FSM Development Pty Ltd, in the matter of FSM Development Pty Ltd (in liquidation)

This Federal Court decision is a short but useful example of how insolvency funding works in practice when a liquidation still has real commercial work left to do. The liquidators of several related companies asked the Court to approve entry into a liquidation funding agreement that would operate for more than three months. The Court granted that approval and also made confidentiality orders over parts of the evidence and the funding documents.

The public reasons show a focused supervisory application, not a long contested trial. Even so, the commercial picture is clear enough. The companies were involved in two Sydney property developments that were close to completion. The Court accepted evidence that further funding was needed so the liquidators could complete final steps, realise assets, deal with related entities and continue the liquidations in a way that protected creditor value.

The application was brought by the liquidators of the second to sixth plaintiff companies, including FSM Development Pty Ltd and FSLP Pty Ltd. The judgment identifies FSM as undertaking a multi-unit mixed-use development in Ashfield, Sydney, which was practically complete. FSLP was undertaking a multi-unit residential development in Lindfield, Sydney, which was largely completed. Other plaintiff companies were also involved in those developments.

That factual setting matters. A near-complete development can have a very different value profile from an abandoned or early-stage project. The Court accepted evidence that there were still final steps to be taken so the assets produced by the developments could be realised. The liquidators also needed funding to get in other assets, including steps involving related entities. The judgment specifically refers to winding up related entities and appointing receivers and managers to related entities.

The liquidators had already received funding from a creditor under an earlier funding deed. They then proposed to enter into a further arrangement called the Liquidation Funding Agreement 2025. Because that agreement would operate for more than three months, approval was required under s 477(2B) of the Corporations Act unless approval came from the committee of inspection or by creditor resolution. The liquidators therefore sought the Court's approval and did so on a nunc pro tunc basis.

Some of the detail was confidential, so the public reasons do not reveal every commercial term or every strategic step. But the Court recorded the core evidence in direct terms. Without further funding, the liquidators said they would be unable to continue realising assets, unable to discharge their obligations under the Corporations Act, and unable to take other confidential steps. The evidence also said that absence of funding would likely cause a material decrease in asset value, lead to reduced or nil returns for creditors, and delay the completion of the liquidation process.

The main statutory basis for the approval was s 477(2B) of the Corporations Act 2001 (Cth), together with s 506(1A). The Court stated that approval was required because the Liquidation Funding Agreement would operate for more than three months. The judgment also notes that approval could otherwise have come from the committee of inspection or by a resolution of creditors. In this case, the liquidators sought leave from the Court.

The Court referred to earlier authorities summarising the principles relevant to approval under s 477(2B), including Stewart, in the matter of Newtronics Pty Ltd and Thorn, in the matter of South Townsville Developments Pty Ltd (in liq). The reasons do not restate those principles in full, but the Court's own analysis shows the practical questions it considered important here: whether the funding was necessary, whether lack of funding would damage the liquidation, whether the agreement was the best available source of funding, whether it was in creditors' interests, and whether the key commercial terms appeared reasonable.

The confidentiality orders were made under s 37AF of the Federal Court of Australia Act 1976 (Cth), with the Court also referring in the orders to ss 37AG(1)(a) and 37AJ. The Court repeated the orthodox position that open justice is the starting point and that necessity, not mere desirability, must be shown. It accepted that commercial sensitivity can justify a suppression or non-publication order where disclosure would prejudice the proper administration of justice. The Court also emphasised that any order must be confined to what is necessary and operate no longer than reasonably necessary.

Moore J granted the application. The Court approved, nunc pro tunc, the liquidators entering into the Liquidation Funding Agreement on behalf of each of the second to sixth plaintiffs. The reasons for doing so were stated briefly but clearly. The Court accepted evidence that if further funding was not provided, the liquidators would be unable to continue the realisation of assets, unable to discharge their obligations under the Corporations Act, and unable to take other confidential steps. The Court also accepted that this would likely result in a material decrease in the value of the companies' assets, reduced or nil returns for creditors, and delay to the liquidation process.

