Deputy Commissioner of Taxation v Italian Prestige Jewellery Pty Ltd (in liq)

[2018] FCA 983

FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation, in the matter of Italian Prestige Jewellery Pty Limited (in liq) ACN 116 031 022 v Italian Prestige Jewellery Pty Limited [2018] FCA 983

File number:

NSD 213 of 2018

Judge:

MARKOVIC J

Date of judgment:

3 May 2018

Date of publication of reasons:

29 June 2018

Catchwords:

CORPORATIONS – application by creditor to appoint special purpose liquidators under s 90-15 of Sch 2 of the Corporations Act 2001 (Cth) – where circumstances indicate investigations are required – where liquidators have no funding – where creditor will fund special purpose liquidators – whether appropriate to make order appointing special purpose liquidators – application successful.

CORPORATIONS – application for approval of a funding agreement under s 477(2B) and s 506(1A) of the Corporations Act 2001 (Cth) – application successful.

CORPORATIONS – application for a suppression order or a non-publication order under s 37AF of the Federal Court of Australia Act 1976 (Cth) – whether order is necessary to prevent prejudice to the proper administration of justice – application successful.

Legislation:

Corporations Act 2001 (Cth) ss 472(6), 477(2B), 506(1A), 600K, 1615, Sch 2 ss 5-30, 60-10, 60-12, 90-15, 90-20

Federal Court of Australia Act 1976 (Cth) ss 37AF, 37AG

Cases cited:

Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) [2017] FCA 444

Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) (No 2) [2017] FCA 755

GDK Projects Pty Ltd, in the matter of Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541

In the matter of 77738930144 Pty Limited (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452

In the matter of AT Air Group Pty Limited (in liq) [2012] NSWSC 1508

State of Victoria v CTM Training Solutions Pty Ltd (in liq) [2017] VSC 47

Date of hearing:

3 May 2018

Registry:

New South Wales

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Category:

Catchwords

Number of paragraphs:

63

Counsel for the Plaintiff:

Mr D Barnett

Solicitor for the Plaintiff:

K&L Gates

Table of Corrections
3 July 2018	In paragraph 42, “s 60-10(2)(b)” has been replaced with “s 60-10(1)(c)”. In paragraph 53, “s 60-10(2)(b)” has been replaced with “s 60-10(1)(c)” and the words “other than an external administrator” have been inserted before “in a members’ voluntary winding up”. In paragraph 54, “s 60-10(2)(b)” has been replaced with “s 60-10(1)(c)”.

ORDERS

NSD 213 of 2018

IN THE MATTER OF ITALIAN PRESTIGE JEWELLERY PTY LIMITED (IN LIQUIDATION) ACN 116 031 022, A1 METALS PTY LTD (IN LIQUIDATION) ACN 162 207 043, ANTEL METALS PTY LTD (IN LIQUIDATION) ACN 158 212 143, 4 NINES PTY LTD (IN LIQUIDTAION) ACN 159 857 502 AND PREMIUM METAL SERVICE PTY LTD (IN LIQUIDATION) ACN 154 045 440

BETWEEN:

DEPUTY COMMISSIONER OF TAXATION

Plaintiff

AND:

ITALIAN PRESTIGE JEWELLERY PTY LIMITED (IN LIQUIDATION) ACN 116 031 022

First Defendant

A1 METALS PTY LTD (IN LIQUIDATION) ACN 162 207 043

Second Defendant

ANTEL METALS PTY LTD (IN LIQUIDATION) ACN 158 212 143 (and others named in the Schedule)

Third Defendant

JUDGE:	MARKOVIC J
DATE OF ORDER:	3 May 2018

THE COURT ORDERS THAT:

1.Pursuant to s 90-15 of Div 90 of Sch 2 to the Corporations Act 2001 (Cth) (Act), Stephen Ernest Vaughan and Gayle Dickerson (Special Purpose Liquidators) are each appointed liquidators of the first, second, third, fourth and fifth defendants (collectively, Companies) as additional liquidators to carry out the functions specified in Annexure A to these orders.

2.Pursuant to s 90-15 of Div 90 of Sch 2 to the Act, the primary liquidators of the Companies from time to time:

(a)must refrain from exercising any of the powers of the Special Purpose Liquidators as set out in Annexure A to these orders, except with the prior written consent of the Special Purpose Liquidators (such consent not to be unreasonably withheld) or by leave of the Court; and

(b)must use their reasonable endeavours to assist the Special Purpose Liquidators to exercise the powers given to them in Order 1 above, including by providing any documents or information previously prepared or obtained by them in investigating or pursuing any claim in relation to any of the matters set out in Annexure A to these orders.

3.Pursuant to s 90-15 of Div 90 of Sch 2 of the Act, the Special Purpose Liquidators shall, in accordance with the requirements of the Act, report to creditors of the Companies and any liquidator of the Companies then in office on the terms of their appointment and subsequently once every six months during the course of their appointment.

4.Pursuant to ss 506(1A) and 477(2B) of the Act, leave is granted to the Special Purpose Liquidators to enter into a funding agreement with the plaintiff, in the same or substantially the same form as the proposed deed of funding and indemnity annexed at YD-3 to the affidavit of Yi Deng sworn 29 March 2018 and filed in this proceeding.

