Duggal v Bellrock Cleaning Services Pty Ltd (Receivers and Managers Appointed) - [2023] VSC 166

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

COMMERCIAL LIST

S ECI 2022 05239

RAJAN DUGGAL	Plaintiff
v
BELLROCK CLEANING SERVICES PTY LTD (ACN 609 043 816) (RECEIVERS AND MANAGERS APPOINTED) (and others according to the attached Schedule)	Defendants

---

JUDGE:	Attiwill J
WHERE HELD:	Melbourne
DATE OF HEARING:	6, 7 and 16 March 2023 (further submissions received 21 March 2023)
DATE OF JUDGMENT:	3 April 2023
CASE MAY BE CITED AS:	Duggal v Bellrock Cleaning Services Pty Ltd (Receivers and Managers Appointed) & Ors
MEDIUM NEUTRAL CITATION:	[2023] VSC 166

---

CORPORATIONS – Application for leave pursuant to the Court’s inherent jurisdiction to bring proceedings on behalf of a company in receivership and administration (now in liquidation) against the receivers, the administrator and secured creditor – Relevant considerations – Where leave opposed by receivers, administrator and secured creditor – Where the Court is not satisfied that the claims have a solid foundation – Where the Court is not satisfied there are tangible benefits for the company – Where other means exist of obtaining the same redress – Application for leave refused – El-Saafin v Franek (No 4) [2020] VSC 389 applied.

CORPORATIONS – Application also for leave pursuant to s 237 of the Corporations Act 2001 (Cth) to bring proceedings on behalf of a company in receivership against the receivers - Relevant statutory criteria – Where leave opposed by receivers – Where the Court is not satisfied that it is probable that the company will not itself bring the claims – Where the Court is not satisfied the applicant is acting in good faith – Where the Court is not satisfied it is the best interests of the company – Where the Court is not satisfied that there is a serious question to be tried – Application for leave refused – s 237 of the Corporations Act.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Kohn	Livaditis & Co. Lawyers & Consultants
For the Third, Fourth and Sixth Defendants	Mr S Rubenstein	SLF Lawyers
For the Fifth Defendant (including in his capacity as liquidator of Bellrock UAV Pty Ltd on 3 April 2023)	Mr M Mournehis (solicitor)	Piper Alderman

TABLE OF CONTENTS

INTRODUCTION.............................................................................................................................. 1

RELEVANT PROCEDURAL HISTORY....................................................................................... 3

PARTIES’ MATERIAL...................................................................................................................... 7

RELEVANT LAW............................................................................................................................... 8

Leave pursuant to the Court’s inherent jurisdiction................................................................ 8
Leave pursuant to s 237 of the Corporations Act...................................................................... 10
Introduction........................................................................................................................... 10
Probability that the Company will not bring the proceeding: s 237(2)(a).................... 11
Good faith: s 237(2)(b).......................................................................................................... 11
Best interests of the Company: s 237(2)(c)......................................................................... 13
Serious question to be tried: s 237(2)(d)............................................................................. 14
Overlapping criteria.............................................................................................................. 14
Nature of the application and cross-examination............................................................ 15
Section 90-15 of Schedule 2 of the Corporations Act................................................................ 15

BACKGROUND FACTS................................................................................................................ 16

Bellrock Group............................................................................................................................. 16
Financing arrangements with Grow........................................................................................ 17
Correspondence concerning the Debt owed to Grow........................................................... 26
Liquidation of Bellrock Protective Services............................................................................ 26
Dispute between directors of Bellrock UAV........................................................................... 26
Appointment of Administrator and now Liquidator............................................................ 28
Appointment of Receivers......................................................................................................... 30
Key events during the receivership and administration....................................................... 31
Fees and expenses of the Receivers.......................................................................................... 45
Financial position of the Bellrock entities................................................................................ 48
Priority creditors......................................................................................................................... 50

PROPOSED STATEMENT OF CLAIM....................................................................................... 53

KEY ISSUES FOR DETERMINATION....................................................................................... 59

MATTERS NOT IN DISPUTE...................................................................................................... 60

CLAIMS BY BELLROCK UAV..................................................................................................... 61

Is there a solid foundation for the alleged breaches of duties by the Receivers for giving inflated payout figures?.................................................................................................................. 61
Introduction....................................................................................................................... 61
               $78,043.41............................................................................................................................ 62
               Receivership fees and expenses...................................................................................... 66
               Trading expenses.............................................................................................................. 75
               Payments............................................................................................................................ 76
               Breach.................................................................................................................................. 77
               Causation and damage..................................................................................................... 77
Is there a solid foundation for alleged breaches of duty for not paying the Debt?........... 78
Alleged duties..................................................................................................................... 78
              Alleged breaches................................................................................................................ 81
Submissions....................................................................................................................... 81
Consideration.................................................................................................................... 86
Is there a solid foundation for the claims against Grow and the Administrator?............. 95
Submissions......................................................................................................................... 96
            Consideration..................................................................................................................... 100
Do the claims of Bellrock UAV have any tangible benefits?.............................................. 108
Attitude of the Administrator (now Liquidator).................................................................. 109
Practical considerations............................................................................................................ 109
Conclusion.................................................................................................................................. 110

CLAIM BY BELLROCK CLEANING......................................................................................... 110

Introduction............................................................................................................................... 110
Is it is probable that Bellrock Cleaning will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them?....................................................... 110
Is Mr Duggal acting in good faith?......................................................................................... 111
Is it in the best interests of Bellrock Cleaning that Mr Duggal be granted leave?........... 112
Is there is a serious question to be tried?............................................................................... 112
Has Mr Duggal given the required notice?........................................................................... 113
Conclusion.................................................................................................................................. 113

CLAIMS PURSUANT TO SECTION 90-15 OF SCHEDULE 2 TO THE CORPORATIONS ACT...................................................................................................................................................... 113

Introduction............................................................................................................................... 113
Submissions............................................................................................................................... 113
Consideration............................................................................................................................ 117
Leave...................................................................................................................................... 117
Setting down application.................................................................................................... 118

CONCLUSION............................................................................................................................... 119

INJUNCTIONS............................................................................................................................... 119

ORDERS.......................................................................................................................................... 119

OTHER MATTERS........................................................................................................................ 120

HIS HONOUR:

INTRODUCTION

The plaintiff (Mr Duggal) seeks:[1]
[1]Mr Duggal’s applications evolved from when he filed the amended summons on 3 February 2023. This is further explained in these Reasons.

(a) leave to bring a proceeding on behalf of the first defendant (Bellrock Cleaning) against the third and fourth defendants, receivers of Bellrock Cleaning (the Receivers), pursuant to s 237 of the Corporations Act 2001 (Cth) (Corporations Act); and

(b) leave to bring a proceeding on behalf of the second defendant (Bellrock UAV) against the Receivers (who are also receivers of Bellrock UAV), the fifth defendant, formerly the administrator of Bellrock UAV and now the liquidator (the Administrator) and the sixth defendant, the secured creditor of Bellrock Cleaning and Bellrock UAV (Grow), pursuant to the inherent jurisdiction of the Court, or alternatively, s 90-15 of Schedule 2 to the Corporations Act;

(c) alternatively, to set down for final hearing an application for an order pursuant to s 90-15 of Schedule 2 to the Corporations Act.

Mr Duggal is a director and shareholder of Bellrock UAV and Bellrock Cleaning.[2]
[2]First Duggal affidavit [1]; Third Duggal affidavit [5]-[11].

Mr Duggal has provided a proposed statement of claim (proposed statement of claim).[3]
[3]The latest version of the statement of claim was provided in an email from Mr George Livaditis, solicitor for Mr Duggal, to the parties and the Court on 17 February 2023.

Mr Duggal also seeks orders to continue interim injunctions until trial that each of the Receivers, the Administrator and Grow be restrained from realising, selling, dealing, encumbering or otherwise disposing of the “Security Property”. The term “Security Property” is defined in the security agreements between Grow and Bellrock Cleaning and Bellrock UAV, among other companies within the Bellrock Group. These finance arrangements between the Bellrock entities and Grow are addressed later in these Reasons.

The parties agreed to the applications for derivative leave and the continuation of the interim injunctions being heard and determined by the Court together. I refer to Other Matters in these Reasons commencing at paragraph [259]. This concerns the very recent appointment of a liquidator to Bellrock UAV. On 31 March 2023, the Court was informed by the Administrator’s solicitors that Bellrock UAV was now in liquidation and the fifth defendant (i.e. the Administrator) was now the liquidator (the Liquidator). Later that day, the Court asked the parties whether they wished to be heard further and whether there are any matters arising from the appointment of the Liquidator that should be brought to the Court’s attention. The Court informed the parties that if no response was received then the Court would determine the applications based upon the present evidence and submissions of the parties. All parties informed the Court this morning that they did not wish to be heard. No party informed the Court of any matter arising from the appointment of the Liquidator that should be brought to the Court’s attention except for the following:

(a)Mr Duggal submitted that if leave is granted to bring a derivative proceeding then the Liquidator will need to be joined in his capacity as liquidator of Bellrock UAV Pty Ltd (not only in his capacity as Administrator); and
(b)the Liquidator stated he did not consider that the change in Bellrock UAV’s status affects Mr Duggal’s claim and the applications for leave. He submitted (in his former capacity as the Administrator) that he had previously made the submission that the authorities on seeking derivative leave could be applied by an analogy to a company that is under administration, however, given that Bellrock UAV is now in liquidation, that submission is now moot.

For the reasons that follow, I will:

(a) refuse the application pursuant to s 237 of the Corporations Act for Mr Duggal to bring a proceeding in the name of Bellrock Cleaning against the Receivers;

(b) refuse the application pursuant to the Court’s inherent jurisdiction, and the application pursuant to s 90-15 of Schedule 2 to the Corporations Act, for Mr Duggal to bring a proceeding in the name of Bellrock UAV against the Receivers, Grow and the Administrator; and

(c) not set down for final hearing any application for any other order(s) pursuant to s 90-15 of Schedule 2 to the Corporations Act.

As a result, it is appropriate for the Court to:

(a) dismiss Mr Duggal’s amended summons filed 3 February 2023;

(b) discharge the interim injunctions initially made on 20 December 2022 and release the parties from their undertakings. This is because there are no claims that support their continuation; and

(c) dismiss the proceeding. This is because there are no further matters to determine in the proceeding.

RELEVANT PROCEDURAL HISTORY

Mr Duggal, by way of an originating motion filed 20 December 2022, sought the following relief:

1.Pursuant to s 198(G)(3)(b) of the Corporations Act 2001 (Cth) (Act), the plaintiff have leave to prosecute this proceeding.
2. Pursuant to s 440D of the Act, the plaintiff have leave to prosecute this proceeding.
3. Until further order of the Court, each of the third and fourth defendants (Receivers) and the fifth defendant (Administrator) is restrained from taking steps to realise, sell or otherwise dispose of the “Security Property” as that term is defined in the Bellrock UAV GSA, the Bellrock Cleaning GSA, the Bellrock Protective Services GSA and the Bellrock Technology GSA.
4. The Receivers be removed as receivers in respect of the first and second defendants.
5. Alternatively, the Receivers are enjoined from acting as receivers and managers in respect of the first and second defendants.
6. The sixth defendant is restrained from taking steps to enforce “Security Property” as that term is defined in the Bellrock UAV GSA, the Bellrock Cleaning GSA, the Bellrock Protective Services GSA and the Bellrock Technology GSA .
7. The Receivers pay the Plaintiff’s costs of the Summons dated 19 December 2022.
8. Such further or other orders as this Honourable Court deems fits.

