APPLICATION OF DORAN CONSTRUCTIONS PTY. LIMITED (IN LIQUIDATION)

[1999] NSWSC 177

Reported Decision: (1999) 17 ACLC 644

New South Wales

Supreme Court

CITATION:	APPLICATION OF DORAN CONSTRUCTIONS PTY. LIMITED (IN LIQUIDATION) [1999] NSWSC 177 revised - 31/08/99
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	No. 5112 of 1998
HEARING DATE(S):	8th March 1999
JUDGMENT DATE:	8 March 1999
PARTIES :	Doran Constructions Pty. Limited
JUDGMENT OF:	Hodgson CJinEq

COUNSEL :	Mr. Braham for liquidator Mr. A. Martin for Examinees
SOLICITORS:	Parish Patience, Sydney for liquidator Christopher C. Freeman & Co. for examinees
CATCHWORDS:	CORPORATIONS - Winding Up - Summons to Produce Books - Application to Set Aside; Summons to produce books required production of correspondence between connected entities of the corporation and their auditor. Application brought to set aside relevant paragraphs, except to the extent that the items in question related or appeared to relate to the corporation. There was evidence that the financial viability of the corporation was bound up with that of the connected entities. HELD that, in the absence of evidence to the contrary, it could be inferred that all the correspondence was, or appeared to be, relevant to the corporation; and that no justification was shown for imposing any limitation on the paragraphs.
ACTS CITED:	Corporations Law ss.9 596A 596D.
DECISION:	See judgment

5

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

CORAM: HODGSON,CJ IN EQ.

Monday 8th March 1999

NO. 5112 OF 1998
APPLICATION OF DORAN CONSTRUCTIONS PTY. LIMITED
(IN LIQUIDATION)

