ASIC v Karl Suleman Enterprizes Pty Ltd (In Liq)

[2004] NSWSC 1244

Reported Decision: 52 ACSR 103

Supreme Court

CITATION:	ASIC v Karl Suleman Enterprizes Pty Ltd (In Liq) [2004] NSWSC 1244
HEARING DATE(S):	06/12/04
JUDGMENT DATE:	17 December 2004
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Order extending limitation period under s.588FF(3)(b)
CATCHWORDS:	CORPORATIONS - winding up - voidable transactions - application for extension of limitation period - all identified potential defendants notified of application - none opposing - complex and intermingled administrations - continued difficulties in identifying cash flows and location of assets - greater progress likely if more time available
LEGISLATION CITED:	Corporations Act 2001 (Cth), s.588FF(3)
CASES CITED:	BP Australia Ltd v Brown (2003) 58 NSWLR 322 Green v Chiswell Furniture Pty Ltd [1999] NSWSC 1179 Greig v Stramit Corporation Pty Ltd [2004] 2 QdR 17 Holt v Wynter (2000) 49 NSWLR 129 McGrath v National Indemnity Company (2004) 49 ACSR 403 Re McGrath; HIH Insurance Ltd (2004) 48 ACSR 723
PARTIES :	Australian Securities and Investments Commission - Plaintiff Karl Suleman Enterprizes Pty Limited (In Liquidation) - First Defendant Suleman Investments Limited - Second Defendant Karl Suleman - Third Defendant Vivian Suleman - Fourth Defendant Paul G. Weston and Neil R. Cussen (in their capacity as Liquidators of the First Defendant) - Fifth Defendants - Applicants Pal Holdings Pty Ltd (In Liquidation) - Sixth Defendant Froggy Holdings Pty Ltd - Seventh Defendant Froggy Music Pty Ltd - Eighth Defendant Froggy Mobiles Pty Ltd - Ninth Defendant Froggy Mobiles (Western Sydney) Pty Ltd - Tenth Defendant Froggy Mobiles (Eastern Sydney) Pty Ltd - Eleventh Defendant Capital Finance Australia Limited - Twelfth Defendant Jessie George - Thirteenth Defendant
FILE NUMBER(S):	SC 5415/01
COUNSEL:	Ms K.E. Burke - Applicants
SOLICITORS:	Coudert Brothers - Applicants

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

BARRETT J

FRIDAY, 17 DECEMBER 2004

5415/01 – AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v KARL SULEMAN ENTERPRIZES PTY LTD (IN LIQ) & 12 ORS

JUDGMENT

1 On 6 December 2004, I heard certain applications by Mr Weston and Mr Cussen in their capacity as liquidators of Karl Suleman Enterprizes Pty Limited (“KSE”) and by Mr Cussen alone in his capacity as sole liquidator of each of Froggy Holdings Pty Ltd, Froggy Music Pty Ltd, Froggy Mobiles Pty Ltd, Froggy Mobiles (Western Sydney) Pty Ltd and Froggy Mobiles (Eastern Sydney) Pty Ltd. I shall refer to the five last mentioned companies as “the Froggy companies”.

2 The applications are applications for orders under s.588FF(3)(b) of the Corporations Act 2001 (Cth). Section 588FF(3) deals with the time within which a liquidator of a company may make application under s.588FF(1) for an order in respect of a transaction of the company considered voidable because of s.588FE. Section 588FF(3) is in the following terms:

“An application under subsection (1) may only be made:

(a) within 3 years after the relation-back day; or
(b) within such longer period as the Court orders on an application under this paragraph made by the liquidator within those 3 years.”

3 The orders now sought by reference to s.588FF(3)(b) are:

(a) in relation to KSE, an order that the time for bringing applications under s.588FF(1) against 38 named persons or entities be extended by one year; and

(b) separately in relation to each of KSE and each of the Froggy companies, an order that the time for bringing applications under s.588FF(1) against persons who are yet to be identified as potential defendants be extended for periods I shall describe more fully in due course.