The originating motion is premised upon Mr Duggal prosecuting claims in his own name. No claim is made in the originating motion based upon s 90-15 of Schedule 2 of the Corporations Act. In that context, orders were made by consent on 20 December 2022 that, in effect, provided Mr Duggal with an opportunity to make an application for derivative leave, or any other application, and to preserve the status quo. The Court made the following orders, inter alia, by consent:

1. Pursuant to s 198G(3)(b) of the Corporations Act 2001 (Cth) (Act), the plaintiff have leave to prosecute this proceeding until 4:00pm on 6 February 2023.
2. Pursuant to s 440D of the Act, the plaintiff have leave to prosecute this proceeding until 4:00pm on 6 February 2023.
3. Until 4:00pm on 6 February 2023 or further order of the Court, each of the third and fourth defendants (Receivers) and the fifth defendant (Administrator) is restrained from realising, selling, dealing, encumbering or otherwise disposing of the “Security Property” (other than debtors which are realised in the ordinary course of business) as that term is defined in the General Security Agreements.
4. Until 4:00pm on 6 February 2023 or further order the sixth defendant is restrained from realising, selling, dealing, encumbering or otherwise disposing of the “Security Property” (other than debtors which are realised in the ordinary course of business) as that term is defined in General Security Agreements.
…
8. The proceeding is adjourned to 10:00am on 6 February 2023.
…

The orders also recorded the following, inter alia, in ‘Other Matters’:

…
B.The Plaintiff, by his counsel, undertakes to the Court to abide by any order the Court may make as to damages, in case the Court shall hereafter be of the opinion that any of the Defendants have sustained any loss, by reason of this order or of the undertakings, which the party giving the undertaking ought to pay.
C. Subject to further order the Third, Fourth and Fifth Defendants, by their respective solicitors, undertake to the Court not to draw upon the “Security Property” (as that term is defined in the General Security Agreements between the Sixth Defendant and each of Bellrock Protective Services Pty Ltd, Bellrock Technology Services Pty Ltd, Bellrock UAV Pty Ltd and Bellrock Cleaning Services Pty Ltd (collectively, the General Security Agreements)) for further fees, costs or expenses, excluding trading expenses incurred in the ordinary course of business, without the Plaintiff’s prior written approval or Court order.

D. The undertaking in paragraph C does not displace the operation of s 60-10 of Schedule 2 of the Insolvency Practice Schedule Corporations.
E. The prohibition in order 3 on “encumbering” the “Security Property” does not limit the ordinary operation of section 443F of the Corporations Act 2001 (Cth).
…

Paragraphs 1 to 4 of the order have been extended on a number of occasions. They are presently made until further order to enable the Court to consider and determine the applications for leave.

Mr Duggal, by his amended summons filed 3 February 2023, applied for orders as follows:

1.Pursuant to the inherent jurisdiction of the Court, section 90-15 of Schedule 2 ~~s 198(G)(3)(b)~~ of the Corporations Act 2001 (Cth) (Act) and 447A of the Act, the plaintiff have leave to prosecute this proceeding in the name of the first defendant (Bellrock Cleaning) and the second defendant (Bellrock UAV) against the third and fourth Defendants (Receivers) and the fifth defendant (Administrator) (collectively, the Proceeding).[4]
1B.The plaintiff have leave to file, on behalf of Bellrock Cleaning and Bellrock UAV, a statement of claim substantially in the form set out in the affidavit of Rajan (Ricky) Duggal sworn 1 February 2023 (Statement of Claim) within 21 days of the date of these orders.
~~2. Pursuant to s 440D of the Act, the plaintiff have leave to prosecute this proceeding.~~
3. Until further order of the Court, each of the third and fourth defendants (Receivers) and the fifth defendant (Administrator) is restrained from ~~taking steps to realise~~ realising, selling, dealing, encumbering or otherwise ~~dispose~~ disposing of the “Security Property” (other than debtors which are realised in the ordinary course of business) as that term is defined in the General Security Agreements ~~Bellrock UAV GSA, the Bellrock Cleaning GSA, the Bellrock Protective Services GSA and the Bellrock Technology GSA~~.
~~4. The Receivers be removed as receivers in respect of the first and second defendants.~~
~~5. Alternatively, the Receivers are enjoined from acting as receivers and managers in respect of the first and second defendants.~~
6. Until further order of the Court, T the sixth defendant is restrained from realising, selling, dealing, encumbering or otherwise disposing of ~~taking steps to enforce~~ the “Security Property” (other than debtors which are realised in the ordinary course of business) as that term is defined in the General Security Agreements ~~Bellrock UAV GSA, the Bellrock Cleaning GSA, the Bellrock Protective Services GSA and the Bellrock Technology GSA~~.
7. The ~~Receivers pay the~~ Plaintiff’s costs of the summons dated 19 December 2022 and this amended summons, be costs in the cause of the Proceeding.
8. Such further or other orders as this Honourable Court deems fits.

[4]The summons does not expressly seek leave to prosecute any proceeding against Grow.

The Court requested the parties, after the hearing on 16 March 2023, to address whether the application to bring a proceeding on behalf of Bellrock Cleaning should have been made pursuant to s 237 of the Corporations Act and not the Court’s inherent jurisdiction. The parties filed further submissions and informed the Court that they did not wish to make any further oral submissions. There is no dispute between the parties that s 237 of the Corporations Act applies to the application to bring a proceeding on behalf of Bellrock Cleaning. I agree. Mr Duggal seeks leave from the Court to bring a proceeding on behalf of Bellrock Cleaning. This application must be determined pursuant to s 237 of the Corporations Act. This is because it is in receivership and not in administration.[5]
[5]See Re Kalimpa Park Pty Ltd [2021] VSC 654 [53] (M Osborne J).

Mr Duggal made submissions in support of an application for leave pursuant to s 237 of the Corporations Act. The Receivers objected to the late application pursuant to s 237 of the Corporations Act and, in the alternative, addressed the merits of the application.

In my view, it is appropriate and just for Mr Duggal to have leave to make an application pursuant to s 237 of the Corporations Act:

(a) First, both parties initially made an erroneous assumption that Mr Duggal’s application for leave to bring a proceeding on behalf of Bellrock Cleaning should be determined pursuant to the Court’s inherent jurisdiction.

(b) Secondly, the submissions relied upon by Mr Duggal are substantially based upon the same submissions he made with respect to his application for leave pursuant to the inherent jurisdiction.

(c) Thirdly, the Receivers did not identify any relevant prejudice.

(d) Finally, the Receivers addressed the merits of the application so that the Court is in a position to determine the application with the benefit of submissions of all parties.

Mr Duggal did not press any application pursuant to s 447A of the Corporations Act.

PARTIES’ MATERIAL

Mr Duggal relied upon:

(a) affidavits of Mr Duggal affirmed on 19 December 2022 (First Duggal affidavit), 1 February 2023 (Second Duggal affidavit) and 24 February 2023 (Third Duggal affidavit);

(b) affidavits of Mr George Michael Livaditis, solicitor for Mr Duggal, made 20 December 2022 (First Livaditis affidavit) and 5 February 2023 (Second Livaditis affidavit); and

(c) submissions filed on 24 February 2023, 16 March 2023 and 21 March 2023.[6]

[6]The parties each filed a number of submissions on or prior to 16 February 2023, however at the mention on 17 February 2023, the Court directed each party to file a final updated submission which would include all submissions previously made and confirmation that each party relied solely on this final updated submission. Ultimately, the parties subsequently also filed further submissions.

The Receivers/Grow were jointly represented and relied upon:

(a) an affidavit of Mr Richard Albarran, registered liquidator and the fourth defendant, sworn 20 December 2022 (Albarran affidavit);

(b) an affidavit of Mr Benjamin Thomas Skinner, partner of SLF Lawyers, solicitors for the Receivers and Grow, affirmed 15 February 2023 (Skinner affidavit);

(c) affidavits of Ms Kathleen Elizabeth Vouris, registered liquidator and the third defendant, sworn 17 January 2023 (First Vouris affidavit) and 2 March 2023 (Second Vouris affidavit);

(d) affidavits of Mr Gregory Woszczalski sworn 2 March 2023 (First Woszczalski affidavit) and 7 March 2023 (Second Woszczalski affidavit); and

(e) submissions filed on 2 March 2023[7] and 21 March 2023.

[7]On 3 March 2023, by email from Ms Emily Everett of SLF Lawyers to the Court and the parties, the third, fourth and sixth defendants provided a revised submission. Ms Everett’s email stated that the revised submission included “the minor addition of a single footnote at paragraph 24”.

The Administrator relied upon:

(a) an affidavit of Mr Shumit Banerjee, registered liquidator and the fifth defendant, sworn 17 January 2023 (Banerjee affidavit); and

(b) submissions filed on 2 March 2023 and 15 March 2023.

RELEVANT LAW
Leave pursuant to the Court’s inherent jurisdiction

Mr Duggal requires leave pursuant to the Court’s inherent jurisdiction to bring a proceeding on behalf of Bellrock UAV. It was in administration. It is now in liquidation. Section 237 of the Corporations Act does not apply to a company in administration[8] or in liquidation. The Court has inherent jurisdiction to give leave to an appropriate person, including a shareholder, to bring proceedings on behalf of a company in administration or in liquidation.[9]
[8]El-Saafin v Franek (No 2) [2018] VSC 683 [157] (Lyons J).
[9]Ibid [166] (Lyons J).

The following three principal considerations arise in considering whether the Court’s inherent jurisdiction should be exercised:[10]
[10]Ibid [167]-[168] (Lyons J). See also El-Saffin & Anor v Franek & Ors (No 4) [2020] VSC 389 [159]-[165] (Lyons J) and Carpenter v Pioneer Park Pty Ltd (2008) 71 NSWLR 577 [34], [36] (Barrett J).

(a) whether the proposed claims have some solid foundation in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and present reasonable prospects of success;

(b) the attitude of the administrator or liquidator to the proposed proceedings;

(c) whether practical considerations support the initiation of the proceeding, with particular reference to the financial protection of the assets of the company by means of indemnity and, if indicated, security.

These considerations are not exhaustive and the Court will have regard to all of the relevant circumstances of the case.[11] This includes whether granting leave would be likely to produce a tangible benefit for the company.[12] The question of tangible benefit is linked to the first principal consideration above and the strength of the claims sought to be made.
[11]El-Saafin v Franek (No 4) [2020] VSC 389 [144] (Lyons J).
[12]Ibid [192] (Lyons J).

In Daiwa Can Company v Barokes Pty Ltd,[13] Sifris J (as he then was) said in the context of an application pursuant to s 237 of the Corporations Act:[14]

90.The function of the Court, on applications of this kind are not in dispute. The Court does not resolve the dispute but merely exposes and identifies its existence and then determines whether it is serious or frivolous. Further it is not the function of the Court and it is preferable that the Court not express any view on the relative strengths and weaknesses of the respective claims.

[13][2016] VSC 296.

[14]Ibid [90] (Sifris J).

In my view, these observations equally apply to an application for derivative leave pursuant to the inherent jurisdiction of the Court.

In Re Connective Services Pty Ltd,[15] Robson J said, in the context of an application under s 237 of the Corporations Act, that it would be inappropriate, and perhaps prejudicial to the further hearing of the matter, to allow a person to be cross-examined.[16] I agree. In my view, these observations equally apply to an application for derivative leave pursuant to the inherent jurisdiction of the Court. This is because if cross-examination was permitted in such applications, especially on matters relevant to whether there is a solid foundation for the claim the subject of the application for leave, it would result in the applications becoming, in effect, a trial of those claims.
[15][2017] VSC 609.
[16]Ibid [70]-[71] (Robson J).

Leave pursuant to s 237 of the Corporations Act
Introduction

Section 237 applies to an application for leave to bring a proceeding on behalf of a company in receivership.

Section 237(1) relevantly provides that a person referred to in s 236(1)(a) may apply to the Court for leave to bring proceedings. Section 236(1)(a) provides that such person includes a member and an officer of the company.

Section 237(2) provides:

The Court must grant the application if it is satisfied that:
(a)it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and
(b)the applicant is acting in good faith; and
(c)it is in the best interests of the company that the applicant be granted leave; and
(d)if the applicant is applying for leave to bring proceedings--there is a serious question to be tried; and

(e) either:
(i)at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or
(ii)it is appropriate to grant leave even though subparagraph (i) is not satisfied.

Recently, in Landsville Huynh Pty Ltd v Huynh,[17] Lyons J said:[18]
[17][2023] VSC 55.
[18]Ibid [18]-[21] (Lyons J) (citations omitted).

