In the matter of Fogo Brazilia Holdings Pty Ltd (in liq) - [2022] NSWSC 556

Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: In the matter of Fogo Brazilia Holdings Pty Ltd (in liq) [2022] NSWSC 556
Hearing dates: 24-25 March 2021 and 25, 26 and 28 May 2021
Date of orders: 9 May 2022
Decision date: 09 May 2022
Jurisdiction: Equity
Before: Williams J
Decision:
Proceedings dismissed.

Catchwords:
CORPORATIONS – winding up – liquidator’s fiduciary and statutory duties – liquidator’s obligation of independence and impartiality – whether liquidator breached duties or acted to favour the interests of one group of creditors to the detriment of the company and creditors as a whole by conducting examinations under Part 5.9 of the Corporations Act 2001 (Cth) and by engaging solicitors to act for the liquidator in those examination proceedings who had acted for the groups of creditors whose interests were said to be served by the examinations – whether examinations included questions about topics that were “not legitimate” or “improper” – whether conduct of liquidator biased or gave rise to reasonable apprehension of bias – application for order removing liquidator dismissed

Legislation Cited:
Corporations Act 2001 (Cth), ss 180-183, Part 5.9
Insolvency Practice Schedule, s 90-15

Cases Cited:
Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd atf The Albans Unit Trust (1994) 14 ACSR 230
Australian Securities and Investments Commission v Edge (2007) 211 FLR 137; [2007] VSC 170
Australian Securities Commission v Franklin (2014) 223 FCR 204; [2014] FCAFC 85
Brown v Bluestone Property Services Pty Ltd [2010] NSWSC 689
Commissioner for Corporate Affairs v Harvey [1980] VR 669
Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337; [2000] HCA 63
Hearne v Street (2008) 235 CLR 125; [2008] HCA 36
In the matter of FW Projects Pty Ltd (in liq) [2019] NSWSC 892
In the matter of Kala Capital Pty Ltd (in liq) [2012] NSWSC 1073
In the matter of 77738930144 Pty Ltd (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452
In the matter of Ji Woo International Education Centre Pty Ltd [2019] NSWSC 93
In the matter of Kala Capital Pty Ltd (in liq) [2012] NSWSC 1073
In the matter of St Gregory’s Armenian School (in liq) [2012] NSWSC 892
Sands Contracting Pty Ltd v Foodcorp (Vic) Pty Ltd [2020] FCA 1274
Smarter Way (Aust) Pty Ltd v D’Aloia (2000) 35 ACSR 595; [2000] VSC 408
Walton v ACN 004 410 833 Limited (formerly Arrium Limited) (in liq) [2022] HCA 3

Category: Principal judgment
Parties: Fogo Brazilia Holdings Pty Ltd (First Plaintiff)
Ian David Dresner (Second Plaintiff)
Gavin Moss in his capacity as liquidator of Fogo Brazilia Franchise Holdings Pty Ltd (in Liquidation) (ACN 156 541 025) (First Defendant)
Representation:
Counsel:
Mr J Lazarus SC with Mr A Vial (First and Second Plaintiffs)
Mr R Marshall SC with Mr D F Elliott (First Defendant)
Solicitors:
Lazarus Legal (First and Second Plaintiffs)
Piper Alderman (First Defendant)

File Number(s): 2020/163342
Publication restriction: N/A

Judgment

Introduction

Fogo Brazilia Franchise Holdings Pty Limited (in liq) (the Company) carried on a Brazilian cuisine restaurant franchise business as franchisor.
On 31 January 2018, Mr Henry Kwok and Mr Gavin Moss, both of the firm Chifley Advisory, were appointed joint and several administrators of the Company pursuant to s 436A of the Corporations Act 2001 (Cth) (the Administrators).
On 28 March 2018, the Company entered into a Deed of Company Arrangement (DOCA) and Messrs Kwok and Moss were appointed deed administrators (the Deed Administrators).
The DOCA was terminated on 23 August 2018, following which the Company went into liquidation and Messrs Kwok and Moss were appointed joint liquidators. Mr Kwok resigned with effect from 2 October 2018, and Mr Moss has been the sole liquidator of the Company since that date. Mr Moss is the only defendant since the plaintiffs discontinued the proceedings against the second defendant. In these reasons I shall refer to Mr Moss either by his name or as the Liquidator.
The first plaintiff, Fogo Brazilia Holdings Pty Ltd (Holdings), and the second plaintiff, Mr Ian Dresner, are creditors in the winding up of the Company.
Mr Dresner is also a director of the Company.
Mr Stewart Levitt of Levitt Robinson Solicitors was engaged to act for the Liquidator in the conduct of public examinations pursuant Part 5.9 of the Corporations Act concerning the Company’s affairs.
The public examinations were funded by Galactic Fogo Litigation Liquidators LLC (the Funder) pursuant to a Funding Agreement between the Funder, Levitt Robinson and the Liquidator and a Deed of Indemnity between the Funder and the Liquidator.
At the time the Funder offered to fund the examinations, and at the time the Funding Agreement was entered into and Levitt Robinson were engaged to act for the Liquidator, Levitt Robinson were also acting for certain former franchisees of the Company in relation to claims or potential claims against the Company, Holdings, Mr Dresner and certain other persons (the Franchisee Claims and the Franchisee Claimants). The Franchisee Claimants had lodged proofs of debt in the winding up of the Company on 19 November 2018 in respect of debts totalling $4,784,597, representing 56.5% of the total creditors’ claims in the winding up of the Company.
The plaintiffs allege that Mr Levitt continued to act for the Franchisee Claimants thereafter, including when the Liquidator applied to this Court for the issue of examination summonses on 10 December 2019 and during the public examinations that were conducted between 17 and 20 March 2020 and on 1 May 2020.
In a confidential affidavit sworn in support of the application for the examination summonses, the Liquidator deposed:

“I propose to instruct Levitt Robinson Solicitors to represent me in the examinations. Levitt Robinson Solicitors will brief David Pritchard SC and Daniel Krochmalk of counsel. My solicitors have acted for the Fogo Franchisees who are creditors or potential creditors of the Company. I have retained independent solicitors, Piper Alderman, to advise me. I have turned my mind to whether there is a conflict or possible conflict in my retaining solicitors who have acted for the Fogo Franchisees. I am satisfied that there is no conflict which impairs my independence as liquidator of the Company. For abundant caution, the solicitor in the record in these proceedings, Stewart Levitt, gives an undertaking that, subject to order or further order of the Court, he will not disclose the documents obtained during the public examinations to any person other than the solicitors within his firm, counsel retained by the liquidator, the liquidator and members of his staff and the litigation funder.”

The examination summonses were issued on 18 December 2019.
At a hearing in the examination proceedings on 3 February 2020, the Court’s attention was drawn to the Liquidator’s evidence set out above and the Court formally noted Mr Levitt’s undertaking there referred to.
The plaintiffs seek orders under ss 90-15(1) and (3) of the Insolvency Practice Schedule (IPS)^[1] removing the Liquidator and appointing an independent liquidator selected by the Court.^[2] On the penultimate day of the hearing, the plaintiffs tendered a consent of Mr Adam Farnsworth, registered liquidator, to be appointed by the Court and to act as liquidator of the Company.^[3]
1. Corporations Act, Schedule 2.
2. The plaintiffs’ other claims for relief in prayers 3-7 of the originating process were abandoned on the final day of the hearing.
3. Exhibit 9.
In their Further Amended Points of Claim, the plaintiffs allege that:

the Funder had control, or at least partial control, over the conduct of the examinations under the terms of the Funding Agreement;

the Funder has a financial interest in the Franchisee Claims, in respect of which Levitt Robinson acts for the franchisees;

by acting for the Franchisee Claimants in respect of the Franchisee Claims, Levitt Robinson has a financial interest in the Franchisee Claims;

by:

engaging Levitt Robinson to act for him in the conduct of the public examinations; and

entering into the Funding Agreement in circumstances where the Funder had a financial interest in the Franchisee Claims and the Funding Agreement gave the Funder control over the conduct of the examination in return for payment of the Liquidator’s legal expenses, and facilitating the Funder’s financial interests by agreeing to gather through the examinations information concerning the Franchisee Claims for the benefit of the Franchisee Claimants and Funder and to the detriment of the Company, its contributories and other creditors,

the Liquidator placed himself in a position of conflict in breach of his fiduciary duty owed to the Company, its contributories and creditors not to place himself in a position of conflict;

