In the matter of Cipcon Pty Ltd (in liquidation)
[2016] VSC 262
•20 May 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2016 01392
IN THE MATTER OF CIPCON PTY LTD (IN LIQUIDATION) (A.C.N. 083 453 356)
| Stephen John Michell and David Charles Quin in their capacity as liquidators of Cipcon Pty Ltd (in liquidation) (A.C.N. 083 453 356) | Plaintiffs |
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JUDICIAL REGISTRAR: | Hetyey, JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5 May 2016 |
DATE OF JUDGMENT: | 20 May 2016 |
CASE MAY BE CITED AS: | In the matter of Cipcon Pty Ltd (in liquidation) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 262 |
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PRACTICE AND PROCEDURE –Application by liquidator of a company for leave to represent company in public examinations – Supreme Court Rule 1.17(1) – s 596A and s 596B of the Corporations Act 2001 (Cth).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr Stephen Michell appeared in his capacity as liquidator of Cipcon Pty Ltd (in liquidation) (A.C.N. 083 453 356) |
JUDICIAL REGISTRAR:
Introduction
Cipcon Pty Ltd (in liquidation) (“the Company”) operated a construction business in the domestic building sector but was placed into liquidation by order of this Court on 31 July 2013.
By originating process dated 14 April 2016, the joint liquidators of the Company, Messrs Michell and Quin, seek the issue of summonses for examination in relation to the Company’s examinable affairs pursuant to ss 596A and 596B of the Corporations Act 2001 (Cth) (“the Act”).
In addition, orders are sought pursuant to rr 2.01(2) and 2.04 of the Supreme Court (General Civil Procedure) Rules 2015 (“the Rules”) dispensing with the requirement contained in r 1.17(1) of the Rules which provides as follows:
Except where otherwise provided by or under any Act or these Rules, a corporation, whether or not a party, shall not take any step in a proceeding save by a solicitor.
(emphasis added).
The liquidators seek such dispensation to enable them to make the ex parte application for the relevant summonses and for one of the liquidators, Mr Stephen Michell, to appear without a legal representative at the proposed examination hearings.
Relevance of rule 1.17(1)
Contrary to the usual practice, the Company has been named as a plaintiff, along with the liquidators. The application ought to have been brought in the name of the liquidators only. Given the Company should not be named as a party, there is a threshold question of whether r 1.17(1) of the Rules is applicable to the present case.
The short answer is that r 1.17(1) of the Rules has application to a corporation “whether or not a party” to a proceeding. However, even if r 1.17(1) of the Rules is not directly engaged, for the reasons set out below, I am of the view that the rule has indirect application to the present matter.
Applications made under ss 596A and 596B of the Act can be brought by “eligible applicants” which are defined in s 9 of the Act as follows:
“eligible applicant” , in relation to a corporation, means:
(a) ASIC; or
(b) a liquidator or provisional liquidator of the corporation; or
(c) an administrator of the corporation; or(d) an administrator of a deed of company arrangement executed by the corporation; or
(e) a person authorised in writing by ASIC to make:
(i) applications under the Division of Part 5.9 in which the expression occurs; or
(ii) such an application in relation to the corporation.
(emphasis added).
It is clear from s 9 of the Act that the liquidators’ status as eligible applicants is defined by reference to the Company itself. Further, as noted earlier, the summonses for examination which are sought concern the examinable affairs of the Company pursuant to ss 596A and 596B of the Act. The term “examinable affairs” is defined by s 9 of the Act as follows:
(a) the promotion, formation, management, administration or winding up of the corporation; or
(b)any other affairs of the corporation (including anything that is included in the corporation's affairs because of section 53); or
(c) the business affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation's examinable affairs because of paragraph (a) or (b).
Put simply, a public examination allows a liquidator to make inquiries about the affairs of a company for the benefit of creditors.[1]
[1]Hamilton v Oades (1989) 166 CLR 486, 496.
In addition, because summonses for examination issued under s 596B of the Act are “discretionary summonses”, the Court has a discretion whether to issue the summonses if it is satisfied that the proposed examinee may be able to give information about the examinable affairs of the Company.[2] I consider that the operation of r 1.17(1) of the Rules is a matter that may broadly fall within the exercise of that discretion.
[2]Ex parte Merrett (1997) 25 ACSR 146.
Given the capacity in which the liquidators bring the application and the nature of the examination process itself, it follows that the question of dispensation from r 1.17(1) of the Rules should be properly assessed by the Court.
Purpose and application of rule 1.17(1)
The effect of r 1.17(1) of the Rules, and its various equivalents in other Australian jurisdictions, is that a corporation does not have the same unconditional right to access the courts as a natural person. The reasons for the requirement for a corporation to be represented by a lawyer are many but include:
(a) ensuring the Court is not deprived of the assistance it would receive if a corporation was legally represented;[3]
(b) the difficulties faced by lay persons in conducting litigation;[4] and
(c) the possible waste of court time and the unnecessary incurring of costs as a result of untrained persons presenting a case.[5]
[3] Worldwide Enterprises Pty Ltd v Silberman [2010] VSCA 17 at [36].