18.…it is important to note that leave to bring a derivative action must not be given lightly. An application under s 237 is not interlocutory in character and the applicant bears the onus of satisfying the court that the matters set out in s 237(2) have been met.
19.In this regard, I note that in Re Fishinthenet Investments Pty Ltd, Black J noted that he was required to assess whether the proposed proceedings were in the best interests of the Company ‘on the basis of the evidence that is presently available, not speculation that something more may turn up’. I would endorse those comments and add that they apply with equal force at least to the serious question requirement.
20.It is also important to note that many of the criteria or requirements in s 237(2) overlap: for example, if there is no serious question to be tried, it would not be possible to establish the proposed claim was in the best interests of the company.
21.Further, as to the requirement in s 237(2)(a) (that it is probable the company will not itself bring the proceedings), this is not a high threshold. It is sufficient if the court is satisfied there are grounds for finding that it is probable the company itself will not bring proceedings.

Probability that the Company will not bring the proceeding: s 237(2)(a)

In Re Kalimpa Park Pty Ltd,[19] (Kalimpa Park), Osborne J explained:[20]

54.Absent an express and authoritative refusal by the Company, after a properly articulated request by the applicant to take specific proceedings, the applicant bears the onus of establishing that in the circumstances actual refusal or the probability of refusal is to be inferred.

Good faith: s 237(2)(b)

[19][2021] VSC 654 (‘Kalimpa Park’).

[20]Ibid [54] (M Osborne J) (citations omitted).

The Court will have regard to two primary interrelated factors with respect to the good faith requirement in s 237(2)(b) as follows:[21]

(a) the first is whether the applicant honestly believes that a good cause of action exists and has reasonable prospects of success; and

(b) the second is whether the applicant is seeking to bring the derivative claim for a collateral purpose which would amount to an abuse of process.

[21]Landsville Huynh Pty Ltd v Huynh [2023] VSC 55 [22] (Lyons J).

In Kalimpa Park, Osborne J observed:[22]
[22]Kalimpa Park [55]-[58] (M Osborne J) (citations omitted).

55 As Palmer J explained in Swansson v RA Pratt Property Pty Ltd (‘Swansson’), there are two interrelated factors to which courts will always have regard in determining whether the good faith requirement is satisfied:
The first is whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success. … The second factor is whether the applicant is seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process.

56In Chahwan v Euphoric Pty Ltd (‘Chahwan’), Tobias JA expanded on Palmer J’s observations, stating that:
… an applicant will only be acting in good faith for the purpose of s 237(2)(b) where, as a current or former shareholder or director of the company, he or she would suffer a real and substantive injury if a derivative action were not permitted provided that that injury was dependant upon or connected with the applicant’s status as such shareholder or director. It might be a positive indication of the good faith of a shareholder if he or she sought to institute a derivative action which would have the effect, if successful, of restoring value to his or her shares in the company.

57His Honour expressly rejected the proposition that an absence of good faith would only be established if the application was an abuse of process within the principles articulated by the High Court in Williams v Spautz. His Honour stated that the submission to that effect overlooked two factors:
The first is that it is for the applicant to affirmatively establish that he or she is acting in good faith to the satisfaction of the court. It is not for the respondent to any such application to establish bad faith. The second is that I see no reason why the expression ‘good faith’ in s 237(2)(b) should be restrictively construed in the manner asserted by the appellant.

58Further, in relation to the good faith requirement, Tobias JA differentiated between the personal interests of a person and their interests as a shareholder:
As I have already observed, it must be kept well in mind that the onus lies upon the applicant to satisfy the court that, in applying to it for leave to bring the relevant proceedings, he or she is acting in good faith. If such an applicant is in reality seeking to further his or her own personal interests other than as a current or former shareholder of the company, rather than the interests of the company as a whole, then in my view that onus will not have been discharged.

Best interests of the Company: s 237(2)(c)

As observed by Lyons J in Landsville Huynh Pty Ltd v Huynh:[23]
[23]Landsville Huynh Pty Ltd v Huynh [2023] VSC 55 [27]-[30] (Lyons J) (citations omitted).

27.As to the best interests requirement, s 237(2)(c) requires that it is (not may be or is likely to be) in the best interests of the company that the applicant be granted leave. The onus is on the applicant to establish the bests interests requirement. In Daiwa Can Company v Barokes Pty Ltd (Daiwa Can Company), Sifris J held that the phrase ‘best interests’ directs attention to the company’s separate and independent welfare and that:
There is no fixed test to determine best interests and there is no special standard of proof or any presumption or disposition against the granting of relief. However, the court will always have regard to whether the benefits of the proceeding are outweighed by the costs and risks that the company would suffer in bringing them.

28.In Swansson, Palmer J noted that the ‘best interests’ criteria requires the applicant to establish, on the balance of probabilities, a fact which can only be determined by taking into account all of the relevant circumstances and would ordinarily, at least, include matters relating to:
(1) the nature or the character of the company, including whether it is a small private company or a publicly listed company;
(2) the business of the company, so that the effects of the proposed litigation on its proper conduct may be appreciated;
(3) whether there are any other means of obtaining the same redress which does not require the company to be brought into litigation against its will; and
(4) the ability of the proposed defendant to meet at least a substantial part of any judgement in favour of the company.

29.In Robash Pty Ltd v Gladstone Pacific Nickel Pty Ltd, Ball J listed other relevant matters to consider in relation to the best interests requirement, being:
(1)the prospects of success of the proposed claim;
(2) the likely recovery if the proposed claim is successful;
(3) the likely costs of the proposed claim;
(4) the likely consequences if it is not successful;
(5) related to (3) and (4), the nature of any indemnity the applicant has offered to the company if the proposed claim is brought and the likelihood that the company will recover under that indemnity; and
(6) the resources of the company required to be devoted to the proposed claim and the resources it has available, together with the effect that the proposed claim may have on other aspects of its business.

30.I would add to that list, to the extent it is not already expressed, the likely damages that might be awarded. This is linked to the likely recovery of damages if the proposed claim is successful. The Victorian Court of Appeal recently noted ‘[i]f the applicants could not show at least a reasonable prospect that the proposed proceeding would yield significant damages… then they could not establish that bringing the proceeding was in the best interests of the company’.

Serious question to be tried: s 237(2)(d)

The applicant has the same relatively low threshold to surmount as in the case of an application for interlocutory injunction.[24] The Court will not normally enter into the merits of the proposed derivative action to any great degree.[25]
[24]Ibid [26] (Lyons J).
[25]Ibid.

Overlapping criteria

The criteria in s 237(2) overlap[26]. For example, if there is no serious question to be tried then it is not in the best interests of the company for leave to be granted to bring the proceeding.[27]
[26]Kalimpa Park [63] (M Osborne J).
[27]Ibid [64] (M Osborne J).

Nature of the application and cross-examination

As I have already said in these Reasons, it would be inappropriate, and perhaps prejudicial to the further hearing of the matter, to allow a person to be cross-examined at this stage in the proceeding.[28]

Section 90-15 of Schedule 2 of the Corporations Act

[28]Reasons, [25].

Section 90-15(1) provides that the Court may make such orders as it thinks fit in relation to the external administration of a company. Section 5-15(a) provides that a company is taken to be under external administration if the company is under administration. The note to s 5-15 states that a company is not under external administration for the purposes of Schedule 2 merely because a receiver and manager has been appointed in relation to property of the company.

Section 90-15(2)(b) provides that the Court may exercise the power under s 90-15(1) on an application under s 90-20.

Section 90-20(1) relevantly provides:

(1)Each of the following persons may apply for an order under section 90-15:
(a)a person with a financial interest in the external administration of the company;
…
(d)an officer of the company;
…

Section 90-15(3) relevantly provides:

(3)Without limiting sub-section (1), those orders may include any one or more of the following:
(a)an order determining any question arising in the external administration of the company;
…

BACKGROUND FACTS
Bellrock Group

There are a number of Bellrock companies within the Bellrock Group.

In relation to Bellrock UAV:

(a) Mr Duggal and a Mr Peter Robert Asimus are the directors.[29]
[29]Exhibit SB-1 to the Banerjee affidavit, 11.

(b) Mr Duggal is the sole shareholder.[30]

(c) It commenced trading ‘in its own right’ in January 2022.[31]

(d) It carries on business as a security provider of static, roaming and security personnel to various institutions and establishments.[32] Mr Duggal gave evidence that, as at 19 December 2022, it employed in excess of 100 persons and had a turnover of more than $8,000,000.00 per annum.[33] Mr Duggal also submitted that, as at 12 December 2022, it employed 42 persons and used the services of subcontractors.[34] Ms Vouris gave evidence that as at 12 December 2022, it had 86 employees of which 45 were scheduled to finish up following the loss of a major client.[35]

[30]Ibid.

[31]Ibid 13.

[32]First Duggal affidavit, [5].

[33]Ibid [5].

[34]Mr Duggal’s submissions filed 24 February 2023, [5]. This is consistent with the information set out in the Information Memorandum, see Exhibit KEV-1 to the First Vouris affidavit, 241.

[35]Second Vouris affidavit, [31].

It relation to Bellrock Cleaning:

(a) Mr Duggal is the sole director and shareholder.[36]

(b) It carried on the business of a cleaning contractor.[37] It ceased trading in June 2022.[38] Mr Duggal gave evidence that it employed 10 persons and had a turnover of more than $4 million per annum.[39]

[36]Exhibit GML-02 to the Second Livaditis affidavit, 119-123.

[37]First Duggal affidavit, [4].

[38]Third Duggal affidavit, [11]. During the hearing, Mr Duggal submitted that the reference to ‘2023’ was a mistake and that it should be ‘2022’. See Transcript of Proceedings, Duggal v Bellrock Cleaning Services Pty Ltd (Receivers and Managers Appointed) & Ors (Supreme Court of Victoria, S ECI 2022 05239, Attiwill J, 6 March 2023) 45.30-46.15 (Mr Kohn) (‘Transcript of Proceedings 6 March 2023’).

[39]First Duggal affidavit, [4].

The businesses of two other companies in the Bellrock group of companies, Bellrock Protective Services Pty Ltd (Bellrock Protective Services) and Bellrock Technology Services Pty Ltd (Bellrock Technology) were, in effect, ‘merged’ into Bellrock UAV in January 2022 as a result of a failed sale of those two businesses to a third party.[40] How this merger took place has not been explained. The merged businesses then became known as “Bellrock Australia”.
[40]Third Duggal affidavit, [5]-[11].

Financing arrangements with Grow

On or about 30 July 2021,[41] Bellrock Cleaning, Bellrock UAV, Bellrock Protective Services and Bellrock Technology (together, the Bellrock entities) entered into a number of agreements with Grow in relation to the provision of an invoice factoring facility. These agreements include the following:
[41]Ms Vouris and Mr Woszczalski gave evidence that each of the agreements referred to in this paragraph [45] were entered into on 30 July 2021: First Vouris affidavit, [4]; First Woszczalski affidavit, [4]. Mr Duggal gave evidence that each of these agreements were entered into on 16 August 2021: First Duggal affidavit, [6]-[11]. The discrepancy is not material. The agreements are each dated 30 July 2021.

(a) an agreement between Grow, Mr Duggal and the Bellrock entities titled “Factoring Facility Agreement with Guarantee” (Debt Factoring Agreement).[42] Each of the Bellrock entities is described as a “Client” and Mr Duggal as “Guarantor”;

(b) an agreement between Grow, Mr Duggal and the Bellrock entities titled “Deed Collateralising Securities and Security Sharing” (Cross Collateralising Deed).[43] Each of the Bellrock entities is described as a “Client” and Mr Duggal as “Guarantor”;

(c) agreements between Grow and each of Bellrock Cleaning[44], Bellrock UAV[45], Bellrock Protective Services[46] and Bellrock Technology[47] titled “General Security Agreement” (each a General Security Agreement). Grow is described as the “Secured Party” and the relevant Bellrock entity is described as the “Grantor”. These each refer to a memorandum of common provisions. The “Memorandum of Common Provisions” numbered AA5436 has been registered.[48]

[42]First Duggal affidavit, [6]; Exhibit RD-01 to the First Duggal affidavit, 37-94.

