's concerns remain unappeased. Instead, ASIC seeks a review by the court of the remuneration determinations as made by the creditors towards the fees of Messrs Jones and Smith whilst in office as voluntary administrators over seven months.

225 After issuing what were, in effect, the urgently agreed upon orders of 18 July 2017, O'Callaghan J later came to deliver reserved written reasons on 11 August 2017.

226 His Honour observed (at [5]) in those reasons, by reference to a submission that had then been put by ASIC as amicus, that:

... the court's reasons will give guidance to the  insolvency  and restructuring profession, and to company directors, both as to the proper boundaries of pre-administration work that might be undertaken in complex restructuring situations, and as to the appropriate actions in the event that those boundaries are exceeded. (my emphasis in bold)

227 That was the context under which O'Callaghan J at ([13]), then came to observe upon Branson J's earlier reasons in Commonwealth v Irving.

228 He noted first Branson J's observation as to there being an air of 'commercial unreality' about a suggestion that an  insolvency  practitioner who had provided professional advice to a company in circumstances of actual apprehended  insolvency , be barred from subsequently accepting an appointment as an administrator. Plainly, this is self-evident.

229 O'Callaghan J's subsequent discussion of the issue (at [14] to [23]) canvassed international commentary texts regarding overseas  insolvency  practice and authority, including reference to concepts around various schemes encountered overseas such as a 'pre‑pack', 'cramdown' or a 'distribution scheme' (at [16]).

230 His Honour advanced to observe (at [20]) that it was critical to understand that the character of the pre-appointment work (as it had been described by Mr Korda in his affidavit evidence and came later to be accepted by ASIC), was work a potential administrator may properly perform and that it:

... bears no relevant resemblance to the work performed, and advice given, by practitioners in the United Kingdom and elsewhere engaged in concluding an agreement in advance of statutory administration.

231 O'Callaghan J continued:

As explained below, Mr Korda swore, and I accept, that neither he nor anyone else from his firm provided advice to the board, the directors or the management of the Ten Group, or to any of its creditors or other stakeholders, in relation to the management of the Ten Group, its affairs, its  insolvency  or the obligations and duties of the board, individual directors and management. (my emphasis in bold)

232 By reference to observations in the international  insolvency  text of Mr Wellard and Dr Walton concerning advice or assistance towards the detail of a prepacked transaction - his Honour observed (at [23]) that it was difficult to imagine a situation in which a taking of an appointment in circumstances as described by the authors, would ever be locally countenanced. Again, so much, with respect, presents as almost self-evident.

233 O'Callaghan J proceeded to notice, however, that the facts as presented to him (as indeed I likewise observe for the facts presented here to me), were far removed from the circumstances of any pre-pack arrangement (see [23]).

234 His Honour then proceeded to canvass the circumstances around the then well publicised financial difficulties of the Ten Group at the time. He explained that the earlier February 2017 appointment of KordaMentha (retained by the Ten Group's legal advisors, Gilbert + Tobin) had been to 'provide assistance to the Ten Group in relation to assessing the Ten Group's financial position' and further that (see [27]):

The scope of [the work] was limited to ensure that KordaMentha would be in a position to accept the appointment of administrators or any or all of the companies in the Ten Group should their directors resolve to appoint administrators at a future point in time ...

235 O'Callaghan J addressed a submission of ASIC (rendered as amicus), as to what a potential administrator should and should not do, before their appointment. As seen at [35], ASIC's submission had been:

Directors contemplating potential  insolvency  should be encouraged to engage with appropriately-qualified professionals early to develop restructuring plans which will maximise the chance of rescuing a viable business or returning as much value as possible to the relevant stakeholders should a later appointment prove necessary. A reasonable fair-minded observer would appreciate that as a common characteristic of large and complex corporate distress situations. Provided that appropriate safeguards are put in place to avoid the existence or appearance of conflict should an appointment subsequently prove necessary, significant, long-term and consequently remunerative work undertaken for such purposes should not of itself preclude the practitioner from taking a formal appointment (subject of course to consideration of the facts and circumstances of each particular case). (my emphasis in bold)

236 I would pause to observe that the virtuous ring of a reference to 'appropriate safeguards' seen above regrettably lacks a substantive empirical content. Obviously, it is necessary to appreciate that each case of a voluntary administration must be unique. No invariably discernible bright line boundary emerges between pre-appointment work that is untarnished, against work that is not. A lofty sounding deployment of the 'appropriate safeguards' standard threshold looks ripe for generating future potential disputation - as is presently encountered. Marking the attempted demarcation based upon aa touchstone threshold of 'appropriate safeguards' can deliver, at best, only some possible 'demilitarised zone' of separation, rather than a true bright line boundary.

