In the matter of 1st Fleet Pty Ltd (in liquidation)

[2019] NSWSC 6

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of 1st Fleet Pty Ltd (in liquidation) [2019] NSWSC 6
Hearing dates:	12 December 2018
Decision date:	16 January 2019
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Order made under s 70-90 or s 90-15 of the Insolvency Practice Schedule (Corporations) in respect of the information or documents sought in paragraph 1(c) but not paragraph 1(a) of the Originating Process.
Catchwords:	CORPORATIONS – request under ss 70-45 and 70-55 of the Insolvency Practice Schedule (Corporations) for provision of specified information and documents – whether orders should be made under s 70-90 or s 90-15 of the Insolvency Practice Schedule (Corporations) in respect of the information or documents sought.
Legislation Cited:	- Corporations Act 2001 (Cth) ss 486, 504, 548, 549Q, 556 - Fair Entitlements Guarantee Act 2012 (Cth) - Insolvency Practice Rules (Corporations) ss 70-15, 70-55 - Insolvency Practice Schedule (Corporations) ss 70-45, 70-55, 70-90, 90-15 - Vexatious Proceedings Act 2008 (NSW) s 6
Cases Cited:	- Lowden v Elliott Harvey Securities Ltd (No 2) [2016] FCA 740 - Paul’s Retail Pty Ltd v Morgan [2009] NSWSC 1222; (2009) 76 ACSR 26 - Re MHM Australasia Pty Ltd (in liq) [2018] NSWSC 739
Category:	Principal judgment
Parties:	Commonwealth of Australia (Plaintiff) Riad Tayeh in his capacity as joint and several liquidator of the companies named as the Third to Tenth Defendants (First Defendant) David Solomons in his capacity as joint and several liquidators of the companies named as the Third to Tenth Defendants (Second Defendant) 1st Fleet Pty Ltd (in liq) (Third Defendant) 1st Fleet Logistics Pty Ltd (in liq) (Fourth Defendant) 1st Fleet (Steel) Pty Ltd (in liq) (Fifth Defendant) 1st Fleet (Foods) Pty Ltd (in liq) (Sixth Defendant) National Truck Kleen Pty Ltd (in liq) (Seventh Defendant) 1st Fleet (Milk) Pty Ltd (in liq) (Eighth Defendant) 1st Fleet (Merchandising) Pty Ltd (in liq) (Ninth Defendant) Incorporation of Transport Payroll Services Pty Ltd (in liq) (Tenth Defendant)
Representation:	Counsel: V Kerr/B Ng (Plaintiffs) GES Ng (Defendants)   Solicitors: Minter Ellison (Plaintiffs) Ashurst (Defendants)
File Number(s):	2018/297028

Judgment

1. By Originating Process filed on 28 September 2018 the Plaintiff, the Commonwealth of Australia (“Commonwealth”), seeks orders that the First and Second Defendants, Messrs Tayeh and Solomons (“Liquidators”) as joint and several liquidators of 1st Fleet Pty Ltd (in liq) and other companies (“Companies”), provide specified information and produce certain documents to the Commonwealth. The Commonwealth’s interest in the matter reflects the fact that it has advanced $9,444,014.22 to employees of the Companies under the General Employee Entitlements and Redundancy scheme and the Fair Entitlements Guarantee scheme. The Commonwealth’s proofs of debts for those amounts were admitted in full on or before 7 September 2018 and, on 12 September 2018, the Commonwealth received a first dividend in the liquidation of the Companies in the amount of $555,575.87.

2. The orders sought raise questions as to the scope of ss 70-45, 70-55, 70-90 and 90-15 of the Insolvency Practice Schedule (Corporations) (“IPSC”) and associated rules, the Court’s power to make orders in respect of a non-compliance with requirements of the IPSC, and as to the scope of the request for information and documents that was originally made by the Commonwealth. It is not necessary to determine all the issues addressed by the parties’ submissions, which canvassed a wide range of matters, in order to determine the application. It seems to me preferable that I limit this judgment to those matters that are necessary in order to determine the application.

Chronology and affidavit evidence

3. I will initially set out a brief chronology of events, before turning to the affidavit and other evidence on which the parties relied, then to the applicable provisions of the IPSC, and finally to the question whether the particular orders sought by the Commonwealth should be made.

4. The Liquidators were appointed as voluntary administrators to the Companies on 25 April 2012 and were appointed as joint and several liquidators of the Companies on 22 May 2012 (Solomons 22.11.18 [4]–[5]). On 21 June 2012, they made a determination as to pooling in respect of those Companies, which was ratified by creditors at a meeting held on 2 July 2012. At that meeting, creditors also resolved that a committee of inspection (“COI”) be appointed and that the members of that COI be Ms Clara Lai representing “IFCC”, Mr Kevin Smith representing the “ATO”, and Ms Helen Sourlas representing “TWU”. That resolution was subject to those persons satisfying the requirements of s 548 of the Corporations Act 2001 (Cth) although, as Mr Kerr (who appears with Ms Ng for the Commonwealth) points out, s 549Q of the Corporations Act specified the relevant requirements in respect of a pooled group. On 10 July 2012, “IFCC on behalf of Australian Super” nominated Ms Lai to be a member of the COI. On 12 July 2012, the Deputy Commissioner of Taxation nominated Mr Smith to be a representative of the COI. The COI thereafter appears to have approved, or purported to approve, the Liquidators’ remuneration for future periods, calculated on a time basis at their firm’s standard rates, on the basis that the payment may be drawn to a specified limit “at their discretion” and that further fee approvals would be sought from creditors, the COI or the Court when that limit was exhausted.

5. By 18 July 2018, the Liquidators had been paid $4,443,617 by way of remuneration, inclusive of GST, for the period between 25 April 2012 and 1 July 2018. I will refer to the Commonwealth’s concerns as to the amount of that remuneration below.

