In the matter of Dalstonville Pty Ltd (in Liq) and Don Leunig Pty Ltd (in Liq)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S ECI 2018 00835

IN THE MATTER OF DALSTONVILLE PTY LTD (IN LIQUIDATION) (ACN 009 436 245) AND DON LEUNIG PTY LTD (IN LIQUIDATION) (ACN 008 722 683)

SAM KASO AND CLIFF ROCKE IN THEIR CAPACITIES AS JOINT AND SEVERAL LIQUIDATORS OF DALSTONVILLE PTY LTD (IN LIQUIDATION) (ACN 009 436 245) AND DON LEUNIG PTY LTD (IN LIQUIDATION) (ACN 008 722 683)

Plaintiffs

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JUDICIAL REGISTRAR:	Hetyey JR
WHERE HELD:	Melbourne
DATE OF HEARING:	1 November 2018
FURTHER WRITTEN SUBMISSIONS:	14 November and 21 November 2018
DATE OF RULING:	19 December 2018
CASE MAY BE CITED AS:	In the matter of Dalstonville Pty Ltd (in Liq) and Don Leunig Pty Ltd (in Liq)
MEDIUM NEUTRAL CITATION:	[2018] VSC 774

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CORPORATIONS – Corporations Act 2001 (Cth) – winding up – summonses for public examination issued under s 596B – application to set aside summonses – alleged threat to use public examination process if demands of liquidators not met - whether application for summonses made for improper purpose – whether abuse of process – whether proper disclosure made by liquidators at time of application for summonses – whether independence of liquidators doubted – whether summonses oppressive in their terms.

CORPORATIONS – Supreme Court (Corporations) Rules 2013 (Vic) – r 11.5 – application to set aside summonses made out of time – application to extend time – whether application raises arguable grounds – whether prejudice arises.

CORPORATIONS – Corporations Act 2001 (Cth) – s 596C(2) – confidential affidavit filed in support of application for issue of summonses – application made by examinees to inspect affidavit – whether application to set aside summonses raises arguable grounds to justify inspection.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	DF McAloon	Clayton Utz
For the Applicant Examinees	MI Borsky QC JDS Barber	Arnold Bloch Leibler

JUDICIAL REGISTRAR:

Introduction

The power to compel a public examination has long been described as an “extraordinary power”.[1] Examinees are required to answer questions about a company’s examinable affairs under oath and their evidence may give rise to substantive claims against them. As a result, examinations convened under Part 5.9 of the Corporations Act 2001 (Cth) (“the Corporations Act”) invariably involve balancing two important considerations: enabling the liquidator to collect all necessary information to discharge his / her duty to properly investigate the affairs of a company;[2] and ensuring justice to the witness summoned to attend.[3] This case illustrates that necessary balancing exercise.
[1]See Re North Australian Territory Co (1890) 45 Ch D 87, 93 (Bowen LJ) and Clark v Wood (1997) 78 FCR 356 (“Clark v Wood”), 358 (Finkelstein J).
[2]See Re Spedley Securities Ltd; Ex parte Potts & Gardiner (1990) 2 ACSR 152, 154 (Young J) (“Re Spedley”); Re Chevron Furnishers Pty Ltd (in liq) (No 2) [1995] 1 Qd R 125, 30 (Fitzgerald P, Pincus JA and Williams J); Thomson Reuters, McPherson’s Law of Company Liquidation (5^th ed), vol 1 (at Update 89) 8.500.
[3] Re Spedley 154.

Background

By originating process filed on 15 August 2018, Mr Sam Kaso and Mr Cliff Rocke as liquidators (“the liquidators”) sought orders for the issuing of summonses under s 596B of the Corporations Act directed towards a number of persons in connection with the examinable affairs of Dalstonville Pty Ltd (in liquidation) and Don Leunig Pty Ltd (in liquidation) (together, “the Companies”). Relevantly, those persons are: Mr Mark Walton, Mr Simon Olsen, Mr Peter Whiffen, Ms Margaret Whiffen and Mr Steven Taylor (collectively, “the examinees”).[4] None of the examinees were directors or officers of the Companies but rather directors, officers or employees of Adapt-A-Lift Group Pty Ltd (“AALG”); an entity which ultimately acquired the business of the Companies shortly before they went into external administration.
[4]In addition, the originating process identified a further person proposed to be summonsed under s 596B, however, a summons was not ultimately issued by the Court in respect of that person.

The summonses were issued by the Court on 27 August 2018 and initially made returnable on 17 September 2018. They required the examinees to attend for examination and to produce extensive documentation, particularly in relation to the sale of the Companies’ business. Further dates were set aside by the Court for the substantive examinations to take place between 14-16 November 2018. At the request of the examinees, the initial return date of the summonses was adjourned until 11 October 2018. However, late in the evening of 10 October 2018, the examinees served an unfiled interlocutory process and accompanying affidavit principally seeking to set aside the summonses. The interlocutory process was ultimately accepted for filing the next day. The lateness of the application meant that it could not be properly dealt with on 11 October 2018 and, as a consequence, orders were made for the filing of further material and the fixing of the interlocutory process for hearing on 1 November 2018.

The examinees primarily assert that the summonses are an abuse of process because they were issued for an improper purpose. They allege that the improper purpose was to impose a costly, burdensome and inconvenient process on AALG as a means of negotiating the resolution of a dispute between the liquidators and that company.

Other arguments relied upon by the examinees to set aside the summonses are:

(a) alleged non-disclosure by the liquidators in the confidential affidavit filed under s 596C of the Corporations Act in support of the application for the issuance of summonses (“the s 596C affidavit”);

(b) concerns about the liquidators’ independence; and

(c) the oppressive nature of the summonses having regard to the extent of documents sought to be produced (some of which are alleged to have been previously provided to the liquidators).

In addition, two preliminary matters arose for determination: firstly, whether the examinees should be granted an extension of time to make their application to set aside the summonses; and secondly, whether the examinees should be entitled to inspect the s 596C affidavit. Each of those matters were the subject of ex tempore rulings at the conclusion of the hearing of the matter.[5] The examinees were ultimately given leave to make their application out of time and their lawyers were permitted to inspect the s 596C affidavit in redacted form. Supplementary written submissions were then filed to deal with any matters arising from the inspection of the confidential affidavit. The basis on which those preliminary matters were determined is explained further below.
[5]The parties were informed that the ex tempore reasons would be supplemented and included in the Court’s written reasons regarding the examinees’ substantive application.

Legal principles and statutory provisions
Purpose of the public examination process

The key objective of the public examination process is to allow a liquidator or other “eligible applicant”[6] to procure information in relation to the examinable affairs of the company in liquidation.[7] As Lander J explained in Re Southern Cross, this information gathering exercise serves a number of distinct public purposes:

[t]he first purpose relates to the winding up generally, and the protection of the interests of creditors. It may be used to protect the interests of creditors by assisting in the recovery of assets of the corporation for distribution to the creditors.
As well as protecting the interests of creditors the information is also gathered to determine whether any person who has taken part or been concerned in the examinable affairs of the corporation may have been guilty of misconduct in relation to the corporation. The power is clearly available to the eligible applicant so that information may be obtained to determine whether any person has been guilty of misconduct in relation to the corporation, and for the purpose of bringing proceedings (whether civil or criminal) against that person: Hamilton v Oades (1989) 166 CLR 486.
The third purpose for which the legislation exists is for the public interest in assisting the regulation of corporations. The legislation acts to remind those who act as examinable officers of the corporation, or who deal with a corporation, that they are at risk that if any of the circumstances giving rise to an application by an eligible applicant arise, they may be called upon to be publicly examined about their conduct in relation to the corporation. It is in the public interest that those who act as examinable officers of corporations and those who take part or are concerned in the examinable affairs of a corporation are obliged to impart their knowledge of the affairs of the corporation in the event that the corporation becomes subject to administration or winding up. In that sense the legislation serves the public interest as well as the private interest of creditors.[8]

[6]“Eligible applicant” is defined in s 9 of the Corporations Act to also include ASIC, an administrator, deed administrator or a person authorised by ASIC in writing to conduct an examination (such as a creditor of a company).

[7]In the matter ofMoage Pty ltd (in liq); John Sheahan v Robert Pitterino & Ors (1997) 77 FCR 81 (“Re Moage”); Re Southern Cross Petroleum Sales Pty Ltd (in liq) v Hirsch (1998) 70 SASR 527, 534 (Lander J) (‘Re Southern Cross’); Douglas-Brown v Furzer (1994) 11 WAR 400, 406.

[8] ReSouthern Cross 534.

His Honour identified a further purpose of the examination procedure in Re New Tel Ltd (in Liq);Evans v Wainter,[9] namely to enable “evidence and information to be obtained to support the bringing of proceedings against examinable officers and other persons in connection with the examinable affairs of the corporation”.[10]
[9] (2005) 145 FCR 176 (“Evans v Wainter”).
[10] Ibid 216-7 [252]. See also Hamilton v Oades (1989) 166 CLR 486.

A liquidator may be interested not only in discovering whether there exists a cause of action, but also in assessing whether a case is sufficiently strong to warrant spending creditors’ money in pursuit of it.[11] To this end, a liquidator may enquire as to the worth of a potential defendant.[12]

Discretionary summonses

[11] Re Spedley 155.

[12]Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301, 307; Evansv Wainter 191; In the matter of Cardinal Group Pty Ltd (in liq) and Cardinal Project Services Pty Ltd (in liq) [2018] NSWSC 748 (24 May 2018) [16] (“Cardinal Group”).

Whilst directors and officers of a company in liquidation can be summoned pursuant to s 596A of the Corporations Act, other persons may be summoned under s 596B which relevantly provides as follows:

(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.
…

It is apparent that summonses for examination issued under s 596B of the Corporations Act are discretionary in nature. That is, the Court has a discretion whether to issue a summons if it is satisfied that the proposed examinee may be able to give information about the examinable affairs of the Company.[13]
[13] Ex parte Merrett (1997) 25 ACSR 146.