[4] Ibid at [35].
[5] Ibid at [35].
The related requirement that people who appear before the court are qualified and admitted to practise is ‘based on considerations central to the proper administration of justice and the protection of parties in the litigation’.[6] As Burchett J noted in Re Perica; Crolink Pty Ltd (in liq) v Official Receiver in Bankruptcy,[7] ‘our system of justice requires, for its most effective operation, the meaningful participation of trained lawyers’.
[6] Scotts Head Developments Pty Ltd v Pallisar Pty Ltd (Unreported, New South Wales Court of Appeal, per Mahoney AP, 6 September 1994).
[7] (1998) 16 ACLC 1333.
However, as Forrest J said in Worldwide Enterprises v Silberman (“Worldwide Enterprises”), [8] the rule that a corporation be represented by a lawyer is not absolute. As already observed, compliance with the rule can be dispensed with under r 2.04 of the Rules. Whether there is a variation or exemption from the rule will turn on the circumstances of the case. The matters relevant to determining whether circumstances exist to dispense with r 1.17(1) of the Rules were usefully distilled by his Honour in Worldwide Enterprises.[9] There is some overlap between those factors and it is unnecessary to set out the list in full. Instead, I will consider each factor that is engaged by the present circumstances and which was addressed by the liquidators at the ex parte hearing. Because the liquidators’ affidavits in support are not available for inspection except so far as the Court orders,[10] I will also be circumspect in referring to their contents and the potential scope of any future examinations.
[8] [2009] VSC 165 at [19].
[9] Ibid at [20].
[10]See r 11.3(7) of the Supreme Court (Corporations) Rules 2013 and s 596C of the Act.
Manner in which the case has progressed at the time the application is made
The liquidators submit that this is not an instance of litigation being on foot. Instead, the purpose of the proposed examinations is to investigate whether any future claims may be brought by the liquidators. The liquidators rely on this distinction as a reason to dispense with the requirement for legal representation.
It is true that a public examination does not constitute inter partes litigation. Nevertheless, the power to compel a public examination has been described as an ‘extraordinary power’.[11] Examinees are required to answer questions about the company’s examinable affairs under oath and their evidence may give rise to substantive claims against them. As a result, examinations convened under the Act invariably involve the balancing of two important public interests: a) enabling the liquidator to collect all necessary information to carry out his / her duty to properly investigate the affairs of a company; and b) ensuring justice to the witness summoned to attend.[12]
[11] See Re North Australian Territory Co (1890) 45 Ch D 87 at 93 per Bowen LJ and Clark v Wood (1997) 78 FCR 356 at 358 per Finkelstein J.
[12]Re Spedley Securities Ltd; Ex parte Potts & Gardiner (1990) 2 ACSR 152 at 154 per Young J.
There may also be very rare circumstances where public examinations take the character of “litigation” between the liquidator and the examinee. For example, in the case of Surpion Pty Ltd v M.R. Works Pty Ltd,[13] Finkelstein J found that a legal professional privilege dispute within a public examination constituted “litigation” such that the ordinary cost rules would apply.[14]
[13](2010) 80 ACSR 635.
[14] See also Re Lutscher; Ex parte Waddell (1877) LR 6 Ch D 328, Re Appleton, French & Scrafton Ltd [1905] 1 Ch 749 and In the matter ofRadicle Projects Pty Ltd (in liq) [2013] FCA 1101.
For these reasons, I do not consider that the nature of the public examination process and the absence of substantive litigation are factors which support a dispensation from r 1.17(1) of the Rules.
The manner in which the case can proceed in the future without a lawyer
Mr Michell submitted that the proposed examinations could sensibly take place without the Company or the liquidators being legally represented on the following bases:
(a) Mr Michell would ask the examinees questions relating to the Company’s affairs;
(b) the examinees could elect to be legally represented; and
(c) regardless of whether the examinees are themselves represented for the purpose of raising objections to any questions, the Court has the power to control the conduct of the examinations.
Mr Michell has deposed that he has been a registered liquidator and official liquidator for more than 10 years. He is also a chartered accountant and trustee in bankruptcy and has practised in the field of corporate insolvency for over 15 years. In addition, Mr Michell points to his involvement in numerous public examinations under the Act and the Bankruptcy Act 1966 (Cth) during which he “has been integrally involved in the preparation of questions to be answered by the examinee, briefed lawyers regarding the information sought” and prepared the relevant court books.
Mr Michell says that having regard to these matters, he has the requisite skills and experience to conduct the proposed examinations in a professional, orderly and responsible fashion.