by retaining Levitt Robinson, by entering into the Funding Agreement and by subsequently using his powers to conduct examinations to, inter alia, gather information in relation to the Franchisee Claims against the Company and others to the benefit of the Franchisee Claimants, the Liquidator has facilitated the Franchisee Claims to the detriment of the Company and its contributories and other creditors, in breach of the Liquidator’s duties, including his duty to exercise his powers in good faith in the best interests of the Company and for a proper purpose, his duties not to use his position or information obtained by him to gain an advantage for someone else (namely the Funder, the Franchisee Claimants and Levitt Robinson), his duty not to improperly use his position to cause detriment to the Company and his duty to be impartial and independent;
by swearing the confidential affidavit on 10 December 2019 and relying on that affidavit at the hearing on 3 February 2020, the Liquidator knowingly misled the Court by stating that Levitt Robinson “have acted for” the Franchisee Claimants, in circumstances where the Liquidator knew that Levitt Robinson were continuing to act for the Franchisee Claimants, in breach of his duties referred to above;
alternatively, the Liquidator breached those duties by making the statement referred to immediately above with reckless disregard as to its truth;
the Liquidator breached his duty to be impartial and independent and his fiduciary duty not to obtain an unauthorised profit by requesting Mr Dresner in September 2018 to contribute $26,000 to the Liquidator’s remuneration in circumstances where no such contribution was payable by Mr Dresner under the Deed of Company Arrangement which had already been terminated and the Liquidator had not notified Mr Dresner of that termination;
the Liquidator breached his duty to preserve and realise the assets and ascertain the liabilities of the Company and his duty to be impartial and independent by not taking steps or using his examination powers to recover or ascertain the nature and quantum of debts owed by the Franchisee Claimants to the Company, or the extent of any offsetting claim in respect of the Franchisee Claims;
the Liquidator breached his duty to be impartial and independent and his duty of care and diligence in failing to serve his report dated 29 August 2019 on Holdings and Mr Dresner; and
the matters above amount to actual bias or give rise to a reasonable apprehension of bias in respect of the Liquidator’s conduct in the winding up of the Company.

In his Points of Defence to Further Amended Points of Claim, the Liquidator:

denies that the Funding Agreement, properly construed, gave the Funder control or partial control over the conduct of the examinations;

does not admit that the Funder and Levitt Robinson had a financial interest in the Franchisee Claims (although the Liquidator’s closing submissions accepted that the Funder and Levitt Robinson each had a financial interest in those claims);

denies that he breached his fiduciary duty owed to the Company, its contributories and creditors not to place himself in a position of conflict by engaging Levitt Robinson to act for him in the conduct of the public examinations and by entering into the Funding Agreement, and refers to (inter alia) the legal advice that he received before entering into the Funding Agreement, disclosures made to creditors concerning the Funding Agreement and the role of Levitt Robinson before creditors approved his engagement of Levitt Robinson and entry into the Funding Agreement pursuant to s 477(2B) of the Corporations Act at a meeting on 13 September 2019, the disclosure made to the Court when the examination summonses were issued and the fact that he was advised by solicitors independent of Levitt Robinson throughout the public examinations;

denies that his retainer of Levitt Robinson and execution of the Funding Agreement and his subsequent conduct of the public examinations facilitated the Franchisee Claims to the detriment of the Company and its contributories and other creditors, in breach of his duties, relying on the matters referred to immediately above;

denies that he knowingly misled the Court or acted with reckless disregard for the truth when swearing his 10 December 2019 affidavit;

denies the allegations concerning Mr Dresner being requested to contribute to his remuneration in September 2018;

denies that he failed to take steps to recover the debts owed by Franchisee Claimants or to ascertain the nature and quantum of those debts or any offsetting claims against the Franchisee Claims;

denies that he breached his duties by allegedly failing to serve his report dated 29 August 2019 on Holdings and Mr Dresner and maintains that the report was sent to each of Holdings, Mr Dresner and their solicitors; and

denies the allegations of actual bias and denies that his conduct in the winding up of the Company gives rise to a reasonable apprehension of bias.

Mr Levitt was formerly the second defendant in the proceedings. The plaintiffs discontinued their claims against him on 28 September 2020.

Salient facts

Management of the Company prior to administration

The Company was incorporated on 28 March 2012. Mr Dresner was a director of the Company, together with Mr Hilton Seskin. The shareholders were Monekim Pty Limited (Monekim) and Julisa Pty Ltd (Julisa).
Mr Seskin resigned as a director and Julisa’s shares in the Company were transferred to Monekim in 2017.
Mr Dresner has been the sole director and Monekim has been the sole shareholder of the Company since that time. Mr Dresner is a director of Monekim.
Mr Dresner gave evidence that Holdings had been incorporated on 4 July 2008 for the purpose of establishing and operating restaurants specialising in Brazilian food under the “FOGO Brazilia” name. The Company was established in March 2012 for the purpose of operating as a franchisor to franchisees operating restaurant businesses under the “FOGO Brazilia” name. By January 2018, approximately twelve “FOGO Brazilia” restaurants were operated by franchisees, one restaurant at Greenwood Plaza in North Sydney was operated by the Company, and restaurants at Bondi Beach and Chippendale were operated by companies related to the Company. According to Mr Dresner, the intellectual property in the “FOGO Brazilia” logo that franchisees were permitted to use was transferred from the Company to himself at some time that he was unable to identify and for reasons that he said he was unable to recall. Other evidence suggests that the intellectual property was never owned by the Company and that trademarks had been registered in the name of Holdings. In addition to being the franchisor under franchise agreements with “FOGO Brazilia” restaurant operators, the Company was the lessee of some of the premises from which those restaurants operated. The Company required the franchisees to pay the rent for those premises, either directly to the lessors, or as an occupation fee paid to the Company.
In practice, the Company and its related entities did not operate their respective businesses in accordance with the corporate structures described above. Mr Dresner gave evidence that all of the Company’s transactions “went through” Holdings and revenue earned and GST collected in the course of the Company’s operations was reported to the Australian Taxation Office as revenue earned and collected by Holdings. Invoices for franchise fees were sometimes issued by the Company and sometimes issued by Holdings to franchisees. Franchisees were directed to pay amounts invoiced by the Company into a bank account of Holdings.
The Administrators described the arrangements in the following terms in their second report to creditors:

“We were advised that the Company was ‘traded’ and was fully depended [sic] on the financial support of Fogo Brazilia Holdings Pty Ltd since its incorporation. The Company had never prepared its own accounting records and financial statements, all financial transactions were conducted and recorded in the financial statements and records of Fogo Brazilia Holdings Pty Ltd. The Company did operate bank accounts in its own right, but these accounts had very limited transactions.”

Voluntary administration and the DOCA

Towards the end of 2017, some of the franchisees fell into dispute with the Company and ceased paying franchise fees and the occupation licence fees or rent for their restaurant premises. Some franchise restaurants were abandoned. The Company was liable to the landlords of those restaurant premises. One of those lessors served a statutory demand on the Company.
In January 2018, Mr Dresner attended a series of meetings with his solicitor, Mr Barry Lazarus of Lazarus Legal Group Pty Ltd (Lazarus Legal), and Mr Moss to discuss the Company’s predicament. As sole director of the Company, Mr Dresner made the decision to place the Company into administration with a view to the Company entering into a deed of company arrangement. On 31 January 2018, Mr Moss and Mr Kwok were appointed Administrators pursuant to s 436A of the Corporations Act.
On 1 February 2018, the Administrators wrote to Mr Dresner concerning the administration. The letter enclosed, inter alia, a notice under s 438C(3) of the Corporations Act requiring Mr Dresner to deliver the Company’s books and records to the Administrators together with a checklist of books and records that were required. The categories of books and records in the checklist included the sales journal and sales invoices. I reject Mr Dresner’s evidence that Mr Moss told him not to bother producing the books and records required by the notice. It is inherently unlikely that any administrator in Mr Moss’ position would have told Mr Dresner that he need not comply with the notice and Mr Dresner’s recollection of relevant events is generally poor.^[4] In any event, the Liquidator issued subsequent demands and requests for books and records. Mr Dresner failed to respond, or failed to provide a full response, as referred to later in these reasons.
4. See, for example, [74]-[75] and [99]-[100] below.
The Administrators issued their first report to creditors on 2 February 2018.
On 5 February 2018, the Administrators wrote to franchisees advising of their appointment on 31 January 2018 and terminating the franchise agreement between the Company and each franchisee with immediate effect. The letters also advised that the Administrators had issued the landlord of the relevant restaurant premises with notice of their intention not to exercise the Company’s property rights and that it was open to the landlord to take action with respect to the premises. Each letter also stated:

“We also understand that you may owe outstanding franchise fees and other costs to the Company, these outstanding amounts must be paid directly to the Company’s Administration bank account as follows …
Should you fail to pay the outstanding franchise fees within 7 days, we may consider further legal action and/or debt collection action without further reference to you.”