5.Pursuant to s 60-10(1)(c) of Div 60 of Sch 2 of the Act, the remuneration of the Special Purpose Liquidators is approved to the amount specified in schedule 2 to the proposed deed of funding and indemnity annexed at YD-3 to the affidavit of Yi Deng sworn 29 March 2018 and filed in this proceeding.

6.Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice, until further order of the Court, the information comprising the following evidence be kept confidential and not be provided or disclosed to any person other than the parties and KPMG and their respective legal advisers:

(a)the affidavit of Yi Deng sworn 29 March 2018 comprising 6 paragraphs; and

(b)annexure YD-3 to the affidavit of Yi Deng sworn 29 March 2018.

7.Any person demonstrating sufficient interest in Order 6 above have liberty to apply on 3 days’ notice.

8.The Special Purpose Liquidators have leave to apply to the Court in this proceeding, including for the purposes of extending the scope of their functions pursuant to s 472(6) of the Act.

9.The plaintiff's costs of this application be paid out of the assets of the Companies recovered or realised by the Special Purpose Liquidators.

10.The plaintiff have liberty to apply to the Court in this proceeding on 3 days' notice.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MARKOVIC J:

1. On 3 May 2018, on the application of the Deputy Commissioner of Taxation, I made orders including an order pursuant to s 90-15 of Div 90 of Sch 2 to the Corporations Act 2001 (Cth) (Act) appointing Stephen Ernest Vaughan and Gayle Dickerson as special purpose liquidators (Special Purpose Liquidators) to carry out specified functions in relation to Italian Prestige Jewellery Pty Limited (in liq) (Italian Prestige), A1 Metals Pty Ltd (in liq) (A1 Metals), Antel Metals Pty Ltd (in liq) (Antel Metals), 4 Nines Pty Ltd (in liq) (4 Nines) and Premium Metal Service Pty Ltd (in liq) (Premium Metal) (collectively, the Companies). I also made an order pursuant to s 506(1A) and s 477(2B) of the Act granting leave to the Special Purpose Liquidators to enter into a deed of funding on behalf of the Companies (Funding Deed). 

2. These are my reasons for making the 3 May 2018 orders.  I note that in the reasons that follow any reference to the “Commissioner” includes the Commissioner of Taxation and his employees, including the Deputy Commissioners.

   BACKGROUND FACTS

   The Companies

3. Each of the Companies is owned and controlled by members of the Catanzariti family.

4. During 2013 the Commissioner commenced comprehensive audits of the Companies’ taxation affairs.  By letter dated 28 October 2013 the Commissioner notified each of the Companies of his intention to conduct an audit and issued reasons for his decision to each of the Companies.

5. During the audit and objection process which followed the Companies contended that their business model operated in the following way:

   (1)they acquired gold bars from an Australian dealer in precious metal, Australian Bullion Company (NSW) Pty Ltd (ABC (NSW));

   (2)the Companies then provided the gold bars and cash as consideration for the acquisition of scrap gold jewellery from 25 GST registered jewellery wholesale companies (Wholesale Entities);

   (3)the Wholesale Entities delivered the scrap jewellery to the business address of the Companies on an ad hoc basis;

   (4)the Companies issued recipient created tax invoices (RCTI) for the scrap gold supplied to them by the Wholesale Entities pursuant to RCTI agreements purportedly entered into by the Companies and the Wholesale Entities;

   (5)the Companies undertook a refining process at their business address to produce gold granules of precious metal purity which were then bagged and delivered to various refineries, but predominantly a refinery called EBS & Associates Pty Ltd (EBS); and

   (6)each of the Companies lodged business activity statements claiming input tax credits for the alleged creditable acquisitions of scrap gold jewellery from the Wholesale Entities and reported GST on taxable supplies to EBS and other refineries.  The GST on taxable supplies generally exceeded the Companies’ input tax credit claims by a modest margin, resulting in a net positive amount for each month during the periods for which the Commissioner later issued assessments and amended assessments for GST.

6. As a result of the audit and objection process the Commissioner understood the actual position regarding the Companies’ activities to be as follows:

   (1)the Wholesale Entities were sole director/shareholder companies with no known employees.  In each case their principal place of business was the residential address of the relevant sole director and shareholder;

   (2)none of the Wholesale Entities had identifiable bank records or evidence of trading;

   (3)there was no refining process undertaken by any of the Companies; and

   (4)two to four times per week, on the same day, the Companies would:

   (a)receive funds from related entities and/or from external sources to fund the purchase of gold bullion from ABC (NSW);

   (b)sell the gold to the refineries and receive payment for the gold via electronic funds transfer; and

   (c)transfer the funds received to related entities or external source funders.

7. The Commissioner concluded that the RCTIs were fraudulently created to obtain a tax benefit by:

   (1)availing the Companies of input tax credits for purported acquisitions of jewellery from the Wholesale Entities;

   (2)allowing the Companies to use input tax credits to offset their GST liability on the supply of gold granules to the refineries; and

   (3)allowing the refiners, including EBS, to claim input tax credits on the purchase of gold granules from the Companies.

