Apple Computer Australia Pty Ltd v Wily

[2003] NSWSC 719

Reported Decision: (2003) 46 ACSR 729

Supreme Court

CITATION:	Apple Computer v Wily [2003] NSWSC 719 revised - 2/09/2003
HEARING DATE(S):	14/07/03, 15/07/03, 16/07/03
JUDGMENT DATE:	12 August 2003
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Applications for orders removing liquidator, directing inquiry into his conduct and setting aside examination summonses dismissed. Application for order restricting documents to be produced adjourned.
CATCHWORDS:	CORPORATIONS - winding up - application for order removing liquidator or directing inquiry into his conduct - alleged partisanship of liquidator - alleged failure to cooperate with major creditor - alleged lack of independent decision making - whether examination summonses should be set aside or confined
LEGISLATION CITED:	Corporations Act 2001 (Cth), ss.473(1), 536 Supreme Court Rules, Pt 36 r 12
CASES CITED:	Re Adam Eyton Ltd; Ex parte Charlesworth (1887) 36 ChD 299 Re Biposo Pty Ltd (1995) 17 ACSR 730 Domino Hire Pty Ltd v Pioneer Park Pty Ltd [2003] NSWSC 496 Re Excel Finance Corp Ltd; Application of England (1993) 10 ACSR 255 at 282 Macpherson v Sherman (in his capacity as Deed Administrator of Agriculture.com Pty Ltd) [2001] NSWSC 628
PARTIES :	Apple Computer Australia Pty Ltd - Plaintiff Andrew Hugh Jenner Wily - First Defendant Buzzle Operations Pty Ltd (Receivers Appointed) (In Liquidation) - Second Defendant
FILE NUMBER(S):	SC 2698/02
COUNSEL:	Mr C.R.C. Newlinds - Plaintiff Mr M.R. Aldridge SC - Defendants
SOLICITORS:	Clayton Utz - Plaintiff MBP Legal, McCrohon Bergseng Partners - Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

TUESDAY, 12 AUGUST 2003

2698/02 – APPLE COMPUTER AUSTRALIA PTY LIMITED v ANDREW HUGH JENNER WILY & ANOR

JUDGMENT

Background

1 The first defendant, Mr Wily, was, by order made on 15 February 2002, appointed liquidator of the second defendant, Buzzle Operations Pty Limited (“Buzzle”), having previously been appointed provisionally on 19 December 2001. On 26 March 2002, there were issued, upon Mr Wily’s application, certain examination summonses under Division 1 of Part 5.9 of the Corporations Act 2001 (Cth) and certain orders for the production of documents (Supreme Court Rules, Pt 36 r 12). The summonses were directed to nine persons, of whom six are employees of the plaintiff, Apple Computer Australia Pty Ltd (“Apple”). The order for production was directed to Apple.

2 By an originating process filed on 14 May 2002, Apple seeks:

(a) an order that Mr Wily be removed as liquidator of Buzzle (paragraph 7);

(b) an order that an inquiry be held pursuant to s.536 of the Corporations Act with respect to the conduct of Mr Wily in connection with the performance of his duties as liquidator of Buzzle (paragraph 6);

(c) an order reversing or modifying Mr Wily’s decision to obtain the issue of the examination summonses in respect of the six Apple employees and the order for production directed to Apple (paragraph 5);

(d) an order setting aside those examination summonses and the order for production (paragraphs 4 and 2).

3 The first contention of Apple is therefore that it is not appropriate that Mr Wily be permitted to continue as the liquidator of Buzzle and that the court should so find. Short of that, Apple contends that Mr Wily’s conduct as liquidator has been of such a kind as to warrant inquiry by the court and that such an inquiry should accordingly be instituted. The final fall-back position of Apple is that the examination summonses and order for production should be set aside or, at the least, curtailed.

Basis of Apple’s claims

4 Apple’s complaints against Mr Wily are, in effect, that he has adopted, in the winding up, a partisan position inconsistent with the impartiality among creditors that a liquidator must maintain and that actions he has taken were not the product of his independent judgment and decision-making but, rather, were taken under the influence of and for the benefit of certain directors of Buzzle or, at least, interests associated with them.

5 The actions Apple challenges on this basis are those involved in the decision to seek the issue of the examination summonses and the order for production, the implementation of that decision and things done in relation to the examinations (or intended examinations – none has yet occurred) after issue of the summonses. Indeed, those actions represent substantially the whole of the actions of Mr Wily as liquidator to date, apart from some consideration of other recovery possibilities. There are no funds available to the liquidator.

The rise and fall of Buzzle

6 It is necessary to recite briefly the history of Buzzle and its relationship with Apple. Apple imports and distributes computer equipment which is distributed through entities known as “resellers”. They on-sell and may provide maintenance and repairs. In the first half of 2000, seven of Apple’s resellers decided to combine their businesses in a new company with a view to floating that company on the stock exchange. These plans were pursued with the knowledge and co-operation of Apple which, it was envisaged, would be a major creditor of the new company in the ordinary course. Apple made it clear that it would require security for the new company’s indebtedness in the form of a general charge over the assets of the new entity and directors’ guarantees. Arthur Andersen Corporate Finance played an advisory and co-ordinating role in relation to the merger proposal.