JUDGMENT

1 HIS HONOUR: I am dealing with two Notices of Motion which seek to set aside certain paragraphs of two summonses brought under s.596A of the Corporations Law, except to the extent that the items in such paragraphs relate, or appear to relate, to Doran Constructions Pty. Limited (in liquidation), or its affairs.
2 The summonses have been brought by the liquidator of Doran Constructions Pty. Limited, and in those circumstances s.569D(2) authorises only a requirement that the person summoned produce books that are in the person's possession and relate to that corporation or to any of its examinable affairs. "Examinable affairs" is defined in s.9 of the Corporations Law in the following terms:
"Examinable affairs", in relation to a corporation means:
(a) the promotion, formation, management, administration or winding up of the corporation; or
(b) any other affairs of the corporation (including anything that is included in the corporation's affairs because of section 53); or
(c) the business affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation's examinable affairs because of paragraph (a) or (b).
3 The particular paragraphs of the summons which are challenged have the same content, although they are numbered differently in the different summonses. I will set out in the judgment paragraphs 345, 346 and 348-354 of the summons which was issued to Peter Joseph Doran. Those paragraphs are in the following terms:
345. A copy of the recommendations by Ernst and Young in 1991 regarding the reconstruction of the companies that together comprise the Doran Group.
346. Copy of all correspondence and working papers generated by the Directors, the employees, the in-house accountant, the external accountant or the auditor of any company within the Doran Group, relating to the rationalisation of the companies within the Doran Group giving rise to correspondence between Ernst & Young and DH and/or any other company in the Doran Group regarding the rationalisation within the Group.
...
348. All correspondence between either DC, CH, DCA, DPS and Price Waterhouse for the year ended 30 June 1992.
349. All correspondence between either DC, DH, DCA, DPS and Price Waterhouse for the year ended 30 June 1993.
350. All correspondence between either DC, DH, DCA, DPS and Price Waterhouse for the year ended 30 June 1994.
351. All correspondence between either DC, DH, DCA, DPS and Price Waterhouse for the year ended 30 June 1995.
352. All correspondence between either DC, DH, DCA, DPS and Price Waterhouse for the year ended 30 June 1996.
353. All correspondence between either DC, DH, DCA, DPS and Price Waterhouse for the year ended 30 June 1997.
354. All correspondence between either DC, DH, DCA, DPS and Price Waterhouse for the period ended 31 December 1997.
4 The letters "DC" in some of those paragraphs refer to Doran Constructions Pty. Limited. The letters "DH" refer to Doran Holdings Pty. Limited (which is a connected entity of Doran Constructions). The letters "DCA" refer to Doran Constructions Australia Pty. Limited (which at least in recent years has been the holding company of Doran Constructions). The letters "DPS" refer to Doran Property Services Pty. Limited, another subsidiary of Doran Constructions Australia. The four companies together are generally referred to as the Doran Group.
5 There are in evidence searches of these companies which disclose that, as at January this year at least, Price Waterhouse or Price Waterhouse Coopers was the auditor of each of these companies. There are in evidence two letters from that firm to the liquidator dated respectively 27th May 1998 and 11th August 1998.
6 The first of those letters refers to a loan of money from Doran Holdings to Doran Constructions Australia to enable Doran Constructions Australia to purchase shares in Doran Constructions and Doran Property Services from Doran Holdings, the loan totalling about $4.8 million. The letter asserts that this transaction was completed as part of the restructure of the Group that was recommended by Ernst & Young in 1991, and which was completed in 1992. The letter went on to assert that proper consideration was calculated and paid, and that this was part of a continuing process to simplify and rationalise the Doran Group.
7 The second letter of 11th August 1998 contains assertions that in about 1995, there was a loan owing by Doran Constructions Australia to Doran Constructions of $4.1 million which was expected to be repaid in full over time. It was asserted there was a potential for approximately $1.4 million to be repaid in a relatively short period of time by the call up of a loan to Doran Property Services by Doran Holdings. The letter went on to assert that the remainder would be paid over time through dividends from Doran Constructions Australia's subsidiaries, Doran Constructions and Doran Property Services. It then went on to note that the $4.1 million loan was reduced by $1.6 million over a three year period by 28th November 1997. The earlier letter had noted that, on that day, the remaining debt of about $2.5 million was forgiven by Doran Constructions Australia in order to allow a members voluntary liquidation to proceed.
8 Mr. Martin for the applicants concedes that this material justifies an inference that the financial viability of Doran Constructions over the years between about 1991 and 1997 was bound up with the financial viability of the three other companies in the Group. However, he submits that this does not support an inference that all items in the paragraphs to which I have referred are relevant to, or appear to be relevant to, Doran Constructions or its affairs. He submits that many of such items may not be so relevant, and may not appear to be so relevant; and that accordingly the applicants are entitled to have those paragraphs limited to the items that are, or appear to be, relevant to Doran Constructions.
9 In my opinion, that conclusion is not justified. In my opinion, prima facie all correspondence between a company and its auditors over a period of time will be relevant to the financial viability of that company. It may be that there is some correspondence which is not so relevant; but if all one knows is that there is a question of financial viability, and that there is correspondence between the corporation and its auditors, the probability is that all such correspondence will be relevant to that viability. It seems to me that if the corporation or persons knowing all the details of that correspondence choose not to put before the Court any material to suggest that there is any such correspondence which is not so relevant, the Court is well justified in drawing the inferences that it is all relevant. That is the position in this case. And if all the correspondence is relevant to the viability of one or other of the four companies, it thereby becomes relevant to Doran Constructions and its affairs, as set out in paragraph 8.
10 In those circumstances, it seems to me that there is no justification for imposing a limitation on the paragraphs in the summons issued on behalf of the liquidator. The effect of such a limitation would be to put it in the hands of the person being summonsed to make a decision as to whether or not a particular document is relevant, or appears to be relevant, to Doran Constructions or its affairs. It may be in some circumstances appropriate to do that. In this case, it seems to me that it has not been shown to be appropriate or justified to take that course. On the evidence before me, it seems that I can infer, and in my opinion I should infer, that all documents in the particular categories do relate to the corporation or its examinable affairs.
11 I stand this matter over to 9th March 1999 for Short Minutes to be brought in.
**************



I certify this and the preceding four
pages to be a true copy of the reasons
for judgment of Justice D.H. Hodgson

Date 9th March 1999
Associate

Last Modified: 06/30/2000