8. On 29 October 2013 the Commissioner issued notices of assessment and amended assessments for GST net amounts to the Companies and on 30 October 2013 the Commissioner issued assessments for administrative penalties.  Thereafter:

   (1)on or about 23 December 2013 each of the Companies lodged objections with the Commissioner with respect to the assessments pursuant to s 14ZW of the Taxation Administration Act 1953 (Cth);

   (2)on 12 November 2014 the Commissioner notified each Company of its decision in relation to the objections raised in each notice of objection, disallowing most objections but allowing some in part (Objection Decisions);

   (3)on 2 December 2014 each of the Companies lodged notices of appeal in this Court against the Commissioner’s Objection Decisions (Appeal Proceedings). The Companies failed to file any evidence in the Appeal Proceedings;

   (4)on 23 July 2015 each of the Companies was placed into voluntary liquidation and Ozem Azzam Kassem and Jason Bing-Fai Tang, the sixth defendants, were appointed as their joint and several liquidators (Liquidators);

   (5)on 4 and 5 August 2015 the Liquidators filed notices of appearance in the Appeal Proceedings; and

   (6)on 14 August 2015 this Court made orders by consent that the Appeal Proceedings be dismissed and that the Companies pay the Commissioner’s costs of those proceedings as agreed or taxed.

   Events following the appointment of the Liquidators

9. According to the Commissioner, based on the reports to creditors dated 3 August 2015 issued by the Liquidators for each of the Companies (Reports to Creditors), the Companies respectively owe various unsecured creditors the amounts set out in the following table:

10. The Reports to Creditors disclosed that as at the date of liquidation (see [8(4)] above), the Companies had no cash or assets, and in the case of Antel Metals and A1 Metals, no plant and machinery.  In relation to 4 Nines, Premium Metal and Italian Jewellery, plant and machinery assets were listed as “undisclosed”, “TBC” and “commercially sensitive” respectively.

11. On 7 March 2017 the Liquidators issued requests for books and records and made demands for insolvent trading in relation to each of the Companies.

12. On 10 May 2017 upon making an inquiry, Sumitha George, a debt officer in the significant debt management team at the Australian Taxation Office (ATO) was informed by Ibrahim Annous from the Liquidators’ office that there had been only one report to creditors prepared for each of the Companies, being the reports dated 3 August 2015, and that the Liquidators were preparing a final report to be issued by the end of May 2017. 

13. By letter dated 18 May 2017 Ms George requested that the Liquidators, among other things, provide an update on insolvent trading and potential claims under s 530A of the Act and on their investigations into any monies owing to the Companies by Ageo Holdings Pty Ltd (Ageo Holdings) as trustee for the Ageo Family Trust (Ageo Trust).

14. On 26 May 2017 Ms George had a conversation with Mr Tang, one of the Liquidators, in which Mr Tang informed her that there was no further update to creditors and that investigations had not revealed any information that had not already been provided to the ATO.  Mr Tang also queried whether the ATO would consider funding any investigations.  Ms George referred Mr Tang to the funding information on the ATO’s website and informed him that he should have regard to that information before submitting a request to the ATO.

15. By email dated 26 May 2017 Mr Annous of the Liquidators’ office informed Ms George that the Liquidators’ investigations into the Companies had “identified an insolvent trading and debtor claim … over their directors”; summarised the various demands and requests for information issued to the directors, related entities and the Companies’ advisors; confirmed that the Liquidators had not received substantive responses to their demands or requests; confirmed that Mr Mennon of Clamenz Lawyers (the directors’ solicitors) had advised that the directors were in a “precarious financial position and will most probably file for bankruptcy should legal action commence against them”; and requested that the Commissioner provide the Liquidators with certain documentation and information that may be relevant to their investigations.

16. By letter dated 24 July 2017 addressed to the Liquidators, Ms George, among other things, referred to the reports to creditors filed with the Australian Securities and Investments Commission (ASIC) dated 15 February 2017 which noted that the Liquidators expected to finalise the liquidations by the end of July 2017; informed the Liquidators that the Commissioner considered that a number of transactions entered into by the Companies prior to the Liquidators’ appointment required thorough investigation; noted that it was clear that such investigations had not yet been carried out and it was thus not appropriate for the liquidations to be finalised at this stage; and requested that the Liquidators confirm, within seven days, that they would not take any steps to finalise the liquidations for a period of 30 days.

17. By letter dated 8 August 2017 the Liquidators, among other things:

    ·informed Ms George that they had undertaken substantive investigative work in relation to the Companies and that the various demands issued in March and May 2017 were the “culmination of [the Liquidators’] investigations at that point in time”;

    ·summarised the investigations undertaken as at that date and informed the Commissioner that the timing of the demands in March and May 2017 was because of delays in securing records of the Companies, disputes concerning loans recorded in the Companies’ management accounts and claims that they had been repaid and the Liquidators’ view of the “value in undertaking recovery action against the related parties having regard to the commercial merit in doing so”;

    ·stated that the related party contraventions under the Act had been reported to ASIC;

    ·noted, given their unpaid time costs associated with the liquidation of the Companies and their lack of funding, that they were not minded to pursue recovery actions against parties whose financial capacity to satisfy any claim was unclear; and

    ·confirmed that they had no intention of finalising the liquidation of the Companies until a general consensus had been reached in relation to that issue.