4 The period of 3 years referred to in s.588FF(3)(a) in relation to KSE has already expired. The “relation back day” for that company was 12 November 2001. However, the interlocutory process by which application for an order under s.588FF(3)(b) was made was filed on 3 November 2004 and, in view of the construction of that provision which I consider to be correct (see McGrath v National Indemnity Company (2004) 49 ACSR 403 at [14] to [21]), that is sufficient to justify a conclusion that the time specification within s.588FF(3)(b) itself has been satisfied. In the case of each of the Froggy companies, the period of 3 years referred to in s.588FF(3)(a) will expire on a date in January or February 2005.

5 It follows from what I have just said that the application before me is one which, in a timing sense, satisfies the specification in s.588FF(3)(b) so that it represents, in that way, a basis for the making of an order under that section in relation to each of the six companies provided, of course, that a case is made out on the merits.

6 Before proceeding to those merits, I should refer to the distinction recognised and accommodated by the liquidators of KSE between the cases in which a person has already been identified as the potential target of a s.588FF(1) application and the case where no particular action is contemplated against any particular person. An extension of time under s.588FF(3)(b) in relation to cases of the latter kind is possible and permissible but must be regarded as exceptional. This is made clear by the decision of the Court of Appeal in BP Australia Ltd v Brown (2003) 58 NSWLR 322 and that of the Queensland Court of Appeal in Greig v Stramit Corporation Pty Ltd [2004] 2 QdR 17, a case decided shortly before BP Australia Ltd v Brown. In Re McGrath; HIH Insurance Ltd (2004) 48 ACSR 723 (at [7] to [12]), I referred to relevant passages in the judgments in these appellate decisions and noted in particular the conclusion of the New South Wales Court (Spigelman CJ; Mason P and Handley JA concurring) that the seeking of an order in general terms, that is, without reference to a particularly contemplated s.588FF(1) proceeding, does not result in invalidity of the application. I also referred to observations in both cases about the exceptional nature of the power to grant an extension of time in such general terms.

7 The other message that comes through very clearly from both BP Australia Ltd v Brown and Greig v Stramit Corporation Pty Ltd is that principles of natural justice require that, if a particular person has been identified as a potential defendant in a s.588FF(1) application by the liquidator, any application by that liquidator for an extension of time under s.588FF(3)(b) that will affect the position of that person must be initiated and pursued in such a way that the person concerned has an opportunity to be heard on the question whether the extension of time should be granted. It is relevant, in that connection, to quote the following extract from the judgment of Spigelman CJ in BP Australia Ltd v Brown:

“The power to make orders, and the power to extend time under s588FF(1) and (3) are conferred on a court. There can be no doubt that such a body must obey the rules of procedural fairness. An order of a superior court is not a nullity even if made in breach of this obligation. Nevertheless, a person affected is entitled as of right to have any such order which affects that person set aside. (See e.g. Cameron v Cole (1944) 68 CLR 571 at 589 and 590-591.) The basic principle has been affirmed many times, including with respect to powers conferred upon the Court by corporations legislation. (See e.g. Re Great Eastern Cleaning Services Pty Ltd [1978] 2 NSWLR 278 esp at 281; Dahozo Pty Ltd v Oz-US Film Productions Pty Ltd (1997) 24 ACSR 739 esp at 741-742 and 743).

The obligation to comply with procedural fairness imports a higher level of content when imposed on a court than in decision-making processes conducted by administrators or tribunals. It requires, in my opinion, that a person likely to be adversely affected by the order of the court is given an opportunity of making submissions to the court before any such order is made or if, exceptionally, an order is made without such an opportunity being given that, upon application, the person must be put in the same position as he or she would have been prior to the order being made. It is the inherent difficulty of achieving the latter that makes an ex parte order a course to be followed only in the case of necessity or other strong reason.

The creation of a situation in which a person must apply to vacate or vary an order after the order has been made is an exceptional situation. Nothing on the facts of the present case, as at the time of the first judgment, was such as to justify the exceptional course.

Perhaps there will be circumstances in which it is not appropriate to give all who may be affected by an order under s588FF(3)(b) an opportunity to make submissions prior to the order being made. It is not necessary to determine this question. Here there was a clearly identified party with a substantial interest in the question to be determined. Nothing appeared by way of urgency or otherwise to require an ex parte order to be made. The Appellant was unnecessarily placed in the position of applying to the Court, pursuant to leave reserved by order of the Court, to have the order discharged.”