237 O'Callaghan J ultimately came to accept ASIC's submission. But his Honour, with respect, appreciated the empirical deficiency in the ASIC formulation. He attempted to give it some substantive content. At [36] his Honour observed:

The safeguards to which ASIC referred in its submissions should include that the potential administrator makes it clear to the board of directors and executives that he or she is the person who might become the actual administrator if other measures to fix the company's finances do not succeed. And as Mr Zwier submitted, and I agree, from the outset 'directors', well advised by their independent advisers, ought to be saying to the board, 'you have to be careful because this person might one day be publicly examining you or might be suing you or might be taking action against you'. Putting the point slightly differently, Mr Zwier submitted, and again I agree, '[i]n other words, that person [does not] sit inside the tent, so to speak, with the advisers. The person is potentially someone who talks about what the administration involves but is not someone in the inner sanctum of ... decision making.' (my emphasis in bold)

238 Further, at [37] O'Callaghan J added:

Other safeguards that a potential administrator can adopt should also include ensuring that their retainer is clearly defined, as well as ensuring from the outset that they keep a sufficient record of the nature of the tasks performed, so that, for the purposes of proceedings like this (and doubtless for other purposes) evidence can be adduced to address such issues about conflicts of interest that may arise. (my emphasis in bold)

239 At [38], his Honour observed concerning Mr Korda, by reference to his evidence, that:

... KordaMentha's role in this case was to prepare an administration contingency plan, in case the informal restructuring negotiations then being conducted by the Ten Group were unsuccessful. He was not in any sense retained to be, nor did he act as, a professional adviser to the Ten Group, the board, management or any other director. (my emphasis in bold)

240 Manifestly then, the Ten Network decision displays that there is no blanket prohibition against the taking of an appointment as voluntary administrator, albeit there has been some earlier and even a significant level of prior remunerative engagement. For the engagement to be legitimate there must be 'appropriate safeguards' in place. As seen, the person engaged must not 'sit' inside the management 'decision making tent' during the prior engagement period.

241 I return to discuss some further aspects of the Ten Network decision later in the reasons. I note at this stage, that ASIC's presently made remuneration objections were not advanced here on a basis of a lack of 'appropriate safeguards' being in place.

242 I turn next to highlight some of the agreed facts concerning the scope of Ferrier Hodgson's prior private engagement with the two corporations and which ASIC relies upon to support its expressed concerns over conflict and ostensible bias.

243 As earlier indicated, Schedule 1 to these reasons is a statement of agreed facts filed in these proceedings as between the plaintiff and ASIC, dated 3 December 2020 (exhibit 1.9).

244 Presently, I direct attention to what is recorded at pars 2 through 9 by those facts, as regards the scope of Ferrier Hodgson's engagement as private advisors to the two corporations - in a period prior to Messrs Jones and Smith's statutory appointments as voluntary administrators.

245 By par 3, it is agreed that Ferrier Hodgson had been approached in June 2018 by Quadrant Advisory ('QA'). That entity (a banking debt advisory and risk management services firm) had earlier been engaged as adviser to the two corporations, at 4 January 2018. Ferrier Hodgson then came to be engaged on 25 July 2018 (ie, in that pre-appointment private capacity) as advisers by the (sole) director of the two corporations, a Mr Torben Soerensen (see par 4).

246 Carriage of the private engagement was essentially undertaken by Mr Jones, (then a partner of Ferrier Hodgson) - albeit he was assisted by other Ferrier Hodgson employees and staff, including by a senior manager of the firm, Ms Lauren McCann ( see pars 5 and 6).

247 Paragraph 7 then relates factually that:

The initial scope of Ferrier Hodgson's work as adviser was to prepare a report detailing a summary of the Companies' financial position focused on any settlement with its main customer Derby Industries Pty Ltd (CMG), and how this affected the Companies':

1. restructure plan; and
2. immediate cashflow.

248 Later, again by agreement, Ferrier Hodson accepted an updated scope of works. That was at 7 August 2018 (see par 8).

249 As further agreed by par 9 of the agreed facts:

The revised scope of works was for Ferrier Hodgson to assist the Companies to:

1. review and finalise a cashflow model of the Companies' financial position;
2. negotiate with the Companies' secured lender and stakeholders to formulate a potential strategy as to its options;
3. formulate a restructure plan; and
4. prepare a report to the secured lenders. (footnotes omitted)

250 There was no ASIC criticism directed at this revised scope of work for Ferrier Hodgson. I would emphasise that from out of the preface seen above before the four items under the revised scope of works (see par 9), that it was clearly said that Ferrier Hodgson was being engaged to 'assist the Companies to', rather than for Ferrier Hodgson itself to unilaterally undertake any of those identified tasks. The distinction is important towards 'a line' not being crossed or a 'management tent' not being entered - if descending to an analysis by metaphor.

251 That agreed position is consistent with Mr Jones' evidence at the hearing given under cross‑examination. See for instance, the following exchange as between senior counsel for ASIC and Mr Jones (at ts 203):

... You were part of that negotiation that you've just described?---No. I've never described 2 October as being part of a negotiation that we had with Western [sic] Milling. Yes, I was at the meeting, but those negotiations were between Mr Soerensen and Western [sic] Milling ... I had no concept of entering into any negotiations around what would be paid and what needed to be ordered, and when it was capable of being delivered, because I do not have the intellectual background to be able to do it, I was asked along to the meeting, effectively, to give Mr Soerenson some support, but this was, I guess in essence, a legitimate attempt to solve its financial problems with the company, and he wasn't simply looking to gain Mr Friedrichs [of Western [sic] Milling] around what he owed.

Quite. So you, in conjunction with Mr Soerensen, are negotiating with Western [sic] Milling, in an endeavour to keep GD Pork alive? I mean, that's what you were there for, correct?---No. No, I'm not. Mr Soerensen is negotiating with Western [sic] Milling.

252 The cross-examination continued (at ts 204):

For what purpose, other than contributing to that negotiation, could you possibly have been telling Mr Friedrichs, about the effect of a voluntary administration moratorium?---That's factual.

Nobody is accusing you of misleading anybody, Mr Jones, nor of getting any improper leverage, if that's what you're getting at. But the point is, the only reason for you to be having the phone conversation on 3 October and the other conversations that you had with Mr Friedrichs [ie, of Western [sic] Milling] in this context, was the contribute to the negotiation between him and GD Pork in respect of the ongoing trade between these two entities?---And contributing to a negotiation, I'm happy with. To be shoehorned into the negotiator, I don't agree.

