Freshkept Technology Pty Ltd (in liq) v Goodwin
[2000] VSC 500
•28 November 2000
| SUPREME COURT OF VICTORIA | |
| COMMERCIAL AND EQUITY DIVISION | Not Restricted |
| CORPORATIONS LIST |
No. 5933 of 1999
IN THE MATTER OF
| FRESHKEPT TECHNOLOGY PTY LIMITED (in liquidation) | |
| PETER GOODWIN AS LIQUIDATOR OF FRESHKEPT TECHNOLOGY PTY LIMITED (in liquidation) | Plaintiff |
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JUDGE: | Warren J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 November 2000 | |
DATE OF JUDGMENT: | 28 November 2000 | |
CASE MAY BE CITED AS: | Freshkept Technology Pty Limited (in liq) v | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 500 | |
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Corporations Law – ss.9, 53, 596A, 596B, 596C and 597 – application to set aside liquidator's summons for examination – "examinable affairs" of a corporation.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr J.R. Dixon | Meltzer Green |
| For the Examinees | Mr M.A. Robins | Jonathon Allen & Company |
| Mr S. Lawson appeared on his own behalf |
HER HONOUR:
Peter Andrew Goodwin was appointed provisional liquidator of Freshkept Technology Pty Limited ("Freshkept Technology") by order of Gillard J on 2 July 1999. Subsequently, on 23 July 1999 Gillard J ordered that the company be wound up and that Goodwin be appointed as liquidator.
Background Proceedings
On 15 September 2000 upon an application by the liquidator I ordered that a summons be issued against one Paul Francis Grogan, a director of Freshkept Technology and against the secretary of another company, Freshkept Foods Pty Ltd ("Freshkept Foods") for examination and production of documents in the winding up of Freshkept Technology pursuant to ss.596A, 596B and 596D of the Corporations Law. I further ordered that the summonses for examination be made returnable before a Master. The summonses were filed and served on about 27 September 2000. On the return of the summonses before the Master on 13 November 2000 both the liquidator and the examinees were represented by counsel. The examinees foreshadowed their challenge to the issue of the summonses against them. As a consequence, the Master ordered the examinees to file and serve any application to set aside the orders made on 15 September 2000 returnable before me. Hence, the proceeding returns before me by interlocutory process issued by the examinees to set aside the summonses and other relief.
History of the Company
The company was incorporated on 14 April 1997 and was engaged in the business of technology concerned with the shelf life of packaged foods. There were two directors of the company, Paul Grogan and Stuart Lawson. In addition to being a director of Freshkept Technology, Grogan was a director and secretary of Freshkept Foods. The latter company is a consulting company under which Grogan engages in food and business consulting activities. Grogan claims that on behalf of Freshkept Foods he created the technology that is the subject of a provision patent application No. PO6853 and international patent application No. PCT/AU98/00357. Grogan claims that in March 1997 he entered into discussions with third parties with a view to selling 40 per cent of Freshkept Foods. Grogan claims that when Lawson learned of these discussions he expressed an interest. As a result, Grogan alleges that he and Lawson agreed on 6 April 1997 to form a new company in which they would each own equal shares and that upon payment of the sum of $80,000 by Lawson, Freshkept Foods would assign the technology to the new corporation, ultimately culminating in the formation of Freshkept Technology. Grogan alleges that there was no date agreed upon for payment of the $80,000 by Lawson but that they eventually agreed that the sum of $80,000 could be drawn down by Grogan from time to time as required.
Once the agreement was in place between Grogan and Lawson, Grogan alleges that Freshkept Foods permitted Freshkept Technology to market the particular technology under licence. However, towards the end of 1997 there was a falling out between Lawson and Grogan. During 1998 they attempted to resolve their differences and eventually heads of agreement appear to have been concluded in December 1998. By mid 1999 Freshkept Technology encountered financial difficulty. On 3 May 1999 Freshkept Foods purported to terminate the licence agreement with Freshkept Technology for the use of the technology. Subsequently, Freshkept Technology was wound up.