[43]First Duggal affidavit, [7]; Exhibit RD-01 to the First Duggal affidavit, 95-104.

[44]First Duggal affidavit, [9]; Exhibit RD-01 to the First Duggal affidavit, 105-109.

[45]First Duggal affidavit, [8]; Exhibit RD-01 to the First Duggal affidavit, 120-124.

[46]First Duggal affidavit, [10]; Exhibit RD-01 to the First Duggal affidavit, 115-119.

[47]First Duggal affidavit, [11]; Exhibit RD-01 to the First Duggal affidavit, 110-114.

[48]First Duggal affidavit, [12]. The Memorandum of Common Provisions is at exhibit RD-01 to the First Duggal affidavit, 125-150.

The Debt Factoring Agreement relevantly provides, inter alia:[49]
[49]See Exhibit RD-01 to the First Duggal affidavit, 51, 54, 72, 75-76, 79.

Security Release Fee means the sum specified in the Schedule which we will be entitled to charge each time we release a Security Interest that arises under a Relevant Document.
…
Fees means the Discount Charge, Service Fee, Establishment Fee, Additional Take On Fee, Same Day Fee, Refactoring Fee and Overpayment Fee;
…
9.5Estimate
You agree that we may in our absolute discretion estimate an amount payable where the actual amount cannot be immediately determined. We will promptly adjust this estimate once it has determined the actual amount.

…
12. Fees
12.1 Establishment Fee
You will pay to us the Establishment Fee on the Commencement Date.

12.2 Service Fee
When you have given (or should have given) us particulars of a Debt, you must pay us a service fee calculated by multiplying the Invoice Value of that Debt by the Service Fee Percentage. You agree that if the total service fees payable by you in any month are less than the Minimum Annual Fee divided by 12, you will pay us the shortfall for that month.

12.3 Same Day Payment Fee
You may request and we may (but are not obliged to) agree to make any payment which we are required to make to you under this Agreement on the same day as you request it. If we agree to do so, you agree to pay us the Same Day Payment Fee each time we make that payment.

12.4 Additional Take On Fee
On the later of the Commencement Date or the day on which you provide us with the First Debt Schedule, you must pay us the Additional Take On Fee which is calculated by multiplying the sum of the Invoice Values of the Debts specified in the First Debt Schedule by the Additional Take On Percentage.

12.5 Refactoring Fee
For each month, you must pay us a Refactoring Fee which will be calculated by multiplying the sum of Old Debts as at the last day of that month by the Refactoring Fee Percentage.

12.6 Overpayment Fee
Notwithstanding clause 5.7 (b)(iii) or clause 5.10, we may agree to permit Exposure to exceed the Facility Limit. If we do so, our agreement must be in writing only and we will include terms that we in our discretion require including the time for repayment of the amount of the Exposure exceeding the Facility Limit and that you must pay us the Overpayment Fee.

12. 7 Other Cost
You must pay all of our costs and your costs associated with the entry into this Agreement and all Relevant Documents including our solicitor's costs (on a full indemnity basis) and any registration fees, including without limitation, the Security Release Fee.

12.8 Payment of Discount Charge
We will charge you a Discount Charge for each month calculated daily by multiplying the outstanding balance of Exposure by the Discount Charge Percentage. Interest will be charged to the Current Account in arrears on the first business day of each calendar month in respect of interest Discount Charge accrued during the previous month.

12.9 Compensatory service fee charge
You agree that we will incur substantial overhead costs, including employment, rental, equipment and finance facility costs to carry out our obligations under this Agreement. You agree that if the Agreement ends following an Event of Default, we will be entitled to a compensatory service fee charge that is equal to the Minimum Annual Fee. You agree that the amounts payable under this clause are a genuine pre-estimate of the loss we will suffer.

12.10 Payments following a default
If:
(a)we do not receive, when due, an amount payable to us under a Relevant Document; or

(b) you do not perform an obligation under a Relevant Document,
then, without prejudice to any other right exercisable by us, you will pay interest on that overdue amount (including interest payable under this clause) calculated from its due date to the date of its receipt by us (after as well as before judgment) compounded and payable at intervals selected by us at our discretion at the Default Interest Rate.

12.11 Additional costs
You acknowledge that we may, at your cost and our discretion, employ consultants (including without limitation, solicitors (on a solicitor/ client cost basis) or accountants) from time to time in respect to any matters associated with a Relevant Document. The costs of any such consultant shall be payable by you to us on a full indemnity basis and you agree that we may debit those costs to any of your accounts with us (including the Current Account).

12.12 Goods and Services Tax
(a)If any supply by us to you under or in connection with this Agreement is a taxable supply under the GST Act then, in addition to the amount specified elsewhere in this clause 12 you must pay GST to us.
(b)We will provide to you with any tax invoice required to be provided by us under the GST Act and the client must reimburse and indemnify us for all GST on demand.

…
14.3 Effect of termination of this Agreement
(a) Effect of termination
If this Agreement is terminated under clause 14, then:
(i)all outstanding Approved Debts will immediately become Disapproved Debts; and
(ii)you will immediately become liable to repurchase at the value notified by us all Debts outstanding at the termination date together with all Associated Rights, provided however that none of the Debts or Associated Rights will be reassigned to you until you have paid to us all amounts due and you have otherwise performed all other obligations to us under this Agreement; and
(iii)subject to any provision requiring earlier payment you must repay the Exposure to us on termination of this Agreement.

(b) Existing rights unaffected
Termination of this Agreement does not affect the rights and obligations of the parties to this Agreement in relation to Debts and any Associated Rights which came into existence prior to termination and after termination, which remain in full force and effect and continue to be assigned to us until we have confirmed to our satisfaction that the Exposure has been repaid.

(c) Continued assignment
Notwithstanding termination, all present and future Debts continue to be assigned to us immediately free of any Security Interest (other than a Permitted Security Interest) when they come into existence until all of your liabilities to us under this Agreement have been fully discharged under this Agreement and we are satisfied that we will not be required by any insolvency law to repay money paid to us by you or any other person.

The Bellrock UAV General Security Agreement relevantly provides, inter alia:[50]
[50]Exhibit RD-01 to the First Duggal affidavit, 120-124. The Bellrock Cleaning General Security Agreement is in identical terms.

OPERATIVE PROVISIONS
1DEFINITIONS
In this Security, the definitions apply and unless the context otherwise requires:
1.1. “Agreement” means the Factoring Facility Agreement with Guarantee between the Secured Party and the Obligors entered into on or around the date of this Security and includes any variations to the Agreement as permitted by the terms of the Agreement;
1.2. “Debt” means the aggregate amount from time to time of all unpaid or outstanding principal, interest, fees and Costs owing to the Secured Party in connection with the Agreement, including (but not limited to) all Advances, all accrued but unpaid interest, fees and Costs, and all other money actually or contingently payable by the Grantor to the Secured Party for any reason;
1.3. “Grantor” means the person or persons named in Item 1 of the Schedule;
1.4. “Memorandum” means the Memorandum of Common Provisions specified in Item 4 of the Schedule, a copy of which is provided with this Security at the time the Grantor signs this Security;
1.5. “Secured Party” means the person or persons named in Item 2 of the Schedule;
1.6. “Security” means this General Security Agreement document and the Memorandum read together;
1.7. “Security Property” means the property described in Item 3 of the Schedule.
2 INTERPRETATION
(a)This Security is in full force and effect notwithstanding the absence of any of the Items in the Schedule and/or “N/A” or the like being written in respect of any of the Items, and in that instance to the extent possible it is presumed that those Items are not applicable and this Security otherwise is in full and effect.

3SECURITY
The Grantor gives this Security, and agrees to the terms of this Security, in favour of the Secured Party. Amongst other things, the Grantor charges and mortgages and grants a Security Interest in all of its estate, rights, title and interest, present and future in, or arising under or in connection with, the Security Property to the Secured Party to secure the performance of the obligations of the Grantor including amongst other things the Grantor's obligation to pay the Debt.

SCHEDULE

Item 1.

Grantor

BELLROCK UAV PTY LTD (ACN 626 101 915) of Suite 12320 NS & Associates Pty Ltd, 1 Queens Road, Melbourne VIC 3004

Item 2.

Secured Party

GROW INVOICE FINANCE PTY LTD (ACN 619 556 231) of Level 4, 333 George Street, Sydney, NSW 2000

Item 3.

Security Property

All the Grantor's present and after acquired property of whatever kind and nature and all the Grantor's accounts

Item 4. Memorandum Memorandum of Common Provisions which is registered in Victoria as no. AA5436, and a copy of which is provided with this document

The Memorandum of Common Provisions relevantly provides, inter alia:[51]
[51]Exhibit RD-01 to the First Duggal affidavit, 126, 139-146. See also First Vouris affidavit, [9].

1.8.“Costs” include all charges, expenses, liabilities, costs (including legal costs on a solicitor own client basis or indemnity basis, whichever is the higher), outlays, fees, Taxes and the Lender's reasonable internal administration costs;
1.9.“Debt” means the aggregate amount from time to time of all unpaid or outstanding principal, interest, fees and Costs owing to the Lender in connection with this Agreement, including (but not limited to) all Advances, all accrued but unpaid interest, fees and Costs, and all other money actually or contingently payable by the Borrower to the Lender under this Agreement;
…
5.1.Payment
The Grantor must pay to the Secured Party the full amount of the Debt, and any portion and component (including principal, interest, fees and Costs) of the Debt, on time and in accordance with the Finance Documents.
…
5.3.Costs
The Grantor must pay to, or as directed by, the Secured Party and, if required by the Secured Party, indemnify the Secured Party against, all Costs paid or incurred by the Secured in respect of or incidental to:
…
(b)any breach of, or default or Event of Default under, this Security by the Grantor (including the fees of all lawyers, advisers and consultants incurred by the Secured Party in consequence of or in connection with, any such breach or default);
…

whether or not any Advances are made available. The Secured Party is entitled to capitalise any such Costs and add such Costs to the Debt, and such Costs shall bear interest in accordance with the Finance Documents and/or the Law and the Grantor is required to fully pay for such Costs or fully reimburse the Secured Party for such Costs immediately.
…
6EVENT OF DEFAULT
Each of the following events is an Event of Default:
(a) Non-Payment
An Obligor fails to pay when due any amount payable by the Obligor under any Finance Document (including payment of any interest, fees or Costs) in accordance with the terms and conditions of that Finance Document.

…
(f) Insolvency
An Obligor suffers an Insolvency Event.

…
In addition, the occurrence of any of the events described in this clause in respect of a “related body corporate” (as defined in the Corporations Act 2001 (Cth)) of an Obliger also constitutes an Event of Default.
A determination by the Secured Party in its absolute discretion that an Event of Default has occurred will be final and binding on the Grantor. The Grantor must promptly inform the Secured Party in writing upon the happening of any of the events referred to in this clause.
7SECURED PARTY'S RIGHTS
7.1.Rights of Secured Party After Event of Default Occurs
Any time after an Event of Default occurs, the Secured Party can do anything it considers appropriate to obtain full payment of the Debt or to enforce this Security. Amongst other things, the Lender may do any of the following without further notice:
…
(e)sell, transfer, assign, let, part with possession, mortgage, charge, encumber, grant a Security interest, give control or otherwise dispose of or deal with the whole or any part of the Security Property, in any manner and on any terms and conditions the Secured Party considers appropriate (including as the Security Property stands at the date of the occurrence of any Event of Default, without the Secured Party otherwise exercising some or any of its rights under this Security);

(f)terminate, rescind, vary or complete any contract of sale of the whole or any part of the Security Property;
…
(s)appoint in writing any one or more persons jointly and/or severally to be a Receiver in respect of the whole or any part of the Security Property in accordance with the terms of this Security and otherwise on the terms agreed upon by the Secured Party, and pay and/or indemnify any such persons in respect of their remuneration, liabilities, Costs and expenses in connection with their appointment on terms as the Secured Party considers appropriate;
…

…
8RECEIVER
8.1.Secured Party's Rights with respect to Receiver
Where a person has been appointed as Receiver in respect of the whole or any part of the Security Property:
(a)the Secured Party may remove and terminate that appointment and appoint one or more persons in their place to as Receiver over the whole or any part of the Security Property; and
(b)the Secured Party may fix or agree the terms of the remuneration of the Receiver.