7 A clear need faced by the new entity was for a computer program suited to the reselling operations. One of the participating resellers, Nexbyte, had a system known as “Navision” that had been specially adapted for the particular kind of business. It was intended that that system be available to the new entity but, in the end, Nexbyte was not a participant and its adapted version of Navision was not available. Instead, an unmodified version of Navision was introduced. Deloitte Growth Solutions Pty Ltd (“Deloitte”) played a role in the selection and commissioning of the computer system.

8 On 13 September 2000, formal documents creating the merger were executed and the new company – Buzzle – commenced operations. Buzzle created a general charge in favour of Apple which also received guarantees from directors of Buzzle in respect of Buzzle’s indebtedness to Apple from time to time.

9 Within a very short time, Buzzle was experiencing difficulties. The Navision system was a problem and there were many complaints from resellers about it. Sales were seriously under forecast. Things did not improve. By March 2001, the debt owing to Apple had reached $22 million and Buzzle was in default. On 30 March 2001, Apple, exercising powers conferred by its charge, appointed receivers and managers of the assets and undertaking of Buzzle. Those receivers are still in office, although it appears likely that their functions are substantially completed.

10 The applicants for the appointment of a provisional liquidator of Buzzle were Aircent Pty Ltd (“Aircent”) and Choice Connections Pty Ltd (“Choice”), creditors associated with two of the principals of resellers, Mr Hartono and Mr Liu. There were, at that time, two directors of Buzzle, in addition to Mr Hartono and Mr Liu, being Mr Mekrizis and Mr McComb. The prospective plaintiffs, in the ordinary course, approached Mr Wily to determine his willingness to act as provisional liquidator and liquidator. Upon his giving the appropriate consent, the plaintiffs in those proceedings sought and obtained, on 19 December 2001, orders that Buzzle be wound up provisionally and that Mr Wily be appointed provisional liquidator.

The Commercial List proceedings

11 Before the order for provisional winding up was made – in fact, in April 2001 – Apple had commenced proceedings in the Commercial List of this Division seeking judgment against thirteen defendants for moneys due under guarantees given by them in respect of indebtedness of Buzzle. By the time those proceedings came to trial, the proceedings had been settled except as to certain of the defendants, being Mr Hartono, a relative of his, Mr Liu and two other persons. Those remaining defendants pursued cross-claims against Apple seeking to avoid liability under the guarantees on the basis of, inter alia, unconscionability and misleading and deceptive conduct on the part of Apple.

12 The existence of the Commercial List proceedings and the stage they had reached played a part in the decision of Aircent and Choice to seek the appointment of a provisional liquidator to Buzzle. They took the view that it may be of benefit to creditors of Buzzle, including themselves, that Buzzle become a party to the Commercial List proceedings since it might be in a position to assert and pursue causes of action based on the matters in respect of which the remaining defendants had mounted their cross-claims.

13 The defendants/cross-claimants in the Commercial List proceedings advanced various allegations against Apple. They said that it had, as against Buzzle, engaged in “channel stuffing”, that is, a practice of insisting that Buzzle take stock it did not want or need as a “price” for being able to obtain from Apple stock it did need. They also said Apple had supplied defective and obsolete goods to Buzzle; also that Apple had been guilty of misleading the Buzzle promoters in the pre-incorporation phase. There was also a claim that the debt Apple alleged to be owing to it by Buzzle was inflated.

14 In their affidavit in support of the application for the appointment of a provisional liquidator of Buzzle, Mr Hartono and Mr Liu outlined the above potential claims of Buzzle against Apple. They also referred to potential claims against Deloitte (the supplier of the Navision system) and Arthur Andersen Corporate Finance. Also flagged in the affidavit was the possibility of insolvent trading claims against directors of Buzzle (including, perhaps ironically, the deponents themselves), with special reference to the possibility of such a claim against Apple as a de facto or “shadow” director of Buzzle. The affidavit concludes with a statement of the deponents’ belief that, because of the proximity of the dates fixed for hearing of the Commercial List proceedings, it is “vital” for a provisional liquidator to be appointed as soon as possible.

Mr Wily’s activities as liquidator

15 Mr Wily was appointed provisional liquidator of Buzzle on 19 December 2001. Before the application came on for hearing (in fact, by fax sent on 13 December 2001), Clayton Utz, the solicitors for Apple, informed Surry Partners, the solicitors for the applicants, that their client intended to oppose the nomination of Mr Wily as provisional liquidator by the court and would be “happy to liaise with you” regarding some other choice, assuming that an appointment was made. The ground of opposition to Mr Wily was stated to be, “amongst other reasons”, the “close referral relationship” between Mr Wily’s firm and the solicitors who had acted for all Buzzle directors “in and about the affairs of the company”. The letter concluded by asking that, if the appointment of Mr Wily was to be pressed, he be present in court “so he may be examined on the Certificate of Independence that he has provided to you and the Court”.

16 Mr Wily was nevertheless appointed as provisional liquidator. Following his appointment on 19 December 2001, there was a meeting on the same day between Mr Wily, his senior manager Mr Sampson and Messrs Hartono and Liu. Hartono and Liu outlined to the others their concerns about the various matters involving Apple and gave Mr Wily and Mr Sampson a quantity of documents about “channel stuffing”. On the next day or soon thereafter, Mr Wily and Mr Sampson went to the office of Surry Partners and spent several hours (almost a full day) reviewing numerous documents made available to them, including books and records of Buzzle and its contractual and security arrangements with Apple. Copies of certain documents were requested and given. These were perused by Mr Sampson following his return to work in mid January 2002 after the Christmas break.