6. By a letter dated 24 August 2018 (Ex P1, 602), the solicitors for the Commonwealth noted the amount of remuneration paid to the Liquidators in the period to 1 July 2018; noted that that remuneration relied on three resolutions made by creditors on 22 May and 2 July 2012 and 12 resolutions of the COI between 19 December 2012 and 11 August 2017; and indicated the Commonwealth’s concern as to whether the COI lacked authority to pass the remuneration resolutions and as to whether the quantum of remuneration claimed was reasonable, within the meaning of former s 504(2) of the Corporations Act, on the basis that that section applied to any valid remuneration determinations made before 1 September 2017. That letter indicated the basis of the Commonwealth’s concern as to lack of authority of the COI, which turned on whether the persons purportedly representing “IFCC” and the “TWU” were eligible for appointment to the COI. That issue was reflected in a request for information set out in paragraphs 16(a)–(e) of that letter, and now pressed in paragraph 1(a) of the Originating Process in a different form. I will return to the validity of that request below. That letter also outlined the basis of the Commonwealth’s concern as to whether the remuneration paid to the Liquidators was reasonable, which was reflected in a request for information set out in paragraph 31 of that letter, and now pressed in paragraph 1(c) of the Originating Process in substantially the same form. I will return to the validity of that request below. The letter also raised other concerns, which have since been addressed by the production of documents and information by the Liquidators and are only relevant in this application in respect of the Liquidators’ complaint as to the Commonwealth’s approach to the requests for information generally. I will return to that complaint below.

7. Correspondence followed between the Liquidators’ solicitors and the Commonwealth’s solicitors. By a letter dated 7 September 2018, the Liquidators contended that the COI was validly constituted and its actions were properly authorised and indicated that:

“Accordingly, the Liquidators consider that it is not reasonable to comply with the Commonwealth’s request under section 70-45 of the [IPSC] for information about the formation of the [COI] and remuneration that has been approved by the Commonwealth to date. We also refer you to the Liquidators’ concerns raised in previous correspondence regarding your clients’ reliance on section 70-55 of the IPSC.” (Ex P1, 612)

As will emerge below, it seems to me that that response reflected a misunderstanding of the nature of the obligations that arise under s 70-45 and particularly s 70-55 of the IPSC. That letter also addressed other matters raised by the Commonwealth, which only remain in issue so far as the Liquidators complain of the Commonwealth’s approach to requests for documents and information generally.

8. By a further letter dated 9 October 2018, after these proceedings were commenced by the Commonwealth, the Liquidators’ solicitors proposed an adjournment to narrow the issues in dispute or resolve the matter. That letter also proposed that information be provided in an alternative manner and, so far as the Liquidators’ remuneration was concerned, proposed that they provide “any documents the Liquidators provided to the COI for the purpose of obtaining the approval of the COI to the Liquidators’ claimed remuneration”. By letter dated 18 October 2018, the Commonwealth did not accept that proposal and its solicitors noted that:

“Our client’s concern is to have sufficient information from which to form a view about the reasonableness of [the Liquidators’] remuneration. We understand that [the Liquidators’] remuneration has been claimed on a time-costed basis. Consistent with the approach of the Court in considering the reasonableness of time-costed claims, [the Commonwealth] requires that [the Liquidators] produce, accounts in itemised form, setting out the details of the work done; the persons who did the work; the time taken to perform the work; the remuneration claimed…”.

9. Further correspondence followed, which it is largely not necessary to address for the purposes of the application. A letter dated 16 November 2018 from the Liquidators’ solicitors proposed that they provide a report containing specified details of remuneration, consistent with that which is now proposed by Mr Solomons’ second affidavit. By a letter dated 23 November 2018, the Commonwealth’s solicitors did not accept that the content of the suggested report would be sufficient, so far as Mr Solomons proposed to summarise work-in-progress information by “categories of tasks” rather than in a manner that was referrable to each remuneration payment, but accepted that the provision of time entries referred to in Mr Solomons’ second affidavit “identified to each remuneration payment made” would answer the relief sought, and sought to require that information be provided in answer to paragraph 1(c) of the Originating Process.

10. The Commonwealth’s application is supported by an affidavit dated 27 September 2018 of Mr Henry Carr, who is a senior executive lawyer and branch manager employed by the Department of Jobs and Small Business (“Department”) and manages the recovery and litigation branch of the Department. Mr Carr’s affidavit sets out the structure of the Fair Entitlements Guarantee scheme established under the Fair Entitlements Guarantee Act 2012 (Cth), and refers to the appointment of the Liquidators initially as voluntary administrators of certain companies within the 1st Fleet Group, and subsequently as liquidators of the Companies. Mr Carr sets out matters relating to the conduct of the liquidation, to which I have referred in the chronology above, and also exhibits reports to creditors, minutes of meetings of creditors and minutes of COI meetings and other documents relating to the conduct of the liquidation.

11. Mr Carr refers to requests for information made by Department staff, under his supervision, to the Liquidators and to their responses to those requests. I will refer to the Liquidators’ complaint as to those requests below. Mr Carr’s evidence is that the Department is concerned about the quantum of remuneration paid to the Liquidators, and he refers to the letter dated 24 August 2018 from the Department’s solicitors to the Liquidators’ solicitors in that respect. That concern is hardly surprising, given the amount of the remuneration paid to the Liquidators, and the fact that the quantum of that remuneration reduces the amount that the Commonwealth will recover in respect of monies advanced to employees of the Companies.