8.2.Capacity of Receiver
A person appointed as Receiver in respect of the whole or any part of the Security Property at all times acts as the agent of the Grantor where the that person has been appointed as the receiver, manager or receiver and manager of the whole or any part of the Security Property.
8.3.Powers of Receiver
A person appointed as Receiver in respect of the whole or any part of the Security Property may do anything it considers appropriate to recover the Debt and deal with the Security Property, including (amongst other things):
(a)exercising any powers or rights conferred on the Secured Party by this Security or on the Receiver by Law;
(b)borrow or raise money (including from the Lender or Secured Party) from the exercise of any of the Receiver's powers, on any terms as the Receiver considers appropriate;
(c)pay or transfer to the Secured Party (or any person nominated by the Secured Party) all money and assets which may be received by the Receiver;
(d)commence, prosecute and defend any claim or proceedings of any kind in the Grantor's name or otherwise;
(e)negotiate, agree and enter into any settlement, arrangement, agreement or compromise which the Receiver considers appropriate and expedient;
(f)with the Secured Party's prior written consent delegate to any person any of the powers conferred on the Receiver on the terms approved by the Secured Party;
(g)pay or obtain reimbursement out of the Security Property any of the Receiver's expenses, costs, remuneration and fees;

Ms Vouris gave evidence that the Debt Factoring Agreement “established what is commonly called a ‘factoring’ or ‘debtor invoice’ facility whereby Grow agreed to finance a percentage of the Companies’ invoices in exchange for the purchase or assignment of them to Grow, in addition to which the Companies granted Grow a security interest in relation to all of the present and after acquired property of the Companies and its accounts within the meaning of the PPSA (Security Interests).”[52]
[52]First Vouris affidavit, [5].

On 1 March 2022, Mr Asimus sent a letter to Grow purporting to terminate the services provided by Grow to Bellrock Protective Services with three months’ notice.[53] The letter states that “[w]e wish to continue Grow Finance services with Bellrock Cleaning Services Pty Ltd at this time as we assess the services provided.”[54]
[53]First Duggal affidavit, [13]; Exhibit RD-01 to the First Duggal affidavit, 151. Note: At paragraph 13 of the First Duggal affidavit, Mr Duggal deposes to this letter being sent on 1 March 2002, which is a typographical error as the relevant letter is dated 1 March 2022.
[54]Exhibit RD-01 to the First Duggal affidavit, 151.

Correspondence concerning the Debt owed to Grow

Mr Duggal gave evidence of the correspondence he exchanged with Grow concerning the outstanding Debt owed under the Debt Factoring Agreement in the period May to October 2022. Ms Vouris gave evidence that in the period May 2022 to December 2022, the Bellrock entities were in continued default of their financial obligations to Grow.[55]
[55]First Vouris affidavit, [7].

Liquidation of Bellrock Protective Services

On 27 September 2022, orders were made in the Federal Court of Australia winding up Bellrock Protective Services in insolvency and appointing a liquidator.[56]
[56]Order made by Registrar Benter of the Federal Court of Australia on 27 September 2022 in proceeding no. WAD177/2022.

Dispute between directors of Bellrock UAV

Mr Duggal and Mr Asimus, the directors of Bellrock UAV, are in dispute about the management of Bellrock UAV.

There is evidence that by June 2022 Mr Asimus raised concerns with Mr Duggal that Bellrock UAV did not have the means to continue servicing the debts of Bellrock Protective Services and Bellrock Technology.[57]
[57]Exhibit SB-1 to the Banerjee affidavit, 13.

On 6 December 2022, SLF Lawyers (at that time acting for Bellrock UAV’s director, Mr Asimus, and now acting for the Receivers and Grow), wrote to Bellrock UAV.[58] The letter states, inter alia:[59]
[58]Albarran affidavit, [10]-[11]; Exhibit RA-1 to the Albarran affidavit, 151-163.
[59]Exhibit RA-1 to the Albarran affidavit, 151-156.

6.The above documents indicate that the Company is in what could only be described as a dire financial position and is unquestionably Insolvent. In support of that proposition we refer to some of the following salient matters within the Company’s Financial Documents
(a) It has current liabilities totalling $3,297,111.00, including the following concerning items:
i.        $1,004,503.00 in PAYG;
ii.        $465,214.00 in GST;
iii.       $178,179.00 in Superannuation;
iv.       $841,842.00 in accrued annual and personal leave; and
v.        $878,990.00 in Accounts Payable.
(b) It has incurred an average monthly loss of $101,041.00 from 1 July 2022 – 31 October 2022;
(c) It has incurred a calendar year to date loss of $962,938.00;
(d) It has negligible fixed assets; and
(e) Its primary asset is accounts receivable in the amount of $1,633,330.00.
…

12. In all of the above circumstances, with a particular emphasis on the matters set out in paragraphs 7 and 8, it is incumbent upon you and our client to place the Company into a form of external administration – either voluntary administration, or liquidation.
…
19.For the above reasons, our client is willing to provide you until 4:00pm 9 December 2022 (Due Date) to:
(a) Confirm and provide the Required Funding; or
(b)Agree to place the Company into Voluntary Administration, to which our client can procure the appropriate consent and documentation.

20.In the event that you fail to do either of the above by the Due Date, our client will have no choice but to undertake the actions set out at paragraphs 17 and 18 above. Further, and given the matters set out at paragraph 10 above and that you have been put on notice of these issues for some time yet have refused to do anything about them, we will be seeking orders that the Court depart from the usual position in s 466(2) of the Act that the Company bears the costs of the application, and instead seek orders that you pay the costs personally in accordance with the principles set out in Brancato v Azzurri Stone (NSW) Pty Ltd, in the matter of Azzurri Stone (NSW) Pty Ltd [2020] FCA 466.
21.All of our client’s rights are otherwise reserved, whether they are foreshadowed in this correspondence or otherwise.

Appointment of Administrator and now Liquidator

On 12 December 2022, Mr Banerjee was appointed by Grow pursuant to section 436C of the Corporations Act as the administrator of Bellrock UAV.[60] On 31 March 2023, Mr Banerjee was appointed liquidator.
[60]Banerjee affidavit, [3]. Note: Mr Banerjee incorrectly stated that he was appointed as administrator of the fifth defendant (Bellrock UAV), however, Mr Banerjee in his capacity as administrator of Bellrock UAV is himself the fifth defendant.

Mr Duggal gave evidence:[61]

13. I note that nowhere in the Banerjee affidavit does Mr Banerjee depose to the investigations carried out prior to his appointment as administrator of Bellrock UAV. Furthermore, Mr Banerjee does not depose to any conversations with the Receivers. I note that the Mr Banerjee was appointed by Grow.
14.I believe Bellrock UAV should not have been placed into external administration because at the date of the appointment of Mr Banerjee there was sufficient funds to discharge the debt owed to Grow.

[61]Second Duggal affidavit, [13]-[14].

The Administrator’s Form 531 entitled “Copy of declaration of relevant relationships and/or declaration of indemnities” states that the appointment was referred to Mr Banerjee by Mr Jovan Singh of Hall Chadwick, being the firm of the Receivers.[62] It is dated 13 December 2022 (i.e. the day after the date of the appointment of the Administrator and the Receivers). This document refers to, inter alia:
[62]Third Duggal affidavit, [13]; Exhibit RD-03 to the Third Duggal affidavit, 59-66.

(a) the Administration being a “Voluntary Administration” and Mr Banerjee being the “Voluntary Administrator”.[63] Such an appointment would be an appointment under s 436A and not s 436C of the Corporations Act;

(b) the Administrator’s appointment as being an “appointee of the Company”.[64] The “Company” is defined as Bellrock UAV. It does not refer to any appointment by Grow;

(c) a “Deed of Appointment”.[65] No such deed is otherwise referred to in the evidence.

[63]Exhibit RD-03 to the Third Duggal affidavit, 61-66.

[64]Ibid 61.

[65]Ibid 63.

This evidence establishes that correspondence was exchanged, and there were discussions between, the Administrator and a person within the firm of the Receivers and Mr Albarran, prior to the appointment of the Receivers and the Administrator, concerning a voluntary administration of Bellrock UAV. Mr Asimus’ solicitors (now the solicitors for the Receivers and Grow) had requested, as recently as 6 December 2022, for Mr Duggal to agree to Bellrock UAV being placed in voluntary administration.[66] There was no dispute between the parties, however, that the Administrator was appointed by Grow and was not an appointment by Bellrock UAV. The parties did not otherwise make any submissions based on these discussions concerning a “voluntary administration”. Mr Duggal referred to these discussions in the context of submitting that there was no evidence of discussions of the purpose of appointing an administrator. This is addressed later in these Reasons. The parties did not otherwise make any submissions on the fact that this document recorded an appointment by Bellrock UAV pursuant to a deed of appointment and by Grow.
[66]Exhibit RA-1 to the Albarran affidavit, 151-163.

Mr Woszczalski, a director of Grow, gave evidence regarding Grow’s appointment of the Administrator:[67]
[67]First Woszczalski affidavit, [9]-[14], [16].

Indebtedness to Grow
9. For the period on or about May 2022 to December 2022, the Companies were in continued default of their financial obligations to Grow in accordance with the Facility Agreement. A number of emails were exchanged between representatives of both parties.
10. Having read the Vouris Affidavit, the emails exchanged are located at pages 146 to 156.
11. By reason of the above, I held grave concern over the solvency of the Companies as a whole, rather than just simply a concern that the Companies would not be able to satisfy the outstanding monies owed to Grow.
12. The above concerns were compounded by the fact that on 27 September 2022, Bellrock Protective Services Pty Ltd was wound up in insolvency by the Commissioner of State Revenue.
Appointment
13.On 12 December 2022 and pursuant to the powers contained in the Facility Agreement, Grow appointed Mr. Albarran and Ms. Vouris as Receivers and Managers over the Companies.
14.I understand that the objective of a voluntary administration is to:
a.maximise the chances of the company's business continuing in existence; or
b.if continuation of the business is not possible, provide for a better return to creditors than if an immediate liquidation of the company occurred.

…
16.The appointment of Mr. Banerjee was made as Grow wanted to maximise the prospects of Bellrock UAV and the wider group of Companies to be administered in a way that maximises the chances of their continued existence. In discussions with Mr. Albarran, I formed the opinion that this is not something a receiver alone could (nor would be expected) to do.

Appointment of Receivers

On 12 December 2022, the Receivers were appointed by Grow as receivers and managers over the Bellrock entities.[68] On that day, the Receivers sent an email to Mr Duggal (attaching a number of ASIC Forms) and notifying him of their appointment.[69]
[68]First Vouris affidavit, [8]; Albarran affidavit, [4]; Exhibit RA-1 to the Albarran affidavit, 12. See also the ASIC forms at Exhibit RD-01 to the First Duggal affidavit, 305-316.
[69]Exhibit RD-01 to the First Duggal affidavit, 304.

Key events during the receivership and administration

Upon their appointment, the Receivers commenced to trade the business of Bellrock UAV.

On 12 December 2022, the sum of $238,794.91 was in an account of Bellrock UAV with the Commonwealth Bank of Australia.[70]
[70]Ibid 331.

The balance sheet of Bellrock UAV as at 12 December 2022 refers to liabilities of, inter alia: “provision for annual and personal leave” in the sum of $841,841.54 and “superannuation payable” in the sum of $199,317.84.[71]
[71]Second Vouris affidavit, [19].