The origin of s 596B can be found in companies legislation in operation within each of the Australian colonies prior to Federation and based on the Companies Act 1862 (UK), for example, the Companies Act (25 & 26 Vict c 89).[14]

Application to discharge summonses

[14]Section 115 of the Victorian legislation relevantly provided that “[t]he Court may, after it has made an Order for winding up the Company, summon before it any Officer of the Company…or any Person whom the Court may deem capable of giving Information concerning the Trade, Dealings, Estate, or Effects of the Company; and the Court may require any such Officer or Person to produce any Books, Papers, Deeds, Writings, or other Documents in his Custody or Power relating to the Company…”

Pursuant to r 11.5 of the Supreme Court (Corporations) Rules 2013 (Vic) (“Corporations Rules”), an examinee who is served with a summons may, within three days of service, apply to the court for an order discharging the summons by filing an interlocutory process and supporting affidavit. By combined effect of r 1.10 of the Corporations Rules and r 3.02(1) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), it is possible for an examinee to seek an extension of the prescribed period of time for the filing of such interlocutory process. However, in doing so, an examinee is required to satisfy the Court of three matters:

·that a proper and satisfactory explanation has been given for not bringing the application within the three day time limit;[15]
·whether any prejudice will be suffered if the extension of time is granted;[16] and
·that the merits of the application warrant the extension of time (in other words, that the examinee has an arguable basis to discharge the summons).[17]

Access to liquidator's confidential affidavit

[15] Trevor, in the matter of Bell Group NV (in liq) (2016) 116 ACSR 294, 299 [22] (Yates J) (“Bell Group”).

[16] Ibid.

[17]Ibid. See also Re 8284 Belmore Street Pty Ltd (in liq) [2014] NSWSC 1701 (24 November 2014) [2] (Black J) and

Section 596C(2) of the Corporations Act provides that an affidavit filed in support of the application for the issue of a summons is “not available for inspection except so far as the Court orders.” This is because the affidavit will invariably contain confidential information in order to persuade the Court to exercise its discretion to issue the summons. Such confidential information may include the areas of inquiry likely to be covered at the examination and its release may frustrate the examination process.[18]
[18] Re Excel Finance Corporation (Receiver and Manager Appointed); Worthy v England (1994) 52 FCR 69, 93-4 (“Re Excel”).

The merits of an examinee’s application to discharge his/her summons is also critical to the question of whether the examinee should be granted access to the confidential affidavit upon which the summons was issued. The discretion to grant access to the affidavit may be exercised in favour of an examinee once a ground of challenge to the public examination process is identified as an arguable one, where the affidavit appears relevant to making out that ground and “where the justice of the case so requires”.[19] In other words, inspection may be allowed under s 596C(2) if the Court is of the opinion that access to the affidavit is likely to assist in determining the correctness of the challenge[20] such that the Court would not be able to fairly and properly determine the examinee’s application in its absence.[21] At the same time, it is important that the examination process not be frustrated by the release of confidential information which may disclose the matters upon which the examinee is sought to be examined[22] and that the person seeking access is not doing so without good cause or engaging in a fishing exercise to make out his or her ground of challenge.[23]
[19]         Re Excel. See also Re Moage 94; Re Ariff v Fong (2007) 63 ACSR 384 and Bell Group 316-7 [138].
[20]         Meteyard v Love (2005) 65 NSWLR 36 (“Meteyard v Love”) and Sutherland v Pascoe [2012] FCA 453 (18 April 2012) [8].
[21]Accord Pacific Holdings Pty Ltd v Accord Pacific Land Pty Ltd (in liquidation) [2011] NSWSC 707 (8 July 2011) [43] (Ward J) (”Accord Pacific”) citing Austin and Black, Annotations to the Corporations Act [5.596] and the cases cited therein.
[22]         Re Gold Co (1879) 12 Ch D 77; Re Moage; Re Excel 93-4.
[23]         Re Moage 95.

In the event access is ultimately granted, it may be appropriate for the Court to limit inspection, for example by only making available certain parts of the affidavit.[24]

Abuse of process

[24] See Bell Group [145]-[147] (Yates J) and Accord Pacific more generally at [103] (Ward J).

The principal ground of challenge to the summonses in the present case concerns an alleged abuse of process. The Court has an inherent jurisdiction to stay an examination if it is an abuse of process.[25] An abuse of the public examination machinery will occur where the applicant for the examination summons is seeking to achieve some purpose foreign to that which the legislature intended.[26]
[25] Carter v Gartner; Re Gartner Wines Pty Ltd (2003) 130 FCR 99, 108 [27].
[26]New Zealand Steel (Australia) Pty Ltd v Burton (1994) 13 ACSR 610; In the Matter of DW Marketing Pty Ltd (in liquidation) [2009] VSC 663 (“DW Marketing”) (Gardiner AsJ).

In Re Excel, the Full Court of the Federal Court relevantly held:

…the question whether there is, in a particular case, an abuse of process will be a question which will depend upon the purpose of the applicant seeking the order of the court and the circumstances of the case. For an abuse to be found it will be necessary that the offensive purpose be, at the least, the predominant purpose…

In Evans v Wainter,[27] Lander J (who delivered the Full Court’s reasons), explained the application of the rule in Re Excel as follows:

…Re Excel stands for the proposition that it is an abuse of process to use the Pt 5.9 procedure if the predominant purpose of the applicant seeking the order is not for the purpose of benefiting the corporation, its contributories or its creditors.
If the party seeking the examination summons is doing so for any number of purposes, which do not include the purpose of benefiting the corporation, then that would amount to an abuse. On the other hand, if the party seeking the examination summons has as one purpose the achievement of a benefit to that party but has also a further purpose which is for the benefit of the corporation then the use of the Part 5.9 procedure will not be an abuse of process.

[27] Evans v Wainter 200 [143]-[144].

In Accord Pacific, Ward J regarded the predominant purpose as being one that is objective in nature.[28]
[28] Accord Pacific [123].

It is the examinee who bears the onus of demonstrating that the liquidator's predominant purpose of obtaining the examination summons is improper.[29] That evidentiary onus has been described as a ”heavy” one.[30]
[29]Williams v Spautz (1992) 174 CLR 509, 529 (“Williams v Spautz”); In the Matter of Calder Park Promotions Pty Ltd (in liquidation) [2015] VSC 285 (19 June 2015) [43] (Gardiner AsJ) (“Calder Park”) and Accord Pacific [138].
[30] Calder Park [43] and Accord Pacific [138].

There are numerous examples of improper purposes in a public examination context. For example, in Re Quintex Group Management Services Pty Ltd (in liq),[31] the Queensland Court of Appeal observed that it is an improper purpose to use the examination proceedings ”to exert pressure by inflicting costs, or causing undue inconvenience or embarrassment”.[32] That is because ”use of the court‘s processes to inflict financial or other collateral harm will always be improper”.[33]
[31] [1997] 2 Qd R 91 (“Re Quintex”).
[32] Ibid 95.
[33] Meteyard & Ors v Love & Ors (2005) 65 NSWLR 36, 48 [45] citing Williams v Spautz.

It will also be improper to use a summons for examination and the inconvenience and costs caused by the process to extract a higher offer in settlement of a claim.[34] An extreme example of this type of abuse of process was found in the case of DW Marketing Pty Ltd (in Liq) where there was an unjustifiable demand for payment of an amount (comprising a specified sum, together with interest, costs and the expenses of the liquidation), coupled with ”the threat that if such demand was not met...examinations would be resumed and...directors would be examined about various matters including those going to possible criminal liability”.[35]
[34] Cousins & Ors v Clout (unreported, Federal Court of Australia, Spender J, 16 October 1998) (“Cousins v Clout”).
[35] DW Marketing [46].

Further, it is generally accepted that a public examination cannot be used as a dress-rehearsal for cross-examination in a substantive proceeding.[36] Nor can it be used to allow a party to obtain a forensic advantage.[37] However, the possibility of a forensic or collateral advantage arising from the public examination does not mean that the process will not also advance a permissible purpose intended by the legislation.[38]
[36]         Re Quintex 95; Evansv Wainter 217.
[37]         Evans v Wainter 217.
[38]         Re Excel 90-1; Accord Pacific [123].

Similarly, the fact that substantive proceedings are contemplated or have been commenced against an examinee does not, of itself, mean that a public examination of that person is an abuse of process on the part of the liquidator.[39] Instead, as Gleeson CJ observed in Hong Kong Bank of Australia Ltd & Ors v Murphy & Ors: "... the fact that current proceedings are pending makes it necessary for the court to be alert to the possibility that a proposed application might be used for an improper purpose.“[40]
[39] Hamilton v Oades (1989) 166 CLR 486; Re Excel; Re Moage; Evans v Wainter.
[40] (1992) 28 NSWLR 512, 519.

In order to determine whether the issue of the summonses gives rise to an abuse of process in this case, it is necessary to set out in some detail the facts and circumstances concerning the sale of the Companies’ business to AALG and the liquidation of the Companies.

Facts
Sale to AALG

Prior to going into external administration, the Companies, in partnership, carried on a business selling and leasing forklifts and material handling equipment under the name “Budget Forklifts” (“the Business”).

One of the examinees, Mr Whiffen, is the Managing Director of AALG. In his affidavit sworn 18 October 2018, Mr Whiffen explains that AALG is currently the largest Australian privately owned and operated material handling equipment company, including in respect of forklifts.[41] In 2016, Mr Whiffen first became aware that the Companies were seeking to sell the Business.[42] Negotiations between the Companies and AALG for the sale of the Business then commenced in or around March 2017. During these negotiations, AALG was provided with access to the Companies’ records. As a result of reviewing those records, and in the course of sale negotiations generally, Mr Whiffen says that he “became aware that the Companies were in severe financial distress”.[43]
[41] Affidavit of Mr Whiffen sworn 18 October 2018 [10].
[42] Affidavit of Mr Whiffen sworn 18 October 2018 [13].
[43] Ibid.