8 In the present case, the liquidators of KSE have, as I have said, identified 38 particular persons or entities as potential defendants in possible s.588FF(1) proceedings. Conscious of the principles of natural justice to which I have referred, the liquidators took steps to give those persons notice of the present application. Each of them has been sent written notice in accordance with directions made by Young CJ in Eq on 8 November 2004. By that notice, each person was informed of the application for extension of time and was given an opportunity to lodge written grounds of objection with the liquidators’ solicitors. The date and time fixed for the further hearing of the application was also stated. The notice said that anyone wishing their objection to be considered by the court might attend on that occasion. The affidavit of Ms Harpur of the liquidators’ solicitors sworn on 3 December 2004 confirmed that notice was sent to all 38 persons and entities in accordance with the directions made by Young CJ in Eq.

9 Ms Harpur also deposes to having received two responses. One was a telephone response from a solicitor acting for Mr Sam Bazi. The solicitor asked some questions about the application and was given answers by Ms Harpur. The solicitor said that there was not much point in his client incurring legal costs on the matter and that he would suggest to Mr Bazi that he come to court and explain his position. Mr Bazi in fact attended in person when I heard the application and stated that he had no objection to the making of the order affecting him.

10 The other response was from Mr Albert George. He telephoned Ms Harpur, said he had received the notice and asked whether he had to go to court to be questioned. Ms Harpur outlined the nature of the application and explained that Mr George had been sent the notice so that he could object to the extension of time if he wished to do so. Mr George did not attend upon the hearing of the application.

11 The steps that were taken by way of giving notice to the 38 particular persons and entities are, in my judgment, sufficient to allay concerns emphasised in BP Australia Ltd v Brown and Greig v Stramit Corporation Pty Ltd. Each of those persons was not only informed that the court would be asked to extend the period within which proceedings might be instituted against him, her or it under s.588FF(1) but was also given ample opportunity to be heard in relation to the application. The fact that Mr Bazi attended and explained his position to the court goes some way towards verifying the effectiveness of the procedures adopted.

12 The liquidators of KSE have not, at this stage, placed before the court any material explaining (beyond what may be gathered from the invocation of s.588FF(1)) the nature of the claim against any of the 38 particular persons or the basis on which the claim will be advanced. The court is therefore in no position to form any view about the viability of the claim that the liquidator contemplates against any of the 38 persons. This makes it impossible for the court to have regard to what is, generally speaking, one of the factors usually taken into account in any application to extend a limitation period. I refer to the question whether the contemplated proceeding would be so devoid of prospects that it would be unfair, by granting the extension, to expose the other party to the continuing prospect of suit. This is the second of three considerations seen as ordinarily arising on an extension application: see Green v Chiswell Furniture Pty Ltd [1999] NSWSC 1179 at [15] per Austin J.

13 Because the liquidators do not address that issue in the present case, they are, by implication, relying on a strongly positive finding in their favour in relation to the remaining considerations described by Austin J as generally relevant, being the explanation for delay in bringing proceedings and whether the likely actual prejudice resulting from the grant of an extension is sufficiently substantial to outweigh the case for granting an extension. And since none of the 38 persons has placed before the court anything relevant to the last-mentioned matter (it being the prospective defendant’s task to refer to matters occasioning prejudice and the task of the applicant for an extension to show that no prejudice will be caused: Holt v Wynter (2000) 49 NSWLR 129), the application by the liquidators in relation to the 38 persons falls to be considered by reference to the one factor which is relevant to the other KSE application and the application and the applications in relation to the Froggy companies. I refer to the reasons why the liquidators have not commenced relevant proceedings within the three year period.

14 In view of what I have just said, all the applications now before me – the application of the KSE liquidators in relation to the 38 persons and entities, the application of the KSE liquidators for an extending order in general terms not referring to any specifically contemplated proceeding and the application by the liquidator of each of the Froggy companies also for an extending order on general terms – fall to be considered in the light of one matter only, namely, the reasons why all possible s.588FF(1) applications have not been initiated within the period of three years that the statute itself presumes should generally be sufficient.

15 In approaching that matter, I start from a point identified by Williams JA in Greig v Stramit Corporation Pty Ltd (above) at [45]:

“… any liquidator doing his or her job competently would at least be able to say towards the end of the three year limitation period what transactions might be challenged.”