I think you and I can agree that you weren't the exclusive negotiator. Can we agree on that common ground?---To contribute, correct.

253 Further, the exchange continued (at ts 208):

Your second affidavit, sorry. There you say you didn't and couldn't negotiate the terms with Western [sic] Milling for three main reasons. You may not have negotiated on particular terms of the arrangement that was put to Western [sic] Milling, but you certainly participated in the negotiation with Western [sic] Milling, as we've now seen, correct?---I think we agree I contributed to them ...

254 I refer also to a transcript reference (ts 208 - 209) concerning Mr Jones' frank acceptance of participation in GD Pork's negotiation with Weston Milling as a key grain supplier to the businesses - by reference to the statement in his second affidavit sworn 24 November 2020 (at par 14), in terms that he 'did not and could not' negotiate terms with Weston Milling.

255 Mr Jones was very fully, closely and competently cross-examined by senior counsel for ASIC. The theme of much of the cross-examination, as I assessed it (in circumstances where most underlying facts are largely not in dispute) was directed towards advancing ASIC's characterisation contention that Mr Jones, colloquially speaking, had 'crossed the line', or had strayed to sit inside 'the management tent' of both corporations during this prior period of prior engagement of Ferrier Hodgson. But as I assessed Mr Jones' trial evidence, he would not accept he was ever an independent negotiator in his own right in this period or that he held any management role or authority for the corporations.

256 To the contrary, Mr Jones' position was that his own professional expertise and the  insolvency  expertise and insights of his firm, Ferrier Hodgson, was, in effect, engaged to assist in the companies' decision making, as regards solvency considerations at the time. But Mr Jones, I found, was firm and consistent in his position that at the end, decisions taken were always ultimately management decisions taken by Mr Soerensen for the two Corporations, rather than by Ferrier Hodgson. In other words, it was always firmly rejected by Mr Jones that Ferrier Hodgson had ever, during the pre‑appointment period 'crossed the line' or had moved towards being located anywhere inside a management decision making 'tent' with these corporations.

257 I accept as reliable that evidence by Mr Jones as to his and his former firm's activities prior to the commencement of his (and Mr Smith's) statutory appointments at 31 October 2018 as voluntary administrators. Indeed, I would accept all of Mr Jones' evidence generally (including across his four affidavits) as being reliable, straightforward and convincing. On my assessment, Mr Jones answered questions directly and coherently whilst under an extensive cross-examination conducted by senior counsel for ASIC. At times, Mr Jones made some appropriate concessions - in particular he frankly accepted the omission of not expressly reporting to the creditors the payment of the account of Ferrier Hodgson in the amount of $110,000 (GST included) for the private pre‑appointment work as was carried out by Ferrier Hodgson before the voluntary administration period. That, in my view, only advanced his credibility as a fair and reasonable witness, whose evidence was realiable and convincing.

258 With the underlying facts concerning Ferrier Hodgson's and Mr Jones' actions vis-à-vis the two corporations in mind, I turn to further expose the legal test concerning ostensible bias as it is to be applied to voluntary administrators.

259 To that end, I turn back to some further aspects of the 2017 Ten Network decision of O'Callaghan J, particularly to the legal test his Honour applied there towards an ostensible bias evaluation, involving the person who subsequently seeks to take up the role of voluntary administrator.

260 At [71] through [80], his Honour came to resolve what was then a disputed point of legal principle, over whether the objective standard to be applied was a test grounded upon a reasonable apprehension of bias that was held by a hypothetical creditor - or by a distinct standard by reference to the reasonable apprehension in a fair‑minded lay observer as to the impartiality of a would be administrator.

261 Resolving that issue of disagreement, O'Callaghan J canvassed a number of earlier case authorities. In particular, he expressly declined to follow an approach used by Santow J as seen in Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 at 234.

262 Santow J's objective hypothecation as used towards evaluating independence and an absence of bias in a liquidator, had been then expressed as (at 234):

... the correct balance is struck by permitting a liquidator to act as such even if there be a prior involvement with the company in liquidation, provided that involvement is not likely to impede or inhibit the liquidator from acting impartially in the interests of all creditors or be such as would give rise to a reasonable apprehension on the part of a creditor that the liquidator might be so impeded or inhibited ... (my emphasis in bold)

263 However, O'Callaghan J did not adopt that bias evaluation standard towards voluntary administrators - instead preferring a wider approach as used by White J and as seen in the Full Federal Court of Australia decision ASIC v Franklin [2014] FCAFC 85; (2014) 223 FCR 204, [59] - [61]. That decision had also concerned the independence of a liquidator.

264 ASIC v Franklin had canvassed ASIC's application seeking that the liquidator in question be disqualified on a basis of a perceived lack of independence, by reason of a strong anterior referral relationship.

265 As noted by White J at [45], ASIC had sought orders for the removal of the liquidators of two companies (and for new liquidators to be appointed in their place) on the ground of a reasonable apprehension they lacked independence and impartiality in the discharge of their functions. ASIC did not assert an actual lack of independence and impartiality. Rather, ASIC's concern as expressed was as to a reasonable apprehension of bias and so, to a perceived lack of independence.