The eventual sale of the Business to AALG was a complicated transaction. On 2 May 2017, AALG and the Companies entered heads of agreement for the sale of the Business.[44] A sale agreement was executed on 4 August 2017 between the parties for the sale of the Business and assets (excluding debtors and various other items) (“the Sale Agreement”)[45] with a purchase price of around $17.85 million, subject to adjustments (“the Purchase Price”).[46] Completion occurred on 28 September 2017 (“the Completion Date”)[47] when 90% of the Purchase Price, net of adjustments, was payable (“the Completion Payment”).[48] On the Completion Date, AALG was also required to provide the Companies with a statement setting out the calculations behind the adjustments reflected in the Completion Payment (“the Completion Statement”).[49]
[44]         See exhibit JTV-6 Tab 1 to the affidavit of Justin Vaatstra sworn 10 October 2018.
[45]         Ibid at Tab 2.
[46]See exhibit JTV-6 Tab 2 to the affidavit of Justin Vaatstra sworn 31 October 2018, Sale Agreement clauses 1 & 4.1.
[47]         See examinees’ Outline of Submissions dated 19 October 2018, [7].
[48]         See exhibit JTV-6 Tab 2 to the affidavit of Justin Vaatstra sworn 31 October 2018, Sale Agreement (clauses 4.1 & 6.1).
[49]Ibid clauses 1 and 4.4-4.6.

The Sale Agreement made further provision for a date when all remaining adjustments were to be resolved (“the Wash Up Date”). The Wash Up Date was specified to occur within 45 days of the Completion Date,[50] with the remaining 10% of the Purchase Price, subject to adjustments, payable three business days later (“the Wash Up Payment”).[51] To facilitate this, AALG was required to provide a statement setting out the remaining adjustments to the Purchase Price (“the Wash Up Statement”).[52] Adjustments were to be made for income generated and debts incurred between the execution of the Sale Agreement and the Completion Date and for assets that were either missing or which had deteriorated beyond their agreed value. The Sale Agreement specified that the Companies and AALG would account to each other for the final Wash Up Payment, depending on the outcome of that calculation.[53]
[50]Ibid clause 6.4.
[51]         Ibid clause 6.1.
[52]         Ibid clauses 6.2-6.9.
[53]         Ibid clauses 6.8-6.9.

There was also an “Operational Management Agreement” dated 7 August 2017 between the Companies and AALG which enabled AALG to manage the Business in the interim period from the signing of the Sale Agreement to the Completion Date (“the OMA”).[54] Under the terms of the OMA, AALG provided operational, administrative and management services as well as financial support to the Companies. This was to enable the Business to continue as a going concern and to maintain the confidence of major customers. AALG was also apparently concerned about deterioration in the Business pending completion of the deal.[55] In exchange for AALG’s services and financial support, the parties agreed that the Companies would pay AALG a facility fee, representing the gross profit of the Business for the period from 7 August 2017 to the Completion Date (“the Facility Fee”).[56]
[54] See exhibit JTV-6 Tab 3 to the affidavit of Justin Vaatstra sworn 10 October 2018.
[55]See paras [19]-[21] of the affidavit of Mr Peter Whiffen sworn 18 October 2018.
[56] See exhibit JTV-6 Tab 3 to the affidavit of Justin Vaatstra sworn 10 October 2018, OMA clauses 7.1 & 7.2.

However, there remained the problem of dealing with secured creditors. Approximately $25 million was owing to secured creditors by late 2016 and a number were seeking to enforce their securities. Some delicate negotiations ensued.

In late June 2017, representatives of AALG commenced negotiating with the secured creditors (excluding Wells Fargo) to enable the sale of the Business to proceed and in order that AALG could purchase unencumbered assets. In September 2017, the Companies reached agreement with the secured creditors (other than Wells Fargo) which entailed them each receiving an agreed sum at the completion of the Sale Agreement. Under the terms of the relevant settlement deed,[57] these sums were directed by the Companies to be paid by AALG to the secured creditors and were treated as part-payment of the Purchase Price for the Business.
[57] Ibid Tab 9.

However, the Companies failed to reach an agreement with their financier, Wells Fargo. By March 2017, Wells Fargo commenced an action to wind up the Companies.[58] On or about 29 June 2017, the Company appointed AALG as their authorised agent to negotiate further with Wells Fargo. On 14 August 2017, after extensive negotiation, AALG, the Companies and Wells Fargo reached a tri-partite agreement that would allow the sale of the Business to take place.[59] Unlike the deal reached with the other secured creditors, under the Wells Fargo settlement AALG advanced to the Companies by way of a loan the amount required to pay out Wells Fargo.[60] At completion of the Sale Agreement, this loan was then to be treated as part-payment of the Purchase Price.
[58]         That proceeding was apparently dismissed in late August 2017.
[59]         See exhibit JTV-6 Tab 8 to the affidavit of Justin Vaatstra sworn 10 October 2018.
[60]         Ibid Tab 4.

To secure the loan made by AALG to pay out Wells Fargo, the Companies issued a Secured Promissory Note[61] and granted a General Security Agreement in favour of AALG (“the GSA”).[62] One of the directors of the Companies, Mr Tim Leunig, also gave a personal guarantee. However, at the Completion Date, AALG’s security interest was not discharged.

External administration of the Companies

[61] Ibid Tab 5.

[62] Ibid Tab 6.

It appears that the Companies’ position then deteriorated further. On 17 October 2017, the Australian Taxation Office commenced winding up proceedings against the Companies in the Federal Court of Australia. Messrs Kaso and Rocke were subsequently appointed voluntary administrators of the Companies on 14 November 2017.

On 1 December 2017, AALG appointed Mr Greg Andrews and Mr Andrew Juzva as receivers of the Companies (“the receivers”) under the GSA to recover the Facility Fee paid under the OMA in the amount of approximately $1.5 million excluding GST, along with monies advanced by AALG as working capital. Then, on 19 December 2017, the Companies were wound up by the Federal Court in insolvency and Messrs Kaso and Rocke were appointed joint and several liquidators.

Dispute with AALG

Prior to the appointment of the liquidators, a dispute had arisen in relation to various adjustments sought by AALG to the Purchase Price along with further adjustments in the Wash Up Payment. The scope of that dispute is reflected in a series of letters passing between the liquidators and the solicitors for AALG and the receivers.

In short compass, AALG has asserted that the Companies owe it an amount of approximately $2.6 million under the terms of the Sale Agreement.[63] By contrast, the liquidators have maintained that many of the adjustments made by AALG in the Wash Up Statement are incorrect and cannot be maintained. As a result, the liquidators have calculated that AALG in fact owes the Companies approximately $1.3 million under the Sale Agreement.[64] A further amount of approximately $1.439 million is sought by the liquidators in respect of receivables collected by AALG which the liquidators believe should be remitted to the Companies.
[63]See letter from JP Sesto dated 22 December 2017 and contained at tab 15 to exhibit JTV-6 to the affidavit of Mr Vaatstra sworn 10 October 2018.
[64]See letters from Clayton Utz to JP Sesto and to the receivers dated 12 December 2017 and 21 December 2017 located at exhibit JTV-6, tabs 13 tab 14, respectively, to the affidavit of Mr Vaatstra sworn 10 October 2018.

At a more granular level, the dispute includes the following areas of disagreement:

·whether AALG conducted inspections of the assets of the Business (including plant and equipment), or properly notified the Companies of various disputed items, as required by clauses 6.4 and 6.5 of the Sale Agreement and whether certain adjustments were therefore legitimately made by AALG under the Sale Agreement;
·the proper calculation of the Facility Fee for the provision of operational services by AALG under the OMA and, specifically, whether AALG was entitled to be paid an amount equal to sales made during the operation of the Business prior to the Completion Date or whether it was only entitled to receive an amount referable to gross profits for the relevant period under the OMA;
·the status of AALG as agent for the Companies pursuant to clause 33.3 of the Sale Agreement in respect of the collection of debts for a period of three months from the Completion Date;
·whether, subject to the proper interpretation of clause 5.1(b) of the OMA,[65] AALG was entitled to retain the actual payments received from customers of the Business during the time AALG provided operational services under the OMA;
·whether receivables which arose prior to, but were paid after the Completion Date, are for the sole benefit of the Companies and whether AALG holds such receivables on trust for, and is obliged to remit them to, the Companies; and
·whether the receivers were validly appointed to the Companies having regard to the existence or otherwise of a debt owing by the Companies to AALG at the time of appointment and the circumstances and timing of the appointment.

[65]That clause of the OMA states: "Invoices to Customers for the supply of goods or the provision of services during the Relevant Period are for the benefit of AALG and those invoices will constitute the ’Sales‘ [as referred to in the Accounts] for the purposes of ascertaining the gross profit for the Relevant Period.”

This dispute between the liquidators, AALG and the receivers is important context in considering the examinees’ allegation that the liquidators’ purpose for the public examinations is improper and an abuse of process.

Important communications

Much of this dispute is revealed in correspondence passing between the liquidators’ solicitors and the lawyers acting for AALG and the receivers. Relevant aspects of that correspondence are set out below.