12. The Liquidators rely on the affidavit dated 22 November 2018 of Mr Solomons. Mr Solomons refers to the history of the voluntary administration and the liquidation. Mr Solomons refers to the appointment of the COI, which included a representative of the Deputy Commissioner of Taxation and to the fact that remuneration reports have been submitted to the COI. I will refer to the submissions made by the Liquidators in respect of those matters below. Mr Solomons also refers to correspondence between the Commonwealth, its legal representatives, the Liquidators and their legal representatives over an extended period in respect of the conduct of the liquidation.

13. By a second affidavit dated 22 November 2018, Mr Solomons indicates that Mr Tayeh and he have maintained a system for the entry of time and narrations for work undertaken by them and their staff in the winding up of the Companies and gives evidence that the request in prayer 1(c) of the Originating Process filed 28 September 2018 may be met by providing the Commonwealth with data from that system. I pause to note that that request has not previously been met by doing so in the period of nearly three months since it was made. Mr Solomons’ evidence is that there is a “likelihood” that the narrations accompanying the time entries contain information that is confidential or subject to legal professional privilege (Solomons 22.11.18 [8]). There is no evidence that Mr Solomons has undertaken any review of those time entries to determine the extent of any such confidential information or the extent of information that is subject to legal professional privilege, and the Commonwealth makes clear that it does not seek access to such information.

14. Mr Solomons’ evidence is that Mr Tayeh and he have offered to provide the Commonwealth a report containing specified information, namely the positions of the persons for whose work a charge has been made; the number of hours worked by persons in those positions; the number of hours spent in various categories of task; the hourly charge-out rate of each position; and a description of the work done under the period referable to various categories of tasks. The Commonwealth has not accepted that offer; the Liquidators have not in fact provided that information to the Commonwealth; and it appears that proposal relates to information at the level of categories or work rather than at the level of particular tasks undertaken. Mr Solomons also expresses the view that the report would provide the Commonwealth with “all essential information” on work undertaken and charged by the Liquidators as part of the winding up of the pooled group. I pause to note that the question of what information the Commonwealth requires to assess the Liquidators’ remuneration would ordinarily be better determined by the Commonwealth, rather than by Mr Solomons, who may not be the best judge of what is “essential” to an assessment of whether the remuneration he and Mr Tayeh have received was reasonable. As will emerge below, it also seems to me that Mr Solomons’ approach to this issue misunderstands the extent of access to information now available to creditors, and particularly the Commonwealth, under ss 70-45 and 70-55 the IPSC.

15. The Liquidators in turn tendered six lever arch folders of documents (Ex D1) which included, inter alia, a request for information made by the solicitors for the Commonwealth on 14 June 2017, relating to matters such as security documents, financing agreements and assets of the Company and seeking information as to costs and expenses incurred by that date, and information provided in response (Ex D1, 256–879); a further request for information by the Commonwealth’s solicitors dated 3 August 2017, which requested information as to dealings with particular creditors and a copy of the Liquidators’ detailed cash book, and the response to that request (Ex D1, 880); a letter dated 8 September 2017 from the Commonwealth’s solicitors, which pressed the request for the Liquidators’ cash book and requested certain other information; an email dated 8 March 2018 from the Department to the Liquidators, which requested information under s 70-55 of the IPSC, which prompted a response by the Liquidators’ solicitors dated 22 March 2018 and the provision of additional documents (Ex D1, 1010–1208); a letter dated 16 April 2018 from the Department to the Liquidators’ solicitors which requested a further 17 categories of documents and information pursuant to s 70-55 of the IPSC, which prompted a response by the Liquidators’ solicitors dated 20 April 2018 (Ex D1, 1212–1213); and a significant volume of subsequent correspondence between solicitors, culminating in the production of further documents (Ex D1, 1227–1944). The documents appear to have been tendered to demonstrate that a substantial volume of information and documents has been requested by, and provided by the Liquidators to, the Commonwealth and I proceed on that basis.

The applicable provisions

16. The Commonwealth relied, in its request for information and in this application, on ss 70-45, 70-55 and 70-90 of the IPSC and to a lesser extent on s 90-15 of the IPSC. I will first set out the relevant provisions, then turn to the parties’ submissions as to their scope.

17. Section 70-45 of the IPSC relevantly provides that:

“Right of individual creditor to request information etc. from external administrator

(1)   A creditor may request the external administrator of a company to:

(a)   give information; or

(b)   provide a report; or

(c)   produce a document;

to the creditor.

(2)   The external administrator must comply with the request unless:

(a)   the information, report or document is not relevant to the external administration of the company; or

(b)   the external administrator would breach his or her duties in relation to the external administration of the company if the external administrator complied with the request; or

(c)   it is otherwise not reasonable for the external administrator to comply with the request.

(3)   The Insolvency Practice Rules may prescribe circumstances in which it is, or is not, reasonable for an external administrator of a company to comply with a request of a kind mentioned in subsection (1).”

18. Rule 70-15 of the Insolvency Practice Rules (Corporations) in turn specifies when it not reasonable for an external administrator to comply with a request under this section. That rule relevantly provides that:

“Unreasonable requests

(2)   It is not reasonable for an external administrator of a company to comply with a request to give information, provide a report or produce a document to a creditor if the external administrator, acting in good faith, is of the opinion that:

(a)   complying with the request would substantially prejudice the interests of one or more creditors or a third party and that prejudice outweighs the benefits of complying with the request; or

(b)   the information, report or document would be privileged from production in legal proceedings on the ground of legal professional privilege; or

(c)   disclosure of the information, report or document would found an action by a person for breach of confidence; or

(d)   there is not sufficient available property to comply with the request; or

(e)   the information, report or document has already been provided; or

(f)   the information, report or document is required to be provided under the Corporations legislation within 20 business days of the request being made; or

(g)   the request is vexatious.

(3)   Without limiting paragraph (2)(g), a request may be taken to be vexatious if the external administrator receives the request within 20 business days of receiving a similar request from the creditor.