266 It should be observed that factually there are no present parallels for this application to the facts of ASIC v Franklin (in terms of strong prior business referral relationships) for the circumstances of Messrs Jones and Smith as voluntary administrators. If such a parallel were present, that might have been contended as a basis to conclude that the double 'might' test as it was used by the majority in Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337 and later by White J in ASIC v Franklin, was engaged.

267 In ASIC v Franklin, White J had carefully observed as regards the application of that double 'might' ostensible bias test (which can be tracked to the High Court's earlier decisions in Re Watson; Ex parte Armstrong [1976] HCA 39; (1976) 136 CLR 248 at 264 and Liversey v New South Wales Bar Association [1983] HCA 17; (1983) 151 CLR 288 at 294) that for a liquidator, the context of application for such test, was a vital consideration. White J duly observed at [61]:

Liquidators are officers of the court and are, accordingly, expected to conduct themselves with independence, impartiality and integrity. However, questions of bias in relation to liquidators arise in a context which differs in material respects from that of the judiciary or administrative decision-makers. Liquidators are themselves engaged in business in a competitive environment. They have to attract work. This makes it almost inevitable that they will develop contacts and relationships with those who are actual or perspective sources of referrals. Further, the success or otherwise of liquidators will depend in part on their maintaining good professional reputations. (my emphasis in bold)

268 There is, however, as was recognised in the observations of White J seen above, a fundamental difference as between the work of a judge, a tribunal member, or an arbitrator - in terms of the dispute resolution function being conducted as between disputant parties. By some strong contextual contrast, the liquidator and axiomatically also the voluntary administrator, are distinctly engaged in the making of business decisions on behalf of corporations - usually in pressing circumstances of looming or actual financial distress.

269 Brereton J's observations as rendered in Re Recycling Holdings Pty Ltd [2015] NSWSC 1016 at [94], essentially followed White J's observations in ASIC v Franklin at [58] - [64], as regards the apprehended bias test and its application towards liquidators, voluntary administrators and to deed administrators. For clarity, the (double 'might') objective standard applied was: whether a fair‑minded lay observer 'might' reasonably apprehend that the administrators 'might not bring an impartial mind to the resolution of questions they may be called upon to decide'. Significantly however, Brereton J proceeded to say at [94]:

That said, the court will remove and replace an administrator only if satisfied that to do so would be 'for the better conduct of the administration' ... That requires that attention be given to the stage of the administration, and the remaining functions of the administrator or deed administrator ... (references omitted)

270 The last sentence emphasised above is insightful towards what here is a fully completed administration and as to the present ASIC suggestion that the creditors' remuneration determinations ought now be reviewed by the court for circumstances where these administrators would likely not, on my assessment, have been removed by a court - had ASIC ever made such an application during the period of the voluntary administration by Messrs Jones and Smith.

271 By reference to the observations of Austin J in Bovis Lend Lease Pty Ltd v Willy [2003] NSWSC 467; [2003] 45 ACSR 612 at [133], there is no doubt that voluntary administrators do carry implied duties of independence and of impartiality which are 'part of the very marrow of [the] voluntary administration system'. There is no controversy about that.

272 Austin J had also observed in Bovis Lend Lease that the principles of independence and impartiality developed and applied to liquidators, were equally applicable to voluntary administrators, albeit with an important contextual observation, namely that (see [133]):

... although differences in the circumstances in which they are required to work (especially the speed at which the administrator must work) may affect the standard required to be observed in particular circumstances. (my emphasis in bold)

273 I pause to reiterate that on the present interlocutory applications, I am called to resolve two issues towards what was at 28 May 2019, a completed voluntary administration conducted by Messrs Jones and Smith. The first is as to an approval by the court of the drawing down of the funds set aside to meet the administrators' further tranches of claimed remuneration as approved at the reconvened second creditors' meetings of 28 May 2019. The second is alternatively for the court itself to conduct a review of the earlier amounts of remuneration as it was approved by the creditors and has already been drawn upon by the liquidators, and then upon that review (if conducted), to order that most of the remuneration essentially be disallowed and repaid.

274 By my evaluation, such applications are far removed, factually, from the scenario of the removal of a serving liquidator as considered by the Full Federal Court in ASIC v Franklin and concerning there what was a genuine conflict of interest as suffered by those particular liquidators. Accordingly, the factual circumstances presenting in ASIC v Franklin are to be distinguished from the present applications.

275 In Ten Network, O'Callaghan J, after referring to the cases now mentioned, came to agree with a submission as then put by senior counsel for ASIC. The ASIC submission (as cited at [79] of his Honour's reasons) was:

... the reasonable fair-minded observer could be any reasonably educated and intelligent person fully apprised of the facts ... that person has an interest in the independence of  insolvency  practitioners merely by virtue of the fact that they are participants in our market. And everyone with an interest in our market has an interest in the effective operation of our  insolvency  system. And the effective operation of our  insolvency  system relies on the trustworthiness and independence of its registered practitioners. The community puts its trust in  insolvency  practitioners to act objectively in investigating, in reporting, in adjudicating on proofs of debt, and where necessary in litigating as responsible officers. (my emphasis in bold)

276 Accepting that submission of ASIC at the time, O'Callaghan J noted the objectives identified under Part 5.3A of the Corporations Act 2001 (Cth) and by s 435A(b) therein, as regards the interests of creditors and members being relevant. Nevertheless, his Honour declined to follow Santow J's approach in Advance Housing by limiting the objective hypothecation standard for ostensible bias - merely to the company's creditors, or to its members (ie, shareholders).