The Summons for Examination
The summons filed and served on the examinees by the liquidator required production of documents as set out in the schedule to that summons and attendance for examination about the examinable affairs of Freshkept Technology.
The documents described in the schedule to the summons were:
(a)All books (as that term is defined in the Corporations Law), journals, ledgers, statements, accounts and books of account, contracts and other agreements, letters or other correspondence, file and other notes, invoices, receipts, diaries, minutes or other written records of meetings and other document or records (whether on paper or held in electronic form) in the examinee's possession or under the examinee's control relevant to the management, administration, or other examinable affairs (as defined in the Corporations Law) of the Company.
(b)Without limiting the generality of the foregoing, all documents concerning the process or processes of subject of:
(i)provisional patent application No. PO7023;
(ii)provisional patent application No. PO6853;
(iii)International Patent Application No. PCT/AU98/00357;
(iv)(any variations or extensions to patent application No. PO6853 and No. PCT/AU98/00357; and
(v)any other patent or patent application concerning or relating to the subject matter of patent applications No. PO6853, No. PO7023 and No. PCT/AU98/00357;
collectively referred to as the "Process", including, but not limited to:
(a)all designs, drawings, procedure manuals and computer records;
(b)the documentation of the content of the Process;
(c)the marketing of the Process;
(d)the sale of the Process and offers to purchase the Process;
(e)the licensing of the Process;
(f)the sale of goods made by using the Process;
(g)the use of the Process;
(h)the testing of the Process;
(i)any variations to, or enhancements of, the Process;
(j)documents recording or showing receipt of revenue flowing from the use of, or any dealing with, the Process;
(k)all patents and applications for patents;
(l)all correspondence with Phillips Ormode & Fitzpatrick and
(m)all correspondence and financial dealings with –
(i)Cuisine Select b.v.
(ii)Maitre Cuisine b.v.
(iii)Hans Coppens.
(n)all contracts and arrangements associated with the Process with any company or person operating out of The Netherlands.
3.The balance sheet and profit and loss statements for Freshkept Foods Pty Ltd for the financial years ended 30 June 1999 and 30 June 2000.
4.All journals and ledgers for Freshkept Foods Pty Ltd for the periods
(a)from 30 June 19998 to 30 June 1999;
(b)from 1 July 1999 to 30 June 2000; and
(c)from 1 July 2000 to date.
The Application to Set Aside
In their application the examinees sought an order that the summons directed to the secretary of Freshkept Foods be set aside in whole or in part, an order that the examination in support of the summons sworn by the liquidator and the exhibits to that affidavit be produced for inspection by the examinees and orders that Stuart Lawson be excluded from the examination of the examinees and that a transcript of the examination not be disclosed to Lawson. The examinees complain, also, that the documents required for production under the summons are too wide and oppressive.
Statutory Provisions
Division I of Part 5.9 of the Corporations Law contains the provisions concerned with examination of a person in relation to a corporation. Section 596A provides for mandatory examination and s.596B is concerned with discretionary examination. A mandatory examination may be applied for by an "eligible applicant" who includes the liquidator of a company. Both a mandatory and a discretionary examination are conducted in relation to the "examinable affairs" of a corporation. Section 9 of the Law defines "examinable affairs" as meaning, among other matters, the management or winding up of a corporation, its other affairs including the matters listed in s.53 of the Law and the business affairs of a connected entity of that corporation. Section 53 of the Law defines the examinable affairs of a corporation on a very wide basis and includes matters such as the control, business, trading, transactions and dealings of a corporation and internal management.