Reasonable requests

(4)   It is reasonable for an external administrator of a company to comply with a request to give information, provide a report or produce a document to a creditor if subsection (2) does not apply to the request.

(5)   Despite paragraph (2)(d), (e) or (f), it is also reasonable for an external administrator of a company to comply with a request to give information, provide a report or produce a document to the creditor if:

(a)   the creditor agrees to bear the cost of complying with the request; and

(b)   if required to do so by the external administrator—security for the cost of complying with the request is given to the external administrator before the request is complied with.”

19. Section 70-55 of the IPSC relevantly provides that:

“Application of this section

(1)   This section applies if either:

(a)   a former employee of a company under external administration has made a claim for financial assistance from the Commonwealth in relation to unpaid employment entitlements; or

(b)   the Commonwealth considers that such a claim is likely to be made.

Commonwealth may request information etc.

(2)   The Commonwealth may request the external administrator of the company to provide specified information, reports or documents in relation to the external administration.

(3)   The external administrator must comply with the request.

(4)   The Insolvency Practice Rules may provide for and in relation to who is to bear the cost of providing the information, reports or documents.”

20. Rule 70-55 of the Insolvency Practice Rules (Corporations) in turn specifies two situations, not presently relevant, when the Commonwealth must bear the costs of provisions of such information.

21. Section 70-90(1) of the IPSC in turn provides that a person or persons who made a request for relevant material may apply to the Court for an order that the external administrator give all or part of the relevant material to the person or persons. Section 70-90(3) provides that, on application under s 70-90(1), the Court may order the external administrator to give the person, or any or all of the persons, who made the request for the relevant material all or part of that material and may make such other orders, including orders as to costs, as it thinks fit. The Commonwealth also points to the Court’s power to make orders under s 90-15 of the IPSC. Section 90-15 of the IPSC provides that the Court may make such orders as it thinks fit in relation to the external administration of a Company, and s 90-15(4)(b) provides that the Court may take into account whether an action or failure to act by a liquidator is in compliance with the Corporations Act or the Insolvency Practice Rules (Corporations). In oral submissions, Mr Kerr placed less weight on the Court’s power under s 90-15 of the IPSC than on the specific power under s 70-90 of the IPSC.

22. The Explanatory Memorandum to the Insolvency Law Reform Bill 2015 (Cth) assists in identifying the statutory purpose of these provisions. That Explanatory Memorandum noted (at [6.5]) concerns identified in a 2010 Senate inquiry as to a “feeling of general creditor powerlessness” during external administrations, and concerns as to the efficiency of governance of insolvency administrations, including as to the approval of remuneration of external administrators and “practitioners and stakeholders rights and responsibilities to communicate with each other”. The Explanatory Memorandum also noted (at [6.12]) that:

“The current regulatory barriers to creditors obtaining information entrenches the inherent problems creditors face in assessing the quality of the insolvency services provided.”

23. The Explanatory Memorandum noted, with apparent reference to ss 70-45 and 70-55 of the IPSC that:

“Creditors and members with a financial interest will be able to make reasonable requests for information that practitioners would be obliged to meet provided there is funds available to meet the request.” ([6.18])

The Explanatory Memorandum also referred, albeit largely by way of paraphrase, to these provisions, and it is notable that s 70-55 of the IPSC was described in wide terms as follows:

“The Commonwealth may request an external administrator to provide specified information, reports or documents in relation to an external administration.”

24. Turning now to the parties’ submissions, Mr Kerr points out that the structure of r 70-15 of the Insolvency Practice Rules (Corporations) is that it is only not reasonable for an external administrator to comply with a request if that external administrator, acting in good faith, is of the opinion that one or other of the seven specified circumstances exist and it is otherwise reasonable for that external administrator to comply with that request. Mr Kerr submits, and I accept, that that rule therefore provides a complete statement of the circumstances in which it is not reasonable to comply with a request. Mr Kerr also submits that, so far as the relevant requests are made under s 70-55 of the IPSC, the Liquidators may not refuse those requests, but the Commonwealth must bear the Liquidators’ costs of meeting that request if, in the Liquidators’ opinion, there is not sufficient property available to comply with it. Mr Kerr points out that the Liquidators have not suggested they hold the opinion or that they could hold that opinion where there is sufficient property in the winding up.

25. Mr Ng, who appears for the Liquidators, submits that s 70-55(2) of the IPSC is narrower in scope than s 70-45, so far as it authorises the Commonwealth to request an external administrator to provide “specified” information. I accept that that section would require the Commonwealth to specify the information, report or documents that it requested. I do not accept that it follows, as Mr Ng submits, that the section was:

“enacted principally to assist the Commonwealth in the investigation and determination of claims by former employees of insolvent companies for financial assistance in relation to unpaid employee entitlements”.

The language of that section seems to me to indicate that, where the prerequisite to its application is satisfied, the Commonwealth may specify the information it seeks from the external administrator, without any restriction imported by reference to a perception of its “principal” purpose(s). I also do not accept Mr Ng’s further submission that it “may be” that the Commonwealth cannot rely on s 70-55 of the IPSC after it has advanced sums by way of financial assistance to former employees of a company. The terms of the section do not impose such a limitation, and there is no apparent policy basis for such a limitation, where the Commonwealth will have a continuing interest in the conduct of a liquidation where it has advanced funds to employees and thereby stands as a priority creditor in that liquidation.