16 Jerrard JA and Fryberg J were of the same mind, but Jerrard JA referred to circumstances in which the general expectation might be displaced (at [112]):

“It should only be where a liquidator can satisfy the court that the date of the liquidator’s appointment, or the state of affairs of the relevant company, have resulted in the liquidator being unable to describe the nature of a possible application or applications to be brought and the identity of the potential respondent or respondents, that those circumstances take the case out of the general rule.”

17 In BP Australia Ltd v Brown (above), Spigelman CJ said that the proper response to the general proposition advanced by Williams JA is “not necessarily”. His Honour also said: (at [170] – [171]:

“The power to extend the time limit for commencing proceedings is intended to provide for the circumstance in which a liquidator is not in a position to commence proceedings within three years of the relation-back day, for whatever reason, subject to the assessment of the Court of all relevant circumstances, including the liquidator’s conduct. It is not difficult to envisage a circumstance in which a liquidator is still ascertaining the identity of the recipients of benefits under possible voidable transactions and cannot give the Court an indication of the creditors to be targeted. The power should be broad enough to allow, in those circumstances, for an order granting an extension of time in general terms.

The requirement of commercial certainty on the part of those who have had past dealings with the corporation is to be balanced against the conflicting interest of the creditors of the company. The Court, through the discretions it exercises under ss588FF(3) and 588FF(1), is in a position to control unwarranted delay by liquidators. Subject to reasonable expedition on the part of a liquidator, and to adopt the reasoning of Doyle CJ in Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 at 659, the creditors are entitled to:
… the benefit of having the affairs of an insolvent company properly investigated and administered in an orderly fashion in terms of the provisions of the law.’”

18 I proceed therefore to consider the evidence about steps taken in the several administrations. I begin with the winding up of KSE. Relevant matters are set out in Mr Weston’s affidavit of 3 November 2004. He and Mr Cussen were originally appointed as administrators under Part 5.3A. Shortly afterwards, the court appointed them receivers of certain property of Karl Suleman and Vivian Suleman. They were also appointed receivers of the property of an unregistered managed investment scheme operated by KSE. The nature of KSE’s operations and the scheme is stated in Mr Weston’s affidavit:

“KSE was incorporated on 17 December 1999. It operated an unregistered managed investment scheme. KSE held contracts with various supermarkets at sites located around Sydney under which it was responsible for collecting shopping trolleys after their use.

From the date of incorporation of KSE, people paid moneys to KSE ("investors") initially by way of loan, but subsequently by way of investment, for the purpose of investing in its shopping trolley collect business. The investors were, for the most part, members of the Assyrian community in both Australia and USA. Investors were issued contracts in respect of their investment, and these contracts took different forms as time progressed.

However, the common feature of all the contracts issued to investors was that there was a predetermined return for a specific investment, which was usually about 100% per annum over the term of the investment.

The profits, if any, generated from the trolley collection business, and other businesses operated by KSE, were far too insignificant to meet the high rate of return KSE promised to investors under the contracts. For this reason, the scheme was unsustainable, as investor's returns were primarily paid from the incoming monies from subsequent investors.

Further, in receiving monies from investors, Karl Suleman did not distinguish between himself and KSE. Monies received from investors in KSE were many times deposited to the accounts of Karl Suleman, or his wife, Vivian, or used to purchase assets in their individual or joint names.”

19 Mr Weston goes on to refer to the role played by PAL Holdings Pty Ltd (now also in liquidation) in the raising and deployment of funds from investors and to the establishment of the Froggy companies, the affairs of which became intermingled with those of KSE and the unregistered managed investment scheme. Mr Weston then refers to causes of action identified and pursued, with some proceedings now on foot and others having been settled. Among the proceedings on foot are proceedings to recover funds from 16 persons who, as agents, collected moneys from investors. Those proceedings were commenced as long ago as January 2002 but, in Mr Weston’s words, “have not to date progressed significantly as one of the defendants, Sam Babanour, applied to have the claim as against him struck out”, which attempt was initially successful. On 28 June 2004, however, the order that the claim be struck out was set aside by the Court of Appeal and the liquidators were given leave to replead. The litigation against the agents is therefore ongoing.