17 On 25 January 2002, Mr Wily and Mr Sampson met with two representatives of Clayton Utz, Apple’s solicitors, being Mr Cowling and Ms Ball. An account of the meeting is set out in an affidavit of Ms Ball and, there being no real dispute about it, may be accepted as an accurate record of the substance of the meeting:

“The First Defendant: ‘What we are interested in is that something went wrong and we need to know what happened and whether we can sue someone. We have already considered suing Deloittes with respect to the Navison system but are concerned as to what is the damage.’
Mr Cowling: ‘The Directors of Buzzle have been complaining about Deloittes from day one. Basically, Buzzle failed because of them. What I’m more concerned about is ensuring that there is no delay with the commercial list proceedings commenced by Apple.’
The First Defendant: ‘We’re looking at it. It’s the fourth job we’ve been appointed to urgently by directors and we are considering our position.’
Mr Cowling: ‘Do you have copies of the pleadings and affidavits?’
The First Defendant: ‘We have some but not all.
Mr Cowling: ‘We can send you a complete list of documents and you can tell us what you need and we will provide copies to you. It is our suspicion that those directors, Hartono and Liu, only appointed you to get rid of the hearing date on 8 April 2002. We know that they are desperate to avoid that hearing date.’
The First Defendant: ‘I understand you have settled with some parties.’
Mr Cowling: ‘Not with your appointors.’
The First Defendant: ‘The other claim is in relation to “channel stuffing” which I see to be a huge problem for Apple where Apple, as manufacturer, forces its resellers to take a product.’
Mr Cowling: ‘That allegation has been made and you, as the provisional liquidator, can take that claim on. It would be a matter for you. They have not got any evidence to support that claim and, in any event, Apple took back what was not sold and gave full credit to those resellers. I do want to emphasise that we do not want to lose the hearing date and want to be in a position where you are fully up-to-date with the proceedings.’
The First Defendant: ‘I will have to decide whether to get involved.’
Mr Cowling: ‘What I would suggest is that you apply to be added as a party subject to any question of costs.’
The First Defendant: ‘It would no doubt take a long time to generate evidence. Nothing obviously will happen until I am appointed as liquidator, however, at this time I would say there would be a fairly remote chance of any joinder.’
Mr Cowling: ‘We are happy to give you details of the Receivers’ investigations with respect to any potential preference claims or other actions that may be commenced on behalf of Buzzle. If you do intend to seek to join the proceedings, we will move heaven and earth to get you up to speed and provide you with any pleadings and affidavits in addition to the Receivers’ reports. What we will do is drop you a line with respect to what claims or preferences the Receivers have investigated are potentially there. We have also subpoenaed Andersons’ files who have said that they need to speak with you in relation to that.’
The First Defendant: ‘ I have not looked at them.’
Mr Cowling: ‘Apple may well consider funding any of the actions that the Receivers have mentioned that we have talked about.’
The First Defendant: ‘I understand that there is also a claim against Apple for shadow directors.’
Mr Cowling: ‘That claim has not been pleaded although it has been briefly raised in an affidavit in the commercial list proceedings. In any event, we have looked at that claim and it is nonsense. I do not believe that the directors have any standing for that claim and, in any event, it is not a claim that can go to setting aside the guarantee given by them in favour to Apple. We will write and let you know what the Receivers have noted as potential actions for a liquidator and Apple may look at funding you to further investigate those matters.’ ”

18 By the time this meeting took place, Apple’s Commercial List proceedings had been fixed for hearing for two weeks commencing on 8 April 2002. The relative proximity of the hearing days and Apple’s strong desire not to lose them would explain Apple’s willingness to “move heaven and earth”, in Mr Cowling’s words, to get Mr Wily “up to speed” should he be interested in having Buzzle joined as a party.

19 In the period of about six weeks after the meeting on 25 January 2002, Clayton Utz wrote at least four letters to Mr Wily updating him on matters related to the Commercial List proceedings and generally encouraging him to become involved. He did not reply.

20 The defendants in the Commercial List proceedings did not share Apple’s desire to keep the hearing dates in early April 2002. Indeed, Mr Brott, a Melbourne solicitor acting for the defendants in those proceedings who retained Surry Partners as his Sydney agent, had an entirely different objective. In a judgment of 9 April 2002 on an adjournment application in the Commercial List proceedings, Bergin J referred to correspondence of early March from Mr Brott to Mr Russell of Surry Partners and to counsel in which he referred quite openly to a need to “derail” the proceedings. A file note of a conversation Mr Sampson had with Mr Brott on 19 March 2002 shows (and Mr Sampson confirmed in cross-examination) that Mr Brott told Mr Sampson of Mr Brott’s desire to “derail proceedings”. Significantly, in the view of Apple, that was said in the course of a conversation in which Mr Brott and Mr Sampson were discussing examination by Mr Wily, as liquidator, of executives of Apple.