18. On 1 December 2017 the Commissioner informed the Liquidators that he intended to make an application for the appointment of special purpose liquidators over each of the Companies and invited them to consent to that application.  Ultimately, the Liquidators informed the Commissioner that, while they were not prepared to resign from their role as liquidators, they would consent to the application for the appointment of special purpose liquidators to the Companies subject to their position and the Companies’ position being protected.

    Commissioner’s investigations and proposed further investigations

19. As part of the audit and objection process the Commissioner undertook an investigation into the movement of funds in and out of the Companies’ bank accounts and related party accounts.  As a result, the Commissioner became aware that substantial amounts were transferred out of the Companies’ accounts during the two years prior to their liquidation, in particular to Ageo Holdings, as trustee for the Ageo Trust.  The Ageo Trust was established on 27 February 2012.  Adrian and Marie Catanzariti and their children, among others, are the income and corpus beneficiaries under the trust.  The sole director of Ageo Holdings is Marie Catanzariti.  Adrian Catanzariti was its former director and is the sole shareholder in Ageo Holdings.

20. The Commissioner considers that there should be investigation into:

    (1)the solvency of the Companies and possible voidable transactions and insolvent trading claims;

    (2)the fate of cash and other assets of the Companies, including transfers of funds to related entities; and

    (3)the identity of the ultimate beneficiaries of the tax benefits obtained by the Companies.

    The Commissioner also considers that if the results of the investigation warrant it, appropriate recovery action should be taken.

    Commissioner's position regarding funding

21. The Commissioner has not made any offer to fund the Liquidators to undertake investigations into the Companies’ affairs, nor has a formal request been made by the Liquidators for funding.

1. The Commissioner is of the view that it would be inappropriate, and is not willing, to fund the Liquidators to undertake investigations of the nature identified at [20] because:

   (1)he is concerned to ensure that the liquidators who conduct the investigations are seen to be entirely independent of the Companies and related parties of the Companies and accordingly, the Catanzariti family.  The Commissioner notes that the Liquidators were appointed by members of the Catanzariti family on the referral of their lawyers, Clamenz Lawyers, and were also appointed as liquidators to five of the Wholesale Entities which were placed into liquidation on 28 October 2013, again on the referral of Clamenz Lawyers;

   (2)whilst acknowledging that the Liquidators had been unfunded, the Commissioner is also concerned that demands for insolvent trading and production of books and records were issued to the Companies and related parties some 20 months after the Liquidators’ appointment; and

   (3)no action has been taken following the issuing of the demands referred to at [11] above.

2. The Commissioner proposes, and in fact has agreed, to fully fund Mr Vaughan and Ms Dickerson to carry out the investigations and, if appropriate, pursue recovery actions. 

3. Mr Vaughan and Ms Dickerson each consent to their appointment as special purpose liquidators of the Companies.

   Mr Vaughan’s evidence

4. Mr Vaughan affirmed an affidavit on 30 April 2018 on which the Commissioner relied in support of the application for approval of entry into the proposed Funding Deed in the form of annexure YD3 to the affidavit of Yi Deng sworn on 29 March 2018.  In that affidavit Mr Vaughan deposes to the following matters:

   (1)the Funding Deed is the product of negotiations between the Commissioner and his firm and the Commissioner, Ms Dickerson and he are agreed on its terms;

   (2)he is comfortable that the Commissioner has agreed to fully fund Ms Dickerson and him to undertake proposed functions as special purpose liquidators and thus, if appointed, believes the Funding Deed is in the best interests of the Companies' creditors;

   (3)it is envisaged that the Funding Deed will extend to the functions outlined in the schedule to the originating process, which are largely investigative tasks and that, in the event litigation is to be pursued by the Special Purpose Liquidators, a new funding deed or variation to the Funding Deed will be required, which will require subsequent Court approval pursuant to s 477(2B) of the Act. It is not his or Ms Dickerson’s intention to undertake litigation on behalf of the Companies without the approval and funding of the Commissioner;

   (4)if appointed, he and Ms Dickerson will be unfunded until the Funding Deed is approved by the Court and accordingly, they seek the Court’s leave to seek approval pursuant to s 477(2B) of the Act to enter into the Funding Deed contemporaneously upon any order being made appointing them as special purpose liquidators, without the need to file a further originating or interlocutory process; and

   (5)he confirms and undertakes to the Court that he and Ms Dickerson, if appointed as special purpose liquidators, will not seek to recover fees and expenses out of the funds or property of the Companies other than in accordance with the terms of the Funding Deed and out of assets they recover, if any, during the course of their appointment as special purpose liquidators.  For the avoidance of doubt, Mr Vaughan says that the special purpose liquidators will not seek to recover any fees and expenses from any cash currently held by the Liquidators or any distribution currently expected from the bankrupt estate of Adrian Catanzariti.  Mr Vaughan notes that he and Ms Dickerson are prepared to give formal undertakings to the Court to this effect if required.