277 Before me, there was no challenge put against the application of that Ten Network bias standard to the present circumstances. However, it is still important to keep in mind, as White J plainly did in ASIC v Franklin, the contextual landscape distinction as between a curial role in deciding as between the rival arguments as put by adverse parties, measured against the more commercially direct role of a professional  insolvency  practitioner accountant who is urgently parachuted into the management of a declining business operation and is potentially carrying personal responsibilities whilst rendering speedy business judgment decisions as required. The operative landscapes for any hypothesised reasonable observer towards a possible bias problem could hardly be more different. Consequently, the double 'might' ostensible bias test of the reasonable fair-minded observer will need to be applied with a commercially minded recognition of that contextual difference.

278 Of course, none of the cases I have now canvassed were ventilated in a context of ASIC raising an objection against the receipt of an approved remuneration payment to an external administrator. Factually, none of the cited decisions were concerned with valuable work professionally carried out by an administrator, nor the statutory appointments of administrators under circumstances where their remuneration has been approved by the creditors.

279 By my own observation I would add that there appears to be a world of difference as between a hypothesised well-educated and fair-minded observer positioned quietly at the back of a courtroom - interested, informed of the facts and issues and calmly observing a process of determination unfold as between disputants presided over by a curial officer. In some contradistinction is that same fair‑minded observer positioned in a context of the sometimes rapid commercial decisions of a voluntary administrator - made around complex operations of a corporate business usually suffering some level of financial stress.

280 The imposition of an objective standard towards delivering independent and unbiased decision making by a voluntary administrator (or liquidator) ought not be fashioned into a Trojan horse to deliver an hypothesised reasonable observer with limited commercial instincts or who holds some activist expansionary agenda to be silently progressed.

281 Having now discussed the law concerning ostensible bias, it may be helpful if I were to provide a brief overview of the business of GD Pork at around the time Ferrier Hodgson was engaged to provide private advice at 25 July 2018 - as this evidence undoubtedly informs the observations rendered as regards Messrs Jones' and Smith's alleged bias and conflict.

282 An 'Operation Review and Restructure Proposal' document had been then prepared by Ferrier Hodgson. That is a convenient reference point. The document bears the date 8 August 2018 and is found at attachment MJ-3 to Mr Jones' second affidavit sworn 2 June 2020 - in support of the orders seeking court consent to draw the approved remuneration (exhibit 2.27). Essentially, this report was to be provided to the two main secured creditors of the two corporations, namely for the Export Finance and Insurance Corporation (EFIC), a Commonwealth statutory body, and to another private and secured lender, Bankwest.

283 From the executive summary to the report, observations were made explaining the significant business of GD Pork:

GD Pork was established in 2007 by a group of Danish investors and has supplied pigs under various contracts to the Craig Mostyn Group through its subsidiary Derby Industries Pty Ltd ('CMG') for the past 10 years.

In May 2018 CMG put GD Pork on notice (this followed the 3 year notice of termination which was notified to the lenders on 27 March 2018) that the weekly quantity of pigs supplied under the costs plus contract was being reduced from 1,400 pigs per week to 1,000 at the contract price of $3.70/kg from 4 June 2018. Any surplus pigs would be paid at $0.48/kg.

GD Pork filed an application in the Supreme Court of WA for an injunction to prevent CMG from altering the contract. The matter was settled prior to the trial date of 30 July 2018 with an agreed revised weekly supply of an initial 1,400 pigs per week for the first 6 months at $3.10/kg before industry levies and then transitioning to a weekly supply of 1,300 pigs per week at $3.10/kg plus any grain price uplift for the next 12 months. It was decided to accept the settlement offer, but after Bankwest and EFIC were advised, given the inherent uncertainty of the success and costs associated with the legal action.

Current forecasts based on the settled price and quantity have identified that the group will sustain an initial operating cash flow (before interest and debt amortisation) shortfall of circa $586K and an accounting loss of $184K to December 2018. The position is anticipated to deteriorate to December 2019.

GD Pork has prepared a number of strategies to attempt to stabilise the business and determine its viability including, but not limited to:

- Realisation of land assets

- Equity injection

- Model refit to market dynamics

- Vertical acquisition

In order to achieve these objectives, the business requires stabilisation of its cash flow shortfall. An immediate initiative is to obtain the secured lender's consent to a standstill agreement to defer any capital debt repayments until 31 December 2018. Interest on the debt will continue to be serviced over this period.

It is intended that standstill arrangements are also negotiated with the main grain suppliers.

If we implement the proposal outlined herein, the business is able to cover the cash flow shortfall and meet expected operational costs.

284 By the executive summary, further observations were rendered concerning topics:

Proposal
Key Objectives
Financial Snapshot
Pig Supply Agreement
Restructuring Plan.

285 Under the topic 'Objectives', the following outcomes were named:

Targeted campaign for equity objection.
Further examination of the market/business model over the next 6 months.
Consider sale of the Australind property as a contribution towards debt repayment.

286 For the topic 'Restructuring Plan', the following points were made:

Obtain standstill agreement from secured lenders and key trade creditors to defer any debt repayments until 31 December 2018.

Provide monthly monitoring reports to key stakeholders.

Implement key objectives strategy.

287 Section 2 of the document (entitled 'Background and Corporate Structure') presents some further background, including the observation that:

During the 10 years of operation, GD Pork has sold in excess of 242,200 pigs making it a significant contributor to the WA market.

288 As regards corporate structure, it was observed, by reference to the adjacent diagram, that:

Illustrated right is the group's corporate structure. GD Pork Pty Ltd is the operator of the business, owns the infrastructure and livestock. GD Pork Holdings Unit Trust owns the land.