21 Ms Ball of Clayton Utz deposed to a telephone call on 15 March 2002 in which Mr Wily asked her for help in working out the amount of the debt owed by Buzzle to Apple. Ms Ball told Mr Wily that the amount owed at the date of the merger was about $15 million but she did not know how much had been recovered by the receivers appointed by Apple under its charge. Mr Wily refers to this conversation in his affidavit and says he did not receive any information from Clayton Utz and believed that they and therefore Apple were being obstructive and were unwilling to provide the information. That, it seems to me, was an inappropriate conclusion to draw from what Ms Ball had said. Mr Wily later obtained information about the Apple debt from the receivers. Mr Wily and Mr Sampson had had a meeting with the receivers on 31 January 2002 at which they had obtained information about the business and activities of Buzzle.

22 Another matter concerning the charge given by Buzzle to Apple must be mentioned. Mr Sampson said in his affidavit that, after seeing a copy of the charge document made available by Surry Partners, he became suspicious because it appeared that the receivers were appointed six months and two weeks after the ostensible date of the charge, but the date on the document appeared to have been changed. He says that the original date was within the six months period and raised the possibility that the charge may have been void. He is obviously referring here to the possibility arising under s.267 of the Corporations Act.

23 Mr Sampson also gave evidence that, in mid-February 2002, he recommended to Mr Wily that Apple personnel should be examined. He was, at that time, of the view that there was no similar need in relation to the directors or former directors of Buzzle since some of them were co-operating and providing information (including Mr Mekrizis, despite his failure to furnish a formal report as to affairs), added to which he considered at least two of them likely to become bankrupt. He did not rule out the possibility of proceedings against some directors, however. Nor did he rule out the possibility of proceedings against Arthur Andersen Corporate Finance, Andersen Legal or the receivers.

24 On 26 March 2002, Mr Wily swore an affidavit in support of his application for the issue of the examination summonses and order for the production of documents. In that affidavit, he outlined the various matters into which he wished to inquire. There are, of course, constraints of confidentiality in relation to such an affidavit stemming from s.596C(2) and the general principle that a liquidator is entitled to keep from a prospective examinee details of the areas to be investigated, the procedure for examinations being “predicated on the premise that the examinee is not to be forewarned”: Re Excel Finance Corp Ltd; Application of England (1993) 10 ACSR 255 at 282. It is sufficient to say that Mr Wily outlined an intention to inquire into a number of matters the nature of which is predictable in the context and reference to which here in general terms will not compromise confidentiality, particularly in light of the content of Bergin J’s judgment in the Commercial List proceedings. These include the date when Buzzle could be said to have become insolvent, the effectiveness of Apple’s charge, the possible status of Apple as a de facto or “shadow” director of Buzzle and possible causes of action against Apple. The persons to be examined were not only six Apple employees but also three former officers of Buzzle.

25 There is in evidence an email from Mr Russell of Surry Partners to Mr Sampson dated 19 March 2002 with which were transmitted ten Microsoft Word documents. The email reads:

“Please find attached the draft affidavit for Andrew and 9 x examination summons – 3 x ex-Buzzle staff and 6 x Apple staff.
I have not included a schedule of documents in any summons for any person to produce because I do not believe that anyone will have any documents (which they own) that would be relevant. I suspect that you will need to serve a Subpoena to Produce on Apple and possibly the receivers to obtain relevant material. Also, you could apply for an order that documents produced by Apple in our case be available for use in the examination.
As discussed, we are eager for Andrew to file the application for a public examination ASAP – and certainly this week. Anthony McLellan wants to be able to get something moving this week re: media.
Would you please discuss with Andrew and let me know what’s happening. I have a couple of messages for Andrew to call me back.”

26 Mr Sampson gave evidence that, upon receipt of this email, he forwarded the ten documents to MBP Legal, the solicitors acting for Mr Wily in relation to the Buzzle liquidation. He also testified that he instructed MBP Legal to prepare the form of affidavit and summonses used in Mr Wily’s application of 26 February 2002. He said that he did not “retain” Surry Partners to produce the drafts sent with their email, in the sense of paying that firm to do that work. It is clear, however, that the drafts were prepared by Surry Partners with Mr Sampson’s knowledge and concurrence. It may, I think, be safely inferred that the ten drafts Mr Sampson received from Surry Partners were used by MBP Legal in some way when they prepared the documents Mr Sampson instructed them to prepare. Just how they were used cannot be said.

27 The email of 19 March 2002 contains a reference to “Anthony McLellan”. He was a media consultant employed by the defendants in the Commercial List proceedings to help with publicity matters.

28 Mr Russell of Surry Partners spoke to Mr Sampson by telephone on 22 March 2002. Mr Sampson was unable to remember much about the conversation but his file note records details which are consistent with Mr Russell’s having given him some guidance as to how to go about obtaining the issue of examination summonses. In addition, however, Mr Sampson wrote, with double underlining, “Chris Perry” followed by “docs sent up”. Ms Christine Perry is one of the solicitors at MBP Legal engaged on the Buzzle matter for Mr Wily.

29 On 3 April 2002, Mr Russell wrote Mr Wily a letter to which Mr Wily replied on 5 April 2002. The evidence suggests that the exchange of correspondence was agreed in a prior conversation between Mr Russell and Mr Sampson. By the 3 April letter, Mr Russell asked for details of the examinations Mr Wily proposed to undertake (dates, persons, subjects and possible future action). Mr Wily’s reply of 5 April 2002 gave the requested information in brief form.