On 12 December 2017, Clayton Utz, on behalf of the administrators, wrote a 12 page letter to JP Sesto & Co (“JP Sesto”),[66] the lawyers then acting for AALG and the receivers, setting out a number of assertions about the validity of the appointment of the receivers, including that: (a) the Companies were not indebted to AALG on the liquidators’ analysis of the Wash Up Statement and the Completion Statement; (b) the Wash Up Statement contained defects which resulted in AALG being indebted to the Companies; (c) the quantification of the Facility Fee which formed a component of the alleged debt owed by the Companies to AALG had not been confirmed by AALG; and (d) an asserted debt of “working capital” had no foundation under the OMA. The letter concluded by contending that the appointment of the receivers was invalid and that a request for books and records of the Companies by the receivers therefore had no basis. Numerous undertakings were sought from the receivers by 4.00 pm on 13 December 2017, including that they immediately retire and return control of assets, or proceeds of sale of those assets, to the Companies. Further, a demand was made for payment of approximately $1.439 million, representing the amount of receivables AALG had advised it had collected as at 17 November 2017.
[66] See exhibit JTV-6 Tab 13 to the affidavit of Justin Vaatstra sworn 10 October 2018.

One week after the letter was sent, the Companies were wound up and the administrators became the liquidators. However, aside from a telephone call from AALG’s solicitor to indicate a response to the matters raised in the 12 December 2017 letter would not be forthcoming until the new year, no substantive response was provided for some time.

On 21 December 2017, Clayton Utz wrote a further letter to both JP Sesto and the receivers.[67] In this letter, concern was expressed about the delay in a substantive response to the matters raised in the earlier letter of 12 December 2017. The demands contained in the earlier correspondence of 12 December 2017 were repeated and the Receivers were requested to each provide certain undertakings, including that they immediately retire and hand over control of the assets of the Companies. The basis for that position was then set out. Significant concerns were raised about the calculations contained in the Completion Statement, the Wash Up Statement and the quantification of the Facility Fee. There was also a demand for the delivery up by AALG of all books of the Companies, including documents going to: (a) the quantification of the Facility Fee; (b) the recording of gross profit earned by the Business during the operation of the OMA, and (c) the actions of AALG in the collection of outstanding debtors and the amounts so collected. In addition, the following critical passages are found in the 21 December 2017 letter:
[67]Ibid Tab 14.

Our client[’s] view is that the invalidity of the [r]eceivers’ appointment clearly exposes them (and any indemnifying party) to a claim for damages for trespass and conversion, to the extent the [r]eceivers deal with any of the property of the Companies.
…
Our clients require that by 12:00pm AEST on Friday, 22 December 2017:
1.   the Receivers provide the undertakings and immediately retire as receivers and managers of the Companies as sought in section 2 of this letter;
2.   AALG make payment of the amount of $1,439,755 (and any other amount which, to the satisfaction of the Liquidators, AALG demonstrates it has collected from the outstanding debtors) to the Liquidator, by electronic funds transfer, into [its nominated account]; and
3.   a substantive response is provided by AALG and the Receivers to our letter dated 12 December 2017.
(collectively the Required Actions).
…
In light of the apparent unwillingness of AALG to respond to the matters set out in our letter dated 12 December 2017, the Liquidators may be required to issue the officers, employees and representatives of AALG with Summonses for Examination pursuant to section 596B of the Act.
In the event that each of the Required Actions are not complied with to the satisfaction of the Liquidators by 12:00pm AEST on Friday 22 December 2017, the Liquidators intend to proceed with issuing the Summonses for Examination. [emphasis added]
The Liquidators anticipate that the Summonses for Examination will require the recipients’ attendance before the Court to be publicly examined and to produce books relating to the Companies or the Companies’ examinable affairs.

On 22 December 2017, JP Sesto wrote to Clayton Utz to provide a “preliminary response” to the matters raised by the earlier letters of 12 December and 21 December 2017 from Clayton Utz. The letter stated that AALG would co-operate in making the books available and noted that a more substantive response to the letters of 12 December and 21 December 2017 would be forthcoming in early January 2018.

On 15 January 2018, JP Sesto wrote to Clayton Utz providing further details of the assets the subject of adjustments found in the accompanying Wash Up Statement.[68] The Wash Up Statement enclosed with the letter provided details as to how the Companies’ debt to AALG arose.
[68]See exhibit JTV-6 Tab 16 to the affidavit of Justin Vaatstra sworn 10 October 2018.

Further correspondence between the lawyers ensued and, on 14 February 2018, JP Sesto wrote to Clayton Utz noting that the liquidators had not queried nor provided any substantive response to their earlier correspondence of 15 January 2018. Notably, this letter also apparently attached a Secured Party Certificate signed by the Chief Financial Officer of AALG and issued in accordance with the provisions of the GSA (“the Secured Party Certificate”). By that instrument, AALG claimed, as a secured party, the debt of approximately $2.78 million from the Companies as the amount due under the Completion Statement and the Wash Up Statement, including the Facility Fee and working capital advances under the OMA, together with GST.

On 15 February 2018, the receivers wrote to Clayton Utz and denied that their appointment was invalid. The letter also requested delivery up of the Companies’ books and records and the remission of funds collected by the liquidators which the receivers considered were covered by the GSA. That correspondence again enclosed a copy of the Secured Party Certificate.

It seems that the liquidators and receivers then met during March and April 2018.[69] During those meetings the receivers apparently requested access to the books and records of the Companies, including electronic data.[70] According to contemporaneous correspondence, at a meeting between those parties in March 2018 there was discussion regarding the treatment of receivables owing to the Business at the completion of the Sale Agreement.[71]
[69] Affidavit of Gregory Andrews sworn 18 October 2018 [11].
[70] Ibid.
[71]See letter from the liquidators to the receivers dated 5 April 2018 at exhibit JTV-6 Tab 22 to the affidavit of Justin Vaatstra sworn 10 October 2018.

Direct communications between the insolvency practitioners continued. A letter from the liquidators to the receivers dated 5 April 2018 set out in detail the liquidators’ interpretation of the relevant provisions of the transactional documents in support of the contention that the receivers were not entitled to retain receivables of the Companies. On 9 May 2018, the receivers wrote to the liquidators to inform them of the amounts collected by AALG in reduction of its secured debt and to request certain information from the liquidators along with the books and records previously sought.

On 17 May 2018, Mr Andrews spoke to Mr Kaso by telephone in relation to the receivers’ 9 May 2018 letter. According to Mr Andrews, Mr Kaso said he wanted to convene a meeting to resolve issues concerning the appointment of the receivers, the collection of receivables, and whether AALG was owed further funds under the Sale Agreement and the GSA. Mr Kaso is alleged to have said words to the following effect:

[i]f we can’t sort this out then I will be considering publicly examining the AALG people.[72]

[72] Affidavit of Gregory Andrews sworn 18 October 2018 [14].

Mr Andrews took notes of this conversation,[73] however they do not refer to the possibility of a public examination.
[73] See exhibit GSA-5 to the Affidavit of Gregory Andrews sworn 18 October 2018.

The conversation was followed by an email from Mr Kaso dated 21 May 2018 in which he indicated that “[p]rior to taking any further action in this regard, [he] consider[ed] that there are good prospects of being able to come to a commercial resolution of all issues…”[74]
[74] See exhibit GSA-6 to the Affidavit of Gregory Andrews sworn 18 October 2018.

There was a further telephone conversation between Messrs Kaso and Andrews on 5 June 2018. Various matters were discussed between them. According to Mr Andrews, Mr Kaso suggested he “would be conducting public examinations against AALG people if a resolution could not be reached.” Mr Andrews replied by saying he was “having trouble getting through to [JP Sesto] on [those] matters”. Again, Mr Andrews took a file note of the telephone conversation.[75] His handwriting is difficult to decipher but, on close inspection of the note, it appears Mr Andrews recorded that Mr Kaso was “threatening public examinations”.
[75] See exhibit GSA-7 to the Affidavit of Gregory Andrews sworn 18 October 2018.

Against that background, the examinees submit that the liquidators’ predominant purpose in issuing the examination summonses was to induce or coerce AALG to accede to the liquidators’ demands in the 21 December 2017 letter. In particular, it is argued that the liquidators seek to extract a favourable settlement offer (or indeed capitulation) from AALG, through use of the public examination procedure.

Before considering the substantive application to set aside the summonses on the basis of abuse of process, along with the other grounds relied upon, it is necessary to explain how the Court approached the preliminary issues raised by the application, namely: whether time should be extended for the making of the set aside application; and whether the examinees should be granted access to the s 596C affidavit.

Leave to make application to set aside summonses out of time

At the hearing on 1 November 2018, I made orders permitting the examinees’ application to set aside the summonses to be filed out of time. Those orders were accompanied by ex tempore reasons for decision. It is convenient to now publish those reasons (which are slightly revised and more fully developed).

The affidavits of Mr Justin Vaatstra, solicitor, in support of the examinees’ application and sworn on 10 and 31 October 2018, respectively, reveal that most of the examinees were served with the summonses on 28 August 2018 and the remaining examinees were served on 11 September 2018. On 28 August 2018, JP Sesto, who had been acting for AALG prior to this date, were instructed to act. On 12 September 2018, the examinees changed their legal representation from JP Sesto to Arnold Bloch Leibler. The new lawyers were therefore retained a couple of weeks after service of the majority of the summonses and a day after service of the remainder. Mr Vaatstra explains that between 24 September 2018 and 4 October 2018, counsel and Arnold Bloch Leibler reviewed the summonses and materials provided by AALG to determine whether there was a basis upon which to object to, and to seek to set aside or vary, the summonses.

The date of 4 October 2018 is significant because that was when the examinees apparently first gave instructions to their new lawyers to formally object to the summonses and to request that they be withdrawn or varied.

I observed that the change of legal representation goes some way to explaining the delay in the examinees making their application. However, it certainly does not explain all of the delay, particularly the period between the engagement of the new lawyers on 12 September 2018 and 4 October 2018, when the examinees provided instructions to their new lawyers to resist the summonses.

It is clear that following those instructions being communicated by the examinees, their new lawyers pressed to have the summonses set aside, stayed, or read down. For example, on 5 August 2018, Arnold Bloch Leibler wrote to Clayton Utz setting out the basis of the examinees’ objections and requesting that the liquidators agree to withdraw or vary the summonses in addition to requesting documents and information from the Companies and the liquidators.[76] Further correspondence was exchanged between the lawyers on 8 October 2018 and 9 October 2018 and culminated in the examinees providing notice of their application to set aside the summonses late in the evening of 10 October 2018. In other words, notwithstanding the initial delay, the examinees did not sit on their hands from at least 4 October 2018.
[76] See exhibit JTV-3 to the affidavit of Justin Vaatstra sworn 10 October 2018.