On 5 February 2018, Saleam Lawyers replied to the Administrators’ letter on behalf of one of the franchisees, Laith and Fadi Investments Pty Ltd (LF Investments). The letter stated that LF Investments accepted the termination of the franchise agreement. In relation to the alleged outstanding franchise fees, the letter stated that the Company held a sum of $15,000 on trust for LF Investments and was indebted to LF Investments in the sum of $12,000. It reserved the right to rely on s 553C of the Corporations Act. The letter also enclosed a copy of a dispute notice issued by LF Investments dated 25 January 2018 which alleged misrepresentations and lack of good faith on the part of the Company and sought full compensation for LF Investments’ total investment in the business and all monies paid to the Company to date.
That correspondence from Saleam Lawyers and a subsequent letter dated 9 April 2018 from Levitt Robinson, who had by then taken over acting as the solicitors for LF Investments, were the only responses that the Administrators received to their 5 February 2018 letters to franchisees.
On 9 February 2018, Mr Dresner provided a report as to affairs under s 438B(2) of the Corporations Act to the Administrators (the RATA). According to the report, the Company’s assets were limited to $4,500 in stock, plant and equipment with an unspecified value and amounts totalling $204,768 plus rent of $78,152 that the Company claimed was owing by franchisees as at 31 January 2018. The RATA did not identify any debtors of the Company other than franchisees.
Mr Dresner reported that the Company had no liabilities to employees or other preferential creditors and had no secured or partly secured creditors. The Company’s reported liabilities were amounts to be confirmed owing to landlords and to Lazarus Legal. Mr Dresner reported that the Company had no liabilities to the Australian Taxation Office, Office of State Revenue or its external accountants. Mr Dresner did not include himself or Holdings in the list of the Company’s creditors.
In his affidavit affirmed on 1 June 2020, Mr Dresner gave evidence that he and Mr Seskin met with Mr Moss in about early to mid-February 2018 to discuss the creditors and debtors of the Company. According to Mr Dresner, he gave Mr Moss a “rough estimate of the franchise royalty fees owed to the Company the franchisees in the vicinity of $170,000”. Mr Dresner has identified an undated handwritten list of franchise locations with a single amount next to each restaurant location as the estimate that he discussed with Mr Moss at the meeting. There is no breakdown or calculation accompanying each amount. Mr Dresner deposed that Mr Moss told him at this meeting that he did not intend to pursue the franchise fees and that he (Mr Dresner) should ask Mr Lazarus to attend to this. Mr Moss denies that any such meeting occurred.
Mr Dresner adhered to his evidence in cross-examination:

“A.   … I did a list because I wanted him to be aware that the only debtors that we had was the franchisees and he straightaway said, ‘I’m not going to bother collecting them from the franchisees. You do it yourself.’ Well, I couldn’t believe when he said that initially and then he said afterwards, ‘Ask Barry Lazarus to do it’ and that was the last thing that was mentioned.
Q.   You did not provide a copy to Mr Moss of the invoices that were outstanding of the franchisees, did you?
A.   He didn’t ask me.
Q.   You didn’t provide them, did you?
A.   He did not ask me, I’m not going to provide something that I haven’t been asked for.”

Mr Dresner also said in cross-examination that:

“If he [Mr Moss] had asked me for invoices, I would have produced them but he had no interest at all in chasing up the franchisees. I don’t know how many times I have to tell you that.”

Although Mr Moss denies that the meeting described by Mr Dresner took place, he does recall conversations with Mr Dresner relating to the debts allegedly owing by the former franchisees. Mr Moss gave evidence in cross-examination that he advised Mr Dresner during those conversations that Mr Lazarus, who had knowledge about those matters due to his role as solicitor for the Company prior to the appointment of the Administrators and Deed Administrators, was best placed to pursue those debts on behalf of the Company. Mr Moss denied that the Deed Administrators had declined to pursue those debts. Rather, they intended to instruct Lazarus Legal to do so. Mr Moss accepted that it was in the Company’s best interests to pursue its claims against former franchisees.
I reject the plaintiffs’ submission that Mr Moss’ evidence about the conversations referred to above is essentially consistent with Mr Dresner’s evidence that Mr Moss declined to pursue the debts allegedly owing by the former franchisees. There is a substantial difference between Mr Moss declining to pursue those debts at all (according to Mr Dresner) and Mr Moss forming the view that, given the dearth of information about the alleged debts, the Administrators should instruct Lazarus Legal to take steps to pursue the debts as they had prior knowledge of the Company and its business.
I reject Mr Dresner’s evidence that Mr Moss told him in early to mid-February that he did not intend to attempt to collect amounts said to be owing by franchisees. It is inherently implausible that Mr Moss said this to Mr Dresner in early to mid-February 2018 in circumstances where the Administrators had in fact written to franchisees demanding payment of all amounts owing on 5 February 2018,^[5] the Administrators requested further information from Mr Dresner about “outstanding debtors/franchisee fees” on 26 February 2018,^[6] the Deed Administrators later used that information as the basis for instructing Lazarus Legal to commence recoveries against former franchisees on 10 April 2018^[7] and the Deed Administrators also sought copies of the invoices for the purpose of seeking to recover the amounts allegedly owing by the former franchisees.^[8] Mr Moss’s evidence referred to at [36] above is consistent with those contemporaneous events and I accept his evidence.
5. See [28] above.
6. See [39] below.
7. See [76] below.
8. See [85] below.
As referred to above, a manager from Chifley Advisory sent an email to Mr Dresner on 26 February 2018 requesting that he provide the “full listing of all outstanding debtors/franchisee fees owing to the Company as at 31 January 2018” as a matter of urgency. Mr Dresner sent the following reply by email that evening:

“1.   Liverpool (Arvin Australia Pty Ltd) … $2,718.87 plus any rent due to Westfield
2.   Darling Harbour (R&F Innovation) … $32,531.15 plus any rent owing to Mirvac
3.   Macarthur Square (Swapno Pty Ltd) … $26,232.14 plus rent owing to Lend Lease
4.   Wetherill Park (Laith & Fadi Investments) … $55,457
5.   Rouse Hill (Active Food & Beverage) … $16,875.21 plus rent owing to GPT
6.   Narellan (DOAA & JAWAD Pty Ltd) … $1,790.41
7.   Bondi Junction (Golden Peak Australia Pty Ltd) … $4,786.47
8.   Rhodes (Waseemu Pty Ltd) … $2,991.91
9.   Bankstown (RRZ Pty Ltd … 26,617.09”

I note that the amount of $55,457 listed in Mr Dresner’s email as owing by Laith and Fadi Investments varied considerably from the amount of $78,874 stated in the RATA and the amount of $45,000 stated in the handwritten list that Mr Dresner says he discussed with Mr Moss in mid-February 2018. There were also material variations between the amounts stated in each of the three documents in respect of several other franchisees.
In their second report to creditors dated 27 February 2018, the Administrators set out their estimated asset and liability position of the Company.
In relation to assets, the Administrators’ assessment was that the Company had no cash at bank. The Administrators had sold the Company’s plant and equipment for $15,000 (plus GST) and were investigating whether the Company had any stock. Mr Dresner had advised that no amounts were owing to the Company by its related entities, but the Administrators were making their own inquiries. The Company owned no real property or motor vehicles. Its only other asset was amounts allegedly owing by franchisees.
The report provided no detail concerning the sale of the Company’s plant and equipment, other than the fact of the sale and the price. The plant and equipment, which was located at the North Sydney restaurant operated by the Company, had been sold by the Administrators to Holdings. The price of $15,000 (plus GST) had not been paid to the Administrators at the time of the report. As will become apparent later in these reasons, Holdings did not ever pay the price.
The Administrators’ estimate of the realisable amount of debts allegedly owing by franchisees was yet to be determined. In relation to those alleged debts, the report stated:

“Pre-Appointment Debtors (Franchise Fees)
Upon our appointment, the director has advised in his Report as to Affairs (‘RATA’) that the Company has pre-appointment debtors totalling $282,290. These debtors consist of franchise and marketing fees owing to the Company from its franchisees. We note that these amounts were subjected [sic] to disputes prior to our appointment.
Due to the limited Company books and records received to date, we are unable to confirm the Company’s total debtor amounts at this stage. Notwithstanding this, the director has provided us with a listing of the franchise fees owing to the Company as at 31 January 2018 totalling $170,000.25.
We have issued demands to all the franchisees requesting payment of their outstanding amounts. To date, we have not recovered any funds from these franchisees.
Based on the fact that the franchise agreement has been terminated by the Administrators upon our appointment, it is anticipated we will encounter substantial resistance and disputes from franchisees in the collection of these franchise fees. Consequently, it will be difficult to estimate with any certainty the additional amount which may ultimately be recoverable from these franchisees.”