26. There was reference, in submissions, to whether the word “may” in s 70-90(3) of the IPSC confers a discretion on the Court whether to make an order for production. Mr Kerr did not submit that the word “may” in s 70-90(3) meant “must” but submitted that the discretion conferred by that term was confined, and possibly limited to the type of orders that the Court might make to facilitate or require the production of documents, and was not a discretion at large to refuse to require a liquidator to comply with mandatory obligations imposed elsewhere in the IPSC (T10–11). Mr Ng submitted that, although s 70-55 of the IPSC does not authorise an external administrator to refuse compliance with a request by the Commonwealth on the basis that such compliance is not reasonable, s 70-90(3) nonetheless confers a discretion upon the Court in deciding whether to order the production of the relevant material, where the external administrator does not comply with a request under s 70-55. Mr Ng submitted that questions of reasonableness and whether a request is vexatious are relevant to the exercise of that discretion.

27. It seems to me that, although the use of the word “may” does not necessarily require that such a discretion exist, it is consistent with such a discretion. There is also good reason for the Court to have such a discretion, to deal at least with the possibility that documents have been produced by a liquidator, between the time of the original request and the time the matter is determined by the Court, so that there is no utility in an order for production being made by the Court. The Court plainly also has, on the express terms of s 70-90 of the IPSC, a discretion as to the extent to which information or documents should be produced. Such a discretion should, however, be exercised having regard to the purpose of the relevant provisions, namely to require the production of documents or information to creditors where an appropriate request is made, and it is not established that the request is unreasonable for the purposes of s 70-45 of the IPSC or r 70-15 of the Insolvency Practice Rules (Corporations), or where the requirement to produce such documents or information was mandatory under s 70-55 of the IPSC. It seems to me unlikely that the legislature would have intended that the Court had a further discretion, at large, under s 70-90(3) of the IPSC to withhold an order for the provision of information or documents, where s 70-45 or s 70-55 of the IPSC required that such information or documents be provided. The existence of a wider discretion of that character would undermine the predictability of the relevant provisions, increase the likelihood that there would be disputes as to their application, and undermine the purpose of the provisions recognised in the Explanatory Memorandum to the Insolvency Law Reform Bill, to which I have referred above.

28. Mr Ng also submits that the Court should have regard, in determining whether to make an order under s 70-90 of the IPSC in respect of a request made by the Commonwealth under s 70-55, to whether the request is sufficiently connected to an attempt by the Commonwealth to consider or meet a claim made by a former employee of the relevant company. I also do not accept that submission. As I noted above, once the prerequisite to the application of s 70-55 of the IPSC is satisfied, namely that a former employee of the Companies made a claim for financial assistance for the Commonwealth in relation to unpaid employee entitlements, that section does not limit the nature of the information that may be requested. There is no apparent reason to read a further limitation into s 70-90, which does not appear in its terms, that the Commonwealth’s request for information under s 70-55 should be directed to assessing, considering or meeting such a claim. As I also noted above, it seems to me that the Commonwealth has legitimate interest in investigating whether a liquidator’s remuneration was reasonably incurred where, as here, it has previously met substantial employee claims and stands as a priority creditor in the liquidation.

Request for information as to constitution of the COI

29. By its opening outline of submissions, the Commonwealth indicates that it was concerned as to whether the COI had authority to make the remuneration approval resolutions, having regard to the eligibility of certain persons to be appointed to the COI. I have referred to that issue above. By paragraph 16 of its solicitors’ letter dated 24 August 2018, the Commonwealth requested information from the Liquidators as follows:

“The Commonwealth requests, pursuant to section 70-45 or alternatively [s] 70-55 of the [IPSC] that the Liquidators provide the following information and documents:

(a)   any information available to establish that the COI resolution is not void for being made under the wrong section of the Act;

(b)   any information available to establish that the COI resolution is not void for failing to determine the number of members of the [COI];

(c)   any information available to establish:

(i)   whether IFCC was an eligible unsecured creditor at the time of the COI resolution;

(ii)   the identity of the entity named as ‘TWU’ and whether that entity was an eligible unsecured creditor at the time of the COI resolution;

(d)   any information to establish that the COI remuneration resolutions were not invalid for being resolutions that were made on the motion or vote of a representative of a person who was not eligible to be appointed to the [COI];

(e)   any documents in the possession of the Liquidators that support the answers to (a)–(d).”

30. By paragraph 1(a)(ii)–(v) of its Originating Process, the Commonwealth now seeks information in somewhat different terms, namely:

“Information, and any documents, that establish:

…

(ii) whether Industry Fund Credit Control (IFCC) was an eligible unsecured creditor of the 1st Fleet pooled group of Companies (1st Fleet Group) as at 2 July 2012 within the meaning of s 479Q of the Corporations Act 2001 (Cth);

(iii)   whether the entity named as “TWU” in the COI resolution was an eligible unsecured creditor of the 1st Fleet Group as at 2 July 2012 within the meaning of [s] 479Q of the Corporations Act 2001 (Cth);

(iv)   the steps taken by the Liquidators to satisfy themselves that TWU and IFCC were eligible unsecured creditors of the 1st Fleet Group as at 2 July 2012;

(v)   the steps taken by the Liquidators to satisfy themselves that resolutions of the COI approving their remuneration were not invalid for being resolutions made on the motion or vote of a representative of a person who was not eligible to be appointed to the [COI].”

31. The Commonwealth submits that an order should be made in accordance with paragraph 1(a) of the Originating Process because the Liquidators have previously offered to produce similar information, albeit on the basis that the Originating Process would be dismissed with no order as to costs; the Liquidators have not suggested that that information is not relevant to the liquidation; they have not suggested that the provision of that information would breach their duties in relation to the liquidation; and they have not suggested that the request is vexatious. The Commonwealth submits that the Liquidators’ not having provided that information contravenes ss 70-45 and 70-55 of the IPSC, and the Court should order the production of that information under s 70-90 or alternatively s 90-15 of the IPSC.