It may be that the examinees ought to have filed their application earlier than they did. However, in the context of the correspondence which had been exchanged between the lawyers, it cannot be said that the liquidators were unaware of the possibility of the set aside application being made. It did not come out of the blue but was certainly on the horizon. On balance, I considered that there was a proper and satisfactory explanation for the examinees not bringing the application within the three day time limit.

On the question of prejudice, I noted that the granting of an extension of time would have the natural consequence that the examination dates could not be maintained.[77] However, even if I was against the examinees and required the summonses to be immediately complied with, as a result of the volume of documents sought, it is unrealistic to think that the liquidators would have had sufficient time to review those materials and run the examinations on the dates previously allocated.
[77] At the time of my ex tempore ruling, the examination dates had been set for 14-16 November 2018.

It was important to view any disruption to the allocated hearing dates in the context of the time that had already passed between the liquidators’ lawyers first indicating in the 21 December 2017 letter they were considering the need for public examinations and the point at which they sought the issue of the summonses on 15 August 2018. I also noted that it was not suggested the public examination process was urgent.

In the event, any prejudice which may have resulted from the loss of the dates already allocated did not prove determinative of the examinees’ preliminary application to extend time. In considering the prejudice occasioned by delay, Yates J in Bell Group held that a “proper balance needs to be struck between competing rights and interests of the parties [so that] a just outcome [is] achieved”.[78] The interests of the liquidators in having a public examination process conducted efficiently needs to be finely balanced against the right of the examinees to test the validity of the summonses. On balance, it seemed to me that the prejudice arising from denying the examinees the opportunity to make their application to set aside the summonses would outweigh the resulting prejudice to the liquidators in losing the examination dates.
[78] Bell Group 316 [134].

Finally, in considering whether to extend time, it is necessary to assess whether in fact there is an arguable case to set aside the summonses for examination. I respectfully agree with the observation of Yates J in Bell Group that “time should not be extended for an application that is hopeless in the sense it is apparent that it is doomed to fail on its merits or in point of legal principle”.[79] However, where an arguable case to set aside the summonses exists, then time should ordinarily be extended.
[79] Ibid [24].

I formed the view that the examinees had put forth a sufficiently arguable case that the predominant purpose of the issuing of the summonses was to negotiate a commercial resolution of a legal dispute between the liquidators and AALG through the imposition of costs, the burden of production and inconvenience.

The content of Clayton Utz’s 21 December 2017 letter and, in particular, the following passage, supported the conclusion that such an arguable case exists:

In the event that each of the Required Actions are not complied with to the satisfaction of the [l]iquidators by 12:00pm AEST on Friday 22 December 2017, the [l]iquidators intend to proceed with issuing the Summonses for Examination. [emphasis added]

(“the impugned paragraph”).

The impugned paragraph may be interpreted as conveying an inappropriate threat to use the public examination machinery to cause inconvenience and cost in the event the “required actions” are not complied with. For reasons which will be explained later, the subsequent conversations between the liquidators and the receivers have less relevance to the question of whether the liquidators’ application for the issue of the summonses was actuated by an improper purpose.

I also held that there is an arguable case that the summonses, as currently drawn, are oppressive, in the sense that they may cover documents already provided by AALG to the liquidators. One of the examinees, Mr Whiffen, has prepared a table setting out the various categories of documents already made available by AALG prior to the issue of the summonses.[80] A preliminary review of that table suggested an overlap with a number of categories of documents called for in the summonses.
[80] Exhibit PW-15 to the affidavit of Mr Peter Whiffen sworn 18 October 2018.

Further, there was nothing to suggest, on the material before me, that the examinees are pursuing their application without good cause.

In finding that an arguable case exists for the setting aside of the summonses, I reached an overall view of the merits of the arguments without expressing concluded views as to the ultimate disposition of the examinees’ application. It was also unnecessary to comment on the other grounds advanced. The abuse of process and oppression grounds were considered more closely as they appeared to be the strongest grounds put forward.

It followed that the time limited by r 11.5 of the Supreme Court (Corporations) Rules 2013 (Vic) for the examinees to file and serve their application to set aside the summonses addressed to them was extended nunc pro tunc to 11 October 2018.

Application for leave to inspect the s 596C affidavit

On 1 November 2018, I also gave ex tempore reasons for permitting the examinees to inspect the s 596C affidavit. I now also publish those reasons (which are slightly revised and more fully developed).

The question of whether the examinees have an arguable case to set aside the summonses is also relevant to their application to inspect the liquidators’ confidential affidavit under s 596C(2) of the Corporations Act. Having already found that the examinees have established an arguable case, I did not address that question any further for the purpose of the application for inspection.

Having regard to the contents of the s 596C affidavit, I formed the view that the Court is unable to fairly and properly determine the substantive application to set aside the summonses without recourse to that affidavit. The affidavit also appeared to be relevant to the examinees’ set aside application. In particular, it seemed that the affidavit may be probative to the question of whether the liquidators sought the examinations for an improper purpose. It may also be relevant to the question of whether the liquidators have made adequate disclosure to the Court. The justice of the case suggested that the affidavit should be provided in some form to at least the examinees’ solicitors and counsel.

Whereas in some instances the release of a liquidators’ confidential affidavit may well prejudice the examination process by putting the examinees on notice of the matters upon which they may be examined, that is not an issue which appears to arise with the same degree of sensitivity in this matter. A large portion of the s 596C affidavit deals with historical matters which have already been the subject of extensive correspondence between the parties (some of which has been outlined above). That said, to mitigate the risk of frustrating the examination process, there are some paragraphs of the s 596C affidavit which I considered should be redacted.

Following my ruling, a discussion between the bench and counsel ensued as to the formulation of orders to facilitate restricted access to the s 596C affidavit. The Court’s orders made on 1 November 2018, and varied on 5 November 2018, ultimately entailed a copy of the affidavit being subject to a limited number of redactions and then provided to the examinees’ lawyers, without exhibits.

Having dealt with the preliminary questions arising from the examinees’ application, it is necessary to now turn to the substantive issue of whether the summonses were obtained for an improper purpose, are oppressive or should be set aside for some other reason.

Application to set aside summonses
Improper purpose and abuse of process

The examinees argue that the predominant purpose of the public examination process was not to obtain information for the benefit of the Companies, their creditors or their contributories. Rather, it is contended that the predominant purpose was to impose a burdensome production process to inflict costs and cause inconvenience on AALG, its directors and employees in order to leverage a favourable settlement of the dispute between the liquidators, AALG and the receivers. Having regard to the circumstances of the case, I am not satisfied that the objective predominant purpose of the liquidators in seeking the public examinations was an improper one. Instead, the evidence suggests that the liquidators were motivated by a number of legitimate purposes consistent with the objectives of the public examination provisions. I have arrived at this conclusion for the reasons set out below.

First, it is clear from the background facts that the sale of the Business to AALG was a complex transaction. It involved not only the sale of the Business but also the operation of the Business by the purchaser prior to completion, complicated formulae for adjustments to the Purchase Price and difficult negotiations with secured creditors which resulted in the Companies granting a security interest to AALG. All of this occurred at a time when, according to Mr Whiffen, the Companies were in “severe financial distress”.[81]
[81] Affidavit of Mr Whiffen sworn 18 October 2018 [13].

The transaction has become fertile ground for dispute. There is dispute about:

·whether certain adjustments were legitimately made by AALG under the Sale Agreement;
·the calculation of the Facility Fee payable to AALG under the OMA;
·the status of AALG as agent of the Companies for the purpose of the collection of receivables;
·whether AALG was entitled to retain receivables it collected;
·whether certain receivables were held on trust by AALG for the benefit of the Companies; and
·whether the receivers were validly appointed.

All these matters remain unresolved.

The quantum of the dispute is not immaterial. Whilst AALG maintains it is owed approximately $2.6 million, the liquidators believe the Companies are owed over $2.7 million on account of monies due under the Sale Agreement and in respect of receivables collected by AALG.

It is legitimate for the liquidators to seek to elicit information from the examinees concerning these unresolved issues in order to determine whether claims by the liquidators are sufficiently meritorious to warrant them being commenced and to test the prospect of their success and the likelihood of recovery.

At the hearing, senior counsel for the examinees argued that the Secured Party Certificate dated 14 February 2018 was conclusive and binding on the Companies and that AALG had no further onus of proof in relation to the approximately $2.7 million debt claimed in that instrument. Reliance was placed on the High Court decision of Dobbs v National Bank of Australasia[82] in this regard. It was therefore submitted that the validity of the appointment of the receivers on 1 December 2017 could not be seriously challenged. However, the Secured Party Certificate may not be a complete answer to the question of whether the receivers were validly appointed.
[82](1953) 53 CLR 643, 651.

Where a secured creditor has a valid security interest over the whole, or substantially the whole, of the property of a company, during the period of voluntary administration, the secured creditor has 13 days to enforce its security from the time notice of the appointment of the administrators is given, or from the time the administration begins.[83] Counsel for the liquidators explained that there may be a live issue as to whether the receivers were appointed within this statutory period. For example, an email from Mr Warton (copied to Mr Whiffen) and sent to the liquidators on 1 December 2017 concerning the finalisation of the Wash Up Statement makes no mention of the appointment of receivers that very same day.[84] So too a further email sent by Mr Warton on 4 December 2017.[85] Moreover, if the Wash Up Statement was still in the process of being finalised as at 1 December 2017, it may well be appropriate for the liquidators to test whether the alleged underlying indebtedness to AALG was sufficiently certain when the notice of appointment of receivers was executed. Finally, despite the appointment of the receivers purportedly occurring on 1 December 2017, it seems that the liquidators were not apprised or notified of the appointment until 5 December 2017.
[83]See ss 9 (definition of “decision period”) and 441A of the Corporations Act.
[84] See the affidavit of Sam Kaso affirmed 13 August 2018 paras [94]–[96].
[85] Ibid para [96].