20 Against that background, it is convenient to quote at some length from Mr Weston’s subsequent affidavit sworn on 3 December 2004:

“ Order of Liquidation and allocation of resources

In performing the role of winding up Karl Suleman Enterprizes Pty Limited (“KSE”), it has been necessary to prioritise the use of resources available in the winding up due to financial and other constraints.

It has been necessary, therefore, to decide which lines of inquiry should have priority, which persons should be investigated first, and which matters should be litigated first.

Some of the matters which have received priority in the liquidation to date include:

(a) Recovery of the assets referred to in paragraph 35 of my First Affidavit.
(b) Obtaining Mareva and Anton Pillar orders against individuals who were suspected of having assets and monies which properly belonged to KSE.
(c) Recovery action taken against Karl Suleman and Vivian Suleman.
(d) Instituting proceedings against the primary agents involved in the unregistered managed investment scheme.
(e) Instituting professional negligence actions against the legal advisers of KSE.
(f) Recovery actions against KSE’s accountant.
(g) Investigating the matters in (a) to (f) both informally and through formal Corporations Act examinations.
(h) Identifying creditors and investors in KSE and admitting proofs of debt.
(i) Investigating other suspicious transactions of individuals and companies who had dealt with KSE.
(j) Assisting ASIC with its investigations of KSE, and in its prosecution of Karl Suleman for offences under the Corporations Act.
(k) Reconstructing the accounts of KSE.
(l) Tracing monies which had been misappropriated to accounts in Australia and the United States.
(m) Instituting recovery proceedings in the United States.

The main factors which have influenced me in deciding which matters to give priority to include:

(a) Amount of money involved;
(b) Difficulty of investigation (see below at paragraph 8);
(c) Likelihood of recovery;
(d) Available evidence;
(e) Cost of recovery.
(f) Availability of funds to investigate/institute proceedings.


In addition to the factors listed above, the avenues of recovery which were assigned lower priority have also been dependent upon the success and realisation of funds in the initial wave of recovery actions. A conscious decision has been made not to allow more remote avenues of recovery to distract from or delay the more important tasks in the winding up. However, as some of the important tasks have now been completed, it has become possible to investigate and consider litigation of matters originally assigned lower priority.

Matters causing delay in liquidation

In the winding up to date, there have been two main factors causing delay:

(a) The lack of KSE records and accounts; and
(b) The delay of the Commonwealth Bank of Australia (“CBA”) in providing KSE’s banking records.

Lack of accounts and the nature of the winding up

The paucity of records kept by KSE has made it extremely time consuming to identify the creditors and debtors of the company. The reconstruction of the accounts has been hampered by:

(a) The unreliability of information which has been received by third parties in relation to assets and transactions involving KSE. For example, many investors have provided information which has been largely based on rumours and unfounded allegations. Whilst some of this information has proved useful, much of it has not.
(b) The reluctance of the main individuals involved in KSE to assist in the liquidation (primarily because most of the key players misappropriated company funds themselves).
(c) The inability to locate Sargon Oshana, a person who was second only to Karl Suleman in his involvement and knowledge in the unregistered managed investment scheme conducted by KSE, and who misappropriated large amounts of money and absconded overseas soon after KSE was placed into liquidation.
(d) The fact that many transactions of KSE were not reduced to writing or properly recorded.
(e) The fact that many transactions were conducted on a cash basis, or were otherwise designed to frustrate any subsequent attempts to trace company monies.

Delay caused by CBA

The majority of the bank accounts of KSE, Karl and Vivian Suleman were held with the CBA.

In addition to the factors listed above, reconstruction of the company’s accounts has also been significantly delayed by the tardiness of the CBA in responding to subpoenas and informal requests to produce banking records relating to KSE including those of Karl and Vivian Suleman.

Some of the correspondence between my staff and the CBA was referred to in paragraph 42 and Annexure F of my First Affidavit, and exhibited as PGW 9 of my First Affidavit.

In addition to the written correspondence with the CBA, there have been numerous telephone conversations and meetings between my staff and the CBA in relation to the production of documents which relate to KSE.