32. Mr Ng responds that the use of the word “establish” in paragraph 1(a) of the Originating Process, as distinct from the word “describe”, seeks to require the Liquidators to “prove” the relevant matters and does not require the Liquidators to provide an explanation of the basis on which they formed the view that the COI was not invalidly constituted, having regard to the references to the TWU and the IFCC in the relevant resolution. It is not necessary to address that submission, given the conclusions which I have reached on other grounds. Mr Ng also advances wider criticisms of the Commonwealth’s approach to requests for information and documents which I will address below.

33. It seems to me that there are several reasons why the Court should not make the orders sought in paragraph 1(a) of the Originating Process, which do not require a determination of the range of matters raised by the Liquidators in opposition to the order. The first is that the Liquidators have confirmed in correspondence from their solicitors, and Mr Solomons confirmed in oral evidence, that the Liquidators have made appropriate searches and there are no further documents to be produced, so far as they are aware, falling within that category, beyond what they have already produced.

34. The second reason not to make such an order is that the categories specified in paragraph 16 of the letter dated 24 August 2018 are, in my view, not of a nature that would support that order, had the Commonwealth pressed the request for documents in those categories rather than reformulating them in paragraph 1(a) of the Originating Process. It is, of course, possible to formulate categories of information for documents for production in a straightforward and objective manner, as would ordinarily be done in defining disclosure categories or the content of subpoenas or notices to produce. The categories in paragraph 16 of the 24 August letter were not of that character. Instead, those categories seems to me to formulate several contentions that the Liquidators may or may not advance (for example, that IFCC was an eligible unsecured creditor and that the TWU was an eligible unsecured creditor) and then seek to require the Liquidators to produce information to “establish” those contentions and documents to “support” them. It does not seem to me that the Liquidators could reasonably be asked to produce documents to “establish” propositions which the Commonwealth, not they, had formulated and which they may or may not advance or documents to “support” those answers. The difficulties with that approach are emphasised by the fact that, as became apparent in submissions in this application, the Liquidators do not contend that either IFCC or the TWU was itself an eligible unsecured creditor at the time of the COI resolution, and instead contend that other entities that were eligible unsecured creditors of the Companies appointed the persons associated with those organisations to membership of the COI. I can see no reason why the Court should make an order requiring the Liquidators to produce information to “establish”, or documents to “support”, propositions that they do not advance.

35. Third, although the orders that are now sought in paragraph 1(a) of the Originating Process overlap with the categories of information that were originally sought in paragraph 16 of the 24 August letter, they are significantly reformulated. There is, for example, no reference in the earlier categories to information or documents that record the “steps taken by the Liquidators to satisfy themselves that” TWU and IFCC were eligible unsecured creditors, or that the resolutions of the COI were not invalid, as distinct from whether those persons were eligible unsecured creditors and whether those resolutions were invalid. I can see no reason why the Court should now make orders requiring the production of information and documents in a substantively different form to that which the Commonwealth had previously requested the Liquidators to produce, pursuant to any of the relevant provisions of the IPSC. This is not a case, for example, where the categories now formulated in paragraph 1(a) of the Originating Process are simply the documents which are left after documents which the Liquidators have previously produced, but is instead a reformulation of the categories to be produced. The Liquidators have not failed to produce documents in the reformulated categories, because they were not previously requested to do so.

36. For these reasons, I am not satisfied that the Court should make an order under s 70-90 or s 90-15 of the IPSC in respect of the information or documents sought in paragraph 1(a) of the Originating Process.

Request for information as to remuneration

37. By its opening outline of submissions, the Commonwealth indicates that it is also concerned as to whether the total quantum of the Liquidators’ remuneration is reasonable within the meaning of former s 504(2) of the Corporations Act. The Commonwealth points out, importantly, that payment of its claims which have priority under s 556(1)(e) of the Act (in respect of wages) and under s 556(1)(g) of the Act will exhaust the estimated available surplus of funds for creditors, even on an optimistic basis (Ex P1, 601). In those circumstances, the Commonwealth points out, and I accept, that the only creditors that have an ongoing financial interest in the liquidation are priority creditors, namely the Commonwealth, comprising the Department, the Australian Taxation Office and several employee creditors.

37. By paragraph 31(b) of the letter dated 24 August 2018 from the Commonwealth’s solicitors, it requested, pursuant to s 70-45 or s 70-55 of the IPSC, that the Liquidators provide information and documents specified as:

“A breakdown of the calculation of each remuneration payment made to the Liquidators identifying:

(i)   each person for whose work a charge has been made;

(ii)   the number of hours that person worked;

(iii)   the hourly charge-out rate for that person; and

(iv)   a description of the work done by that person.”

The same formulation is used in paragraph 1(c) of the Originating Process, although introduced by the words “information comprising”. A further category identified in the 24 August letter, in argumentative form, relating to other information “that demonstrates why the remuneration charged is reasonable within the meaning of section 504(2) of the Act” is rightly not now pressed.

39. The Commonwealth emphasises that the Liquidators have not provided access to the time entries retained in their system which record the entry of time and narrations for work undertaken by them and their staff in the winding up of the Companies, to which reference is made in Mr Solomons’ second affidavit (Solomons 22.11.18 [7]–[8]) or to the report of hours spent and tasks performed by the Liquidators to which reference was also made in that affidavit (Solomons 22.11.18 [11]). The Commonwealth points out that the Liquidators have offered several reasons, in correspondence, for not producing the time records, which include contentions that the information provided to the COI was sufficient to determine the reasonableness of their remuneration; that they have offered to provide information in a summary form; and that the time records are likely to contain confidential and privileged information or are unlikely to be fully understood by the Commonwealth. The Commonwealth submits, and I accept, that subject to any proper claim for confidentiality or privilege, none of those reasons constitute a proper basis to refuse to produce the relevant time records under s 70-45 of the IPSC, still less s 70-55 of the IPSC. Those sections create a right of creditors to access such information, subject to the exceptions where a request is unreasonable in respect of s 70-45 of the IPSC, and it is not an answer to such a request for a liquidator to express the opinion that the information has been provided elsewhere (for example, to a committee of inspection), still less that the liquidator thinks the information will be of no utility to a creditor which takes a different view. In any event, as the Commonwealth points out, there is every prospect that information as to the work actually carried out by the Liquidators will provide additional information beyond that provided to the COI, which was generally directed to approval of remuneration before the relevant work was carried out.