On 12 December 2022, the Receivers convened a meeting with the “management team” of Bellrock UAV.[72] Mr Duggal gave evidence that he was not permitted to attend the meeting and was not told of the outcome of the meeting.[73] Ms Vouris gave evidence:[74]

15. Shortly following our appointment and on the same day, we met with the management staff of Bellrock UAV to discuss the trading requirements of that company. One matter which was discussed was the ongoing wage and entitlement commitments of Bellrock UAV which I was advised by one of the Directors being Mr. Peter Asimus and the Chief Executive Officer of the company to be in the vicinity of $230,000 for the period 5 December 2022 to 18 December 2022 which were due to be processed on 22 December 2022. This ultimately amounted to the sum of $225,206.09, details of which were obtained during the week commencing 19 December 2022.

[72]Exhibit RD-01 to the First Duggal affidavit, 294.

[73]First Duggal affidavit, [31].

[74]Second Vouris affidavit, [15].

Mr Duggal gave evidence that he has been denied access to the books and records of the Bellrock entities, including of Bellrock UAV and Bellrock Cleaning.[75]
[75]Second Duggal affidavit, [6].

In the period between 12 December 2022 and 14 December 2022, communications were exchanged between Mr Duggal and his solicitor, Mr Livaditis, and the Receivers in relation to the sum outstanding to Grow.[76]
[76]See for example, First Duggal affidavit, [29]-[39].

On 12 December 2022, Mr Livaditis sent an email to Mr Ricky Cheng of Hall Chadwick, the Receivers’ firm, and the Receivers requesting an urgent payout figure.[77]
[77]First Duggal affidavit, [33]; Exhibit RD-01 to the First Duggal affidavit, 298.

On 12 December 2022, Mr Cheng wrote to Mr Woszczalski of Grow seeking clarification of the amount then outstanding to Grow.[78]
[78]First Vouris affidavit, [11]; Exhibit KEV-1 to the First Vouris affidavit, 176.

On 13 December 2022, the Receivers sent letters to Mr Duggal concerning each of the Bellrock entities containing a number of attachments including as follows:[79]
[79]Albarran affidavit, [5]; Exhibit RA-1 to the Albarran affidavit, 6-150.

(a) notice of appointment;

(b) a questionnaire, being Part B of the Report on Company Activities and Property; and

(c) a demand for the books and records.

On 13 December 2022, Mr Livaditis sent an email to the Receivers in which it is stated, inter alia:[80]

We refer to your call to the writer this morning at 9.45am. We note you advised that your client’s Managing Director has advised you that the debt is now in the vicinity of $200,000, which as discussed, this morning, this is quite concerning and a great disparity from the $46,000 stated as owing in correspondence sent to our client by your appointor client in late October 22.
We confirm you advised the writer you would provide in a couple of hours details of the payout figure with calculations.
It is now over 4.5 hours since we spoke with nothing received as to a payout figure, which we note we are instructed our client has funds to pay.
In the interim we have been advised your team is writing to our client’s customer base advising of the receivership appointment. Our client finds this most concerning as such proposed action will irreparably harm and damage our client’s business. Our client demands such actions cease immediately.
As noted in our correspondence we have reserved (and continue to so unconditionally reserve) our clients rights generally as to damages suffered should such action persist by your office when one would have assumed, that the amount of indebtedness would have been raised with your office upon your initial appointment.
We await your urgent written reply and confirmation you will stop writing to our client’s customers, noting we will produce this correspondence and our previous correspondence should proceedings be required to be issued. Time is of the essence.

[80]First Duggal affidavit, [35]; Exhibit RD-01 to the First Duggal affidavit, 299-300.

On 13 December 2022, Mr Livaditis sent a further email to the Receivers in which it is stated:[81]

We refer to our unanswered email of yesterday and of earlier today.
We note since our earlier email of today we have been subsequently sent numerous emails from various employees of Hall Chadwick with various notices having been issued and we also received notice from Westburn advisory that they have been appointed as voluntary administrator of Bellrock UAV Pty Ltd.
The question arises why an administrator is appointed by Grow Finance if they have already appointed Receiver Managers. This is also more alarming when the administrator has advised he has not been provided with a quantum of the debt owed to Grow.
A closer look at the documentation shows the factoring agreements were terminated some 6 months ago and therefore your clients’ emails of October 22 stating the debt owed is $46,000 does not give much credence to the argument by your client there was a miscalculation, and the amount is now $200,000.
Your firms’ fees have been increased today by the numerous letters sent and the main point what is the debt owed, has still not been addressed, despite now the third request in 24 hours. In that regard we reserve our clients’ rights concerning generally seeking appropriate court relief and damages being sustained due the actions being taken including letters to creditors/suppliers/clients concerning the receivership and the appointment of an administrator.
We await your urgent reply, noting time is of the essence.

[81]First Duggal affidavit, [37]; Exhibit RD-01 to the First Duggal affidavit, 299.

On 14 December 2022, Grow sent to the Receivers a Client Termination Calculation and Checklist advising that the total amount outstanding was $78,034.41.[82]
[82]First Vouris affidavit, [11]. See exhibit KEV-1 to the First Vouris affidavit, 176-177. It appears that Ms Vouris made a typographical error as Grow’s Client Termination Calculation and Checklist records the “Termination Payment Required” as $78,043.41, see at 177.

[299]Second Duggal affidavit, [13]-[14].

I have said earlier in these Reasons, that there is no solid foundation for the claim that the Receivers had sufficient funds to pay the Debt to Grow on 12 December 2022. The other complaints are based upon there being no evidence of certain matters. This simply invites speculation. Further, these matters were then addressed by evidence that the Administrator did have communications with the Receivers’ firm and also a brief discussion with Mr Albarran in the period 7 December 2022 to 12 December 2022.[300]
[300]Exhibit RD-03 to the Third Duggal affidavit, 59-66.

Fourthly, Mr Duggal then submitted, in effect, that there is no evidence that Grow’s purpose was a purpose in accordance with the objects set out in s 435A of Part 5.3A of the Corporations Act and he referred to a number of authorities.[301] Mr Woszczalski then gave evidence that Grow appointed the Administrator to maximise the prospects of Bellrock UAV and the other Bellrock entities being administered in such a way that maximises the chances of their continued existence. There is no dispute between the parties that such a purpose is in accordance with the objects of Part 5.3A of the Corporations Act.
[301]Mr Duggal’s submissions filed 24 February 2023, [58]-[63].

Fifthly, Mr Duggal initially only relied upon the matters in paragraphs [58] to [63] of his submissions filed 24 February 2023 in which he relied upon the following context:

(a)the purpose of an appointment of an administrator set out in s 435A of the Corporations Act;
(b)Mr Duggal knew nothing of the administration at the time of the appointment;

(c) Grow appointed the Administrator on the same day as the Receivers;
(d) Grow was fully secured;
(e)there is no evidence of any deed of company arrangement being proposed.

I am not satisfied that these matters give rise to a solid foundation for the alleged purpose. It was not explained why Grow should have discussed the potential administration with Mr Duggal or why there is anything, in effect, out of the ordinary or unusual in the appointment of the Administrator and the Receivers on the same day. I deal with the issue that Grow was fully secured later in these Reasons.[302]
[302]Reasons, [221].

Sixthly, Mr Duggal’s claim is now substantially based upon, in effect, establishing that Grow did not have the purpose deposed to by Mr Woszczalski and that, as a result, Grow must have had the alleged purpose. This is because Mr Duggal claims that the alleged purpose was the only purpose. He does not claim that the alleged purpose was a substantial purpose in the sense that the appointment would not have been made but for the alleged purpose. The primary focus of Mr Duggal’s submissions then became that there was a solid foundation for the alleged purpose as there was no evidence of certain matters. This concerned:

(a) no evidence of why the appointment of an administrator to Bellrock UAV maximises the chances of, inter alia, Bellrock UAV continuing in existence. This is speculation about the purpose. This is because Mr Duggal did not submit that the appointment of an administrator would not have achieved this purpose;

(b) no evidence of Grow, the Administrator or Receivers having discussions with the directors of Bellrock UAV about proposing, for example, a deed of company arrangement. Mr Duggal did not adequately explain why this supported the making of the inference. For example, he did not explain why such discussions had to take place only before the appointment of the Administrator;

(c) no evidence that the appointment of an administrator would have benefitted the unsecured creditors or Bellrock UAV. Again, this is speculation about the purpose. Mr Duggal did not adequately explain why this supported the making of the inference. For example, Mr Duggal did not submit that the appointment of an administrator would not benefit the unsecured creditors or Bellrock UAV; and

(d) no evidence of discussions between Grow and the Administrator prior to appointment and that “alarm bells” should have been ringing for the Administrator as a result. Mr Duggal did not adequately explain why “alarm bells” would have been ringing or why this supported the inference. This was based upon Grow not discussing the prospective appointment with the Administrator. It was not otherwise adequately explained why alarm bells would have been ringing. Further, Mr Duggal’s original complaint was there was no evidence of discussions between the prospective Administrator with the Receivers. There is evidence that the Administrator had a discussion with a person in the offices of the Receivers about “background information” and also a brief discussion with Mr Albarran prior to his appointment.[303]

[303]Exhibit RD-03 to the Third Duggal affidavit, 59-66.

Seventhly, as to Mr Duggal’s submissions concerning the evidence of Mr Woszczalski:

(a)Mr Woszczalski gave evidence that Grow appointed the Administrator to maximise the prospects of, inter alia, of Bellrock UAV being administered in such a way that maximises the chances of its continued existence at the time of the appointment of the Administrator;[304]
(b)Mr Woszczalski gave evidence that he had formed the view, as a result of discussions with Mr Albarran, that the Receivers could not achieve this purpose alone.[305] I accept that his evidence is brief and conclusionary but, in my opinion, he is giving evidence about his belief as to why he considered the Receivers alone could not maximise the chances of the continued existence of Bellrock UAV;
(c)the discussions with Mr Albarran took place prior to the appointment of the Administrator;[306]
(d)Mr Woszczalski knew the matters in paragraphs [9], [11] and [12] of the First Woszczalski affidavit at the time of the appointment of the Administrator. In paragraph [10] of the First Woszczalski affidavit he identifies where the emails referred to in paragraph [9] are exhibited. I do not accept that in paragraph [9] he is giving evidence that he has only read them for the first time as exhibits to the First Vouris affidavit. Further, Mr Woszczalski’s co-director, Mr David Verschoor is a party to many of the emails;[307]
(e)further, there is no dispute that Bellrock UAV was in default of the Debt Factoring Agreement and had been for some time as at 12 December 2022 and that Bellrock Protective Services was wound up on 27 September 2022.

[304]First Woszczalski affidavit, [16].

[305]Ibid.

[306]Ibid.

[307]See, for example, Exhibit KEV-1 to the First Vouris affidavit, 150-152.

Eighthly, Mr Duggal sought to rely upon Grow not asking for further information from Bellrock UAV, including pursuant to clause 8.1(i) of the Debt Factoring Agreement, to work out whether the appointment of an administrator was required to achieve the objects in Part 5.3A of the Corporations Act to infer the alleged purpose. Mr Duggal did not identify what information could have been requested, how long that process would have taken and why the inference may be made as a result of not asking for this information.

Ninthly, Mr Duggal submitted that as Grow had security over all of the assets of Bellrock UAV there does not seem to be a logical explanation to appoint an administration that is consistent with the objects of Part 5.3A of the Corporations Act. Mr Duggal did not further adequately explain this submission. Further, s 436C(1) of the Corporations Act specially contemplates, and provides for, a person who is entitled to enforce a security interest in the whole of a company’s property to appoint an administrator.

Finally, the claim of the alleged purpose is based upon Grow having the alleged purpose, being a purpose of attempting to prevent Mr Duggal from exercising his powers as a director of Bellrock UAV. Mr Duggal did not identify why it may have been in Grow’s interests to have that purpose except with respect to challenging the conduct of the Receivers that it had appointed. Mr Duggal did not identify why Grow, in the circumstances of this case, may want to prevent Mr Duggal from doing that. This is in a context in which there is no dispute that the Receivers were validly appointed as Bellrock UAV was in default in not paying the Debt. Further:

(a)Mr Duggal did not identify what other action he could have taken in his capacity as a director of Bellrock UAV and Bellrock Cleaning to challenge the conduct of the Receivers that was otherwise not available to him as a result of the appointment of the Administrator. Further, Bellrock Cleaning is not in administration;
(b)appointing an administrator to a company, which is also in receivership, does not have the effect that a person, who is a director, cannot challenge the conduct of the receivers at all. In the present case, this is precisely what Mr Duggal is doing.