At the time of the second report, the Administrators had received formal proofs of debt from three creditors – two landlords (for a total amount of $399,928) and Holdings (in the amount of $1,189,000). These amounts were included in the Administrators’ estimate of the Company’s liabilities, although the report stated that the Administrators were investigating the nature and validity of Holdings’ claim. Other liabilities of the Company were yet to be determined.
The second report also stated:

“Despite our requests for the delivery of the Company’s books and records from the director and the external accountant, at the date of this Report, we have not received any financial records of the Company. The director has advised that the Company did not maintain any financial statements or electronic records since its incorporation and that the Company’s financial records were incorporated into Fogo Brazilia Holdings Pty Ltd’s financial records as a loan account against the Company.
Consequently, we have not been able to ascertain any financial information pertaining to the Company’s historical trading operations.”

A deed of company arrangement proposed by Mr Dresner was enclosed with the Administrators’ second report to creditors (the Proposal). The key features of the Proposal were:

the Administrators were to be appointed as administrators of the proposed deed;

control of the Company was to pass back to Mr Dresner as the director during the period of the proposed deed;

the deed administrators would hold on trust and administer a deed fund, which would include:

the Company’s “collectible pre-appointment debtors” (being the amounts allegedly owing by the franchisees), the amount of which could not be determined at the time of the Proposal;

if less than $70,000 was collected from the pre-appointment debtors, a contribution of up to $70,000 to be paid by the deed proponent in one instalment of $4,000 on execution of the deed followed by twelve monthly instalments of $5,500;

the proceeds of sale of the Company’s plant and equipment that had been sold by the Administrators, being $15,000 (plus GST); and

“[a]ny other pre-Administration circulating assets” (although that the Administrators had not identified any such assets);

the deed administrators would be responsible for assessing and adjudicating on all proofs of debt and claims against the deed fund;

Mr Dresner and his related parties would be excluded from participating in the deed fund, except in relation to any employee entitlements afforded priority under s 556(1)(e) to (h) of the Corporations Act, but the claims of those excluded creditors against the Company would not be released or extinguished upon distribution of the deed fund in accordance with the proposed deed;

the deed fund would be distributed in the following order of priority:

in payment of the remuneration of the Administrators and deed administrators;

in payment of any other priority creditors in accordance with s 556 of the Corporations Act; and

pari passu to participating unsecured creditors other than related entities as referred to above;

all unsecured claims against the Company would be subject to a moratorium during the period of the proposed deed;

the deed administrators would pay a final dividend to creditors upon making a “commercial determination that he is [sic] in receipt of all debtors that can reasonably be collected”; and

the proposed deed would terminate after the deed fund had been distributed.

The Administrators estimated that the Proposal offered a return of approximately eight cents in the dollar to unsecured creditors (based on total contributions to the deed fund of $85,000, being the $70,000 to be realised from the debts allegedly owed by franchisees or otherwise paid by Mr Dresner and a further $15,000 realised from the sale of plant and equipment). The Administrators estimated a potential nil return in a liquidation of the Company. The Administrators expressed the opinion that it would be in creditors’ best interests for the Company to execute the deed proposed by Mr Dresner.
Resolutions were passed at the second meeting of creditors that the Company execute a deed of company arrangement in the form detailed in the Administrators’ second report to creditors and that Messrs Moss and Kwok be appointed as deed administrators. The resolutions were carried by the proxy votes given to Mr Kwok as Chairperson of the meeting by Mr Dresner, Holdings, Monekim, Lazarus Legal and the Company’s external accountants. The Chairperson admitted the proofs of debt of all of those alleged creditors for voting purposes. The proofs of debt had been submitted on 6 March 2018. No other creditor was present at the meeting in person or by proxy.
The DOCA contained terms to the effect outlined above.
Clause 4 provided that control of the Company reverted to Mr Dresner as its director upon execution of the DOCA. Whilst this excluded any power to deal with any property of the Company required to be contributed to the deed fund, that exclusion did not apply to the extent that the dealing was in order to give effect to that requirement.
The deed fund contributions to be paid by Mr Dresner and the Company to the Deed Administrators under clause 7.1 of the DOCA were described as follows in item 8 of the schedule to the DOCA:

“The Deed Fund shall comprise of contributions made up as follows:
(a)   $70,000, which amount is to be paid by the Deed Proponent from the collection of the Company’s collectable pre-appointment debtors;
(b)   if insufficient pre-appointment debtors are collected (if less than $70,000), the Deed Proponent shall pay the following amounts into the Deed Fund:
(i)   $4,000 on the date of execution of the Deed followed by twelve (12) monthly instalments of $5,500;
(ii)   The proceeds from the realisation of the plant and equipment in the amount of $15,000 (plus GST);
(iii)   Any other pre-Administration circulating assets of the Company will be realised into the Deed Fund.”

The term “Deed Proponent” is not defined in the DOCA, but Mr Dresner was in fact the proponent of the DOCA.
Clause 7.4 of the DOCA provided:

“In addition to any monies received from the Deed Fund Contributions, the property of the Company described at Item 9 of the Reference Schedule shall be realised by the Deed Administrators and contributed to the Deed Fund as soon as practicable after execution of this deed.”

Item 9 of the schedule listed the following property of the Company:

“(i)   The Company’s pre-appointment cash at bank (if any);
(ii)   The Company’s pre-appointment trade Debtors;
(iii)   Any unpaid franchise fees;
(iv)   Any other pre-administration circulating assets of the Company;
(v)   Any contribution required from the Deed Proponent as set out in this Deed.”

There is an inconsistency between:

clause 7.1 and item 8(a) of the schedule, which plainly envisage that the “Deed Proponent” (Mr Dresner) will collect and pay into the deed fund amounts allegedly owing to the Company by franchisees; and

clause 7.4 and item 9 of the schedule, which provide that the Deed Administrators will collect pre-appointment trade debts and any unpaid franchise fees.

Pursuant to clause 15.3 of the DOCA, the Deed Administrators were entitled in their sole discretion to terminate the DOCA in the event that certain events occurred, including if the Company or Mr Dresner did not comply with any of the provisions of the DOCA. Upon termination, the Deed Administrators would automatically become the liquidators of the Company.
Clause 20 of the DOCA provided that the remuneration of the Administrators Deed Administrators, as fixed by creditors or by the Court, would be paid from the deed fund. The Administrators and Deed Administrators were entitled to be indemnified out of the deed fund for their remuneration and expenses and were granted a lien over the property of the Company and the deed fund as security for that indemnity.

The DOCA period: Breaches of the DOCA by Mr Dresner and the Company

There is an obvious tension between paragraphs (a) and (b)(i) of item 8 of the schedule to the DOCA, referred to at [52] above. Whilst paragraph (a) envisages that the $70,000 deed fund is to be paid out of moneys yet to be collected from pre-appointment debtors, and paragraph (b) sets out the amounts payable only in the alternative scenario that the collection efforts do not raise $70,000, paragraph (b)(i) requires payment of $4,000 on the date of execution of the DOCA if the whole of the $70,000 has not been collected on that date. Mr Moss gave evidence that it was his understanding that the alternative scenario payments commenced from the date of execution of the deed and at monthly intervals thereafter because the pre-appointment debts were unlikely to be collectible from the franchisees. The plaintiffs do not dispute that $4,000 was payable on execution of the DOCA and that instalments of $5,500 were payable each month thereafter for 12 months.
Mr Kwok requested Mr Dresner to pay the $4,000 referred to in paragraph (b)(i), together with the $16,500 (including GST) referred to in paragraph (b)(ii), at the same time as the DOCA was executed. On 9 April 2018, Mr Kwok followed Mr Dresner up about these payments, which had not yet been received into the deed administration bank account. Mr Dresner made the payment of $4,000 on 10 April 2018. He sent an email to Mr Kwok on that date confirming the payment and stating that he would call Mr Kwok about the $16,500 proceeds from the sale of the plant and equipment to Holdings.
On 24 April 2018, the Deed Administrators sent a further email to Mr Dresner chasing payment of the $16,500 for the plant and equipment. The email stated that continued non-payment of those sale proceeds may constitute a contravention of the DOCA, which “may result in the failure of the Deed and the subsequent liquidation of the Company”.