40. The Commonwealth also submits that the Liquidators have not shown any basis under IPSC s 70-45, still less s 70-55, for refusing to produce the relevant time records or the report in response to that request. It submits that that refusal is in contravention of ss 70-45 of the IPSC and 70-55 and the Court should order the production of the documents under s 70-90 or s 90-15 of the IPSC. The Commonwealth submits that the time records should be produced in electronic form to allow the Commonwealth to search and order the material. That is likely to be a sensible approach, given the volume of time entries that would be involved, at least in production of the original time records.

41. Mr Ng responded that paragraph 1(c) of the Originating Process referred to “information” and not information and documents. Mr Kerr pointed out that the Commonwealth’s original request was wider, and I do not understand the Originating Process to have sought to make any change of substance in that respect. If it were necessary to do so, I would grant leave to the Commonwealth to amend the Originating Process so that it conformed to its original request for information and documents. Mr Ng also submits that the Liquidators’ time costing records “arguably” do not fall within paragraph 1(c) of the Originating Process, because they are not a “breakdown” of the calculation of each remuneration payment made to the Liquidators and are merely “raw data”. That seems to me to be, with respect, an unduly technical reading of the Commonwealth’s initial request in paragraph 31 of the 24 August letter and of paragraph 1(c) of the Originating Process, particularly when advanced by a liquidator in response to its obligations under the IPSC to provide information at the request of creditors. In any event, it seems to me that time records would plainly provide a “breakdown” of each remuneration payment, since the total paid by any such payment will be split by them into amounts referable to particular attendances.

42. The Liquidators point to remuneration reports provided to the COI and exhibited to Mr Solomons’ affidavit (Ex D1, 112–205). The question in this application is not, however, whether the Court is satisfied as to the adequacy of the information contained in those reports or whether the Commonwealth ought to be satisfied as to the adequacy of information contained in those reports. The Commonwealth has invoked a statutory right to access to information, and it is no answer to the exercise of that right that it ought to be satisfied, in the Liquidators’ view or even in the Court’s view, with the information that had previously been provided to the COI. Mr Solomons’ affidavit also exhibits minutes of meetings of the COI at which resolutions were passed approving, largely in advance, the Liquidators’ remuneration (Ex D-1, 206–252).

43. Mr Ng goes so far as to submit that paragraph 1(c) of the Originating Process is “vexatious”. A finding that a request for information was vexatious would establish an exception to the requirement to provide information and documents under s 70-45 of the IPSC, although not, in terms, to the requirement to provide information and documents under 70-55 of the IPSC. Mr Kerr accepts that it would not be reasonable for a liquidator to comply with a request if it was vexatious (or, more precisely, a liquidator held the opinion in good faith that the request was vexatious) and that a request would fall in that category if it was made for an improper purpose, in the sense of a purpose that was unrelated to the creditor’s claims in, or the conduct of, the external administration or was made for the purpose of harassing or annoying the external administrator or causing delay or detriment to the external administration. That approach is broadly consistent with the use of that concept in, for example, s 6 of the Vexatious Proceedings Act 2008 (NSW).

44. The Liquidators’ submission that the request for information and documents relating to their remuneration is vexatious is founded, first, on the proposition that former s 504 of the Corporations Act continues to apply in this liquidation, where the Liquidators were appointed before 1 September 2017, and allows a creditor of the Companies to apply to the Court for review of the Liquidators’ remuneration. Mr Ng points out that, before embarking upon such a review, the Court must be satisfied that there is some demonstrated need to inquire into the quantum of the Liquidators’ remuneration, as previously determined: Paul’s Retail Pty Ltd v Morgan [2009] NSWSC 1222; (2009) 76 ACSR 26 at [79]. Mr Ng submits that the scheme of the legislation is that, where a committee of inspection makes an assessment of the reasonableness of a liquidator’s claimed remuneration on the basis of remuneration reports, then any further information would only be required to be produced to the Court if an applicant for review could demonstrate a well-based suspicion indicating need for further investigation. I do not accept that submission, which seems to be to be inconsistent with the fact that the legislature has conferred additional rights of access to information upon creditors generally, and the Commonwealth specifically, in s 70-45 and s 70-55 of the IPSC. There is no more reason to read down those provisions, because they can be used to obtain access to information which may later be used to support an application to the Court under former s 504 of the Corporations Act or indeed any other applicable section of the Act, than there is to read down s 486 of the Corporations Act by reference to the principles applicable to discovery: Lowden v Elliott Harvey Securities Ltd (No 2) [2016] FCA 740 at [10]; Re MHM Australasia Pty Ltd (in liq) [2018] NSWSC 739 at [14].

45. Mr Ng submits that this construction of those provisions:

“would involve deployment of those provisions for an improper purpose, namely, to re-open an inquiry into the reasonableness of the liquidator’s remuneration while circumventing the need to establish a demonstrated need to undertake such an inquiry.”