289 The diagram indicates that 100% shareholding control of both corporations was offshore - by the identification of Denmark and essentially identifying Danish investors 'Pork Australia Ops' as the shareholders of both corporations.

290 A restructuring plan was elaborated upon at section 5 of the document, adjacent to a creditor deferral financial position - which showed a so‑called cash flow 'waterfall', with an anticipated impact at 30 December 2018 stemming from a standstill proposal to secured creditors and key grain suppliers requiring total funding of AUD$2,847,027.

291 'Key contacts' provided, as identified under s 8, were Mr Martin Jones, partner, and Ms Lauren McCann, senior manager at Ferrier Hodgson.

292 Across the three (3) month period of Ferrier Hodgson's private engagement, a number of like documents were prepared for and submitted to the secured creditors. See for instance, a following Interim Monitoring Report of 5 September 2018 at page 72 of Mr Jones' affidavit. Subsequently then, at page 92 of Mr Jones' affidavit, Ferrier Hodgson's Monitoring Report for September, dated 26 October 2018, is shown.

293 I refer particularly to the 26 October 2018 report, given it was prepared only two days before what was the formal statutory appointment of Messrs Jones and Smith as voluntary administrators to the two corporations. The introduction to the report (at page 94 of Mr Jones' Affidavit) observes as regards 'key items of note', that:

- GD Pork purchased the majority of the grain for the month from Nymann Strathaven rather than Weston Milling on better credit terms. The grain contacts for the balance of the year are with Weston Milling at an estimated total cost of $1.893M.

- Weston Milling have responded to the request for a standstill by advising that:

• Weston Milling reject GD Pork's proposal to make weekly payments of $160,000 which would cover new purchases and any upside to be restrained by Weston Milling as a debt reduction
• There is no interest in receiving a second ranking security arrangement behind the secured creditors. Weston Milling have requested details of any unencumbered property to take security over.
• GD Pork are requested to make weekly payments of $125,000 per week as debt reduction in addition to any pre-payments.
• GD Pork has until 1 November 2018 to respond or the account will be put on stop supply as of 5 November 2018.

- We have not received any feedback on the draft deed of forbearance nor secured any formal standstill agreements with the secured lenders.

- The Group will be unable to make the debt reduction payment due to EFIC on 30 October 2018.

- We have commenced a controlled asset marketing campaign requesting interested parties provide non-binding expressions of interest by 29 October 2018. At this time, the likely offer to be received will be from Westpork.

- Craig Mostyn Group (CMG) has advised they are interested in some form of arrangement that will secure future supply from GD Pork and which will negate the possible acquisition by Westpork. We have provided CMG with a draft term sheet for discussion which broadly includes:

• An upward price adjustment for the contract grower pigs under 2018 Pig Supply Agreement.
• Use of CMG technical staff to resolve the biogas plant issues.
• Future profit sharing from any market turnaround to repay the financial assistance.

- The Department of Agriculture and Water Resources (DAWR) has brought criminal charges against GD Pork Pty Ltd, the director, Torben Soerensen and former production manager, Henning Laue, for the alleged illegal importation of genetic material. The matter is due to be heard in the Mandurah Magistrates Court on 26 October 2018 whereby the matter is expected to be committed to the Perth District Court in 2-3 months time.

- If found guilty, Mr Soerensen faces a maximum penalty of $420,00 or 10 years jail time. GD Pork faces a maximum penalty of $2M.

294 Under section 2 of the document, under a 'September Key Metrics Snapshot', it was observed that for September (2018):

• Total revenue collected $1.326M (after levies and processing fees), circa 70k above budgeted collections
• 6,648 pigs (contract, surplus and sows) sold, 88 pigs above budget
• Total accrued expenses were $1.41m which were under budget by $396k
• Accrued feed costs were $791k, circa $82k under budget
• Accrued total costs of production $944k, circa $99k under budget

295 Five ensuing dot points were noted at the bottom of section 2, as follows:

• Distributed email blast and flyer to select potential interested parties
• Confidentiality agreements executed and information memorandums issued
• Site visits being completed by interested parties
• Engagement of Landmark to market and sell Australind property
• Business is reviewing outstanding matters to commission Biogas plant.

296 Further observations followed concerning an estimated financial position (see section 4). In basic terms, the cash flow position was observed as gloomy, without secured creditor support.

297 A support proposal as put to the corporations' main grain supplier at that time (Weston Milling) is elaborated upon at section 5, under a heading 'Other Operational Matters'. The section noted Weston Milling's rejection of a proposal as put by GD Pork to obtain a continued supply of grain, raw materials and other items for a period between October and December 2019, in the amount of $1.893 million - on a basis GD Pork pay Weston Milling $160,000 per week (or $640,000 per month), regardless of the quantity purchased. At 25 October 2018, Weston Milling was recorded as having rejected the proposal, by advising the corporations then that:

There is no appetite to obtain a second ranking security arrangement behind the secured lenders. Weston Milling have requested details of any unencumbered property which could be used for security.

298 Supply of further grain and raw materials from Weston Milling was threatened to cease as of 5 November 2018, unless a counter proposal for debt reduction and pre-payments for new purchasers was agreed to by the GD Pork group.

299 In summary then, the GD Pork corporate group at the end of October 2018 was teetering. It was facing significant liquidity problems in the continued operation of its West Australian piggery business operation. The group had two significant secured lenders, EFIC and Bankwest. They effectively held the economic fate of the companies in their hands. Beyond the two secured creditors, the nature of the companies' piggery business very obviously required that the significant underlying live pig livestock asset be adequately and regularly supplied with grain, as an essential food supply. Animal welfare considerations for the pigs were also strongly in play, as regards ensuring an adequate food supply.