Section 596C requires an affidavit to be filed by an applicant, such as a liquidator, in support of an application for examination and stipulates, further, that the affidavit is not available for inspection except so far as the court orders. Section 596F empowers the court to give directions concerning the examination. Section 597 sets out the manner in which the examination is to be conducted. The relevant sections in relation to examination provide:
"SECTION 596A MANDATORY EXAMINATION
596A The Court is to summon a person for examination about a corporation's examinable affairs if:
(a)an eligible applicant applies for the summons; and
(b)the Court is satisfied that the person is an examinable officer of the corporation or was such an officer during or after the 2 years ending:
(i)if the corporation is under administration – on the section 513C day in relation to the administration; or
(ii)if the corporation has executed a deed of company arrangement that has not yet terminated – on the section 513C day in relation to the administration that ended when the deed was executed; or
(iii) if the corporation is being, or has been, wound up – when the winding up began; or
(iv)otherwise – when the application is made.
SECTION 596B DISCRETIONARY EXAMINATION
596B(1)The Court may summon a person for examination about a corporation's examinable affairs if:
(a)an eligible applicant applies for the summons; and
(b)the Court is satisfied that the person:
(i)has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or
(ii)may be able to give information about examinable affairs of the corporation.
596B(2) This section has effect subject to section 596A.
SECTION 596C AFFIDAVIT IN SUPPORT OF APPLICATION UNDER SECTION 596B
596C(1) A person who applies under section 596B must file an affidavit that supports the application and complies with the rules.
596C(2) The affidavit is not available for inspection except so far as the Court orders.
SECTION 596D CONTENT OF SUMMONS
596D(1) A summons to a person under section 596A or 596B is to require the person to attend before the Court:
(a)at a specified place and at a specified time on a specified day, being a place, time and day that are reasonable in the circumstances; and
(b)to be examined on oath about the corporation's examinable affairs.
596D(2) A summons to a person under section 596A or 596B may require the person to produce at the examination specified books that:
(a)are in the person's possession; and
(b)relate to the corporation or to any of its examinable affairs.
596D(3) A summons under section 596A is to require under subsection (2) of this section the production of such of the books requested in the application for the summons as the summons may so require.
SECTION 596E NOTICE OF EXAMINATION
596E If the Court summons a person for examination, the person who applied for the summons must give written notice of the examination to:
(a)as many of the corporation's creditors as reasonably practicable; and
(b)each eligible applicant in relation to the corporation, except:
(i)if the person who applied for the examination; and
(ii)if a person authorised by the Commission applied for the examination – the Commission; and
(iii)a person who is such an eligible applicant only because the person is authorised by the Commission.
SECTION 596F COURT MAY GIVE DIRECTIONS ABOUT EXAMINATION
596F(1) Subject to section 597, the Court may at any time give one or more of the following:
(a)a direction about the matters to be inquired into at an examination;
(b)a direction about the procedure to be followed at an examination;
(c)a direction about who may be present at an examination while it is being held in private;
(d)a direction that a person be excluded from an examination, even while it is being held in public;
(e)a direction about access to records of the examination;
(f)a direction prohibiting publication or communication of information about the examination (including questions asked, and answers given, at the examination);
(g)a direction that a document that relates to the examination and was created at the examination be destroyed.
596F The Court may give a direction under paragraph (1)(e), (f) or (g) in relation to all or part of an examination even if the examination, or that part, was held in public.
596F(3) A person must not contravene a direction under subsection (1).
SECTION 597 CONDUCT OF EXAMINATION
597(1)-(3) (Omitted by No 210 of 1992, s 117(a) (effective 23 June 1993).)
597(4) An examination is to be held in public except to such extent (if any) as the Court considers that, by reason of special circumstances, it is desirable to hold the examination in private.
597(5) (Omitted by No 210 of 1992, s 117(c) (effective 23 June 1993).)
597(5A) Any of the following may take part in an examination:
(a)the Commission;
(b)any other eligible applicant in relation to the corporation;
and for that purpose may be represented by a lawyer or by an agent authorised in writing for the purpose.
597(5B) The Court may put, or allow to be put, to a person being examined such questions about the corporation or any of its examinable affairs as the Court thinks appropriate.
597(6) A person who is summoned under section 596A or 596B to attend before the Court shall not, without reasonable excuse:
(a)fail to attend as required by the summons; or
(b)fail to attend from day to day until the conclusion of the examination.