Secondly, whilst the examinees place significant reliance upon the impugned paragraph of the 21 December 2017 letter, that correspondence must be viewed in its proper context. The following matters should be noted in relation to the letter:

(a) it was sent in the absence of any substantive response to the earlier and detailed 12 page letter of 12 December 2017;

(b) it raised significant concerns about, among other things, the calculations underpinning the Completion Statement, the Wash Up Statement, the quantification of the Facility Fee and the status and collection of receivables by AALG;

(c) it requested information about the collection of receivables by AALG along with other information; and

(d) in reliance upon matters extensively set out in the 12 December 2017 correspondence, it repeated the demand that the receivers immediately retire and pay to the liquidators the amount of $1,439,755 together with further amounts collected from outstanding debtors of the Companies.

The impugned paragraph in the 21 December 2017 letter is unfortunate in that it draws a link between the failure to meet the demands of the liquidators and the commencement of a public examination process. However, it is important not to place inordinate weight on the choice of language used in a single paragraph of a five page letter which immediately followed an even more extensive 12 page letter dealing with the same matters. As Ward J noted in Accord Pacific, however infelicitous the language of a liquidator’s correspondence may be, it will not necessarily warrant the inference that the liquidator is acting for the predominant and improper purpose of seeking to put pressure on a party to resolve a commercial dispute.[86]
[86] Accord Pacific [126].

Mr Whiffen has given evidence that he read the 21 December 2017 letter “around the time that it was received”. He says that he “took the threat to publicly examine [him] and other officers or employees of AALG to be an attempt to intimidate [them] into complying with the [l]iquidators’ repeated demands that the [r]eceivers retire and pay to the [l]iquidators the amounts that they asserted were owed to them under the Sale Agreement”.[87] However, it seems that this evidence is largely irrelevant to the Court‘s task of objectively construing the predominant purpose for the issue of the summons. How Mr Whiffen subjectively interpreted the so-called threat does not assist in determining whether the liquidators were motivated by an improper purpose. In any event, I note Mr Whiffen does not say in his affidavit that he actually felt threatened or intimidated by the 21 December 2017 letter but he instead states that neither AALG nor the receivers complied with the liquidators‘ demands.[88] In other words, even if the 21 December 2017 letter was interpreted as being designed to threaten and intimidate the examinees into complying with the ”required actions” contained in that correspondence, it did not achieve that objective.
[87] Affidavit Peter Whiffen sworn 18 October 2018 [49].
[88] Ibid [50].

It is also instructive that, despite Mr Whiffen’s reading of the 21 December 2017 letter, JP Sesto‘s letter sent the following day did not take issue with the perceived threat. Indeed, it seems that no complaint was made about the so-called threat or the impugned paragraph until the filing of the examinees’ interlocutory process on 11 October 2018 (approximately nine and a half months after the letter was sent and more than a month after most of the summonses were served).

Thirdly, the evidence of Mr Andrews concerning his conversations with Mr Kaso does not take the examinees’ case much further. It will be recalled that Mr Andrews deposed to telephone conversations with Mr Kaso in May and June 2018 during which Mr Kaso suggested that “AALG people” would be publicly examined if a commercial resolution of the dispute could not be reached. His contemporaneous file note for the June conversation refers to Mr Kaso “threatening public examinations”.

It is important to also view these communications in their proper context. The possibility of public examinations was only one of a number of the matters discussed between Mr Kaso and Mr Andrews. I also note that the reference in Mr Andrews’ 5 June 2018 file note to Mr Kaso “threatening public examinations” does not feature in the body of Mr Andrews’ affidavit. Taken as a whole, the communications between Mr Kaso and Mr Andrews, are best characterised as two experienced insolvency practitioners speaking frankly about the commercial realities of a dispute which had remained unresolved for several months and the desirability of it being brought to an end. The communications are ultimately unremarkable.

Even if the examinees’ characterisation of the conversations is correct and Mr Kaso had repeated the earlier so-called threat made in the 21 December 2017 letter, it should be recalled that Mr Andrews is not one of the examinees. Further, his affidavit does not confirm that the repeated threat of public examinations was ever relayed to the examinees. To the contrary, Mr Andrews says he told Mr Kaso he was having trouble “getting through” to JP Sesto, the then lawyers for the examinees.

Fourthly, notwithstanding the examinees’ reliance on the decision of Gardiner AsJ in DW Marketing in support of the contention that the summonses should be set aside as an abuse of process, that case can be distinguished from the facts and circumstances in this matter for the following reasons:

(a) In DW Marketing, a public examination process was already well under way when the relevant threat was made by the liquidator’s lawyers in a letter to the examinees’ lawyers. There had already been settlement negotiations conducted by the parties over several months which had involved a monetary offer being made by the examinees.[89] By contrast, in the present case the liquidators commenced the public examination process almost eight months following the alleged threat contained in the 21 December 2017 letter and more than two months following the repetition of the alleged threat in the phone conversation between Mr Kaso and Mr Andrews. There is also no evidence before the Court to suggest the public examinations had been commenced against the backdrop of settlement offers between the parties.
[89]Similarly, in Cousins & Ors v Clout, the Court found that a public examination was brought by a trustee in bankruptcy for the improper purpose of extracting a higher settlement offer in the context of existing negotiations to settle a claim.

(b) The contentious letter in DW Marketing was particularly egregious in its terms. Associate Justice Gardiner concluded that the letter “could not be interpreted as anything other than a threat to use the examinations provisions to cause, at the very least, expense and inconvenience to the examinees if the demands were not met”.[90] The letter demanded a figure which could not be reconciled, even when the liquidator and his solicitor were cross-examined under oath. Importantly, the letter also made a demand for sums which ”would never have been recoverable against the directors for such matters as the liquidator’s legal costs of the liquidation and ’expenses’”.[91] In the present case, the amount demanded in the 21 December 2017 letter clearly related to receivables which had been collected by the receivers (and confirmed by their own information) and no extraneous and baseless costs and expenses were sought.

(c) In DW Marketing, the relevant letter not only threatened expense and inconvenience but critically also threatened to expose the examinees to possible criminal liability arising from unparticularised alleged breaches of directors’ duties under the Corporations Act. Whilst the 21 December 2017 letter in this case suggests that the possible invalidity of the receivers’ appointment would expose them (and any indemnifying party) to a claim for damages for trespass and conversion to the extent the receivers had dealt with any of the property of the Companies,[92] this seems to be in an altogether different category to the potential liability referred to in DW Marketing.

(d) Both the liquidator and his lawyer swore affidavits and were cross-examined in that case and his Honour concluded that their evidence, together with the offensive letter, exposed a serious abuse.[93] The lawyer also admitted under oath that the letter was a blatant attempt to draw a higher offer from the examinees. Here, neither the liquidators nor their lawyers have filed affidavits in response to the examinees’ application or have been cross-examined on any evidence.

[90] DW Marketing [47] (Gardiner AsJ).

[91] Ibid.

[92] See exhibit JTV-6 Tab 14 to the affidavit of Justin Vaatstra sworn 10 October 2018.

[93] DW Marketing [49].

It was suggested by the examinees’ senior counsel that the Court is at a disadvantage because, unlike in DW Marketing, it does not have the benefit of the liquidators’ responsive evidence on the question of predominant purpose. However, in my view, no adverse inference should be drawn in that regard. As previously stated, the evidentiary burden does not lie on the liquidators and it is for the examinees to establish that the summonses were issued for an improper purpose. Further, as White J said In the matter of Mendarma Pty Ltd (in liq),[94] “[t]he applicants cannot establish [the liquidator] had an improper purpose merely by making a wide range of allegations which were patently without substance, and then relying on his not responding to those allegations as a basis for inferring that he had an improper purpose.”
[94] (2006) 24 ACLC 1611, 1618 [43] (“Re Mendarma”).

Fifthly, there is, in fact, affidavit material available to the Court which serves to illuminate the liquidators’ predominant purpose in applying for the summonses. It is the s 596C affidavit. In it, Mr Kaso deposed that the public examinations would achieve the following purposes:[95]
[95]See the affidavit of Sam Kaso affirmed 13 August 2018 para [121].

(a)[the liquidators would be able] to gather information relevant to the execution of [their] duties under [their] appointment;
(b)provide information which will assist in identifying the Companies[‘] assets;

(c)       protect the interests of creditors as a whole;
(d) enable evidence and information to be obtained to support any action against the examinable officers or other persons in connection with the examinable affairs of the Companies, particularly in respect of:
(i)        the circumstances and validity of the Receivers’ Appointment;
(ii)       the terms of the Sale Agreement;
(iii)      the status and enforceability of the OMA;
(iv)      the collection and payment of the receivables;
(v)the dealings and negotiations involving Wells Fargo and the circumstances surrounding the security interest granted in favour of AALG under the General Security Agreement;
(vi)the reasons why the security interest granted in favour of AALG under the General Security Agreement was not discharged at Completion
…

All of those purposes appear to be legitimate and consistent with the legislative machinery contained in Part 5.9 of the Corporations Act. Further, all of those purposes appear to be for the benefit of the Companies, their contributories or creditors. This is especially so given that unsecured and priority creditors are owed approximately $6.32 million and the Companies have no real assets other than potential claims against AALG under the Sale Agreement and in respect of the collection of receivables.[96]
[96]See pages 10-16 of the Liquidators’ Report to Creditors dated 19 March 2018 which was provided to the Court by the liquidators at the Court’s request at the conclusion of the 1 November 2018 hearing.