   APPOINTMENT OF THE SPECIAL PURPOSE LIQUIDATORS

   Relevant legal principles

5. Sections 90-15 and 90-20 of Div 90 of Sch 2 to the Act apply to this administration notwithstanding that it commenced before 1 September 2017: see s 600K and s 1615 of the Act.

6. Section 90-15 relevantly provides:

   90‑15   Court may make orders in relation to external administration

   Court may make orders

   (1)The Court may make such orders as it thinks fit in relation to the external administration of a company.

   Orders on own initiative or on application

   (2)       The Court may exercise the power under subsection (1):

   (a)on its own initiative, during proceedings before the Court; or

   (b)on application under section 90‑20.

7. Section 90-15(4) sets out a non-exhaustive list of the matters which the Court may take into account in exercising the discretion under s 90-15(1).

8. Section 90-20 sets out who may apply for an order under s 90-15. Those persons include a person with a financial interest in the external administration of the company.

9. Section 472(6) of the Act provides that if more than one liquidator is appointed by the Court, the Court must declare whether anything that is required or authorised by this Act to be done by the liquidator is to be done by all or any one or more of the persons appointed.

10. In GDK Projects Pty Ltd, in the matter of Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541 (GDK Projects) at [32]-[33] Farrell J said the following about the Court’s power to appoint special purpose liquidators pursuant to s 90-15:

    32Section 90-15(1) of Sch 2 of the Corporations Act confers power on the Court to “make such orders as it thinks fit in relation to the external administration of a company”. A company is taken to be under “external administration” if a liquidator has been appointed: s 5-15(c) of Sch 2. This provision largely tracks s 511 of the Corporations Act as enacted immediately before its repeal took effect on 1 March 2017. As noted by Gleeson JA in Commercial Indemnity at [17], the Court’s powers conferred by s 511 include the power to appoint an additional liquidator.

    33The power to make orders conferred by s 90-15(1) contains no equivalent of s 511(2) which permitted the Court to accede to an application “if satisfied that … the exercise of power will be just and beneficial”. The power is, in its terms, unconstrained. Section 90-15(4) lists some matters the Court is entitled to take into account but that list is expressed to be “[w]ithout limiting the matters which the Court may take into account when making orders”. In Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed) [2017] FCA 486, Gleeson J observed at [41] that the question of whether to exercise the power under s 90-15 of Sch 2 can be answered by reference to principles that applied to the exercise of the discretion under the provisions previously contained in ss 479(3) and 511. I agree that those cases can be a useful guide. Despite the breadth of the power conferred by s 90-15(1), it is difficult to envisage circumstances where the power would be exercised if the Court could not be satisfied that it would be just and unless the applicant had demonstrated sufficient utility to the external administration.

11. In Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) [2017] FCA 444 (ACN 154 520 199 Pty Ltd) at [64]-[85] Gleeson J summarised the principles relating to the appointment of special purpose liquidators to pursue certain investigations, claims and recovery actions. In the case before her Honour the application for the appointment of special purpose liquidators was made pursuant to ss 511(1), 472(1) and 473(8) of the Act. Her Honour noted at [64] that former s 511(1)(b) of the Act empowered the Court to appoint a special purpose liquidator in a creditor’s voluntary winding up or a winding up following a voluntary administration if it would be “just and beneficial” to do so.

12. At [82]-[83] Gleeson J referred to the decision in Victoria v Goulburn Administration Services (in liq) [2016] VSC 654 where Sifris J considered an application by the Victorian Government to appoint special purpose liquidators to two insolvent vocational training providers. The Government had funded those companies in the period prior to their winding up and was a creditor. Her Honour noted that:

    82.… The Government undertook to fund the special purpose liquidators in full and was not willing to fund the existing liquidators, given they were appointed by the directors on the recommendation of the solicitor for the insolvent companies.

    83.At [29], Sifris J considered that it would be beneficial to the administration of the winding up and the interests of the general body of creditors for the work envisaged for the special purpose liquidators to be undertaken. Any recoveries would benefit creditors as a whole. The two administrations, by the existing liquidators and the special purpose liquidators, were financially independent of one another.

13. The Commissioner submitted, and I accept, that relevantly the authorities referred to by Gleeson J in ACN 154 520 199 Pty Ltd and more generally establish that it is appropriate to appoint a special purpose liquidator if:

    (1)there are matters that require investigation by a liquidator with a view to possible recovery for creditors;

    (2)the current liquidators have insufficient funds and insufficient prospects of obtaining funding to pursue an investigation;

    (3)a creditor is prepared to fund investigations and recovery actions but only on the condition that another liquidator be appointed; and

    (4)such an appointment would be beneficial to the winding up and the creditors as a whole.

    Consideration

14. The Commissioner, as a creditor, is a person with a financial interest in the external administration of each of the Companies: see s 5-30 of Sch 2 to the Act. Thus he may apply under s 90-15 for orders in relation to the external administration of the Companies. As noted by Farrell J in GDK Projects s 90-15(1) largely tracks the former s 511 of the Act which conferred a power to appoint an additional liquidator: see [31] above.