The Deed Administrators’ email of 24 April 2018 attached a letter to Mr Dresner reminding him that control of the Company rested with him during the period of the Deed Administration pursuant to clause 4 of the DOCA and reminding him of his obligations as director of the Company to pay contributions to the deed fund under clause 7.1 of the DOCA, including the monthly instalments of $5,500.
The letter set out Mr Dresner’s obligation under s 445HA of the Corporations Act to give notice to the Deed Administrators of any material contravention or likely material contravention of the DOCA by a person bound by the DOCA. Mr Dresner, as a party to the DOCA with obligations to pay the deed contributions under clause 7.1, was bound by the DOCA. The letter stated that failure to remit deed contributions in accordance with the terms and conditions of the DOCA and within the time frames specified in the DOCA may be considered material contraventions of the DOCA. The letter continued:

“In light of the above, it is imperative that all DOCA contributions are up-to-date and that all future DOCA contributions are made in accordance with the provisions of the DOCA. If you believe that you may not be able to make a DOCA contribution within the specified time frame, you must advise this office as soon as practicable. Failure to do so, may result in a breach of Section 445HA of the Act.
A breach of s 445HA of the Act is an offence of strict liability.
Please note that failure to comply with your duties under Section 445HA, may also result in a breach of your obligations as a director of the Company, which may be reported to the Australian Securities and Investments Commission.
In addition to the above, the Company’s creditors will be notified of any material contravention or likely material contravention of the DOCA, which may result in the termination of the DOCA/liquidation of the Company.”

The Deed Administrators’ letter also stated:

“Please note that the Clause 7.4 also stipulates that that the Company’s property is forfeited to the Deed Fund, which includes all cash held in the Company’s pre-appointment cash at bank, the Company’s pre-appointment trade Debtors and related party Debtors, and any surplus from the Voluntary Administration period after payment of costs incurred.
As mentioned above, the Deed Contributions will include all pre-appointment debtors up to the execution of the DOCA, being 28 March 2018. As such please provide this office with copies of all outstanding invoices for services rendered by the Company prior to 28 March 2018.”

Mr Dresner replied by email dated 26 April 2018, stating:

“The reason we have not paid for the Greenwood Plaza Fixtures and Equipment is that the Lease is still in the process of being assigned to Fogo Brazilia Holdings. Once the Lease is assigned, we will pay the invoice.”

There is no evidence that the terms on which the Administrators sold the plant and equipment to Holdings made the sale conditional on the assignment of the lease of the North Sydney premises from the Company to Holdings. Nor was Mr Dresner’s obligation under clause 7.1 of the DOCA to pay the sale price into the deed fund expressed to be conditional on the assignment of the lease.
Mr Dresner’s reply of 26 April 2018 made no mention of the $5,500 instalment of the deed fund contributions that was due on 28 April 2018 under clause 7.1 of the DOCA and did not respond to the Deed Administrators’ request for copies of the invoices issued for services rendered by the Company in the period prior to 28 March 2018.
Neither Mr Dresner nor the Company paid the $5,500 instalments due on 28 April and 28 May 2018.
On 1 June 2018, the Deed Administrators sent an email to Mr Dresner attaching a letter referring to these overdue contributions and urging him to ensure that the overdue contributions were paid by 15 June 2018 to avoid any material contravention to the terms of the DOCA and a breach of s 445HA of the Corporations Act. The letter again outlined Mr Dresner’s obligations under s 445HA and expressly referred to the possibility of the DOCA being terminated by the Deed Administrators, in which event the Company would be placed into liquidation immediately. The letter also explained that liquidators, if appointed, would conduct further detailed investigations into the affairs of the Company and its transactions prior to the date of administration and would consider potential recovery actions, including actions concerning insolvent trading and voidable uncommercial transactions.
Mr Dresner’s reply sent by email on 1 June 2018 stated: “will get paid ASAP”.
In his affidavit affirmed on 1 June 2020, Mr Dresner deposed that he recalled making two payments of $5,500 towards the deed fund as requested in the Deed Administrators’ letter dated 1 June 2018. However, in a further affidavit affirmed on 23 June 2020 after reviewing his records, Mr Dresner deposed:

“Whilst I intended to pay the two (2) tranche payments of $5,500.00 and had understood that I paid the two (2) tranche payments of $5,500.00 under the DOCA, I cannot find sufficient records of me transferring those amounts to Chifley Advisory. During the period of May and June 2018, my wife Sharon Dresner was suffering from a mental illness, and I was preoccupied by this personal matter.”

At the time he swore his first affidavit on 1 June 2020, Mr Dresner had apparently forgotten that he had checked his records in September 2018 and sent an email to Mr Moss on 20 September 2018 confirming that the only payment made under the DOCA was the $4,000 contribution that was paid late some weeks after the execution of the DOCA as referred to at [60] above.
The outstanding contributions were not paid by 15 June 2018 and no further monthly contributions were paid by Mr Dresner or the Company under clause 7.1 and item 8 of the schedule to the DOCA.
Mr Dresner took the opportunity in cross-examination to complain that the Deed Administrators had not telephoned him to chase up the $5,500 instalment payments when they were not paid by the extended deadline of 15 June 2018. He complained that, if only he had been followed up, he would have paid the instalments. These complaints were not responsive to the questions asked of Mr Dresner and are not relevant to any pleaded issue in the proceedings, but were expressed in a way that linked them to the plaintiffs’ allegations concerning Mr Moss’s receipt of a $26,000 payment from Mr Dresner in September 2018 as a contribution to the fees of the Administrators and Deed Administrators.^[9]
9. See [101]-[108] below.
The Deed Administrators were under no obligation to remind Mr Dresner of the obligations he had entered into under the DOCA, yet they did so in their letters dated 24 April and 1 June 2018 referred to above. The Deed Administrators bear no responsibility for Mr Dresner’s conduct in “not concentrating on what was in the DOCA” (as he said in cross-examination) and his failure to take all of the necessary steps to arrange the payments after receiving the reminders on 24 April and 1 June 2018. I formed the impression that, in raising the complaints referred to above in cross-examination, Mr Dresner was seeking to advocate his own cause in relation to the $26,000 contribution that he paid towards the Administrators’ and Deed Administrators’ fees. That impression was confirmed when, a short time later in his cross-examination, Mr Dresner gave evidence entirely inconsistent with those complaints that “I spoke to Henry Kwok a couple of times and one lady from the office who called to remind me that the 5,500 due payments were outstanding”. This inconsistency demonstrates the unreliability of Mr Dresner’s evidence and casts doubt on his credibility as a witness.

The DOCA period – Efforts to recover debts allegedly owing by franchisees and dealings with Levitt Robinson in relation to debts allegedly owing by LF Investments