597(7) A person who attends before the Court for examination must not:
(a)without reasonable excuse, refuse or fail to take an oath or make an affirmation; or
(b)without reasonable excuse, refuse or fail to answer a question that the Court directs him or her to answer; or
(c)make a statement that is false or misleading in a material particular; or
(d)without reasonable excuse, refuse or fail to produce books that the summons requires him or her to produce.
597(8) (Omitted by No 210 of 1992, s 117(f) (efective 23 June 1993).)
597(9) The Court may direct a person to produce, at an examination of that or any other person, books that are in the first‑mentioned person's possession and are relevant to matters to which the examination relates or will relate.
597(9A) A person may comply with a direction under subsection (9) by causing the books to be produced at the examination.
597(10) Where the Court so directs a person to produce any books and the person has a lien on the books, the production of the books does not prejudice the lien.
597(10A) A person must not, without reasonable excuse, refuse or fail to comply with a direction under subsection (9).
597(11) (Omitted by No 210 of 1992, s 117(g) (effective 23 June 1993).)
597(12) A person is not excused from answering a question put to the person at an examination on the ground that the answer might tend to incriminate the person or make the person liable to a penalty.
597(12A) Where:
(a)before answering a question put to a person (other than a body corporate) at an examination, the person claims that the answer might tend to incriminate the person or make the person liable to a penalty; and
(b)the answer might in fact tend to incriminate the person or make the person so liable;
the answer is not admissible in evidence against the person in:
(c)a criminal proceeding; or
(d)a proceeding for the imposition of a penalty;
other than a proceeding under this section, or any other proceeding in respect of the falsity of the answer.
597(13) The Court may order the questions put to a person and the answers given by him or her at an examination to be recorded in writing and may require him or her to sign that written record.
597(14) Subject to subsection (12A), any written record of an examination so signed by a person, or any transcript of an examination of a person that is authenticated as provided by the rules, may be used in evidence in any legal proceedings against the person.
597(14A) A written record made under subsection (13):
(a) is to be open for inspection, without fee, by:
(i) the person who applied for the examination; or
(ii) an officer of the corporation; or
(iii) a creditor of the corporation; and
(b)is to be open for inspection by anyone else on paying the prescribed fee.
597(15) An examination under this Division may, if the Court so directs and subject to the rules, be held before such other court as is specified by the Court and the powers of the Court under this Division may be exercised by that other court.
597(16) A person ordered to attend before the Court or another court for examination under this Division may, at his or her own expense, employ a solicitor, or a solicitor and counsel, and the solicitor or counsel, as the case may be, may put to the person such questions as the Court, or the other court, as the case may be, considers just for the purpose of enabling the person to explain or qualify any answers or evidence given by the person.
597(17) The Court or another court before which an examination under this Division takes place may, if it thinks fit, adjourn the examination from time to time.
597(18) (Omitted by No 210 of 1992, s 117(1) (effective 23 June 1993).)
The Purpose of the Statutory Regime
Before turning to the case at hand some general principles can be extracted from the authorities concerning compulsory examination:
(1)No notice of a summons for examination is required and generally notice should not be given: Re BPTC Limited (No. 1) (1992) 8 ACSR 736.
(2)The court should not direct the examiner to notify the examinee about the matters to be covered at the examination: Re Brash Holdings (1995) 15 ACSR 755, 767; 16 ACSR 324.
(3)An examinor may pursue an examination to identify property that would benefit persons entitled to it including under the terms of a deed of company arrangement: Re Brash Holdings, supra.
(4)In considering whether to order examination the court does not make final judgment about the prospects of success in an action that is the subject of the investigation unless it is so manifestly groundless that it must necessarily fail: Re Brash Holdings at 764.
(5)There must be full and frank disclosure by the examinor to the court upon applying for an order for the issue of a summons: Re Southern Equities Corp Ltd (1997) 25 ACSR 394.
