Recovery issues plague Appco class action resolution

This decision arises in the context of the Appco class action, being one of a series of class actions commenced by Adero Law under the Fair Work Act 2009 (Cth)

In this case, it was alleged that the applicant and class members were employees of the respondent (Appco) and by dint of that ought to have been paid in accordance with the applicable award.

The matter came before Lee J for the approval of an in-principle settlement in the amount of $1.9 million, of which 50% was sought for the funder. After payment of expected administration costs, it was estimated that $910,000 would be left for distribution to class members. In contrast, the claims of class members were estimated to be in the vicinity of $65 million and were assessed by counsel for the applicant as having ‘good liability prospects’. The significant discount on recovery was due to the only current source of recovery being Appco’s current net assets of $2.1 million. The solicitor for the applicant (Markham) had not pursued recovery from Appco’s insurance policies on the belief that could not be brought within a Part IVA proceeding as it “would require the establishment of individual circumstances” (at [6]). During the course of the proceeding, transactions were entered into by Appco under which a new company was created (Indigo8), an Appco company was voluntarily deregistered, and Appco had disposed of some of its assets at a loss.

Markham gave evidence in which he stated that the prospects of recovery against other sources were not very strong, noting that he had not undertaken further investigations to ascertain whether transactions entered into were voidable. In part, this was due to the funder declining to fund those investigations. This was met with strong criticism from Lee J, who stated (at [11]): “…on the current state of the evidence, I am left with the impression that, in effect, the solicitors for the applicant are relying on nothing more than representations made by the solicitors for the respondent as to the true financial position of the company”. His Honour was highly critical of the settlement, describing the return to class members as “derisory” and “diddly squat” (at [12]). His Honour stated (at [13]): “If the settlement amount was of a different character, it may be that I would take a different view, but given the amount already spent on this litigation and the issues as I understand them, I am very far from satisfied that the proposed settlement, on the current state of the evidence, is fair and reasonable and in the interests of group members”.

Given the absence of proper investigation of the sources of recovery (and the refusal by the funder or Adero to pay for that investigation to occur), his Honour initially proposed that a contradictor be appointed. This was initially opposed by Adero. However, following his Honour indicating that he proposed to dismiss the application for approval and give notice to class members, Adero acceded and agreed to conduct the investigation. His Honour hesitantly agreed for this to occur and adjourned the application for approval of the settlement, providing the parties the opportunity to put on further evidence.

 

Bywater v Appco Group Australia Pty Ltd [2020] FCA 1537
Federal Court of Australia, Lee J, 9 October 2020
Applicant’s Solicitors: Adero Law;          

Respondent’s Solicitors: Baker McKenzie;

Applicant’s Funder: Harbour
Austlii link: http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2020/1537.html?context=1;query=[2020]%20FCA%201537;mask_path=

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