15. The power to make orders under s 90-15(1) is unconstrained. But, having regard to the principles which governed the exercise of the discretion under the now repealed s 511(2), and continue to provide a guide, I was satisfied that Mr Vaughan and Ms Dickerson should be appointed as special purpose liquidators and therefore that the orders sought by the Commissioner in that regard should be made for the following reasons.

16. First, I was satisfied that there are clearly matters that require investigation.  It is not necessary nor appropriate for the Court to make findings on the potential claims the subject of the proposed investigation in determining the application for the appointment of the special purpose liquidators: see GDK Projects at [36]. Rather, I needed to be, and was, satisfied that there are matters that require investigation by a liquidator.

17. Secondly, the Liquidators do not have funding and, without funding, will not pursue any investigations.  The Commissioner is not prepared to fund the Liquidators but is prepared to fund Mr Vaughan and Ms Dickerson in their capacity as special purpose liquidators.  I accept the Commissioner’s submission that it is not necessary for the Court to consider the merits of his position that he will not fund the Liquidators. 

18. While no criticism is made of the Liquidators by the Commissioner, as set out at [22] above, he is concerned, among other things, that the investigations and any recovery actions are seen to be conducted independently of the Catanzariti family and the tax schemes propounded by the Commissioner. That is, that there be a separation between the steps taken to date by the Liquidators and the investigations going forward. In State of Victoria v CTM Training Solutions Pty Ltd (in liq) [2017] VSC 47 at [43] Sifris J, in determining that it was desirable to appoint the proposed special liquidators in that case, stressed that it was “of the first importance that liquidators are totally independent and are seen to be so” and that it was “important that confidence in the integrity, objectivity and impartiality of an administration be maintained”. The Commissioner’s concerns indeed go to the maintenance of confidence in the objectivity and impartiality of the administration.

19. Moreover, it is clear that, without funding, the potential avenues of recovery that may benefit the whole body of creditors will not be pursued.  But, with funding, those investigations will be undertaken and potential avenues of recovery pursued without any risk to the Liquidators or the other creditors.

20. Thirdly, any recoveries will be available to the general pool of creditors subject to any application that might be made by the Commissioner pursuant to s 564 of the Act. The general pool of creditors and the Liquidators bear no risk as the Commissioner will fund and indemnify the Special Purpose Liquidators.

    FUNDING DEED

21. The Commissioner also sought an order pursuant to s 506(1A) and s 477(2B) of the Act for leave for the Special Purpose Liquidators to enter into the Funding Deed and an order pursuant to s 60-10(1)(c) of Div 60 of Sch 2 to the Act for the approval of the remuneration of the Special Purpose Liquidators up to a specified amount included in the Funding Deed.

    Approval of entry into the Funding Deed

    Relevant legal principles

22. Section 477(2B) of the Act provides:

    Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company’s behalf … if:

    (a)without limiting paragraph (b), the term of the agreement may end; or

    (b)obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;

    more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.

23. Section 477(2B) of the Act is taken to apply to a liquidator in a voluntary winding up as if he or she were a liquidator in a winding up in insolvency or by the Court: s 506 (1A).

24. In Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) (No 2) [2017] FCA 755 (ACN 154 520 199 Pty Ltd (No 2)) at [22] Gleeson J observed that the Court’s role in considering an application under s 477(2B) is to determine whether it is a proper or bona fide exercise of the liquidator’s powers. At [24]-[25] her Honour said:

    24The standard imposed under s 477(2B) concerns an assessment by the Court as to whether entry into the agreement is a proper exercise of power and not ill-advised or improper on the part of the liquidator, rather than involving the exercise of commercial judgment: Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257 at [11] per Black J citing McGrath re HIH Insurance Ltd [2010] NSWSC 404; (2010) 266 ALR 642.

    25In Pascoe; re Matrix Group Ltd (in liq) [2011] FCA 1117 at [7], Jacobson J cited with approval the following statement by Austin J of the relevant test in Leigh re King Bros [2006] NSWSC 315 at [23]:

    Although the court has the statutory task [under s 477(2B)] of giving “approval” to a liquidator’s agreement that may end more than three months after it is entered into, the case law shows that the court undertakes something less than a complete “merits review”. As Giles J said in Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-6:

    ... the court is necessarily confined in attempting to second guess the liquidator in the exercise of his powers, and generally will not interfere unless there can be seen to be some lack of good faith, some error of law or principle, or real and substantial grounds for doubting the prudence of the liquidator’s conduct.

25. In In the matter of 77738930144 Pty Limited (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452 (Commercial Indemnity) Gleeson JA dealt with a similar application to that made by the Commissioner before me.  That is, an application was made, in that case by a contributory of the relevant company, for the appointment of special purpose liquidators and for the approval of a funding deed and costs agreement in circumstances where the proposed special purpose liquidator had not yet been appointed nor had he been joined as a party to the proceeding.  Ultimately his Honour did not need to resolve the question of whether the contributory had standing and the correctness of what his Honour called “the ‘single application’ procedure … relying upon the authority of In the matter of Ambient Advertising Pty Ltd (in liquidation) [2015] NSWSC 1079” because the proposed special purpose liquidator filed his own interlocutory process seeking approval for entry into the funding agreement and costs agreement returnable instanter at the adjourned hearing and contingent upon his appointment as an additional liquidator: see [21].