(6)The powers of the court to order examination are extremely wide and the court is not bound in any way by the limitations found in earlier legislation: Flanders v Beatty (1995) 13 ACLC 529.
(7)An application to set aside an examination order on the ground that it is brought for an improper purpose must be made promptly and set up all objections in the one application: Bond v England (1997) 24 ACSR 472.
(8)The prevailing right or interest in the examination is the right of the public, particularly in public companies, and the rights of the creditors and shareholders: Re Cortaus Limited (1996) 19 ACSR 591.
(9)It is proper for an applicant to conduct him or herself in a manner that is secretive and the applicant should not be asked to verify reasons for wanting an examination as the process is inquisitorial: Re Excel Finance Corporation Limited (1993) 10 ACSR 255, 263-4.
I turn to apply the principles to the claims for relief made by the examinees.
The Application to Set Aside the Orders for Examination Against the Secretary of Freshfoods
The examinees express their fear and concern that the affidavit of the liquidator in support of the summons for examination may not have made full and frank disclosure of important matters. Of course, the examinees had not had the benefit of seeing the liquidator's affidavit because pursuant to the statute and court order the affidavit was treated as confidential and not available for inspection.
Grogan, in his capacity as secretary of Freshkept Foods asserts that there were four important matters that the liquidator ought have disclosed to the court on the application for examination. First, if it was asserted that Freshkept Foods was a connected corporate entity of Freshkept Technology it was false and misleading. Second, there ought have been disclosure of documents signed on 14 December 1998 being documents relating to a proposed settlement of differences between the Grogan interests and the Lawson interests. Third, the fact that the draft affidavit of the liquidator in support of the application was shown to Lawson and possibly others prior to the making of the application. Fourth, that the registration of the patents that is largely the subject of the summons to produce documents has lapsed and that any proceedings in relation to the patents is likely to be fruitless.
Of course the examinees face difficulty in questioning and challenging any aspect of the liquidator's affidavit because they have not seen it. In the course of considering their submissions and concerns I am in the position that I re-examine the liquidator's affidavit. However, it would be inappropriate in light of the secrecy that is attached to that document for it to be ventilated in any way. Having had the opportunity to consider very carefully the matters raised by Grogan in his affidavit I am satisfied that there has been full and sufficient disclosure by the liquidator of relative matters. Insofar as there has been non or limited disclosure of some matters in my view they are not matters of sufficient consequence. Furthermore, as matters stand I am not in a position to determine whether or not any potential litigation by the liquidator is likely to be fruitless. Bearing in mind the observations of Hayne J in Re Brash Holding, I cannot be satisfied that the potential litigation if any between the Grogan interests and that of Freshkept Technology will be manifestly groundless. On the face of the affidavit of the liquidator in support of the application in my view there was sufficient evidence to support the granting of the application and the order for examination.
The basis on which the application under s.596B of the Law was made is that the court was satisfied that the person, being the secretary of Freshkept Foods, had taken part or been concerned in "examinable affairs" of Freshkept Technology and/or that person may be able to give information about examinable affairs of Freshkept Technology. On the basis of the definition of "examinable affairs" as defined in ss.9 and 53 of the Corporations Law there was sufficient evidence before me as contained in the affidavit of the liquidator to support the application.
Finally, I observe that the examinees waited a period of approximately six weeks (that is from the date of service of the summonses to the return date before the Master) to even foreshadow their intention to challenge the summons. The delay is unexplained by the examinees. I consider the delay in the circumstances of this matter to be highly undesirable as the application ought have been issued very promptly after the service of the summons.
It follows that the application to set aside in whole or in part the summons insofar as it was directed to Freshkept Foods fails.
The Application for Disclosure of the Affidavit of the Liquidator
The second aspect of the examinees' application was for the production of the affidavit of the liquidator filed in support of the summons. The basis for the application was that there had been disclosure of the affidavit and, therefore, it ought be made available to Grogan and his interests. The two asserted disclosures of the affidavit were said to arise from the disclosure of a draft affidavit of the liquidator to Lawson prior to the application to this court. Second, the service on the Australian Securities and Investments Commission of a copy of the affidavit of the liquidator as filed and the exhibits to that affidavit.