300 As a result, the grain supply issue from Weston Milling (who was then a significant unsecured creditor) was evidently a key consideration, if the piggery business was to continue or if not, to at least preserve the asset value of the livestock. There was a significant unsecured arrears due to Weston Milling. It, very understandably, was pressing for that exposed unsecured debt position to be improved. Commercially speaking, there is nothing at all unusual about such a stance exposed by a concerned creditor being communicated to a teetering business operation. This is an everyday event for an  insolvency  practice.

301 Basic, but obvious options for the GD Pork group to then consider in strained financial circumstances included seeking short term forbearances from the group's secured creditors until the end of 2018, possibly coupled with some allied equity injection, if obtainable. If secured and unsecured creditors were prepared to afford some level of indulgence in the nature of further time, or a deferral of looming capital repayment - then possibly, a looming  insolvency  trading scenario might be avoided for the companies. But absent consensual agreements from the creditors to some deferment terms then, an external administration and possibly liquidation, were firmly on the horizon at that time. It follows that it was an appropriate and inevitable course of action to appoint professional  insolvency  practitioners, such as Messrs Jones and Smith, to the position of voluntary administrators.

302 There are the obvious commercial reasons why secured and unsecured creditors of a significant business could wish, along with the board of those trading entities, to avoid a formal scenario of external administration, if that is possible. More obvious considerations would include avoiding wider damage to business relationships, as well as to the general goodwill of a business. Avoiding jeopardy to the tenure of key personnel and avoiding the significant costs of a formal external administration, also present as avoidance considerations. Such considerations could be particularly relevant if there were adverse trading circumstances (viewed as having delivered only a short term cash flow problem to a business) perceived as being either passing, or as aberrant in the long term to a business with underlying substance.

303 Where a business finds itself teetering over its ongoing financial viability, an involvement of a skilled and respected  insolvency  firm in a private capacity (ie, prior to any appointment of administrators) might deliver some advantages in such circumstances, including by obtaining:

(1) the availability of experienced, specialist accounting expertise to advise about potential formal and informal  insolvency  relief options;
(2) gaining an ability to discern and evaluate more quickly, clinically, and independently the corporation's financial trading data, as it emerges on a daily or weekly basis;
(3) an accessibility to frank and impartial advice concerning the corporation's solvency, with a view to board management avoiding any scenario of insolvent trading;
(4) the benefit under sometimes stressful and strained business relationship circumstances of accessing a line of professional and dispassionate communication to secured and unsecured creditors - to calmly and reliably relay current facts and information as obtained from management, without emotion;
(5) a capacity to be able to converse at the same sophisticated financial level as key decision makers who are advising secured creditors and to gather for them the most relevant financial information then being sought as a priority, in terms of creditor decision-making under such circumstances; and
(6) to be ready to 'hit the ground running', if a call does eventually need to be made to formally appoint voluntary administrators.

304 As has been seen, there was, at 29 October 2018, a resolution carried to appoint Messrs Jones and Smith as joint and several voluntary administrators of both corporations.

305 The essential issue before the court goes formally to the reasonableness of the voluntary administrators' remuneration. I repeat in this respect, that the application for a remuneration determination review by ASIC is not concerned with the level of Ferrier Hodgson's fee under that firm's prior private appointment (which fee was $110,136.81 including GST) invoiced on 19 October 2018, and which invoice was paid at between 22 and 31 October 2018 (see agreed facts 45 and 46).

306 Rather, as has now been discussed, ASIC's current challenge is only directed at the remuneration for the subsequent work (as it came to be completed by Messrs Jones and Smith as voluntary administrators) over roughly a seven (7) month period of voluntary administration for the two corporations - but which work itself is not a subject of any criticism by ASIC, as to its utility or value.

307 ASIC's objection position is simply that, by reason of the prior engagement of Ferrier Hodgson, that Messrs Jones and Smith should not have taken up and then continued in their appointments as voluntary administrators at and after 31 October 2018.

308 By reference to the relevant legislation to be applied, namely to the comprehensively assembled assessment criteria seen under IPS s 60-12(a) - (l), I repeat that ASIC does not seek to challenge any of the matters to which a court can have regard if conducting a review as to the level of reasonable remuneration. Only matter s 60-12(m) is invoked by ASIC - to argue that its conflict or ostensible bias concerns are relevant in a remuneration review exercise and ought, on a review conducted by this court, negate most (approximately 90%) of the administrators' remuneration as was approved by the creditors.

309 Because ASIC's grievance is fundamentally over the taking up in the first place of the statutory appointments as voluntary administrators, its conflict and bias stance stands chronologically to be assessed at 31 October 2018 - when Messrs Jones and Smith were then officially appointed as the voluntary administrators of the two corporations.

310 As events had transpired, objections by ASIC against Messrs Jones' and Smith's continued discharge of their functions as voluntary administrators only came to be articulated some 112 days after the statutory appointments were assumed. By then, much professional work obviously had been done in the administration. Such facts may be contrasted to those underlying the 2017 decision of O'Callaghan J in Ten Network, where ASIC's concerns vis-à-vis Mr Korda were urgently articulated at a time very close to a commencement of his appointment. Removing the administrators once embedded carries considerations as to unnecessary waste of such an extreme removal and replacement measure, unless absolutely necessary.