26. However, at [26]-[28] Gleeson JA said the following about the “single application” procedure:

    26.Ordinarily, the additional liquidator once appointed would make any relevant application for s 477(2B) approvals. That can be achieved in the present case in a single proceeding by the procedure adopted here; a separate application by the proposed special purpose liquidator returnable instanter in the proceedings in which he is appointed.

    27.Black J expressed the view in AT Air Group that he did not see any reason, in principle or practice, why an application under s 477(2B) could not have been made by the other parties to the agreement (in that case, the funder) after the additional liquidator had been appointed and in circumstances where the additional liquidator had reached a decision to enter into the indemnity agreement and indicated that he or she sought approval from the Court to do so, such as by filing an affidavit in support of the application before the Court. His Honour emphasised that s 477(2B) does not specify who has standing to make an application for the approval contemplated by the section. It is, instead, a prohibition on the liquidator taking a particular step unless that approval has been obtained. His Honour continued at [23]:

    In my view, the limitation on the circumstances in which an application may be brought under that section depends less on the identity of the applicant than on the fact that the Court's approval can only be obtained for an agreement that a Liquidator in fact proposes to enter into, if the relevant approval is given. It would not, for example, be open to a creditor or party to an agreement to bring an application under that section for approval of anagreement (sic) that it contends that a Liquidator should enter into, where the Liquidator does not wish to enter into that agreement.

    28.So much can be accepted, however, as the present case demonstrates difficulty can still arise if the Court is asked by the applicant for s 477(2B) approval to accept undertakings which are merely foreshadowed in an affidavit made by the proposed additional liquidator but he or she is not present or represented before the Court to give such undertakings to the Court. That was the position in this case when the matter was first before the Court on 20 March 2017.

    Consideration

27. The application before me for approval of entry into the Funding Deed was made by the Commissioner and not the Special Purpose Liquidators.  Notwithstanding, I was satisfied that the Commissioner had standing and that I could entertain the application.  The application for approval of entry into the Funding Deed was sought after I was satisfied that the orders approving the appointment of the Special Purpose Liquidators should be made.  As Black J noted in In the matter of AT Air Group Pty Limited (in liq) [2012] NSWSC 1508 at [22] there is no reason, in principle or practice, why an application under s 477(2B) of the Act cannot be made by other parties to the agreement after the additional liquidator had been appointed and where the additional liquidator had made a decision to enter into the funding agreement and indicated that he or she sought approval from the Court to do so, for example by filing an affidavit supporting the application before the Court.

1. In this case the evidence before the Court was that the Special Purpose Liquidators had determined to enter into the Funding Deed, they sought the Court’s approval to enter into that deed and, in contrast to what seemed to be the position in Commercial Indemnity at [28], have, through Mr Vaughan, undertaken to the Court that they will not recover their fees and expenses out of the funds or property of the Companies other than in accordance with the terms of the Funding Deed.

2. A copy of the Funding Deed was in evidence before me.  As it is subject to a confidentiality order, it is not appropriate that I set out any of its terms.  But the following is clear:

   (1)the Funding Deed is required in order for the Special Purpose Liquidators to receive the funding and indemnity necessary for them to carry out the proposed investigations;

   (2)on the evidence given by Mr Vaughan, it is clear that the terms of the Funding Deed have been the subject of negotiation;

   (3)Mr Vaughan expresses the view that he is content with its terms and that he believes that it is in the best interests of the Companies’ creditors.  That this is so is self-evident.  But for the funding, the investigation will not proceed; and

   (4)the purpose of the Funding Deed is to enable the Special Purpose Liquidators to carry out the investigation with the funds to be provided by the Commissioner. 

3. The Liquidators are content that the undertaking provided by the Special Purpose Liquidators through Mr Vaughan provides them with the necessary level of comfort in relation to their concerns about recovery from insolvent trading claims against Adrian Catanzariti’s bankrupt estate and cash at bank held by some of the Companies.  The Liquidators have noted that, subject to the filing and receipt of Mr Vaughan’s sworn affidavit, they do not have any objection to the Funding Deed.

4. I was satisfied, based on my review of the Funding Deed and in light of Mr Vaughan’s evidence, that entry into the Funding Deed by the Special Purpose Liquidators would be a proper exercise of their powers and not ill-advised or improper on their part.  Accordingly, I was satisfied that I should make the order approving the Special Purpose Liquidators’ entry into the Funding Deed.

   Approval of the Special Purpose Liquidators’ remuneration

5. Section 60–10(1)(c) of Div 60 of Sch 2 of the Act relevantly provides that a determination specifying remuneration that an external administrator of a company, other than an external administrator in a members’ winding up, is entitled to receive for necessary work properly performed by the external administrator in relation to the external administration may be made by the Court. Section 60–10(3) provides that a determination under that section may specify remuneration that the external administrator is entitled to receive by either (or both) specifying an amount of remuneration or a method for working out an amount of remuneration. Section 60-10(4) provides that if a determination specifies that the external administrator is entitled to receive remuneration worked out wholly or partly on a time-cost basis, the determination must include a cap on the remuneration that the external administrator is entitled to receive.