Mr Kwok wrote to Mr Barry Lazarus of Lazarus Legal on 10 April 2018 instructing him on behalf of the Deed Administrators to commence recoveries against the franchisees. The email set out the totality of the information that Mr Dresner had provided to the Deed Administrators about the alleged debts – namely the list of franchisee names and restaurant locations and amounts allegedly owing according to Mr Dresner’s 26 February 2018 email – and requested that any amounts recovered be paid into the deed administration bank account.
It will be recalled that Lazarus Legal were the solicitors acting for Mr Dresner.
As referred to at [28]-[29] above, there had been an exchange of correspondence on 5 February 2018 between the Administrators and the solicitors then acting for LF Investments concerning alleged outstanding franchisee fees and other matters.
On 9 April 2018, Mr Stewart Levitt of Levitt Robinson wrote to the Deed Administrators advising that the firm now acted for LF Investments, raising questions about whether funds of the Company were held in accounts that had not been mentioned in the Administrators’ reports to creditors (including the bank account into which LF Investments had been directed to pay franchise fees and the franchisor’s marketing fund account that the Company was required to establish under the franchise agreement). The letter also requested a copy of the DOCA.
On 10 April 2018, Levitt Robinson wrote to Lazarus Legal referring to letters from Lazarus Legal dated 9 February 2018 and 4 April 2018 demanding that LF Investments undertake to cease using the “FOGO Brazilia” brand name. Levitt Robinson disputed the existence of any basis for that demand and disputed Mr Dresner’s claim to be the owner of the intellectual property (contrary to the provisions of the franchise agreement which referred to the Company as the owner). Levitt Robinson also questioned whether Lazarus Legal were acting for the Administrators and Deed Administrators or for Mr Dresner.
Lazarus Legal sought instructions concerning the response to Levitt Robinson’s 10 April 2018 letter from both the Deed Administrators and Mr Dresner. The response sent to Levitt Robinson 13 April 2018 stated that Lazarus Legal was acting for both the Deed Administrators and Mr Dresner, noted that LF Investments had refused to provide the undertakings to cease using the “FOGO Brazilia” brand name, threatened to commence proceedings seeking an injunction restraining LF Investments from using the brand name, and demanded payment of the amount of $55,159 which was described in the letter as “fitout fees owing to the Franchisor since the opening of the franchise in December 2015, together with unpaid franchise fees over the period February 2017 to January 2018”. The letter stated that Levitt Robinson were instructed to commence proceedings against LF Investments and its directors (as guarantors under the franchise agreement) to recover that amount if it was not paid into Levitt Robinson’s trust account by 20 April 2018.
On 17 April 2018, Levitt Robinson replied to Lazarus Legal’s letter of 13 April 2018. Levitt Robinson stated that a reasonable apprehension of bias arose from Lazarus Legal acting for both the Deed Administrators and for Mr Dresner, particularly in circumstances where the Administrators had recommended the DOCA proposed by Mr Dresner without disclosing to creditors that they were being advised by solicitors who were also acting for Mr Dresner. Levitt Robinson reiterated the contention in their 9 April 2018 letter that funds belonging to the Company had been paid into certain bank accounts not referred to in the Administrators’ reports to creditors and requested information about the status of those bank accounts and whether their existence had been disclosed by Mr Dresner to the Administrators. Finally, the letter stated that LF Investments disputed the allegation that it was indebted to the Company in the amount of $55,159 and requested a “full reconciliation of the alleged amount owing, by reference to all amounts invoiced by the Franchisor and all amounts paid or not paid by the Franchisee”.
Lazarus Legal forwarded Levitt Robinson’s letter to Mr Moss on 18 April 2018. Following a discussion with Mr Barry Lazarus and Mr Mark Lazarus, Mr Moss advised them that: “I agree with both of you that there is no conflict issue but to take this issue ‘off the table’, the Deed Administrators will be instructing other lawyers to represent them”. Mr Jonathan Hidayat of Piper Alderman then wrote to Levitt Robinson later that day advising that his firm now acted for the Deed Administrators and would respond to Levitt Robinson’s letters of 9 April and 17 April 2018 “in due course”.
Mr Dresner gave evidence that Lazarus Legal took no action on the Deed Administrators’ instructions issued on 10 April 2018 to recover amounts allegedly owing by franchisees before their retainer was terminated on 18 April 2018. That is incorrect. Lazarus Legal issued the letter dated 13 April 2018 referred to above demanding payment of $55,159 allegedly owing by LF Investments and threatening to commence proceedings if that amount was not paid.
Moreover, the termination of Lazarus Legal’s retainer did not mark the end of the Deed Administrators’ efforts to recover amounts allegedly owing by franchisees. The Deed Administrators did not instruct Piper Alderman to commence recovery action against the former franchisees. However, as I have mentioned earlier in these reasons, the Deed Administrators did write to Mr Dresner on 24 April 2018 requesting invoices issued by the Company in respect of the alleged debts.^[10] Mr Dresner did not respond to the Deed Administrators’ request. It is plain from Piper Alderman’s holding response to Levitt Robinson’s request for a “full reconciliation” of the amount allegedly owing by LF Investments that the Deed Administrators required the invoices in order to take any further steps to recover the amount allegedly owing by LF Investments. However, Mr Dresner never provided those invoices to the Deed Administrators or Liquidators.
10. See [64] above.
I note that the Liquidator ultimately managed to obtain directly from the former franchisees a small number of invoices issued to franchisees during the period from 2015 to 2018. However, some of those invoices were issued by entities other than the Company and/or were issued after the Company went into administration. It is not clear whether other invoices provided to the Liquidator by former franchisees relate to amounts that Mr Dresner asserted were owing to the Company by former franchisees.
Thus, the only information that the Deed Administrators had to work with was the names of franchisees and amounts listed by Mr Dresner in his 26 February 2018 email referred to at [39] above. The Deed Administrators had no documentation supporting the amounts that Mr Dresner asserted were owed to the Company by each franchisee and the Company had not maintained financial records, as explained in the Administrators’ second report to creditors. LF Investments disputed that it owed the Company the amount asserted by Mr Dresner, and the Administrators expected that the alleged debts would also be disputed by other franchisees. The resolution of such disputes would turn on, inter alia, evidence of each franchisee’s gross sales revenue which was the starting point for the calculation of some of the fees payable under the franchise agreements. The Administrators also lacked that information. Mr Moss has given evidence that the absence of this information and the invoices were among the reasons why he formed the view in about December 2018 not to take further steps to recover the amounts allegedly owing by the former franchisees. His other reasons included that he did not have funds to commence any recovery proceedings against the former franchisees, and expected that any such proceedings would be met with applications for security for costs.
It was put to Mr Moss in cross-examination that it “might have been” an option for the Deed Administrators (and subsequently Liquidators) to retain a law firm on a no win no fee basis to commence recovery actions against the former franchisees. Mr Moss accepted that this option had not been pursued. The cross-examiner did not put to Mr Moss that this was an option that was realistically available to the Deed Administrators or Liquidators notwithstanding the dearth of information available concerning the alleged debts. As senior counsel for the Liquidator submitted, the prospect of solicitors accepting instructions on a no win no fee basis to pursue recoveries on behalf of a Company in liquidation that had not maintained financial records and based only on Mr Dresner’s assertions as to amounts owing, with no substantiating documentation or information, was fanciful.

Termination of the DOCA

As referred to at [69]-[73] above, Mr Dresner failed to pay the outstanding deed fund contributions identified in the Deed Administrators’ letter dated 1 June 2018 by 15 June 2018. On 19 June 2018, Mr Kwok sent an email to Mr Moss the question whether they should terminate the DOCA. Mr Moss reply on the same date: “Yip – I spoke to Barry last week. Go ahead and terminate.”
In his affidavit affirmed on 5 May 2021, Mr Moss gave evidence that he had a conversation with Mr Barry Lazarus in about June 2018 in which he informed Mr Lazarus that Mr Dresner was not paying the contributions due under the DOCA. According to Mr Moss, he discussed with Mr Lazarus the possibility of terminating the DOCA so that there would then be no need to pay the $70,000 contributions to the deed fund and the Company would be allowed to go into liquidation. Mr Lazarus “thought this would be a good idea and asked me to call Ian about it”. Mr Moss deposed that he then telephoned Mr Dresner and explained to him what he had discussed with Mr Lazarus. According to Mr Moss, Mr Dresner “said if Barry was ok with it so was he”.
Mr Lazarus and Mr Dresner deny having any such conversations with Mr Moss. Mr Lazarus gave evidence that he had not been told that the contributions required under the DOCA had not been paid into the deed fund and that he had no conversations with Mr Moss relating to the Company after Mr Moss terminated the retainer of Lazarus Legal. That retainer was terminated on 18 April 2018.
The Deed Administrators exercised their discretion to terminate the DOCA for non-compliance by Mr Dresner and the Company on 23 August 2018. As at that date, the following payments were outstanding under the DOCA:

$5,500 that had been due on 28 April 2018;

$5,500 that had been due on 28 May 2018;

$5,500 that had been due on 28 June 2018; and

$16,500, being the sale price of the Company’s plant and equipment sold to Holdings (including GST).

The evidence does not explain the two month delay between Mr Moss’ email to Mr Kwok in 19 June 2018 stating that the DOCA should be terminated and the termination on 23 August 2018.
Pursuant to clause 15.3 of the DOCA and s 446AA of the Corporations Act, the termination of the DOCA had the effect that the Company was taken to have passed a special resolution under s 491 that it be wound up voluntarily and the Deed Administrators were appointed as liquidators. Creditors were notified of the termination of the DOCA and the winding up on 28 August 2018. The heading of the notice read: “NOTICE TO CREDITORS – FOGO BRAZILIA FRANCHISE HOLDINGS PTY LTD (IN LIQUIDATION) CAN 156 541 025 (‘THE COMPANY’) ABN 65 156 541 025”. The first two paragraphs of that notice stated:

“As creditors are aware, on 31 January 2018, the Company was placed into Voluntary Administration and Gavin Moss and I were appointed as Joint and Several Voluntary Administrators. On 28 March 2018, the Company executed a Deed of Company Arrangements (‘DOCA’), and Gavin Moss and I were appointed Joint and Several Deed Administrators.
Creditors are advised that the Deed Proponent/Director of the Company defaulted on the terms of the DOCA, and on 23 August 2018 the Deed was terminated in accordance with the terms and conditions of the DOCA. Upon the termination of the DOCA, the Company was automatically placed into liquidation on 23 August 2018 and Gavin Moss and I were appointed Joint and Several Liquidators of the Company.”