I do not doubt Mr Michell has the necessary expertise to identify the aspects of the Company’s affairs warranting investigation. However, his professional background and training does not necessarily extend to appropriately structuring questions in a courtroom setting or making forensic assessments of whether questions and topics are strictly within the scope of the Company’s examinable affairs. These are duties ordinarily performed by independent counsel. In order to ensure any questions are relevant and are put clearly and not oppressively, the court would need to adopt an increased supervisory role. This may extend the duration of the examinations.
I should also note that not all relevant information concerning these applications and the Company’s affairs was included in the first affidavit filed in support. Further important information emerged during the course of Mr Michell’s oral submissions at the ex parte hearing and was, on the insistence of the Court, included in a supplementary affidavit. The information principally concerned a large number of payments out of the Company’s multiple bank accounts worth several hundred thousand dollars. The Plaintiffs require information identifying the recipients of, and the reasons for, the payments. This evidence tends to support the issuing of the summonses but, for whatever reason, was not initially included. There is also evidence that there has been difficulty in locating the director. In the event any further affidavit material is required for an ex parte application for substituted service of a summons, it will be necessary for the liquidators to include all material facts, including those facts which support the application along with those that do not. Given the gaps in the first affidavit, the liquidators may require legal assistance in discharging this serious obligation.
The complexity of the issues involved in the case
The liquidators submit that the subject matter of the proposed examinations is not particularly complex and that the examination hearings themselves should occupy no more than one and a half days.
At the same time, the liquidators also submit that the examinations are necessary because very little is known about the Company’s affairs. This is largely because the Company’s sole director and secretary has not been cooperative in providing the Company’s books and records or completing the requisite report as to affairs.
Whilst I accept that the material in support of the applications does not disclose an overly complicated set of facts, the true level of complexity of the examinations is not currently known. Many documents, facts, transactions and queries may emerge once the liquidators are in possession of the Company’s books and records.
Whether the lack of disciplinary measures in relation to the person seeking to represent the company will affect the administration of justice
As already noted, Mr Michell is a registered and official liquidator of considerable experience. He is also an officer of this Court and is regulated by the Australian Securities and Investments Commission.
Whether there are financial considerations which would inhibit a company from obtaining legal representation
The evidence discloses that the Company had little to no assets at the time it was placed into liquidation and there are no funds available with which to engage legal representation. This, of itself, is not unusual in the case of insolvent companies.
Mr Michell also submitted that because no particular causes of action have yet been identified, the administration has not attracted offers of legal representation on a deferred fee basis. Further, in order to trace the payment of Company funds to various unidentified third parties, the liquidators have been informed by the Company’s banker that substantial fees will be payable for the service. It may be that certain source documents concerning the payments are ultimately produced by the examinees which would obviate the need for an expensive tracing exercise. Nevertheless, I understand the point to be that if these bank fees are necessarily incurred, it would make the engagement of legal representation even less affordable.
However, I note that if summonses for examination were issued by the Court, there is a mechanism by which the Court can later direct third parties to produce documents relevant to the Company’s affairs. Section 597(9) of the Act is in the following terms:
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.
It may therefore be possible for the Court to issue directions to the Company’s banker to produce documentation concerning certain payments out of the Company’s accounts which may warrant investigation. That information might include the account number and identity of the relevant payee and the purported purpose of the payment. To the extent the liquidators are therefore able to avoid incurring bank fees for a similar exercise, those funds may be capable of being re-directed to engaging legal representation for the examination process. Critically, the obtaining of this documentation may also assist in sharpening the scope of the liquidators’ inquiries and identifying potential causes of action.
Whether the defendant is likely to expend more funds in defending the claim absent a solicitor acting for the company
Given the nature of public examinations, this factor is of marginal relevance. In any event, Mr Michell submitted that the proposed examinees should not incur any unnecessary costs associated with Mr Michell conducting the examinations himself as opposed to a lawyer.
I note my earlier observation that the Court would need to adopt an enhanced supervisory role under such arrangements which may increase the duration of the examinations. This could, in turn, increase the costs of any examinee who engages legal representation.
Conclusion
Having regard to the above matters, it appears that, on balance, the appropriate course is to permit the liquidators to assume some of functions associated with the public examination process which would otherwise be performed by lawyers. What I have in mind is allowing Mr Michell to make the application for the issue of the relevant summonses and to effectively fulfil the role of instructing solicitor during the examination hearings, including by preparing the Court book. Counsel or an experienced insolvency or litigation solicitor should settle any further affidavit material and ask the relevant questions of the examinees. Similar permissions were given to a liquidator in Re Perica; Crolink Pty Ltd (in liq) v Official Receiver in Bankruptcy[15] in respect of substantive litigation. It may be that dispensations from the relevant direct briefing rules are necessary to allow the liquidators to engage counsel without an instructing solicitor but that will be a matter for the liquidators and counsel to resolve.
[15](1998) 16 ACLC 1333.
Orders to the above effect will follow.
For separate reasons which I will give orally, I will allow the issuing of a summons for examination under s 596A in respect of the director and sole secretary of the Company along with a summons for examination under s 596B in respect of another examinee.
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