6. Section 60-12 sets out matters to which the court must have regard in making a remuneration determination under, relevantly, s 60-10(1)(c). They include:

   …

   (b)the extent to which the work likely to be performed by the external administrator is likely to be necessary and properly performed;

   (c)the period during which the work was, or is likely to be, performed by the external administrator;

   (d)the quality of the work performed, or likely to be performed, by the external administrator;

   (e)the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator;

   (f)the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues;

   …

   (j)if the remuneration is worked out wholly or partly on a time‑cost basis — the time properly taken, or likely to be properly taken, by the external administrator in performing the work;

   …

7. A determination is sought specifying the Special Purpose Liquidators’ remuneration capped at the amount set out in Sch 2 to the Funding Deed. That amount has been calculated on a time-cost basis showing a detailed breakdown of the applicable hourly rates, the steps to be undertaken, the estimate of the amount of time required for each step and the estimate of the cost including GST for each step based on the hourly rates and time estimate. The amount for which the determination was sought relevantly complied with the requirements of s 60-10(3)(b) and s 60-10(4).

8. I was satisfied, having regard to the matters set out in s 60-12, in particular the necessity for the likely work, the time over which the work is likely to be performed and the quality and complexity of the likely work, and the terms of the Funding Deed, including Sch 2, that a determination specifying the Special Purpose Liquidators’ remuneration should be made in accordance with the order sought.

   CONFIDENTIALITY

9. The Commissioner sought an order pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) that the affidavit of Yi Deng sworn on 29 March 2018 comprising six paragraphs and annexure YD3 to that affidavit, which is the Funding Deed, be kept confidential. 

10. Section 37AF(1) provides that the Court may, by making a suppression order or non-publication order on grounds permitted by Pt VAA of the Federal Court Act, prohibit or restrict the publication or other disclosure of, among other things, information that relates to a proceeding before the Court and is information lodged with or filed in the Court. Section 37AG(1)(a) empowers the Court to make a suppression order or non-publication order on the ground that the order is necessary to prevent prejudice to the proper administration of justice. Section 37AG(2) requires that a suppression or non-publication order must specify the ground or grounds on which the order is made.

11. In support of that application the Commissioner relied on an affidavit affirmed by Thomas Bradley Trotman, a solicitor in the employ of the Commissioner’s solicitors, on 30 April 2018.  Mr Trotman’s evidence is that the orders for the maintenance of the confidentiality of the Funding Deed are sought because it is a commercial in confidence document and the product of confidential negotiations between the Commissioner and the Special Purpose Liquidators.  Mr Trotman also notes that, while a copy of the Funding Deed was provided to the Liquidators, it was provided following provision of a confidentiality undertaking.

12. In ACN 154 520 199 Pty Ltd (No 2) at [40] Gleeson J recognised that in a number of cases, similar to the case before her Honour, proposed funding deeds were kept confidential as between the special purpose liquidators and the funder. At [41], in determining that an order pursuant to s 37AF of the Federal Court Act should be made in relation to an affidavit annexing two versions of a proposed funding agreement, her Honour said:

    The clear public interest in the due and beneficial administration of the estates of insolvent companies for the benefit of creditors is a relevant consideration in favour of a s 37AF order in this case. I was satisfied that an order pursuant to s 37AF should be made to protect commercially confidential information provided in support of the application.

13. That statement applies equally here.  That is, there is a public interest in the due and beneficial administration of the estate of the Companies for the benefit of creditors.  That is clearly a relevant consideration and weighed in favour of making the order sought by the Commissioner. 

14. As was the case in ACN 154 520 199 Pty Ltd (No 2) it may be that not every part of the material the subject of the confidentiality order is of a commercially confidential and sensitive nature.  However, as it would not serve the interests of justice to require the parties to spend time and money to identify particular portions of the material that should be the subject of the order, I adopted the approach of Gleeson J in ACN 154 520 199 Pty Ltd (No 2) at [42] and made an order that any party demonstrating sufficient interest in the confidentiality order have liberty to apply to the Court to seek access to the material.

    CONCLUSION

15. For those reasons I made the orders that I did on 3 May 2018.

I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.

Associate:

Dated:       29 June 2018

SCHEDULE OF PARTIES

NSD 231 of 2018
Defendants
Fourth Defendant:	4 NINES PTY LTD (IN LIQUIDATION) ACN 159 857 502
Fifth Defendant:	PREMIUM METAL SERVICE PTY LTD (IN LIQUIDATION) ACN 154 045 440
Sixth Defendant:	OZEM AZZAM KASSEM AND JASON BING-FAI TANG IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF ITALIAN PRESTIGE JEWELLERY PTY LIMITED (IN LIQUIDATION) ACN 116 031 022, A1 METALS PTY LTD (IN LIQUIDATION) ACN 162 207 043, ANTEL METALS PTY LTD (IN LIQUIDATION) ACN 158 212 143, 4 NINES PTY LTD (IN LIQUIDATION) ACN 159 857 502 AND PREMIUM METAL SERVICE PTY LTD (IN LIQUIDATION) ACN 154 045 440