30 Among the information thus given by Mr Wily to Mr Russell was the fact that the examination dates that had been obtained were 9, 10 and 11 July 2002. That fact had already appeared in press reports published in The Sydney Morning Herald, the Age and the Australian Financial Review on 28 March 2002, from which I infer that it had been given by Mr Wily or Mr Sampson (probably the latter) to Mr Russell orally – before the exchange of letters on 3 and 5 April 2002. There is nothing in the evidence to suggest that Mr Wily or anyone on his behalf ever had contact with Mr McLellan, the media consultant retained by the defendants in the Commercial List proceedings.

31 Each of the press articles published on 28 March 2002 was mainly about the Commercial List proceedings but contained at the end a brief reference to Mr Wily’s move to examine parties associated with Buzzle. The examination dates were mentioned in two of the articles. A statement of Mr Wily that he was of the view that Buzzle had been “insolvent from day one” and that there were “other major problems” appeared in all three. On the day before publication of these articles, Clayton Utz wrote to Mr Wily saying that Ms Ball of that firm had been phoned by a journalist who had said that he or she had been speaking with Mr Wily about his proposed examinations, they having been mentioned in court that morning by counsel for defendants in the Commercial List proceedings. Clayton Utz said:

“Frankly, we are astounded at the lack of courtesy that you have extended to this office and our client in advising litigants in an adversary position to our client as well as the media of the existence of public examinations, without first notifying us or our clients.”

The astonishment thus communicated was that of the solicitors, not their client. The sense of affront was attributed to both the solicitors and the client.

32 On 15 April 2002, Bergin J determined an application for adjournment and vacation of hearing dates in the Commercial List proceedings. This followed her Honour’s judgment of 11 April 2002 to which I have already referred. The adjournment sought by the defendants was granted and the proceedings were fixed for hearing for three weeks commencing 24 June 2002. The examination dates of 9, 10 and 11 July 2002 already obtained by Mr Wily fell in that three week period. Clayton Utz, on behalf of Apple and its relevant officers, sought to arrange with MBP Legal, on behalf of Mr Wily, deferral of the examinations so that the clash would be avoided. The attempt was unsuccessful and, on 20 May 2002, I heard and granted an application by Apple for such deferral, noting that “practicalities, in terms of fairness” required that Apple and its officers not be distracted from the Commercial List proceedings by the demands of the orders for production and examination summonses. Apple had, on 14 May 2002, filed the originating process with which I am now dealing.

The allegations against Mr Wily

33 Apple’s contention that Mr Wiley should be removed as liquidator (or, failing that, that there be an inquiry under s.536 with respect to his conduct in the Buzzle winding up) has at its centre allegations of partiality and abuse of power. He has, it is said, been a “puppet” of the Hartona/Liu parties, preferring their interests, being interests in relation to their litigation with Apple that are foreign to the proper conduct of the winding up. Mr Wily is accused of having had contact only with those parties and their representatives in relation to matters relevant to recoveries by him as liquidator, with contact with Apple – by far the largest creditor – confined to a single meeting with its solicitors. And the only potential recoveries he has shown any interest in pursuing, says Apple, are those against Apple, aided by the Hartono/Liu parties. The central complaint is that Mr Wily has not acted in the interests of all creditors. Clayton Utz’s letter of 17 December 2002 setting out the grounds for the present application said:

“We are yet to understand the reasoning behind the liquidator’s examinations of our client with a view to the instituting of proceedings against our client to recover money which will then undoubtedly be paid to our client as a major creditor.”

34 Mr Wily does not seek to deny that he has received useful information and assistance from the Hartono/Liu parties. He has no funds with which to pursue investigations and has run up both fees and disbursements which may not be recovered. The Hartono/Liu parties were willing to grant assistance they saw as tactically useful to them in the defence of the claims they faced at the suit of Apple in the Commercial List proceedings and the prosecution of their cross claims. Furthermore, and as Mr Wily himself acknowledges, perusal of Bergin J’s judgment of 11 March 2003 in those proceedings shows that some of the questions obviously in Mr Wily’s mind when the summonses were issue may have been answered in part or diminished by her Honour’s findings and evidence given in the proceedings before her.

35 Mr Wily also says that the above passage in the Clayton Utz letter of 17 December 2002 reflects an important misunderstanding. The duty of a liquidator is, it is said, not owed to each creditor but to the body of creditors as a whole, so that it may sometimes happen that action should be taken against one creditor to benefit the general body. Furthermore, says Mr Wily, the application for his removal is not brought with a view to benefiting the body of creditors but to remove (or reduce) the threat to Apple of the actions he may pursue against it.