Do the claims of Bellrock UAV have any tangible benefits?

I am not satisfied that the claims of Bellrock UAV will have any tangible benefit for, or be in the best interests of, Bellrock UAV.

First, this is because, as I have already said, the claims do not have a solid foundation.

Secondly, if I am incorrect and the claim against the Receivers concerning their inflated fees has a solid foundation:

(a)I am of the view, that it is a weak claim. Mr Duggal has not identified with any precision why, inter alia, the fees, expenses or trading expenses are inflated. He also gave no evidence that he had the means to pay any non-inflated fees or that he would have paid them;
(b)I am also not satisfied, based upon the present evidence, that it is a claim that would result in any substantial damages or any substantial reduction in the fees, expenses and trading expenses payable by Bellrock UAV to the Receivers. This was not addressed by Mr Duggal; and
(c)there is another means by which the same redress may be obtained in relation to the alleged inflated fees, expenses and trading expenses of the Receivers. Pursuant to s 423 of the Corporations Act, Mr Duggal is able to make a complaint to the Court about an act or omission of the Receivers in connection with performing or exercising any of their functions and powers. This includes their act in charging fees and expenses. Mr Duggal does not require leave to do this. This was accepted by the Receivers. This does not involve a derivative proceeding. Pursuant to s 423(1) the Court may inquire into the matter and where the Court so inquires may take such action as it thinks fit.

Thirdly, if I am incorrect and the claim against the Receivers concerning the payment of the Debt has a solid foundation, in my view, it a weak claim. There is much uncertainty about the available on-trade profits and whether the Receivers’ fees and expenses are inflated, and if so, in what amount.

Finally, if I am incorrect and the claim against Grow concerning the alleged purpose for the appointment of the Administrator has a solid foundation, in my view it is a weak claim. It is based upon inferences which are based, substantially, upon a lack of evidence of certain matters. It is also a case that has not been formulated with any precision despite the attempt to do so in the proposed statement of claim. In my view, the fact that this claim was not put consistently with the particulars in the proposed statement of claim is further support for it being a weak claim.

Attitude of the Administrator (now Liquidator)

No party identified this as being a relevant consideration upon this application. This consideration is not of any significance in the context of the claims that are sought to be made by Bellrock UAV. This is because the Administrator submitted that he “is not in a position to assess the complaints made with regard to the receivers”[308] and otherwise the attitude of the Administrator of claims concerning his appointment are not relevant.
[308]Administrator’s submissions filed 2 March 2023, [22].

Practical considerations

Given I have found that the claims do not have a solid foundation and have no tangible benefit for Bellrock UAV, it is not necessary me to consider other practical considerations such as whether Mr Duggal should give security for the indemnity he has proffered to give.

Conclusion

I have found that the Bellrock UAV’s claims against the Receivers, Grow and the Administrator do not have a solid foundation and will not have any tangible benefit for, and will not be in the best interests of, Bellrock UAV.

As a result, I will exercise my discretion, in all of the circumstances, to refuse leave for Mr Duggal to bring a proceeding in the name of Bellrock UAV against the Receivers, Grow and the Administrator.

CLAIM BY BELLROCK CLEANING
Introduction

Mr Duggal has standing to bring an application pursuant to s 237 of the Corporations Act as he is a shareholder and director of Bellrock Cleaning.

Is it is probable that Bellrock Cleaning will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them?

I am not satisfied that it is probable that Bellrock Cleaning will not itself bring the proceedings set out in the proposed statement of claim.

First, Mr Duggal relied upon the decision of Osborne J in Kalimpa Park. This case does not assist Mr Duggal. That is because it concerned a circumstance in which there were two directors of a company in receivership and one did not support the proposed claims against the receivers. As observed by Osborne J:[309]

69As I understood the submission, the Stokie Parties argued that, in relation to the proposed claims against the appointment of the receivers and managers, the statutory criterion in s 271(1)(a) of the Act had not been established as Mr Bzezinski has a right as a director of the Company to bring that proceeding in the Company’s name. Had Mr Bzezinski been the sole director of the Company, there might have been something in this submission. However, Mr Bzezinski is only one of two directors, with the other director being Mr Stokie. I do not accept that the directors’ residual powers to initiate proceedings in the Company’s name, for the limited purpose of the claim against the appointment of Messrs Shaw and Ross as receivers and managers, will allow the proceeding to be commenced by other means. It is accepted that Mr Stokie would not vote in favour of such a proceeding.

[309]Kalimpa Park [69] (M Osborne J) (emphasis added).

Mr Duggal did not identify any other reason why he cannot rely upon his residual powers as a director to bring proceedings on behalf of Bellrock Cleaning. For example, he made no submission on the effect of the particular charge in this case on his residual powers as a director to commence proceedings in the name of Bellrock Cleaning against the Receivers.[310]
[310]See, for example, Keay’s Insolvency: Personal and Corporate Law and Practice (10th ed) [18.535] 741 concerning the residual authority of directors of a company in receivership.

In the present case, Bellrock Cleaning is in receivership. Mr Duggal is the sole director and shareholder. As a result, I am not satisfied, on the evidence and submissions, that he cannot rely upon his residual powers as the sole director to bring a proceeding on behalf of Bellrock Cleaning.

Secondly, Mr Duggal also submitted that it is probable that Bellrock Cleaning will not bring proceedings as it is receivership and is without funds. Mr Duggal is the sole shareholder. I am not satisfied that he does not have the monies to fund the proceeding.

Is Mr Duggal acting in good faith?

I am not satisfied that Mr Duggal is acting in good faith. This is because I am not satisfied that Mr Duggal honestly believes that a good cause of action exists and has reasonable prospects of success. Mr Duggal gave evidence that he believes that the “facts” set out in the statement of claim are true and correct.[311] He did not give any evidence that he believes that a good cause of action exists. In any event, even if he did so, I accept that the claims against the Receivers, as set out in the proposed statement of claim and submissions (written and oral) are “highly speculative” as submitted by Grow/the Receivers. For example:

(a) Mr Duggal did not identify the nature and extent of the impugned inflated fees;
(b)the claim that Mr Duggal would have paid the non-inflated fees and that, as a result, the receivers would have resigned and terminated the receivership, was not supported by evidence that Mr Duggal had the means to pay them or would have, in fact, paid them;
(c)the claim that the Receivers should have investigated the quantum of the Debt, prior to their appointment, is patently hopeless for the reasons I have given;
(d)the claim that the Receivers should have paid the Debt using monies in the Bellrock UAV Commonwealth Bank of Australia account and monies in the Receivers’ Macquarie Bank account (i.e. in addition to the sum of $238,694.91) was speculation. Mr Duggal did not identify whether any such monies were available, including whether there were other debts that had to be paid;
(e)the claim that the Receivers should have, in effect, immediately upon their appointment simply paid the Debt to Grow without making any investigation of the priority debts and amounts is also patently hopeless. This is also in a context in which he is the sole director of Bellrock Cleaning and one of only two directors of Bellrock UAV.
[311]Second Duggal affidavit, [21].

Is it in the best interests of Bellrock Cleaning that Mr Duggal be granted leave?

I am not satisfied that it is in the best interests of Bellrock Cleaning that Mr Duggal be granted leave. The claims of Bellrock Cleaning against the Receivers are identical to the claims of Bellrock UAV against the Receivers. I refer to my Reasons why the claims will not have any tangible benefits for, and not be in the best interests of, Bellrock UAV. As a result, it is not in the best interests of Bellrock Cleaning for Mr Duggal to be granted leave.

Is there is a serious question to be tried?

The proposed claims of Bellrock Cleaning against the Receivers are identical to the proposed claims of Bellrock UAV against the Receivers. I refer my earlier Reasons why the claims do not have a solid foundation. As a result, I am not satisfied that there is a serious question to be tried on the claims of Bellrock Cleaning against the Receivers.

Has Mr Duggal given the required notice?

I accept the Receivers’ submission that Mr Duggal did not give the required notice. He made the original application for leave pursuant to the inherent jurisdiction of the Court by filing the summons. He did not give the required notice, including by giving reasons. He then only made the application pursuant to s 237 of the Corporations Act by submissions filed 21 March 2023. In my view, however, if the other requirements of s 237 had been satisfied, I would have granted leave, even though the required notice had not been given, pursuant to s 237(2)(e)(ii) of the Corporations Act.

Conclusion

Mr Duggal has the burden of establishing each of criteria specified in s 237(2) to obtain leave. He has not discharged that burden. As a result, for the reasons I have already given, I will refuse the application for leave pursuant to s 237 of the Corporations Act for Mr Duggal to bring a proceeding in the name of Bellrock Cleaning against the Receivers.

CLAIMS PURSUANT TO SECTION 90-15 OF SCHEDULE 2 TO THE CORPORATIONS ACT
Introduction

Mr Duggal:

(a) by his amended summons, sought leave pursuant to s 90-15 to bring proceedings in the name of Bellrock UAV and Bellrock Cleaning against the Receivers, Grow and the Administrator;

(b) alternatively, submitted, that an application of whether an order should be made pursuant to s 90-15 should be set down for final hearing following the service of pleadings and evidence.

Submissions

Mr Duggal submitted:[312]
[312]Mr Duggal’s submissions filed 24 February 2023, [77], [79]-[81], [83]-[84] (citations omitted).

77.An example of an order which may be made under s 90-15 includes “an order in relation to any loss that the company has sustained because of a breach of duty by an external administrator”. The Court may exercise that jurisdiction, relevantly, on an application made under s 90-20.
…
79. The persons who may seek an order are identified in s 90-20 of the IPS and include a person with a financial interest in the external administration of the company and an officer of the company. There is no express requirement for those persons to obtain leave, irrespective of the type of order sought pursuant to s 90-15 of the IPS.
80. In short, s 90-15 of the IPS appears to confer an apparently unfettered right on certain persons to seek an order in relation to the external administration of a company. The question of whether the common law requirement for leave survives the enactment of the IPS has not, to Duggal’s knowledge, been considered in any authority. However, the abrogation by statute of the common law leave requirement is consistent with the purpose of the IPS in strengthening and streamlining the regulation of external administrators and empowering creditors.
81. If leave is required, whether leave will be granted turns on the question of whether the claim has “sufficient merit” That question has been dealt with above.
…
83.If the Court accepts Duggal’s primary case that the derivative procedure is appropriate in the present circumstances, Duggal’s application pursuant to s 90-15 of the IPS would not need to be determined including consideration of whether leave is required to bring proceedings under s 90-15(1) of the IPS and how such proceedings are to proceed.
84. If the Court is not inclined to grant relief to bring derivative proceedings, the Court should set the matter down for a final hearing as to whether the order sought under s 90-15(1) should be made. Duggal submits that any such hearing should follow the service of pleadings and evidence.

The only order sought by Mr Duggal in the amended summons, pursuant to s 90-15, is an order seeking leave to bring a proceeding in the names of Bellrock UAV and Bellrock Cleaning. Mr Duggal has not provided the Court with any application seeking any other order pursuant to s 90-15. For example, Mr Duggal does not presently seek to make any application for “an order in relation to any loss that the company has sustained because of a breach of duty by an external administrator”.[313] In this context, the Court raised this issue with Mr Duggal during the hearing and asked him to clarify issues concerning this matter.[314]
[313]Ibid [77].
[314]Transcript of Proceedings 6 March 2023 (n 38) 6.22-6.28, 7.25-8.1 (Mr Kohn).

Mr Duggal submitted:

(a) it is a claim by Mr Duggal in his own right.[315] The claim is exactly the same.[316] Mr Duggal would be the plaintiff;[317]
[315]Ibid 6.14-6.18 (Mr Kohn).
[316]Ibid 6.22-6.23 (Mr Kohn).
[317]Ibid 6.26-6.28 (Mr Kohn).