It follows from what I have said above that the examinees have failed to discharge the heavy onus of satisfying the Court that the predominant purpose for seeking the summonses was improper.

Material non-disclosure

At the hearing of the application, counsel for the examinees also addressed the question of whether the liquidators had failed in their duty to disclose to the Court any matter which might have caused the Court to refuse the issue of the summonses. The argument was raised as an independent ground for the setting aside of the summonses. Following the release of the s 596C affidavit to the examinees’ lawyers, the examinees were afforded the opportunity to file supplementary submissions on this issue. They did so on 14 November 2018 and the liquidators filed supplementary submissions in reply on 21 November 2018.

In Re Southern Equities Corporation Ltd (in liq); Bond & Caboche v England[97] (a decision of the Full Court of the Supreme Court of South Australia), Lander J (with whom Cox and Bleby JJ agreed), explained as follows:
[97] (1997) 25 ACSR 394.

An application for an examination summons is made ex parte. Consequently there is a heavy obligation upon the person applying for the examination summons to make full and frank disclosure of all matters which may impact upon the decision to summon a person for examination about a corporations examinable affairs.
There can be no doubt, in my opinion, that a person who makes an application of this kind is under an obligation to bring all facts and material to the court's attention which might bear upon the order to be made. The applicant has no lesser obligation than that imposed upon a party seeking an injunction ex parte. Indeed, in my opinion, the obligation for frankness and candour is even greater in an application of this kind. That is because, unlike on the return of an interlocutory injunction obtained ex parte, on the return of an examination summons the material supporting the application is not ordinarily made available to the proposed examinee.

…

The obligation is to provide to the court all material which might impact upon the order sought, including all material which might lead the court to refuse the application. The applicant must act in the place of the proposed examinee and therefore draw to the attention of the court anything which might lead the court to refuse the application.[98]

[98] Ibid 422-3.

Justice Lander went on to say:

It cannot be said that an order obtained in circumstances where there has been a failure to disclose material facts must necessarily be set aside. Whether or not the order ought to be set aside for failing to disclose material facts will depend upon the facts not disclosed and the circumstances in which the non-disclosure came about. An error of judgment in failing to disclose a fact which later becomes material may not necessarily lead to the setting aside of the order previously obtained. So also an innocent non-disclosure may not necessarily require the setting aside of the order for the examination.[99]

[99] Ibid 424.

The examinees identify a number of instances of non-disclosure by the liquidators which they say were material to the question of whether the summonses ought to have been issued, or, alternatively, to the form of the summonses and the extent of production of documents they required.

In my view, save for a few minor matters referred to below, I am satisfied that the liquidators adequately disclosed the facts and matters which may have impacted on the Court’s decision to issue the summonses.

The s 596C affidavit is a weighty document. It runs to 31 pages, comprises 121 paragraphs and exhibits 36 documents which span almost 700 pages. That is unsurprising given the complexity of the sale of business transaction which preceded the application for the issue of summonses. When read in totality, the s 596C affidavit and its extensive exhibits provide a comprehensive overview of matters relevant to the issue of the summons.

Turning to the alleged instances of non-disclosure, I make the following findings:

(a) I am unpersuaded that the liquidators failed to adequately disclose the fact that AALG had already provided certain documents prior to the issue of the summonses. I accept the submission of counsel for the liquidators that the s 596C affidavit and its exhibits record that some information had been provided but that the liquidators were not satisfied that AALG had responded to the requests for information in a fulsome manner. For example, the s 596C affidavit exhibited the 12 December 2017 letter from Clayton Utz to AALG’s then solicitors which, among other things, acknowledged receipt of the Completion Statement and the Wash Up Statement but requested the provision of “sufficient evidence as to the calculation of the Facility Fee” and clarification of whether AALG relied on the amount found in the Wash Up Statement or an alternative amount suggested in earlier correspondence. Further, some of the documents and correspondence referred to in the table prepared by Mr Whiffen to illustrate the extent of documents already said to have been provided[100] were exhibited to the s 596C affidavit. Those documents and correspondence included the Wash Up Statement and the letter from JP Sesto dated 22 December 2017 in which an offer was made to the liquidators to inspect certain books and records despite the contention that ownership had passed to AALG under the Sale Agreement, “if and insofar” as AALG had possession of them. I accept that in the interests of containing the size of the exhibits, not all enclosures to some documents were included in the s 596C affidavit.
[100] See exhibit PW-15 of Mr Whiffen’s affidavit of 18 October 2018.

(b) However, the extent to which the summonses call for documents already provided by AALG is a matter which requires further consideration in the context of the examinees’ argument that the summonses are oppressive in their scope.

(c) The examinees submit that there was a failure to disclose the extent of the liquidators’ dealings with the Companies, their directors and their management prior to the appointment of Messrs Kaso and Rocke as administrators. Whilst this information was disclosed in detail in a Circular to Creditors and Suppliers dated 16 November 2017 (“the Circular”)[101] and, in particular, in an accompanying Declaration of Independence, Relevant Relationships and Indemnities (“the Declaration”), it appears that neither the Circular nor the Declaration were included in the s 596C affidavit or its exhibits. However, I do not consider that this omission is material in the circumstances. Prior to the examinees making their application to set aside the summonses, the independence of the administrators and then liquidators does not appear to have been the subject of any comment or concern. Accordingly, it was not a matter which needed to be addressed in the affidavit. I will return to the question of the liquidators’ independence again shortly.
[101] See exhibit PW-8 of Mr Whiffen’s affidavit of 18 October 2018.

(d) The failure to disclose that the Companies were purportedly unable “to deliver clear title to much of the equipment at completion due to continuing security interests that had not been disclosed” and due to a director having sold some of that equipment to third parties[102] also seems peripheral and immaterial to the decision of whether to issue the summonses.
[102]See examinees’ supplementary submissions dated 14 November 2018 at 2.

(e) Issue is taken with the fact that the s 596C affidavit does not specifically draw attention to the “required actions“ or to the impugned paragraph in the 21 December 2017 letter from Clayton Utz. However, the letter is exhibited in full, along with other contemporaneous correspondence. It is somewhat artificial to suggest that the liquidators ought to have referenced these particular sections of the letter in circumstances where no apparent complaint was made about, or attention otherwise drawn to, those parts of the letter until the filing of the examinees’ interlocutory process on 11 October 2018.

(f) Similarly, the conversations between Mr Kaso and Mr Andrews in May and June 2018 and the repetition of the alleged further threat to commence public examinations in the event the dispute could not be resolved are not, it seems to me, details which ought to have been disclosed. Mr Andrews was not a proposed examinee at the time the liquidators sought the issue of the summonses. Nor was any objection taken to the alleged further threat at the time it was said to be made. That complaint has only apparently arisen in the present application.

(g) Complaints are also made as to the adequacy of the explanation of a range of matters including the basis and timing of AALG’s appointment of the receivers, AALG’s claim to the receivables, the quantification of the Companies’ indebtedness to AALG and AALG’s position as to the purpose of the OMA. There is little substance to these complaints. Given the volume of material presented in the s 596C affidavit, it is unrealistic to expect that the liquidators ought to have elaborated upon each and every issue concerning a broad ranging and complex dispute between them and AALG and the receivers. It was enough that the substance of that dispute was disclosed. Moreover, the public examination process is not the forum for the determination of the substantive rights of the parties or the ultimate resolution of the dispute between them.[103]

(h) The examinees argue that the failure of the liquidators to disclose the Secured Party Certificate and the accompanying JP Sesto letter of 14 February 2018 was a serious omission. In particular, it is said that the Secured Party Certificate “puts beyond doubt that the Companies were indebted to AALG for amounts falling within the definition of ‘Secured Money’ and thus justifying AALG’s continued reliance on the GSA to collect and retain the Receivables”.[104] I accept this constitutes a material non-disclosure. However, I am not satisfied that this omission would have affected the Court’s decision to issue the summonses. As is clear from the s 596C affidavit, there were multiple reasons for the issue of the summonses. The appointment and activities of the receivers are but some of the issues sought to be canvassed. Further, the affidavit is clear that there is a dispute not just about the appointment of the receivers but also in relation to the treatment of receivables of the Companies. Whether the receivers’ entitlement to retain the receivables is beyond argument is ultimately a matter which may need to be addressed in substantive proceedings. The examinees’ argument about the Secured Party Certificate also assumes that the receivers were validly appointed in the first instance (another matter which may ultimately require adjudication).

(i) Given the length of the s 596C affidavit, the volume of its exhibits and the deponent’s attempt to set out in summary form the nature and extent of the dispute between the liquidators, AALG and the receivers, I am prepared to infer that the non-disclosure of the Secured Party Certificate came about by error of judgment or inadvertence on the part of Mr Kaso. Further, it seems to me that the non-disclosure of the Secured Party Certificate is in a different category of non-disclosure to that which has resulted in the setting aside of summonses in other cases. In Re Mendarma, the affidavit in support of the summons was particularly brief and failed to disclose a proceeding to which the company and proposed examinees were parties.[105] Similarly, the case of Re Coretel Pty Ltd; Linker v Nilant,[106] also entailed a deed administrator failing to mention an existing proceeding to which the deed administrators, the company to which they were appointed and a company to which the proposed examinees were connected, were all parties.

[103]See Clark v Wood where Finkelstein J confirmed at 40 that “[n]othing is decided in an examination”.

[104]See examinees’ supplementary submissions dated 14 November 2018 at 2.

[105] Re Mendarma 1615-6 [28]–[29].

[106] (2003) 48 ACSR 178.

I turn now to the question of whether the independence of the liquidators is sufficiently in doubt as to warrant the setting aside of the summonses.