311 A further consideration in play is thus the feasibility and commercial sense of stepping aside mid appointment - in terms of inevitably to be then incurred wasted costs, delays and the utility of a loss of commercial knowledge acquired in the voluntary administration landscape - none of which considerations presented on the Ten Network facts.

312 I turn now to a prior distillation of the five essential issues to be addressed on the present applications.

313 The two interlocutory applications had been case managed in this Court and became a subject of various pre-hearing case management directions.

314 On 13 November 2020, the case manager (Vaughan J, as his Honour then was) had issued orders in terms (see exhibit 1.4):

THE COURT NOTES that, following variation by agreement, the parties are agreed that the applications give rise to the following varied issues for determination by the court (amended agreed statement of issues):

1. Whether the plaintiffs accepted or performed their appointments as voluntary administrators as one or both of GD Pork Pty Ltd or GD Pork Holdings Pty Ltd (Companies) in circumstances were the plaintiffs should not have done so because:

(a) The plaintiffs were not independent, or alternatively, could not be seen to be independent?
(b) The plaintiffs were not free of actual or potential conflicts of interest or apprehended bias in carrying out one or more of the following functions, namely:

(i) investigating and reporting on voidable transactions including unfair preferences?
(ii) investigating and reporting on the conduct of the Companies' management including any insolvent trading claim?
(ii) pursuing the sale of the Companies' assets and businesses?
(iv) trading the Companies' assets in business as a function forming part of, or being sufficiently connected with, pursuing a sale of the Companies' assets and business?

2. To the extent any part of Issue one is answered 'Yes':

(a) Is it appropriate to review the remuneration determinations made by the creditors of each Company on 5 December 2018 and 28 May 2019?
(b) If so, by what amount, if any, ought the remuneration determinations be varied?
(c) Should the court direct that the plaintiffs repay any varied amount of remuneration to one or both of the Companies?

3. Ought the court otherwise direct that the plaintiffs are entitled to draw down remuneration in accordance with the remuneration determinations made by the creditors of each Company on 5 December 2018 and 28 May 2019;

4. Who should pay the costs of the plaintiff's interlocutory application dated 3 June 2020?

5. Who should pay the costs of the ASIC's interlocutory application dated 28 August 2020?

315 As a matter of formality, at the end of the reasons I will provide my answers to the respective questions. At this point, I merely notice sub‑issues 1(a) and (b). In particular, I observe there to be an obvious lack of particularity as regards any questioning of the plaintiffs' independence or ostensible independence under sub‑question 1(a). There is, as well, an unsatisfactory melding together by the preface of sub‑question 1(b) of the conflict of interest issue, to the further issue of apprehended bias - that I assess as a melding of distinct legal concepts and ultimately, in unhelpful fashion.

316 Sub‑question 1(b) focuses on four identified concerns by ASIC as regards so‑called actual or potential conflict of interest.

317 As regards ASIC's apprehended bias concerns, it is important to recall that none of the business decisions taken by the voluntary administrators across, roughly the seven (7) month period to 28 May 2019, were a subject of any level of adverse criticism as being decisions improperly favouring any person, or favouring any interest over another interest. Further, no grievance was expressed by any creditor or shareholder as regards a lack of independent decision making. The question of ostensible bias therefore looks from a reasonable remuneration perspective for valuable work competently performed essentially, to be one of academic, rather than true commercial concern in terms of the outcomes of the administration itself.

318 A greater focus is thus at the issue of suggested actual or potential conflict of interest, in the four respects as alleged and identified above at sub-questions 1(b)(i) through (iv). I refer to these issues collectively as 'issue 1'.

319 Pursuant to order 2 of Vaughan J's earlier orders of 2 October 2020 (exhibit 1.3), ASIC had filed a statement of contentions on the agreed statement of issues, on 16 November 2020. This document, found at exhibit 1.5, elaborates on issue 1 in respects that are more insightful.

320 Towards issue 1 (concerning potential conflicts of interest), ASIC's statement came to be in the following terms.

Issue 1

...

Issue 1(a) and 1(b)(i)

2. In carrying out the pre appointment engagement, Mr Jones advised the Companies about, and negotiated with a creditor of the Companies (Weston Milling) in respect of, [a payment] (for about ... $163,000) which the Companies made to Weston Milling in October 2018.

[Note: At the hearing, par 2 seen above was corrected, so as to just refer to the single payment of $163,000 and hence, I have shown that position as the corrected version in the above quotation.]

3. Separately for work performed on the pre‑appointment engagement, GD Pork paid Ferrier Hodgson about $100,124 (excluding GST) in late October 2018.

4. The payments to Weston Milling and/or to Ferrier Hodgson were payments which an administrator was required impartially to investigate and form an opinion on, and report about to creditors, as potential voidable preferences. By reasons of paras 2 and 3 above, there was a real or sensible possibility the plaintiffs could not, or apparently could not, perform this function impartially.

5. Notwithstanding paras 2 and 4 above, the plaintiffs accepted appointment as voluntary administrators of the Companies, and performed work and claimed remuneration in investigating and reporting to creditors about voidable preferences. As a result, Issue 1(a) and Issue 1(b)(i) should be answered 'yes'.

321 Having exposed those as distilled issues, I turn to render my concluding evaluations on the matters as identified above. In basic terms, these matters are said by ASIC to have generated a scenario of conflict of interest for Mr Jones and Mr Smith, in terms of their taking up of their seven‑month appointment as voluntary administrators, from 31 October 2018 to 28 May 2019.