(b) it is unclear whether he brings that claim in his own name as an officer of the company or brings it on behalf of the company;[318]
[318]Ibid 7.15-7.21 (Mr Kohn).

(c) it is a claim by Bellrock UAV for an order pursuant to s 90-15.[319] Section 90-15 does not apply to Bellrock Cleaning as it is not in administration;[320]
[319]Ibid 8.28-9.24 (Mr Kohn).
[320]Ibid 17.2-17.7 (Mr Kohn).

(d) it is uncertain whether Mr Duggal brings the claim in his own name or on behalf of Bellrock UAV. The legislation is unclear;[321]
[321]Ibid 9.5-9.12 (Mr Kohn).

(e) it would be Bellrock UAV that brings the proceeding and that is why derivative leave may be needed;[322]
[322]Ibid 9.20-9.24 (Mr Kohn).

(f) if he brings in it in the name of Bellrock UAV then derivative leave may be required pursuant to 90-15;[323]

(g) the substantive application would be under s 90-15;[324]

(h) Mr Duggal accepted that the only order that he seeks at present under s 90-15 is for leave to bring a proceeding.[325]

[323]Ibid.

[324]Ibid 11.7-11.9 (Mr Kohn).

[325]Ibid 7.22-7.24 (Mr Kohn).

The following exchange then took place:[326]
[326]Ibid 11.25-12.21.

HIS HONOUR:        I don't readily see it at the moment. I wish to know what order is sought under 90-15. At the moment, it is only leave.
MR KOHN:Yes, Your Honour.
HIS HONOUR:        And then in the submissions I read, if I don't give leave, then I'm to set down some other claim of your client under 90-15. I don't understand that because the only order that I'm aware of that your clients seek at the moment is for leave under 90-15.
MR KOHN: I understand.
HIS HONOUR:         …if it's something else pursuant to 90-15, then I'll need that done with clarity and the sooner you give notice to the defendants the better because, at the moment, they do not engage with this at all and, in fact, I don't think they deal with it in any detail whatsoever.
MR KOHN: No, I understand.
HIS HONOUR:         It may come as a surprise to them if your client is actually moving for substantive relief under 90-15 and, if he's doing so - for example, if he's doing so as an officer of the court and he's seeking a particular order, for example, an order in the form that it might be set out in the prayer for relief of the existing statement of claim they might need to know that. Because, at the moment, that's not as clear as it should be if that's to be done and that's some other proceeding potentially anyway.

Mr Duggal submitted that he would “deal with s 90-15 later on”.[327] Mr Duggal subsequently made no further substantive submissions on this issue that clarified the issues, including whether Mr Duggal makes, or seeks to make, any application for any substantive order under s 90-15, and if he does, what it is.
[327]Ibid 15.30 (Mr Kohn).

The Receivers/Grow submitted there is no further substantive application, and that their response to Mr Duggal’s application is based on the matters contained in the amended summons.[328] The Receivers and Grow submitted that paragraph 1 of the amended summons uses s 90-15 as an alternative mechanism to seeking the Court’s relief, being an order for leave to commence derivative action in the name of the companies, and nothing further. The Receivers and Grow submitted that the proposed amended statement of claim supports this.
[328]Ibid 12.27-13.7 (Mr Rubenstein).

Consideration

Bellrock UAV is under external administration. It is now in liquidation. Bellrock Cleaning is not under external administration or liquidation. Mr Duggal accepted that s 90-15 does not apply to Bellrock Cleaning.[329] Mr Duggal is an officer of Bellrock UAV.
[329]Ibid 17.6-17.7 (Mr Kohn).

Leave

Mr Duggal submitted, in effect, that if he brings a proceeding in the name of Bellrock UAV then derivative leave may be required pursuant to s 90-15.

First, it is unclear what application, if any, Mr Duggal seeks leave to make pursuant to s 90-15:

(a) Mr Duggal’s amended summons and submissions refer to an application pursuant to s 90-15 to bring a proceeding in the name of Bellrock Cleaning and Bellrock UAV. Mr Duggal then clarified that it is only in relation to Bellrock UAV;

(b) it is unclear whether any application is made against the Receivers who are not involved in the “external administration” of Bellrock UAV within the meaning of Schedule 2 of the Corporations Act;

(c) Mr Duggal submitted that an example of an order which may be made under s 90-15 includes an order in relation to any loss that the company has sustained because of a breach of duty by an external administrator, but no such claim is made in the proposed statement of claim.[330] Mr Duggal did not identify whether he, in fact, seeks such an order pursuant to s 90-15 against the Administrator. It is unclear whether such a claim is sought to be made now. No such claim is made in the proposed statement of claim. Further, Mr Duggal submitted that there is no claim against the Administrator made in the proposed statement of claim and that the Administrator is only proposed to be a party as he is a necessary party to the claim against Grow;

(d) Mr Duggal did not provide any proposed application setting out any application for orders pursuant to 90-15 (apart from the application for leave to bring a proceeding); and

(e) the Court is not able to speculate as to form of that application, including the precise relief sought.

[330]Mr Duggal’s submissions filed 24 February 2022, [77]. See also at [78].

Secondly, Bellrock UAV is not entitled to make any application, in its own name, for an order under s 90-15. I refer to s 90-20. A company is not one of the persons listed in s 90-20 who may apply for an order under s 90-15. Thirdly, in the event that Mr Duggal seeks leave pursuant to s 90-15 to make an application in the name of Bellrock UAV for an order that the administration is void and of no effect, I refer to my Reasons as to why I consider that this claim does not have a solid foundation.

As a result, I will not give any leave to Mr Duggal to bring an application in the name of Bellrock UAV pursuant to s 90-15. This is because, as I have already said, Bellrock UAV is not entitled to make an application for an order under s 90-15 and it is unclear what application, if any, Mr Duggal seeks leave to make pursuant to s 90-15.

Setting down application

I will not otherwise, as submitted by Mr Duggal, set the matter down for final hearing as to whether an order pursuant to s 90-15 to Schedule 2 of the Corporations Act should be made and that any final hearing should follow the service of pleadings and evidence. This is because:

(a)the Court cannot make such directions in the absence of the identification of what application is sought to be brought by Mr Duggal. This was not clarified by Mr Duggal despite a request by the Court for him to do so; and
(b)again, in the event that such a claim is limited to an application by Mr Duggal, in his own capacity as a director, for an order that the administration is void and of no effect, I refer to my Reasons as to why I consider that this claim does not have a solid foundation. As I have said, however, it is not clear that Mr Duggal seeks to bring such an application limited to that matter.

CONCLUSION

For the reasons I have given, I will:

(a) refuse the application pursuant to s 237 of the Corporations Act for Mr Duggal to bring a proceeding in the name of Bellrock Cleaning against the Receivers;

(b) refuse the application pursuant to the Court’s inherent jurisdiction, and s 90-15 of Schedule 2 to the Corporations Act, for Mr Duggal to bring a proceeding in the name of Bellrock UAV against the Receivers, Grow and the Administrator; and

(c) not set down for final hearing any application for an order pursuant to s 90-15 of Schedule 2 to the Corporations Act following the service of pleadings and evidence.

INJUNCTIONS

It is appropriate for the Court to discharge the interim injunctions initially made on 20 December 2022 and extended on a number of occasions. This is because I will refuse the applications for leave to bring proceedings in the name of Bellrock UAV and Bellrock Cleaning and there is no other claim that supports the continuation of the injunctions. This proceeding should also be dismissed as there no other matters to determine.

ORDERS

I will hear from the parties on the precise form of orders, including on costs, and any other matter arising from this judgment.

OTHER MATTERS

On 30 March 2023, the Court informed the parties that it would deliver judgment on 3 April 2023.

On 31 March 2023, the Administrator’s solicitors informed the Court, by email correspondence to Chambers copies to the other parties, that Bellrock UAV is in liquidation and the Administrator had been appointed as the liquidator.

On 31 March 2023, the Court, by email correspondence from Chambers to the parties, stated:

Dear Practitioners
We refer to the above proceeding and the below correspondence from the solicitors for the fifth defendant.
First, his Honour understands that the third to sixth defendants do not wish to be further heard in relation to the matter. It also appears that the liquidator, who is the former administrator, is represented by Piper Alderman, and also does not wish to be heard. Please confirm whether these matters are correct.
Secondly, his Honour requests that Mr Duggal inform the Court whether he wishes to be heard on the matter given the appointment of the liquidator.
Thirdly, the Court requests that all parties, and the liquidator, consider whether there are any matters arising from the appointment of the liquidator that should be brought to the Court’s attention.
The parties and the liquidator are to inform the Court of the matters above as soon as practicable and by no later than 10:00am on Monday, 3 April 2023.
In the absence of any response from any party that requires any further hearing, the Court will proceed to deliver judgment on Monday, 3 April 2023, at 3:00pm based upon the present evidence and submissions.
Kind regards

On 3 April 2022, the following responses were received by Chambers:

(a) the Receivers/Grow stated that they did not wish to be heard further;[331]
(b)Mr Duggal stated that he did not wish to be heard further. He also submitted that he does not believe there are any matters arising from the appointment of the Liquidator that should be brought to the Court’s attention save that if the Court grants leave to bring a derivative proceeding, the Liquidator will need to be joined in his capacity as liquidator of Bellrock UAV Pty Ltd (not only in his capacity as Administrator);[332]
(c)the Administrator, and now the Liquidator, stated he did not wish to be heard further. He also submitted that he did not consider that the change in Bellrock UAV’s status affects Mr Duggal’s claim and application for leave. He submitted that he had previously made the submission that the authorities on seeking derivative leave could be applied by an analogy to a company that is under administration, however, given the fact the company is now in liquidation, that submission is now moot.[333]

[331]Email from the Receivers’ and Grows’ solicitors to Chambers and the parties sent on 3 April 2023.

[332]Email from Mr Duggal’s solicitors to Chambers and the parties sent on 3 April 2023.

[333]Email from the Administrator’s, and now the Liquidator’s, solicitors to Chambers and the parties sent on 3 April 2023.

As a result, I have determined that it was appropriate to proceed to deliver this judgment based upon the evidence and submissions before the Court noting that Bellrock UAV is now in liquidation.

---

SCHEDULE OF PARTIES

RAJAN DUGGAL	Plaintiff
- and -
BELLROCK CLEANING SERVICES PTY LTD (ACN 609 043 816) (RECEIVERS AND MANAGERS APPOINTED)	First Defendant
BELLROCK UAV PTY LTD (ACN 626 101 915) (RECIEVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED)	Second Defendant
KATHLEEN ELIZABETH VOURIS IN HER CAPACITY AS RECEIVER AND MANAGER OF BELLROCK CLEANING SERVICES PTY LTD (ACN 609 043 816) (RECIVERS AND MANAGERS APPOINTED) and BELLROCK UAV PTY LTD (ACN 626 101 915) (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED)	Third Defendant
RICHARD ALBARRAN IN HIS CAPACITY AS RECEIVER AND MANAGER OF BELLROCK CLEANING SERVICES PTY LTD (ACN 609 043 816) (RECEIVERS AND MANAGERS APPOINTED) and BELLROCK UAV PTY LTD (ACN 626 101 915) (RECIEVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED)	Fourth Defendant
SHUMIT BANERJEE IN HIS CAPACITY AS ADMINISTRATOR OF BELLROCK UAV PTY LTD (ACN 626 101 915) (RECIEVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED)	Fifth Defendant
GROW INVOICE FINANCE PTY LTD (ACN 619 556 231)	Sixth Defendant

SCHEDULE
Item 1.	Grantor	BELLROCK UAV PTY LTD (ACN 626 101 915) of Suite 12320 NS & Associates Pty Ltd, 1 Queens Road, Melbourne VIC 3004
Item 2.	Secured Party	GROW INVOICE FINANCE PTY LTD (ACN 619 556 231) of Level 4, 333 George Street, Sydney, NSW 2000
Item 3.	Security Property	All the Grantor's present and after acquired property of whatever kind and nature and all the Grantor's accounts
Item 4.	Memorandum	Memorandum of Common Provisions which is registered in Victoria as no. AA5436, and a copy of which is provided with this document