Liquidator vindicated by the Federal Court in the Babcock & Brown liquidation

Articles Written by Joseph Scarcella (Partner), Noah Bennett (Senior Associate), Stephanie Ritchie (Associate)

A hotly anticipated decision in the ongoing saga of the Babcock & Brown liquidation was handed down last week, resulting in another win for the liquidator (represented by Johnson Winter & Slattery) and further highlighting the challenges facing liquidators when they are thrust into a quasi-judicial function when assessing proofs of debt.

On Friday 3 September 2021, the Full Federal Court of Australia, unanimously dismissed three appeals in the matter of Masters v Lombe (liquidator), in the matter of Babcock & Brown Limited (in liq) [2021] FCAFC 161. Justices Middleton, Beach and Colvin heard the three appeals together, finding that the liquidator, Mr David Lombe of Deloitte, was correct in his decision to reject the proofs of debt submitted by the appellant shareholders, as those shareholders were unable to establish that Babcock and Brown Limited (BBL) ought to have made certain disclosures to the ASX and even if those disclosures were made, no loss was proven. At both the trial and appeal, the liquidator was successful in establishing, that despite disclosures made (or not made) by BBL to the ASX, there was sufficient evidence that the market was not pricing the shares on the disclosures and that shareholders could therefore not satisfy that they suffered any loss. 


BBL was an ASX-listed global investment and asset management firm which, at its peak in 2007, had a market capitalisation in excess of $9.1 billion, 28 offices and 1,500 employees worldwide. However, BBL was significantly adversely effected by the global financial crisis of 2008, and its share-price plummeted more than 95%, falling from a high of $34.63 in June 2007 to $1.30 by October 2008. BBL was placed into voluntary administration in March 2009 and into liquidation in August 2009.

Since its liquidation, BBL and its directors have been the subject of numerous legal proceedings, including proceedings brought by its shareholders alleging breaches of the continuous disclosure regime. The decision handed down last week was an appeal from the decision of Justice Foster of the Federal Court, whereby Foster J found in favour of the liquidator’s decision to reject proofs of debt submitted by shareholders of BBL. The shareholders had submitted their proofs of debt on the basis that BBL failed to disclose notifiable material information to the market, as required by section 674 of the Corporations Act 2001 (Cth), resulting in significant investment losses. When the liquidator rejected the proofs of debt tendered by the shareholders, the shareholders applied to the Federal Court challenging to the liquidator’s determination.

At trial, the shareholders alleged that BBL was aware in 2008 that it had made and was making substantial losses, and its earnings for the 2008 financial year were substantially lower than what had been disclosed to the market. However, Justice Foster accepted the liquidator’s submissions that:

  1. the information that the shareholders allege ought to have been disclosed was not “material” in that it was known or the market had already “priced in” that information;
  2. any update guidance as to the forecast earnings of BBL was, due to the nature of the market at the time, too uncertain to be appropriate to be disclosed;
  3. BBL was not obliged to make disclosures to the ASX where its management forecasts embodied a potential for low, as well as high, returns – such information was within the “indefinite information exception” to the continuous disclosure obligations; and
  4. by reason of the 2008 global financial crisis, BBL’s restructure and analyst coverage of BBL during the purchasing period, by no later than mid-September 2008 (when the Lehman Brothers collapsed), any reasonable person looking to purchase shares in BBL would have been speculating as to BBL’s continued success in light of those matters and the impending global financial collapse.

A more comprehensive analysis of the primary trial decision can be found here:

Appeal to the Full Court

The BBL shareholders appealed Justice Foster’s decision to the Full Court of the Federal Court of Australia, submitting that on five occasions, BBL breached its continuous disclosure obligations to revise downwards its earnings forecast for 2008, and as a result, the BBL share price was inflated above the true market value of those shares.

The Full Court was required to consider whether there had been any contravention of section 674 of the Corporations Act concerning the applicants’ five allegations of non-disclosure. The appellants alleged that on five separate occasions during August to December 2008, BBL was aware that its earnings for the full financial year 2008 were expected to be materially lower than a previous earning guidance provided by BBL. 

In relation to the first three alleged non-discloses, the Full Court found that the material before the BBL board was in the nature of sensitivity analysis or sufficiently indeterminate not to mandate a disclosure under the ASX listing rules. The Full Court was satisfied that the market was not pricing BBL stock on the basis of earnings.

As to the fourth and fifth alleged non-disclosure events, the Full Court concluded that while this information should have been disclosed to the market, it would have been unlikely to adversely impact the BBL share price due to the global financial crisis which was well underway and that the appellants were unable to establish either causation or loss in respect of any of the five non-disclosure allegations.

Takeaway points

This decision highlights that liquidators, when tasked with assessing proofs of debt, are thrown into a lions’ den of issues of fact and law, such that their quasi-judicial function is put to the test.  As seen from the multiple Babcock & Brown proceedings, it is paramount that liquidators obtain appropriate advice (legal and expert) to correctly assess complex proofs of debt.

In these proceedings, Johnson Winter & Slattery advised the liquidator on the proofs of debt and it acted for the liquidator in multiple BBL proceedings.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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