Annexed to this affidavit and marked “A” is a spreadsheet recording the dealings between my staff and the CBA. The first column of the exhibit contains the date, the second column records a code relating to a member of my staff (eg “AA” refers to Alan Arakalian) and the third column describes the attendance upon the CBA.

Banking Information Still Missing

As at the date of swearing this affidavit, the following documents were still missing:

(a) Bank Statements:

(i) Account No 2265 2803 6513 for period 6 February 2001 to 23 February 2001;
(ii) Account No 2265 2803 6513 for period 8 March 2001 to 14 March 2001; and
(iii) Account No 2196 1075 4463 for period 20 October 2001 to 2 November 2001.

(b) Quickline (electronic) banking records for:

(i) Account No 2196 1075 4447 in relation to transactions totalling $2,692,557.
(ii) Account No 2468 1012 7548 in relation to transactions totalling $10,122,845.40.

(c) 94 Cheques from various accounts totalling $906,139.49.”

[Mr Weston then outlines continuing steps, up to 2 December 2004, to obtain information from CBA.]


“ Importance of production of banking records

The importance of the information sought from the CBA cannot be overstated. The primary banking records (such as original cheques, deposit slips, etc) are crucial in reconstructing the accounts and understanding the financial mosaic of the company, particularly in light of the absence or inadequacy of KSE’s own records.

The records which have been received from CBA to date have been used not only to reconstruct the company’s accounts, but also as a means of detecting fraudulent patterns in the accounts.

As part of the investigations into KSE, my staff have entered relevant details relating to transactions involving KSE into an Excel database. This information might include, for example:

(a) The payer and payee in a given transaction;
(b) Drivers Licence number, bank card number (credit or keycard), medicare number, bank account number or other identification details, if required from the bank;
(c) Handwritten annotations (containing names or other details such as a driver’s licence number) included on the cheque vouchers or copies of the cheques.

Once this information has been compiled, it is cross referenced against other sources of information such as the Master Creditors List (primarily for the identification of an individual through an address) or by checking other details which match up with licence numbers or other details.

The information gathered from the documents supplied by the CBA is also used in further investigations to determine payees of cheques from KSE. For example, if a cheque made out to “cash” only contains a driver’s licence number by way of identification, inquiries can be made with the RTA to determine the identity of the payee.

This process is important because a significant amount of KSE cheques were cash cheques and therefore the payee is not always apparent on the face of the cheque or bank statement. The difficulty in determining payees for payments has therefore created an obstacle to completing KSE’s cashbook.

The information is entered into a software program (“IDEA”) which is also used to assist in detecting suspicious transactions, patterns emerging from the transactions, and other information not readily apparent when the documents are considered in isolation. The information in the banking records can also be compared in the software program with other data which has been entered, such as the names of investors and other persons or entities of interest.

The effectiveness of IDEA has been dependent upon the information which the CBA has been asked to produce. The tardiness of the CBA in producing these records has resulted in:

(a) Long delays in the investigation of specific transactions;
(b) An inability to identify suspicious transactions, and/or the individuals involved in those transactions, which might lead to possible avenues of recovery under s 588FF of the Corporations Act;
(c) Delay in the winding up generally.

Future proceedings under s 588FF of the Corporations Act – Identified Defendants

Over the period of the liquidation a number of entities and individuals have been identified as possible defendants in proceedings involving voidable transactions with KSE, but to date insufficient evidence has been collated to justify instituting proceedings. The following persons/identities are still being investigated with a view to instituting voidable transaction proceedings against them:

Alex Odisho	George Cannon
Andy Isho	Hilda Sabri
George Sabri	Jeffrey Fenech Corporation Pty Ltd
Leon Darmo	Noisebox Entertainment Systems
Mary Daniel	Romeo & Gilbert Barkho
Nabil Anoya	Rowland Elster
Nadia Stephan	Sami Bazi
Ramond Abdisho	Sandra Yohana
Romi Dinkha	Sebia Sabri
Sam Sultan	Albert George
Sargon Tailo	Deborah Locke
Sebia Sabri	George Jamoo
Susan Isho	Maria Azar
Assyrian Australia Association Nieveh Sports & Community Club	Markson Sparks
Assyrian Sports & Cultural Club	Norman Azar
Austwide Finance Pty Limited	Richard Azar
Ben Yohana	Robert Azar
Esha Youkhana	Robert John Morris
Eshaya Nano	Wendy Billington t/as Cedar House Alpaca Stud Pty Limited


Future proceedings under s 588FF of the Corporations Act – Unidentified Transactions/Defendants

It is also possible that potential voidable transactions will come to light in the coming months as the CBA provides the remainder of KSE’s banking records and my staff are able to complete their investigations into KSE’s transactional history. At this stage, it is impossible to name the individuals or entities against whom proceedings might be brought because the transactions themselves are unknown.