The principles to be applied

36 The principles to be applied upon an application for the removal of a liquidator are reasonably clear. Under s.473(1) of the Corporations Act, a liquidator appointed by the court may be removed by the court “on cause shown”. The scope and operation of this provision have been considered in a number of cases, beginning with Re Adam Eyton Ltd; Ex parte Charlesworth (1887) 36 ChD 299. The recent decision perhaps most often cited is that of the present Chief Judge in Equity in Re Biposo Pty Ltd (1995) 17 ACSR 730. I am spared the need to embark upon any detailed analysis of the authorities because such an analysis has recently been undertaken by Austin J in Domino Hire Pty Ltd v Pioneer Park Pty Ltd [2003] NSWSC 496 (10 June 2003). It is convenient to quote at some length from his Honour’s judgment:

“The words ‘cause shown’ indicate that a liquidator is not to be removed unless there is some ground for removal, and the ground must be established by evidence. However, ‘cause shown’ is not a narrow concept. It is open to the applicant for removal to point to any conduct or inactivity on the liquidator's part that provides a basis for the conclusion that he or she should be removed, ranging from moral turpitude, to bias or partiality, lack of independence, incompetence or other unfitness for office. But the concept of ‘cause shown’ is not limited to matters relating to the unfitness of the liquidator to hold office. In Re Adam Eyton Ltd; ex parte Charlesworth (1887) 36 ChD 299, speaking of a statutory formulation where the words used were ‘due cause shown’ rather than ‘cause shown’, Bowen LJ said (at 306):
‘In many cases ... unfitness of the liquidator will be the general form which the cause will take upon which the Court in this class of case acts, but that is not the definition of due cause shown. In order to define “due cause shown” you must look wider afield, and see what is the purpose for which the liquidator is appointed. ... “due cause” is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed. Of course, fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation.’

In Network Exchange Pty Ltd v MIG Communications Pty Ltd (1994) 13 ACSR 544, Hayne J applied this test to an application for removal of an administrator, even though the statutory provision authorising the Court to remove an administrator (s 449B) does not contain the words ‘on cause shown’. His Honour concluded that the absence of those words did not produce any marked difference, and he described the position as follows (at 550):
‘In my view, however, it must be accepted that an order for removal should be made only if it is demonstrated that such an order would be for the better conduct of the administration. It is not to be contemplated that the power under s 449B is to be exercised save in circumstances that justify or require its exercise and those, speaking generally, would appear to be circumstances in which the order would conduce to the better conduct of the administration concerned.’

In cases where the applicant relies on misconduct by the liquidator, the words ‘cause shown’ do not require the Court to work through each of the particulars of misconduct relied upon, and determine one by one whether they are made out. Young J (as the Chief Judge in Equity then was) rejected such an approach in Re Biposo Pty Ltd (1995) 17 ACSR 730. His Honour said (at 734):
‘The question is not whether in adversarial litigation there has been proof of a case according to the heads particularised, ... but rather whether in the interests of the public the removal of the liquidator would be for the general advantage of persons interested in the winding up.

He added some remarks that are pertinent to this case:
‘Here, however, one must also be careful. There is a popular sport these days of challenging judges and arbitrators and endeavouring to put off the evil day by directing the attack at the judge rather than the wrongdoer. Great care must be taken that the same tactic is not used against liquidators to stop them doing their duty. Again, the situation will often occur that there will be little money in the winding up and the liquidator will have to cut corners that he might not otherwise cut, and the court must be very careful not to impose too strict a duty which would stop that happening. However, when all these matters are taken into account the end question still remains, would it be to the general advantage of persons interested in the winding up to remove the liquidators?’

As this passage shows, courts have taken a realistic attitude to the problem of funding, the problem liquidators must constantly face. In Re Allebart Pty Ltd [1971] 1 NSWLR 24, Street J (as he then was) said (at 27-28):
‘Not only did the petitioning creditor seek to urge on the liquidator in the process of the windings up, but it agreed to indemnify him against the expenses of carrying out examinations of Mr and Mrs Barton. It had already provided him with a cash sum of over $1,800 to cover the costs of, and related to, the bringing of these examinations. Here again there is no basis for levelling any criticism whatever against the petitioning creditor. Where a company is being wound up and it has no assets, or insufficient assets, to enable the due processes of the liquidation to be carried through, a creditor is to be encouraged, rather than criticised, in making funds available to the liquidator. Nor need a liquidator be diffident in accepting funds or indemnities from creditors so as to enable a winding up to proceed. Moreover, I see no reason to criticise on the grounds of propriety the arrangement under which a creditor provides money or indemnities to cover the expenses of a specific step in the winding up, such as the bringing of named proceedings or the carrying out of named examinations. Arrangements such as these are commonplace, and, if anything, they are to be encouraged, as very frequently some such arrangement enables the liquidator to carry out his duties more thoroughly or comprehensively than would otherwise be the case ....’


These observations were recently quoted and applied by Burchett AJ in National Australia Bank Ltd v Wily [2002] NSWSC 573. His Honour explained (at paragraph [9]) that the decision in Re Allebart , where the liquidator was removed, could only be understood if one appreciated the extreme hostility between Mr Barton, who controlled Allebart prior to the winding up order, and Mr Armstrong, who controlled the petitioning creditor. He referred to the personal litigation between Mr Barton and Mr Armstrong, in which Mr Barton proved, as the basis of a claim of duress, that Mr Armstrong had threatened to murder him: see Barton v Armstrong [1973] 2 NSWLR 598; and on appeal, Barton v Armstrong [1976] AC 104.

In cases where the allegation against the liquidator is partiality or lack of independence, courts have frequently emphasised that cause may be shown for the removal of the liquidator even in cases where independence and impartiality have in fact been maintained, if a perception of partiality or bias has been created. Thus, in Advance Housing Pty Ltd v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230, Santow J said (at 234):
‘In short the question should be whether there would be a reasonable apprehension by any creditor of lack of impartiality on the liquidator's part in the circumstances, by reason of prior association with the company or those associated with it, including creditors, or indeed any other circumstance.’


