In the matter of Bailey Roberts Group Pty Ltd (in liq)

[2024] NSWSC 404

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Bailey Roberts Group Pty Ltd (in liq) [2024] NSWSC 404

Hearing dates:

15 April 2024

Date of orders:

15 April 2024

Decision date:

15 April 2024

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Orders made in accordance with the short minutes of order.

Catchwords:

CORPORATIONS – external administration – liquidators – supervisory jurisdiction – whether inquiry into the conduct of liquidator should be ordered – where the liquidator failed to comply with a subpoena for production of documents – where liquidator has now agreed to regime for production.

Legislation Cited:

- Corporations Act 2001 (Cth) s 536

- Insolvency Practice Schedule (Corporations) 2016 ss 90-5, 90-15

Category:

Procedural rulings

Parties:

Financialstrategy.com.au Pty Ltd (Plaintiff)
Ian Roy Bailey (First Defendant)
Leigh Anthony Thomas (Second Defendant)

Representation:

Counsel:
S Hartford-Davis (Plaintiff)
H Martin (First Defendant)
R D Turnbull (Second Defendant)
D Armstrong (Solicitor) (Liquidator)

Solicitors:
HWL Ebsworth (Plaintiff)
Addisons (First Defendant)
Watson Webb (Second Defendant)
Mills Oakley (Liquidator)

File Number(s):

2023/163417

Judgment – ex tempore (Revised 15 April 2024)

1. These proceedings have a long history and have involved several difficulties. They involve a claim brought by the Plaintiff, Financial Strategy.com.au Pty Ltd (“FPL”) alleging that assets of a company, Bailey Roberts Group Pty Ltd (“BRG”) were diverted away from BRG for the benefit of the Defendants, Mr Bailey and Mr Thomas and their associated companies. Earlier proceedings concerning these matters were not determined on their merits, after the liquidator of BRG (“Liquidator”) reached a settlement with the Defendants. FPL now brings a claim in respect of overlapping matters in these proceedings.

2. On 1 December 2023, I made orders on FPL's application, for discovery in favour of FPL and for the issue of a subpoena to the Liquidator. I there recorded, for the reasons set out in that judgment, why I was satisfied that those orders should be made in accordance with Supreme Court Equity Practice Note 11, on the basis that the document production went to matters in issue in the proceedings and, in my view, it was appropriate for the documents to be produced prior to the completion of evidence in the proceedings. I also there recorded the position which the First Defendant, Mr Bailey, then put, and has since maintained, that he held only a small number of documents which fell within the relevant categories, implicitly, as has now emerged, because he contends that all such documents are held by the Liquidator.

3. This was the unfortunate start of a process for production of documents, which has continued for several months without resolution. The circumstances in which that occurred are addressed in an affidavit dated 14 April 2024 of the solicitor acting for FPL, Mr Wallman, who outlines the history of FPL’s dealings with Mr Bailey in respect of discovery and with the Liquidator in respect of the subpoena. Importantly, that affidavit refers to the position taken by Mr Bailey that electronic copies and files of BRG were provided to BRG’s voluntary administrator, who has become the Liquidator, after the company entered into voluntary administration and included, in effect, all relevant documents. Mr Bailey's position is that, in effect, all the documents that would be necessary for a proper determination of these proceedings on their merits are now in the custody and control of the Liquidator and not his custody or control.

4. Mr Wallman's affidavit also addressed the correspondence with the Liquidator in respect of the production of documents in response to the subpoena which has involved indications from the Liquidator, first, that very large costs would be incurred to identify and produce the relevant documents; and, subsequently, that documents could be produced electronically only after the Plaintiff agreed to pay a lesser but still large sum for the costs of their production, without the Plaintiff first having the opportunity to review what was produced. The subpoena issued by the Court to the Liquidator has been returnable, more than once, before a Registrar, and the Liquidator or his solicitors did not appear. The Liquidator also advanced a claim for confidentiality over the documents within the scope of the subpoena, notwithstanding that it was not apparent why the documents sought would be confidential, given the time that these and the predecessor proceedings have been on foot, and the likelihood that confidentiality would be lost with the passage of time.

5. The Liquidator in turn reads an affidavit dated 12 April 2024 of Mr Armstrong, the Liquidator's solicitor, which fairly refers to attempts that have been made by the Liquidator to seek to negotiate a basis for the production of documents. I bear in mind the fact that the Liquidator is or may well be unfunded in the liquidation, but I also bear in mind his claims noted above for payment of very large amounts for the costs of document production, and his assertions of a claim for confidentiality, the basis of which is not apparent to me.