The notice requested creditors to submit formal proofs of debt and to advise the Liquidators by 24 September 2018 if they would be willing to fund the Liquidators’ investigation of potential recovery actions.
In his first affidavit affirmed on 1 June 2020, Mr Dresner deposed that he received a copy of the notice to creditors on or about 28 August 2018. In his second affidavit affirmed on 23 June 2020, Mr Dresner deposed that he could not be certain when he first received the notice to creditors because mail sent to his residential address was being forwarded to him at another address at that time. However, contemporaneous email correspondence tendered in the proceedings reveals that Mr Dresner replied on 29 August 2018 to an email received from Chifley Advisory on 28 August 2018 attaching the notice to creditors. Mr Dresner queried the differences in the amounts of some of the projected creditor claims in the materials accompanying the notice to creditors compared to “the Projected Creditor Claims on the Deed of Company Arrangement on 24 April 2018”. Plainly, Mr Dresner received the notice to creditors dated 28 August 2018 on that date and read it on that date or on 29 August 2018, and I so find.
Mr Dresner gave evidence that:

“Whilst I read that Notice to Creditors dated 28 August 2018, I did not understand or take cognisance that there was a default under the DOCA and that the Company was automatically placed into liquidation. I did not appreciate that the term administration and liquidation had different meanings (which has now been explained to me).”

I reject that evidence. It is inherently implausible that Mr Dresner read the notice and failed to comprehend from the first two paragraphs set out at [94] above that there had been a default (about which the Deed Administrators had written to him and, on his own evidence, telephoned him previously) and that the Company had been placed into liquidation on termination of the DOCA. The Deed Administrators’ letters to him dated 1 June 2018 had explained to him that the Company would be placed into liquidation immediately if the DOCA was terminated for default. Mr Dresner’s evidence that he did not appreciate that there was a difference between administration and liquidation is equally implausible having regard to his own evidence in his affidavit affirmed on 1 June 2020 that he had taken advice from Mr Moss (facilitated by Mr Lazarus) in January 2018 about the options for the Company and he gave evidence that the reasons for his decision to appoint the Administrators on 31 January 2018 included putting the appointment in place prior to the expiry of the 21 day period in which to apply to set aside the statutory demand that had been served on the Company on 10 January 2018. In cross-examination, he said that he thought that the point of the DOCA was to “try to recover money from the debtors and pay the creditors as much as they could” and to give the Company a clean bill of health to allow it to turn over a new leaf. The Deed Administrators’ letter to Mr Dresner dated 1 June 2018 had explained the detailed investigations that a liquidator would undertake into the Company’s affairs and any insolvent trading or voidable transactions if the DOCA was terminated and the Company went into liquidation.
Mr Dresner also received an email from the Liquidators on 29 August 2018 attaching a letter addressed to him advising that the DOCA had been terminated and the Company had been placed into liquidation by reason of the failure to pay the outstanding deed contributions identified in the Deed Administrators’ letter dated 1 June 2018. The letter enclosed a notice requiring Mr Dresner to deliver the Company’s books and records and any money or property to the Liquidators and to provide a Report as to Affairs. The letter also enclosed a notification to Mr Dresner of his responsibilities as a director of the Company in liquidation.
Mr Dresner initially denied receiving the 29 August 2018 email. Upon being shown his own reply to that email, he acknowledged that he had received it but said that his wife was very ill at the time and “I might have looked at it initially and then forgot about it”.
I find that, by 29 August 2018, Mr Dresner was aware that the DOCA had been terminated, the Company had been placed into liquidation, the opportunity presented by the DOCA for the Company to turn over a new leaf had been lost and that the Liquidators may investigate the Company’s affairs, including whether it had traded whilst insolvent.
Mr Dresner paid the sum of $26,000 to Chifley Advisory on 21 September 2018. Mr Dresner gave evidence that he made this payment after Mr Moss telephoned him in about mid-September 2018 and told him “You need to pay $26,000 for my outstanding fees”.
In his affidavit sworn on 24 July 2020, Mr Moss gave evidence that he made a request, rather than a demand, for Mr Dresner to pay his fees. According to Mr Moss, he said to Mr Dresner: “Ian, I have done all this work. Can you please transfer me something around $26,000 towards my fees.” Mr Dresner replied: “Let me speak to Barry and get back to you.” Mr Dresner then paid the sum of $26,000 on 21 September 2018.
Mr Dresner gave evidence that, at the time he made the payment, Mr Moss had not informed him that the Company had defaulted under the terms of the DOCA, that the DOCA had been terminated on 23 August 2018 and that the Company had been placed into liquidation on that date. According to Mr Dresner:

“Mr Moss and Mr Kwok pursuant to clause 16.1 of the DOCA had a discretion to extend time for any payment due under the DOCA. Notwithstanding this, I was not informed further nor put on notice by Mr Moss or anyone else that I was behind payments in respect of the Deed Fund Contribution under the DOCA. I was not also given advance notice of Mr Moss’ intention to put the Company into liquidation as a result of the non-payment of the Deed Fund Contribution under the DOCA. Had Mr Moss requested to pay these amounts, I would have done so immediately.”

Mr Dresner deposed that he emailed Mr Moss on 20 September 2018 “indicating my intention to bring the payments under the DOCA up to date”. Mr Dresner’s email to Mr Moss simply stated: “A payment of $4000 was made on 10 April 2018. I cant [sic] find any further payments. Please confirm and send me an invoice for amount owing and I will pay asap.” Mr Moss’ reply explained that a tax invoice would not be provided as the work of administrators and liquidators is not a taxable supply, but that he would provide Mr Dresner with “confirmation of the receipt of the $26,000 as a contribution towards my fees”. Mr Moss set out the bank account details to which the payment was to be made. The name of the account was “Fogo Brazilia Franchise Holding Pty Ltd (In Liquidation)”.
In cross-examination, Mr Moss accepted that he did not specifically say to Mr Dresner that he had no legal obligation to make any payment for the fees of the Administrators and Deed Administrators, but he assumed that Mr Dresner knew that because Mr Moss was asking for a contribution to those fees.
In an updated Declaration of Independence, Relevant Relationships and Indemnities lodged with ASIC on 2 October 2018 and provided to creditors together with the statutory report dated 22 November 2018 referred to below, the Liquidators disclosed Mr Dresner’s payment of $26,000. The declaration stated:

“After the commencement of the Liquidation, we requested and the director agreed to provide a voluntary contribution of $26,000 to cover our professional remuneration and expenses associated with the Administration/Deed Administration/Liquidation of the Company under the circumstance as there is no realisation of assets available to cover the same.
I have received funds of $26,000 as at the date of this report.
The money will not be drawn to meet our remuneration until such time that it is approved either by creditors or the Court.
There are no conditions on the conduct or outcome of the Liquidation attached to the provisions of these funds.”

The issues to be determined in these proceedings do not call for any finding as to whether Mr Moss discussed the termination of the DOCA with Mr Lazarus and Mr Dresner before the Deed Administrators exercised the discretion under clause 15.3 to terminate the DOCA, although Mr Moss’ email referred to at [89] above suggests that such a conversation did take place between Mr Moss and Mr Lazarus in June 2018.
In relation to the conversation between Mr Moss and Mr Dresner in September 2020 concerning the $26,000 payment, I prefer the evidence of Mr Moss. Mr Dresner’s recollection of events at this time is unreliable as referred to at [74]-[75] and [99]-[100] above. Mr Moss’s evidence that he requested, rather than required or demanded, a contribution towards his fees is consistent with the disclosure of this contribution in the updated declaration lodged with ASIC on 2 October 2018 referred to at [107] above. Mr Dresner’s evidence that, when he paid the contribution, Mr Moss and Mr Kwok had not informed him that he was behind in payments to the deed fund and that he would have made the payments immediately if Mr Moss had requested him to do is wholly inconsistent with the contemporaneous records of the communications between the Deed Administrators/Liquidators and Mr Dresner. The Deed Administrators letter of 1 June 2018 informed Mr Dresner that he was behind in the payments to the deed fund and the potential consequences of continuing default. Payment was requested and was not made. As referred to above, Mr Dresner had been informed in very clear terms on 28 August 2018 and again on 29 August 2018 that the DOCA had been terminated due to default and the Company had been placed into liquidation. I have found that Mr Dresner was aware of those matters by 29 August 2018. I also note that the account into which Mr Moss requested Mr Dresner to pay the contribution to his fees was in the name of the Company “in liquidation”.
Even if Mr Dresner had not known that the DOCA had been terminated and that the Company was in liquidation (contrary to my findings above), this would not have been attributable to any failure of the Deed Administrators and Liquidators to inform him of those developments. There is no evidence to suggest that Mr Moss had any reason to suspect that Mr Dresner was unaware of those matters.