The Court further accepted that the Liquidation Funding Agreement was the best available source of funding and that entry into the agreement was in the best interests of the creditors of the second to sixth plaintiffs. Although the detailed terms were confidential, the Court said the key commercial terms appeared reasonable in the circumstances and did not appear to confer any unusual advantage on the funder.

On confidentiality, the Court made non-publication orders over specified paragraphs of the supporting affidavit, the earlier Funding Deed, the Liquidation Funding Agreement, and the plaintiffs' written submissions. The Court accepted there was a danger that revealing that material would prejudice the liquidators in carrying out the liquidations because it would expose confidential aspects of their plans and financial resources. In that context, the Court was satisfied suppression of the specified material was necessary to prevent prejudice to the administration of justice.

The scope and duration of the confidentiality orders were also important. The protected material was to remain confidential until the liquidation of each of the second to sixth plaintiffs was concluded. At the same time, the orders allowed the first plaintiffs and their legal representatives, servants, agents and employees to disclose, publish or access the documents and information to the extent necessary.

The Court also built in procedural protections because the application had been made without hearing from other creditors. It ordered the liquidators to provide a copy of the orders to all creditors for whom they had contact details by email, text message or mail depending on what contact information was available. It also gave any person liberty to apply within 14 days to modify or set aside the orders.

For business owners, directors and creditors, the case is best read as a practical example of value-preserving liquidation strategy. The Court was not endorsing funding in the abstract. It was responding to evidence that these liquidations still had commercially worthwhile work to do and that without funding the likely result would be lower asset values, worse creditor outcomes and delay.

This is especially relevant in property, construction and other project-based sectors. A business in distress may still hold assets that are worth materially more if final steps can be completed. That does not mean directors should continue trading without proper advice or assume a liquidator can always obtain funding. It means that once a company is in liquidation, there may be a lawful and commercially sensible basis for funding work that preserves or realises value.

The case also shows the importance of approval pathways. If a liquidator wants to enter a contract that will operate for more than three months, s 477(2B) may require approval. Businesses dealing with liquidators, including funders and major creditors, should expect that longer-term arrangements may need formal approval and judicial scrutiny.

There is also a useful point about confidentiality. Court proceedings are generally public, but not every commercial detail must be exposed if disclosure would damage the liquidation process. Here, the Court accepted that revealing the funding terms, the liquidators' plans and their financial resources could prejudice the conduct of the liquidations. That can matter where negotiations, recoveries, appointments over related entities, or asset realisation strategies could be weakened by public disclosure.

The public orders are useful because they show exactly what the Court did beyond simply saying yes to the funding agreement. First, the Court made the interlocutory process returnable instanter. Secondly, it identified the specific affidavit paragraphs and documents that were to be marked confidential. Thirdly, it approved entry into the Liquidation Funding Agreement under ss 477(2B) and 506(1A) of the Corporations Act. Fourthly, it dealt with costs by ordering that the liquidators' costs of the application be costs and expenses in the liquidations of each of the second to sixth plaintiffs and payable out of their assets.

Most importantly for creditors and counterparties, the Court did not leave the orders entirely closed off from challenge. Because the application had been heard without other creditors being present, the Court required notice to creditors for whom contact details were available and gave any person liberty to apply within 14 days to modify or set aside the orders. That is a practical reminder that ex parte or without-notice style insolvency applications may still include a later opportunity for affected parties to be heard.

The confidentiality ruling is also narrower than a blanket secrecy order. The Court protected specified material because it was satisfied disclosure would reveal confidential aspects of the liquidators' plans and financial resources and would prejudice the administration of justice in the context of the s 477(2B) application. The orders were framed to last until the conclusion of the relevant liquidations, which the Court considered reasonably necessary in the circumstances.

The judgment was delivered on 10 June 2025 and the reasons were published on 12 June 2025. The hearing took place on 10 June 2025. The Court's orders required the liquidators to provide a copy of the orders to all creditors for whom they had contact details by 5.00 pm on 13 June 2025. Any person wishing to modify or set aside the orders was given liberty to apply within 14 days of the date of the orders.

The public reasons are concise and some of the underlying evidence remains confidential. That means this case is most useful as a guide to the approval and confidentiality principles applied by the Court, rather than as a complete public account of the broader insolvency background.