Similarly, in Re Biposo , Young J observed (at 735) that ‘the prime problem in this case is whether it would be perceived by a reasonable observer that the liquidators have manifested a tendency to favour certain interests at the expense of others’.

If the complaint relates to a particular decision of the liquidator, it seems to me that the appropriate course is to appeal to the Court under s 1321, even if the substance of the complaint is that the decision demonstrates incompetence or bias or other unfitness for office. Before removing a liquidator from office, the Court will normally need to be satisfied of ‘cause shown’ going beyond a particular instance. Counsel for Mr Thomas submitted that the complaint in the present case would have been better brought as an appeal under s 1321 against Mr Thomas's decision to refuse to appoint an administrator or his refusal to support the proposed deed. On balance, however, I think Mr Carpenter's complaint is about a course of conduct by Mr Thomas which is said to provide cause for his removal, rather than any particular decision or decisions, and therefore the matter has been properly raised on an application for the removal of Mr Thomas.”

37 It is thus clear that “cause shown” is a broad concept concerned not so much with a search for particular instances of wrong or inappropriate conduct (although a particular event of that kind may be sufficient) but with a more general enquiry into what is for the benefit of the administration and the body of persons interested in it, as well as the maintenance of confidence in the integrity, objectivity and impartiality of that administration. Removal is warranted, in a situation such as the present, if, taken as a whole, the conduct of the liquidator can be seen to be such as to ground in the mind of a reasonable observer a perception of lack of impartiality as among the interests he is committed to serve and lack of objectivity in serving those interests.

Assessment and decision

38 Apple has not succeeded in making out such a case against Mr Wily. I do not accept that Mr Wily became the “puppet” of the Hartona/Liu interests or that his decisions in relation to examination summonses were motivated (or would be perceived to have been motivated) by a desire to assist those parties in their litigation with Apple. There can be no doubt that it suited Hartono and Liu to provide information to Mr Wily in the hope that he would act as he eventually did in seeking the issue of examination summonses and orders for production. And there can be no doubt that Mr Wily took advantage of that opportunity. But I am not at all satisfied that the motives of the Hartono/Liu parties in offering the assistance reflected or coincided with those of Mr Wily in accepting it. He had no funds with which to pursue investigations. He saw potential claims against Apple as significant to the due conduct of the administration, although not to the exclusion of others. The potential claims against Apple merited a degree of priority because one of them (which, it must be emphasised, played a direct and articulated part in his decision to act as he did) was of particular significance. I refer to the potential challenge to Apple’s security under which receivers had already been appointed and were working on recoveries for Apple alone. If the liquidator could discern a firm basis for seeking to have the charge set aside and was successful in that endeavour, significant and favourable consequences for the general body of unsecured creditors would follow. Also ripe for investigation was the whole question of Apple’s participation in the affairs of Buzzle and whether claims of de facto or “shadow” directorship might be made out. These would add a new and important dimension to the potential value of claims for insolvent trading.

39 It was no doubt convenient to the Hartono/Liu parties that Mr Wily should have acted how and when he did. It was convenient for him to have the assistance they gave. But he took advantage of the assistance for legitimate purposes and in a legitimate way and not as an exercise in partisanship. Although Aircent and Choice, in seeking the appointment of a provisional liquidator to Buzzle, hoped or expected that the liquidator would cause Buzzle to support the cross claims in the Commercial List proceedings and to seek to ventilate in those proceedings claims of Buzzle itself against Apple, Mr Wily did not take that course. In declining to make Buzzle a party to the Commercial List proceedings, he also failed to fall in with the plans developed by Clayton Utz on behalf of Apple (as outlined at the meeting with Mr Cowling and Ms Ball) and that became a cause of friction. Mr Wily regarded that firm as uncooperative and they (and no doubt their client) regarded him in the same way. Clayton Utz, on behalf of Apple, had been opposed to Mr Wily’s appointment from the beginning on a basis which, so far as articulated (and it was apparently never articulated in full, given the words “amongst other things” in the fax of 13 December 2001 from Clayton Utz to Surry Partners), was insubstantial, namely, the “close referral relationship” between his firm and the solicitors who had acted for all Buzzle directors “in and about the affairs of the company” – an objection based, it seems, on an association two places removed and not shown to have been, either in fact or in perception, a potential source of adverse impact upon the due conduct of the Buzzle administration. And Mr Wily, for his part, was uncooperative in not replying to several letters received from Clayton Utz. He was also seen by Apple as uncooperative in not agreeing to deferral of the July examination dates, necessitating an approach to the court by Apple, although I note, in this connection, that Apple, by means of a letter from its solicitors dated 16 May 2002, expressed two reasons for seeking to obtain such a deferral by consent: first, the clash with the hearing dates fixed for the Commercial List proceedings and, second, the pendency of the application for Mr Wily’s removal.