In my view the fact that the affidavit in draft form was shown by the liquidator to Lawson is not a matter of consequence. Whether it was desirable for the liquidator to show the affidavit in draft form is not a matter with which I need be concerned. Section 596C(2) of the Law provides that the affidavit in support is not available for inspection unless the court orders otherwise. The affidavit in its final form was not shown to Lawson. Insofar as it was shown to the Commission, that was unnecessary, but nevertheless the fact of partial disclosure does not remove the statutory requirement that the affidavit remain secret. In my view if the affidavit was disclosed to Grogan and the interests associated with Freshkept Foods it would entirely destroy the principle of secrecy underlying the statutory regime particularly that contained in s.596C of the Law. In my view, the fact that there has been partial disclosure on the affidavit does not of itself justify setting aside the purpose of secrecy underlying s.596C(2) of the Law. It would be necessary for Grogan and Freshkept Foods to establish that there was an arguable case for inspection based upon a particular matter and that the affidavit is relevant to that matter. No such case has been made out on the present application: see Simionato v Macks (1995) 19 ACSR 34.
It follows that the second aspect of the examinees' application fails.
The Application that Lawson be Excluded from the Examination
Next, the examinees seek orders that Lawson be excluded from the examination of the examinees and that a transcript of the examination not be disclosed to him.
The application is made on the basis that Grogan would be placed at a distinct disadvantage and Lawson at a distinct advantage in any future litigation between their respective interests or between the interests of Freshkept Technology and Grogan's interest. Section 597(4) of the Law provides that an examination is to be held in public except where the court orders otherwise but even then only by reason of "special circumstances" that it is desirable to hold the examination in private.
It has been observed that examinations involve a balance of interests. A liquidator may examine an examinee upon matters that he or she genuinely needs including information as to whether a cause of action exists or as to the prospects of success of any contemplated action: see Re Spedley Securities (1989) 2 ACSR 152, 154. On the other hand, if the liquidator uses the examination merely to gain an advantage, to destroy the credit of a witness who might be called for an examinee in proposed proceedings or uses it as a dress rehearsal for such proceedings it is inappropriate. Nevertheless, it is legitimate when gathering information to test the reliability of the information and even the credit of the examinee. Furthermore a liquidator is entitled to probe the surrounding circumstances of a particular issue or matter in the hope that a further line of enquiry may be disclosed: see Spedley Securities, supra, 154-155; Spedley Securities Limited v Bond Corp Holdings Limited (1990) 1 ACSR 726, 740.
Without disclosing the contents of the affidavit of the liquidator in support of the summons it is apparent from all the material before me including the affidavit of Grogan that there is a dispute between Grogan and the interests attached to Freshkept Technology as to the arrangements between the company and Freshkept Foods. I am satisfied that there is no evidence before me to support the suggestion that the liquidator is acting other than properly in seeking to explore the matters that he does in the examination of the examinees. It follows, therefore, that the third aspect of the examinees' application fails.
The Complaint that the Documents Sought for Production is Too Wide
The examinees object to the documents sought in paragraph (b) onwards of the schedule to the summons. There is complaint that the documents sought are too broad and oppressive and, further, sought documents that are subject to legal/professional privilege.
I consider that it is clear that there were arrangements and transactions between Freshkept Technology and Freshkept Foods and their associated interests including Lawson and Grogan. These are matters that may affect a potential cause of action on behalf of the company against Freshkept Foods and/or Grogan. Accordingly, they are matters proper for enquiry in an examination of this type. In my view that is sufficient and each of the documents described in paragraph (b) onwards of the schedule relate or potentially relate to the "examinable affairs" of Freshkept Technology. Accordingly the remaining aspect of the application fails.
It follows that the examinees have failed in every aspect of their application and that their interlocutory application will stand dismissed.
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