With respect, I see no element of “impropriety”, or indeed of circumvention, in a creditor relying on its rights of access to information from an external administrator under s 70-45 or s 70-55 of the IPSC, prior to invoking other provisions in the Corporations Act or the IPSC which allow review of remuneration or other review of an external administrator’s conduct. Mr Ng also submits that the use of these provisions is inappropriate, because it amounts to an alternative to preliminary discovery in respect of an action under former s 504 of the Act. Again, where the legislature has conferred a right of access to information upon creditors, I can see nothing inappropriate in creditors exercising that right of access, rather than taking the more costly step of seeking an order for pre-action discovery from the Court. That result does not seem to me to be inconsistent with, but to promote, the policies reflected both in the provisions for creditors’ access to information in the IPSC and in former s 504 of the Act.

46. Mr Ng submits that if (as I have held) the provisions on which the Commonwealth relies are not limited in the manner that the Liquidators contend, the Court should nonetheless refuse the relief sought as a matter of discretion, because of the participation of the Commonwealth, through the Deputy Commissioner of Taxation, in the deliberations of the COI. Mr Ng point out that the Commonwealth, represented by the Deputy Commissioner of Taxation, was owed tax debts by the Companies and a representative of the Deputy Commissioner of Taxation was appointed to the COI and approved the Liquidators’ remuneration. I am not persuaded that that matter provides any answer to a request by the Commonwealth for production of the relevant information, whether made by the Department, or indeed even if it were now made by the Deputy Commissioner of Taxation, to investigate whether the remuneration that had previously been approved in advance by the COI had in fact been reasonably paid.

47. Mr Ng also submits that the request for information as to remuneration is vexatious given the “multitude of requests for documents and information made of the Liquidators by the Commonwealth”. I have referred above to the several requests for information made by the Commonwealth, and to the volume of material produced by the Liquidators. It does not seem to me to follow that, because the Commonwealth has previously requested information as to a range of matters, which the Liquidators have provided or largely provided, a request for information directed to whether the Liquidators’ remuneration was reasonable is vexatious. There is no suggestion that the Liquidators have previously provided information to the Commonwealth of the kind that is now sought which is, as I have noted above, more detailed to that contained in remuneration reports provided to the COI and exhibited to Mr Solomons’ affidavits in these proceedings. There is also no suggestion that there would be any particular difficulty in the Liquidators accessing that information, where they will have maintained it in accordance with the professional obligations. Mr Ng also criticises the Commonwealth’s failure to accept an invitation by the Liquidators to meet to discuss the purpose and focus of the Commonwealth’s requests. It does not seem to me that that criticism is well-founded, where the Commonwealth could reasonably form a view that a request for the underlying time records supporting payment of a very large amount of remuneration would not be met by anything other than provision of that information.

48. Mr Ng also submits that, in this matter:

“The Commonwealth purported to use the information disclosure provisions in the [IPSC], if not as an instrument of harassment and oppression, then certainly as a means to undertake close surveillance of every step that the Liquidators have taken over a protracted winding up.”

It is also not apparent to me that it would be unreasonable for the Commonwealth to wish to undertake a review, and potentially a close review, of steps that the Liquidators had taken in a matter in which the Commonwealth had advanced over $9.4 million to employees of the Companies, the Liquidators had been paid remuneration exceeding $4.4 million, and the return to the Commonwealth as a higher ranking creditor was to date $555,575.87. Those matters do not, on any view, seem to me to support the exercise of a discretion not to make the orders sought in paragraph 1(c) of the Originating Process. If additional costs will be incurred in complying with them, then they are likely to be borne by the Commonwealth in any event, so far as it has the substantial remaining economic interest in the liquidation.

49. Mr Ng alternatively submits that the Court should not accede to the orders sought by the Commonwealth in paragraph 1(c) of the Originating Process in its current form, and instead should “allow” the provision of the report proposed by Mr Solomons in his affidavit. I am also not persuaded by that submission. If the provision of that report complies with the Commonwealth’s request and the order sought, then that will discharge the Liquidators’ obligations in that respect . If it does not, then I am not persuaded that it should be provided in substitution for time records that are readily available and would comply with that request. It seems to me that it would be unfortunate, and would likely defeat the purposes of those provisions, if the Courts too readily acceded to submissions that the Courts should not order such compliance but instead accede to a liquidator’s preference that some other information or document should be provided. I do not exclude the possibility that there may be rare cases where that should occur, where the costs of providing documents or information in a particular form were substantial, and the substance of that information could be provided in a less costly or more efficient way. This does not seem to me to be such a case, where time records are in the Liquidators’ possession and could readily be produced, after masking for any proper claims for third party confidentiality or legal professional privilege.

50. I am satisfied that, where the Liquidators have not produced the information sought in paragraph 31(b) of the letter dated 24 August 2018 or paragraph 1(c) of the Originating Process to date, they should now be ordered to produce that information. It is not necessary or appropriate that I now determine which of the documents which they might produce in response to that order would comply with it. It is their obligation to comply with that order, when it is made, and they may take appropriate advice from their legal advisers and appropriate steps to comply with that order. Whether the report which they have proposed would comply with that order will depend upon its content. The Commonwealth has accepted that production of time records, masking information that is properly confidential or properly subject to legal professional privilege, would comply with that order.

Orders and costs

51. The parties should bring in agreed short minutes of order to give effect to this judgment within 14 days or, if there is no agreement, their respective short minutes of order and short submissions as to the differences between them.

52. The Commonwealth has been partly successful in the application, since I have not ordered the production of further documents and information relating to the constitution of the COI, but have ordered production of further documents and information relating to the Liquidators’ remuneration. My preliminary view is that the Liquidators should pay, without recourse to the assets of the Companies, half of the Commonwealth’s costs of this application, as agreed or as assessed. If the parties cannot reach agreement as to costs, I will hear the parties in that respect, and as to the manner in which the Liquidators’ remuneration and costs and disbursements of this application, including any that have already been paid from the Companies’ assets, should be treated.

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Decision last updated: 21 January 2019