40 I would not see it as in any way incumbent upon a liquidator to cooperate in the face of a threat to seek his removal. Indeed, to yield to such pressure might well entail a compromising of independence. Inclusion of the second reason in the letter of 16 May 2002 therefore undermined its utility as a means of seeking to negotiate a deferral of the examinations. In Macpherson v Sherman (in his capacity as Deed Administrator of Agriculture.com Pty Ltd) [2001] NSWSC 628, Palmer J was asked to order the adjournment of examinations by an administrator under a deed of company arrangement because an application was pending for termination of the deed. His Honour said:

“… I do not think it is a proper exercise of the Court’s discretion to defer the conduct of the examinations upon the possibility that the deed of company arrangement may be terminated and that a liquidator may take a view as to the prosecution of proceedings against Accenture different from that of the body of creditors which has assented to the deed of company arrangement.
…
If there were a serious prospect that an examination by a company administrator under CL s.596B could be postponed merely because an application had been made to the Court under CL s.445D to terminate the deed under which the administrator has been appointed, it is quite clear that that stratagem would be resorted to frequently by persons seeking to avoid or delay their examinations. The filing of an application under CL s.445D to terminate a deed of company arrangement should not, without more, afford grounds for an application to the Court to postpone an examination under CL s.596B.”

This reasoning is equally applicable to a proposal to defer based on the existence of an application for removal of the liquidator by whom the examination summonses have been issued. Inclusion of the second reason in the letter of 16 May 2002 introduced an element that could have caused considerable doubt to be cast on the correctness of Mr Wily’s motivation, had he acceded to the request to agree to deferral, and makes much more understandable his preference for having the matter dealt with by the court.

41 It is true that Mr Wily has not, to date, sought to examine or obtain documents from any persons other than the particular Apple and Buzzle officers and, in particular, that he has not made any such moves in relation to Arthur Andersen Corporate Services or Deloitte. I accept, however, that a liquidator must start somewhere and must always be free to prioritise his work. I also accept that where, as here, there are questions of funding, the availability of assistance to pursue a particular line of inquiry will have a bearing on the setting of priorities. There is also the point that the question of the vulnerability of the Apple charge is logically one that will receive early attention. Certain questions of tactics and priorities relevant to that would also have a bearing upon Mr Wily’s attitude, at least for the present, to the possibility of Apple’s funding other aspects of Mr Wily’s recovery endeavours. That possibility was referred to by Mr Cowling during the meeting of 25 January 2002. Whether it is a possibility that will emerge again after this bout of quite hard fought litigation between Apple and Mr Wily can be a matter for conjecture only.

42 I do not regard Apple as having established an entitlement to either order (a) or order (b) referred to in paragraph 2 above. Nor has Apple shown grounds warranting the making of order (c). The examinations Mr Wily proposes to conduct and (subject to what I am about to say about order (d)) the documents he seeks to have produced are relevant to matters that will properly engage his attention as liquidator of Buzzle.

43 Order (d) – an order setting aside the examination summonses and the order for production – raises separate and additional issues. Of particular relevance is the fact that Bergin J’s judgment disposing of the Commercial List proceedings was given after the issue of the examination summonses and the order for production. Her Honour’s judgment is comprehensive, running to 412 paragraphs. It contains a wealth of factual findings on matters relevant to Buzzle’s relationship with Apple and transactions between the two companies. Mr Wily deposed in his affidavit of 27 June 2003:

“I have briefly read the judgment of Justice Bergin. I am informed by Christine Perry of MBP Legal and verily believe that my legal team has reviewed the judgment in detail as part of the preparations for the public examinations that I wish to conduct. Exhibited to this affidavit and marked ‘AHJW3’ is a copy of that judgment handed down in March 2003. I believe findings of fact and evidence will be useful to me in the preparations for my examinations and demonstrates the complexity of the transactions relevant to the examinations and any subsequent proceedings. The hearing of the guarantee proceedings took place over 22 days from 24 June 2002 until 29 November 2002.”

44 The examination summonses and order for production pre-date Bergin J’s judgment. In view of Mr Wily’s clear statement as to the value of the judgment as a source of information relevant to his administration, it is incumbent upon him to subject the terms of the summonses (insofar as they call for the production of documents) and the order for production to close re-examination, in the light of her Honour’s findings and the evidence in the proceedings before her, to see whether their scope may be curtailed. It is my clear impression that curtailment is achievable.

45 Ms Law, Apple’s internal legal counsel, testified to difficulties, costs and delays that will attend attempts to assemble all documents called for by the summonses and order in their present form. She did not say it would be impossible but made it clear that the burden would be significant. This is an added reason why the issue of possible curtailment in the light of Bergin J’s findings should be addressed by Mr Wily.

Disposition of proceedings

46 I make the following orders:

1. Dismiss the claims in paragraphs 5, 6 and 7 of the originating process filed on 14 May 2002 (that is, the claim for orders reversing the decision to issue the order for production and examination summonses, the claim for an order that there be an inquiry pursuant to s.536 and the claim for an order removing Mr Wily as liquidator).

2. Stand over the balance of the originating process to 10 am on Monday 8 September 2003 before me in the Corporations List.

47 I shall expect to hear, on that occasion, whether Mr Wily has, in the light of Bergin J’s judgment in the Commercial List proceedings and the evidence in those proceedings, found himself able to reduce the scope of the requirements with respect to documents he seeks to have imposed and whether the parties have been able to find any common ground as to a regime for the production of documents. I entertain the same expectation in relation to the scope of the examinations of the six Apple employees. I shall also hear, at that time, any application and submissions there may be on costs.

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Last Modified: 09/05/2003