Time required to complete investigations and institute s 588FF Proceedings

Once the CBA has produced all of the banking records sought from it, the following tasks will be required to complete investigations into the transactions entered into by KSE:

(a) Cross referencing information from the CBA documents with other sources of information such as the Master Creditors List, the document management system and my staff’s files in relation to the liquidation.
(b) Conducting further investigations into transactions (for example, by contacting organisations such as the RTA to establish the identity of payees).
(c) Conducting public examinations and issuing orders for production to clarify transactions and obtain evidence of transactions.

My best estimate of the time it will take to complete investigations into the transactional history of KSE, and file any voidable transaction claims which KSE might have, is 12 months. This takes into account that if an extension is granted, and it is in KSE’s interests to institute voidable transaction proceedings, it is likely that litigation funding will be sought in relation to the more significant claims. Obtaining litigation funding is a time consuming process, which in the case of the proceedings commenced against the legal advisors to KSE, took approximately 7 months from the time I initiated discussions, to the time the funding agreement was signed.”

21 Mr Cussen’s evidence in relation to the Froggy companies is that their affairs are so intertwined with those of KSE and the unregistered managed investment scheme that it is, in a practical sense, impossible to progress the windings up of those companies except in company with the windings up of KSE and the managed investment scheme. He says:

“Because the affairs of KSE and the Froggy Group are so intertwined, it is not possible for me to determine until such time as the cash flow analysis for KSE has been completed, as to whether there are any outstanding claims which may be recoverable by me as liquidator of the Froggy Group or any of the companies within it, as voidable transactions.”

22 I am satisfied that the winding up of KSE and that of each of the Froggy companies have been approached and undertaken with appropriate diligence and that the liquidators or liquidator acted throughout in each case with due regard for the need for a combination of care and dispatch. The circumstances exhibit unusual complexity. The inability to obtain a full and complete picture of the financial position and financial dealings of the several entities is not attributable to delay or inattention on the part of the liquidators. Nor is this a situation in which it will never be possible to obtain such a full and complete picture. Resolution of the CBA situation seems to be in sight. Receipt of the missing bank account information will go a long way towards providing the liquidators with the information they need to complete the cash flow analysis necessary to enable them to make informed decisions about further voidable transaction possibilities.

23 This is one of the rare cases in which an extension should be granted under s.588FF(3)(b) without reference to particularly contemplated proceedings the general viability of which can be assessed. The liquidators of KSE and the liquidator of each of the Froggy companies have shown a cogent and compelling need for additional time in the interests of the due progress of each administration for the benefit of creditors. To the extent that potential defendants have been identified (without enunciation of the precise claims against them), the requirements of natural justice have been accommodated by notification of this application. None has raised any objection to the extension of time.

24 I make the following orders, as sought:

1. In relation to Karl Suleman Enterprizes Pty Limited, that the time for bringing applications under s.588FF(1) against the 38 persons and entities named in the table under the heading “Future proceedings under s.588FF of the Corporations Act – Identified Defendants” in the affidavit of Paul Gerard Weston sworn 3 December 2004 be extended to 12 November 2005.
2. In relation to Karl Suleman Enterprizes Pty Limited, that the time for bringing applications under s.588F(1) against persons who are yet to be identified as potential defendants be extended to 12 November 2005.
3. In relation to the seventh defendant, that the time for bringing of applications under s.588FF(1) be extended to 30 January 2006.
4. In relation to the eighth defendant, that the time for bringing of applications under s.588FF(1) be extended to 3 February 2006.
5. In relation to each of the ninth to eleventh defendants, that the time for bringing of applications under s.588FF(1) be extended to 15 January 2006.

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Last Modified: 12/20/2004