6. When the proceedings were listed before me, on 25 March 2024, it became apparent that these issues were giving rise to significant prejudice to the just, quick and cheap resolution, or any resolution, of these proceedings. The Plaintiff's then position was that it had not been able to serve its lay evidence, because it had been deprived of the access which it had been seeking since December 2023 to relevant documents of BRG. I there noted that, absent compliance with the subpoena by the Liquidator and prompt production of documents, the matter should be listed today with a view to allowing the Liquidator an opportunity to be heard as to whether the Court should conduct an inquiry in respect of his or her conduct in respect of non-compliance with the subpoena. The Liquidator was not then before the Court, and I then expressed no view as to the merits of his position. The subpoena was subsequently returnable in the subpoena list and the relevant documents were again not produced on that return date.

7. I was, of course, referring at the directions hearing on 25 March to the Court's jurisdiction under s 90-5 of the Insolvency Practice Schedule (Corporations). That section provides that the Court may, on its own initiative during proceedings before the Court, inquire into the external administration of a company and may, if it is satisfied that such an inquiry should take place, and an adverse view is formed, make a set of orders including those set out in s 90-15 of the Insolvency Practice Schedule (Corporations). I bear in mind that the Court will adopt a similar approach in such an inquiry to the statutory jurisdiction under former s 536 of the Corporations Act 2001 (Cth). In particular, the case law contemplates a three stage process, the first stage of which is to raise and address an additional question as to whether an inquiry is warranted, although there is a degree of overlap between the relevant stages in that process.

8. It is ultimately not necessary to address that jurisdiction further because the parties have now agreed a sensible regime for production of documents within the scope of the subpoena. The Liquidator now consents to an order that he produce the physical documents that incorporate the records of BRG and provide electronic access to electronic records that the Liquidator possesses in electronic form which, I interpolate, Mr Bailey says are now all in the Liquidator’s possession. The parties have also agreed a regime by which FPL will then advise the Liquidator which documents it seeks to rely on and the Liquidator will then have the opportunity to identify any claim for legal professional privilege in respect of those documents. That approach, in effect, reserves the question of privilege to be determined once the documents that are in issue in the proceedings have been identified, rather than by reference to the wider range of documents that may originally be produced by the Liquidator.

9. This is a sensible regime. It is, obviously, unfortunate that it was not agreed when the subpoena was first issued, but I accept that it is plainly better that it be agreed late rather than never. The Liquidator has fairly apologised to the Court in respect of the delay in compliance with the subpoena and, with respect, that apology was rightly made. His solicitors have also apologised in respect of the non-appearance on two occasions when the subpoena was returnable before the Registrar. It is important that liquidators understand that, even where they are not funded in a liquidation, they do not have immunity from compliance with compulsive orders of the Court. The Court had here issued a subpoena for the production of documents which had compulsive force. The choices available to the Liquidator were to comply with it or seek to set it aside, and there was no third option available by which the Liquidator could unilaterally choose not to comply with the subpoena without making any attempt to set it aside.

10. In the event, the Liquidator has now adopted a much more constructive approach which will allow the production of documents, likely within a short time, and which will expedite the maintenance of proper claims for privilege and minimise the costs involved. In these circumstances, and although this approach was adopted late, it seems to me that the Court should not now order an inquiry into the Liquidator’s conduct, where it is no longer necessary to undertake such an inquiry. The approach that the Liquidator will now adopt will allow the proceedings to continue on a proper basis, and properly recognises that subpoenas have compulsive force, and must be complied with if not set aside. There is no reason, arising from these matters, to think that the Liquidator’s previous approach was anything other than an error of judgement by the Liquidator and his legal advisers, which has now been corrected and does not raise any wider issue as to his conduct. Accordingly, I will not order an inquiry as to the conduct of the Liquidator, because I am satisfied, for the purposes of the first stage of the inquiry process, that an inquiry is no longer warranted. I would not necessarily have taken that view, but for the constructive approach which has been taken by the Liquidator and his solicitors today.

11. I will make orders in accordance with the short minutes of order initialled by me and placed in the file, but amending order 7 to delete an order that the Liquidator pay the First Defendant's costs of the appearance today. It seems to me that, as between the parties, the Plaintiff is properly entitled at least to payment of his costs of this hearing, where the tortuous process of obtaining the production of documents has plainly imposed additional costs on the Plaintiff. I am not satisfied that a costs order is properly made in respect of the First Defendant or the Second Defendant (which sought to have the order for costs extended to it) where it is not apparent that either of them has made any real effort to seek to make the Liquidator’s or the Plaintiff’s task any easier in respect to the production of the documents. I also vacate the listing of the subpoena before the Registrar on 16 April 2024 and direct the parties to relist the matter before me within two business days of any dispute arising as to giving effect to or compliance with these orders.

12. For these reasons, I make orders in accordance with the short minutes of order initialled by me and placed in the file.

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Decision last updated: 17 April 2024