Independence of liquidators

The examinees contend there are grounds for suspicion that, before their initial appointment as administrators, the liquidators may have advised the Companies and Mr Tim Leunig (the director of the Companies who gave a personal guarantee to AALG for debts owed to AALG by the Companies) in relation to the management, affairs and potential insolvency of the Companies and as regards Mr Leunig’s duties and potential liability generally. It is said that this raises questions about the liquidators’ independence and whether there is a reasonable apprehension they may not act impartially in the liquidation, including in respect of the public examinations. The examinees further submit that should the liquidators’ independence be doubted, this would fortify their primary submission that the public examinations are motivated by a predominant purpose which is improper.

Reliance was placed on a recent decision of O’Callaghan J in Re Ten Network Holdings Ltd & Ors,[107] a case which entailed the appointment by the Court of a registered liquidator to report to creditors on potential claims and to effectively supervise the conduct of administrators to ensure they were acting consistently with their statutory duties and fiduciary obligations. The case stands for the proposition that a potential administrator should not provide advice to a company‘s board, its directors, management, creditors or other stakeholders (including shareholders, guarantors or financiers) in relation to the management of the company, its affairs, its insolvency, or the obligations and duties of the board, individual directors and management.[108] In addition, the case confirms that the test of apprehended bias in insolvency professionals is the same as that which applies to the judiciary and to administrative decision-makers generally. The test is whether a fair-minded lay observer might reasonably apprehend that the decision maker might not bring an impartial mind to the resolution of the question he/she is required to decide.[109]
[107] (2017) 252 FCR 519 (“Re Ten Network”).
[108] Ibid 528.
[109]Ibid 529, 534-6, citing Re Recycling Holdings Pty Ltd (2015) 107 ACSR 406 and Australian Securities and Investments Commission v Franklin (2014) 223 FCR 204.

One of the grounds of suspicion of lack of independence in this case is said to be found in the Declaration which was provided to the Companies’ creditors.[110] The Declaration, which was signed by both Mr Kaso and Mr Rocke in their then capacity as administrators, relevantly explained that:
[110] See exhibit “PW-8” of Mr Whiffen’s affidavit sworn 18 October 2018.

(a) the administrators had “undertaken a proper assessment of the risks to [their] independence prior to accepting the appointment”;

(b) neither the administrators nor their firm had “undertaken work for, or provided advice to, the referrer [Mr Mark Reilly] in respect of the [Companies]”;

(c) from late March 2017 to late October 2017 the administrators had met with or otherwise communicated with Mr Reilly and/or Mr Leunig principally regarding the Companies’ financial position and the director’s intention to sell the Business as a going concern;

(d) the administrators had met with or otherwise communicated with Mr Reilly, Mr Leunig and other representatives of the Companies principally regarding the Companies’ financial position and to explain the voluntary administration process;

(e) “[n]o advice [had] been given to the directors in their capacity as directors of the [Companies], or in relation to their personal circumstances”;

(f) the pre-appointment discussions would not influence their ability to be able to fully comply with the statutory and fiduciary obligations associated with the administrations in an objective and impartial manner;

(g) they had “provided no other information or advice to the Companies, [their] directors and advisors prior to [their] appointment beyond that outlined in [the] Declaration” [emphasis added]; and

(h) neither they nor their firm had provided any “professional services” to the Companies in the 24 months prior to their appointment.

Despite the comprehensive nature of the Declaration, the examinees suggest that it fails to expressly confirm that no pre-appointment advice was given to the Companies or to the Companies' management or other stakeholders. Mr Whiffen also says in his affidavit that during the negotiations for the sale of the Business he was told by Mr Tim Leunig that “the Companies were getting advice from both his own financial adviser (Mr Mark Reilly) and from a contact of Mr Reilly who was a liquidator”.[111]
[111] Affidavit of Mr Whiffen sworn 18 October 2018 [16].

However, it must be remembered that Mr Whiffen is recalling information apparently provided to him by Mr Leunig[112] approximately 19 months prior. Understandably, he is imprecise as to the nature of the “advice” given. Moreover, what Mr Whiffen says may be entirely consistent with what the administrators confirmed in the Declaration: that there were in fact communications about the Companies’ financial position, the sale of the Business as a going concern and the process of appointing voluntary administrators. It is not obvious that these communications conflict with the propositions set out in Re Ten Network.
[112]Section 75 of the Evidence Act 2008 (Vic) provides that the hearsay rule does not apply in interlocutory proceedings if the source of the evidence is adduced.

The examinees also argue that a lack of independence on the part of the liquidators is suggested by their decision to seek only the examination of AALG directors and staff but no one else, such as Mr Leunig. I am unpersuaded by this argument. The fact that only certain examinees, and not others, are sought to be examined at this time is not necessarily indicative of a lack of independence or an improper purpose. The examinees fall within categories of persons who may be able to give information about the examinable affairs of the Companies pursuant to s 596B of the Corporations Act. I also accept the liquidators’ submission that they are entitled to assess the identity of prospective examinees and the sequence in which they wish to examine those persons. That assessment will, no doubt, be informed by considerations such as the degree of co-operation or otherwise from other potential examinees, the resources available to the liquidators to conduct public examinations and the priority to be accorded to the investigation of particular claims.

Finally, I again observe that prior to the examinees’ application being made, it appears that no concern was raised as to the liquidators’ independence. Certainly no application had been made to the Court by AALG for the liquidators’ removal.

It follows from what I have said that there is nothing to suggest a fair-minded lay observer might reasonably apprehend the liquidators are not acting independently in seeking the public examinations.

The final question which falls for determination is whether the summonses are oppressive in their scope.

Oppressive effect of summonses

In considering the examinees’ preliminary applications to extend time and to inspect the s 596C affidavit, I found that there was an arguable case that the summonses, as currently drawn, are oppressive, in the sense that they may cover documents already provided by the examinees to the liquidators.

As previously noted, Mr Whiffen has prepared a table setting out the various categories of documents already made available by AALG prior to the issue of the summonses.[113] The table also conveniently cross-references the documents previously provided against various paragraphs in the respective summonses.
[113] Exhibit “PW-15” to the affidavit of Mr Peter Whiffen sworn 18 October 2018.

A review of Mr Whiffen’s table and the summonses themselves confirms that the examinees have indeed provided certain documents to the liquidators which fall within categories of documents sought by the summonses. For example, documents which record actions taken by AALG during a particular period to inspect and identify assets of the Companies are caught by the summonses but appear to have already been provided in the form of worksheets contained in the Wash Up Statement. However, Mr Whiffen’s table suggests other source documents may also exist in document storage, such as “machine files” and “vehicle inspections”. Similarly, documents recording how the Purchase Price under the Sale Agreement was arrived at by AALG have already been provided in the form of correspondence passing between the parties and their lawyers and in the Completion Statement and the Wash Up Statement. However, source documents underpinning the documents previously provided appear to exist in storage. Moreover, there may well be documents which are internal to AALG, such as emails, notes, working papers and memoranda, that are responsive to this category.

On the other hand, there are categories of documents that have been called for in the summonses which may not have been previously provided by AALG, for example: documents concerning the location of Mr Steven Taylor at the time of the inspections of assets of the Companies; certain financial statements of AALG; documents recording communications, negotiations and agreement between AALG and the secured creditors of the Companies; reports or correspondence between AALG and the receivers outlining steps taken by, or instructions given to, the receivers; and documents, including diary entries and calendar records, confirming the physical location of the receivers and the directors of AALG at the time of the execution of the appointment of the receivers.

Whilst I will hear from the liquidators and examinees as to the formulation of orders, it is appropriate in my view to limit certain categories of documents sought in the summonses to expressly exclude those documents already provided. Any documents not previously sighted by the liquidators but which answer the summonses, including internal AALG documents, will still need to be produced.

Except in the case of Mr Olsen, the summonses seek documents relating to each of the examinees’ personal financial situation. It is submitted that these documents do not form part of the examinable affairs of the Companies but may be expected to cause inconvenience and embarrassment to the examinees.

As previously explained, a liquidator may, at the same time as investigating whether there exists a cause of action, also enquire as to the worth of a potential defendant. It is therefore appropriate that the liquidators be permitted to access not only the most recent financial statements, management accounts and tax returns for AALG, but also the most recent income tax returns, bank statements and documents recording ownership of assets, for the individuals sought to be examined (save for Mr Olsen).

However, there is one particular category of personal financial documents which may be a bridge too far. That category is as follows:

financial statements of trustee companies, trusts and companies in which [the relevant examinee] was a shareholder or director for the year ending 30 June 2018 or, if no financial statements [have] been prepared or submitted for the year ending 30 June 2018, those documents for the most recent financial year for which they have been prepared.

I accept the examinees’ submission that, assuming a claim could be made out against any of the examinees personally, it is unlikely that a judgment could be enforced against the assets of a trust in respect of which the examinee merely happens to be trustee or director or shareholder of a trustee company. The liquidators point out that this category is consistent with a category of documents recently upheld in response to an equivalent objection in Cathro, in the matter of Lindscombe Plastering Services Pty Ltd (in liq).[114] In that case the objection was made by the spouse of the sole company director. However, in this matter the examinees are the directors, officers and employees of the entity which purchased the Business of the Companies and are therefore further removed. Accordingly, this category of documents should be reworked to cover financial statements for:

(a) companies of which the relevant examinee was a director or shareholder during the relevant period; and

(b) trusts in respect of which the relevant examinee was a named beneficiary or unitholder or was within a class of beneficiaries during the relevant period.

[114] [2018] FCA 1138.

Conclusion

It follows from these reasons that the summonses for examination issued by the Court on 27 August 2018 (save for the summons addressed to Mr Olsen) be varied in the manner set out above. The interlocutory process filed by the examinees on 11 October 2018 is otherwise dismissed.

I will hear from the parties as to the appropriate formulation of orders, including the timing of production of documents under the summonses and the re-fixing of the dates for the examinations.

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In the matter of Dalstonville Pty Ltd (in Liq) and Don Leunig Pty Ltd (in Liq) [2018] VSC 774

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[2018] VSC 774

19 December 2018