The conduct of the winding up during the period from September 2018 until 19 August 2019 and discussions with Levitt Robinson concerning proposed public examinations

As referred to above, the notice issued by the Liquidators to creditors on 29 August 2018 requested any creditors willing to fund the Liquidators to investigate potential recovery actions to advise the Liquidators in writing by 24 September 2018. No creditors contacted the Liquidators with offers or proposals of funding by that date. However, Levitt Robinson wrote to the Liquidators on 25 September 2018 advising that it was acting for “former Fogo franchisees” who were unsecured creditors of the Company and who were interested in funding “a s 596A mandatory examination of the director and former director of the company with our firm to conduct the examination in cooperation with the liquidators”.
Mr Moss replied on 26 September 2018 stating that offers from potential creditors to fund investigations were appreciated but that it was common for the liquidator to engage a solicitor independent from the creditor’s solicitor and that Mr Moss would propose to engage Piper Alderman in this instance if any funding arrangement were entered into.
Levitt Robinson replied on 28 September 2018:

“Our funding will only be available if Levitt Robinson is appointed to conduct the examinations.
On this basis, we ask you to reconsider the position and repeat the request that you agree to examinations with Levitt Robertson [sic] as the conducting solicitors.
If this is agreed to, our funder is prepared to fund the liquidator’s reasonable costs for their involvement and I note the figure for your estimated costs at $10,000 plus GST.”

Mr Kwok resigned as a liquidator of the Company on 2 October 2018. Mr Moss has been the sole liquidator of the Company since that time.
On 4 October 2018, Mr Kwok replied to Levitt Robinson’s email of 28 September 2018 in terms that he had discussed and agreed with Mr Moss:

“I refer to your below email in relation to a potential examination against the director and your client’s request that the Liquidator to [sic] appoint your firm to represent the Liquidator and on behalf of the Company to conduct an examination against the director. After consideration, the Liquidator has rejected your client’s request to appoint.
Based on the Liquidator’s preliminary enquiries, a few matters came to the Liquidator’s attention:
• Your client may have unsecured claim against the Company, however the Company’s records also indicated that the Company may have a claim against your client for outstanding debts;
• Your firm has been representing your client in previous legal matters between the Company and your client and other legal matters;
• There appears to be a history of litigations/disputes between your client and the Company/its director; and
• Your client and your firm have commenced separate legal proceedings against the director and/or other related parties, and the examination process may not in the best interest of the creditors of the Company as a whole; etc.

In this circumstance, the Liquidator believes that it would be inappropriate to engage your firm as the legal representative of the liquidator in an examination and relevant legal proceedings.
However, the Liquidator will accept any potential creditor funding and will engage his separate legal representative to conduct the examination and other legal proceedings as soon as possible, should funding is [sic] available.
Please seek your client’s instruction in this regard.”

The Company was not a party to the separate legal proceedings referred to in the fourth bullet point in Mr Kwok’s email above. The former franchisee for whom Levitt Robinson was acting had sued Holdings and Mr Dresner.
Mr Moss gave the following evidence in cross-examination about Mr Kwok’s 4 October 2018 email:

“Q.   In effect, what Mr Kwok was saying, with your approval, was that Levitt Robinson was in a serious position of conflict in, on the one hand, acting for a number of franchisees, including in court proceedings and, on the other hand, seeking examinations against the director of the company. That’s what Mr Kwok was saying, wasn’t he?
A.   You can ask Mr Kwok. My reading of it and discussing it with Henry was that we had issues in terms of engaging Levitt Robinson at the time for those reasons, correct.
Q.   Yes and what I’m suggesting to you is that you understood, at that time, that engaging Levitt Robinson for the purpose of conducting the proposed examinations was a matter fraught with difficulty from a conflict perspective?
A.   Yes.
Q.   You understood, at that time, that engaging Levitt Robinson to carry out examinations on your behalf might well imperil your independence as a liquidator, didn’t you?
A.   My independence?
Q.   Yes?
A.   Not sure about my independence part but, yes, I had issues in terms of conflict. So, independence, yes, okay.
Q.   In particular, the concern expressed in this email is that, as a result of all those matters, the examination process may not be in the best interests of the creditors as a whole?
A.    Utilising Levitt Robinson, correct, yes.”

Levitt Robinson replied to Mr Kwok’s email by letter dated 23 October 2018:

“We confirm that we act for a group of former franchisees of Fogo Brazilia Franchise Holdings Pty Ltd.
Our clients would like public examinations to take place of officers and associates of the Company under sections 596A and 596B of the Corporations Act 2001.
We have obtained third party funding for the proposed examinations from Galactic Fogo Litigation LLC. However, the funder is only prepared to fund examinations on the condition that the examinations be conducted by Levitt Robinson Lawyers and Mr Pritchard SC and Mr Krochmalik of counsel. Enclosed is a letter from Galactic Fogo Litigation LLC to this effect.
If this is agreed to, our funder is prepared to fund the liquidators reasonable costs for their involvement and we note the figure for your estimated costs from previous correspondence at $10,000 plus GST.
If you are not prepared to allow our clients to rely on your powers under ss 596A and 596B, we will approach ASIC for authorisation to apply for examination summonses and we will provide a copy of this correspondence to ASIC.”

On 8 November 2018, Mr Stewart Levitt of Levitt Robinson sent a further email to Messrs Moss and Kwok in the following terms:

“We consider your current position with respect our engagement to conduct a public examination of the examinable persons funded by Galactic to be unreasonable and inconsistent with your statutory obligations.
However, rather than initiate proceedings to have you removed as liquidators at this stage, we would appreciate the opportunity of meeting with you to discuss the way forward.
Please contact the writer for the purpose of setting up such a meeting.”

Mr Moss gave evidence that he did not regard Mr Levitt’s position set out in that letter as a threat but merely “part of the usual cut and thrust of insolvency”. Mr Moss adhered to that evidence in cross-examination and said that the prospect of Levitt Robinson having him removed as liquidator of the Company had “zero impact” on his deliberations about whether to accept the funding proposal for public examinations. I accept Mr Moss’ evidence. It is inherently implausible that a liquidator would regard the prospect of being removed as liquidator in an unfunded winding up of a company which had no assets and had maintained no books and records as a “threat”.
In circumstances where Mr Levitt was the solicitor acting for a number of potential creditors who may have substantial claims against the Company and who had offered the only source of funding for investigations in the winding up, Mr Moss considered that he should meet with Mr Levitt to hear what he had to say notwithstanding the reservations expressed in correspondence with Levitt Robinson.
Messrs Moss and Levitt met over breakfast on 14 November 2018. Mr Moss gave evidence that their meeting included exchanges to the following effect:

“Mr Levitt:   Gavin. I am not satisfied with your conduct and I’m considering reporting you to ASIC for dismissing our offer to fund the examinations for the benefit of creditors.
Mr Moss:   I’m not here to discuss that matter. If you are going to report to ASIC, that is a matter for you. I’m here to discuss your offer and my concerns.”
“Mr Moss:   The concern that I have with this is that you have proceedings on foot. It seems to me that you want to go ahead with examinations to gain evidence for those proceedings. I’m not prepared to be party to that.
Mr Levitt:   I understand your concern. The proceedings have been discontinued.
Mr Moss:   That’s a good development. I still have other concerns but that goes a long way to meeting them.”

According to Mr Moss:

“Mr Levitt then explained to me why it was the benefit of all creditors and consistent with my statutory obligations as liquidator of the Company to undertake the examinations. I cannot now recall the exact words used during that conversation. It is my recollection that Mr Levitt focused on potential recoveries that the Company may have and there was little mention of the franchisee creditor claims. I recall Mr Levitt saying to me words to the following effect: ‘The funder is interested in seeing whether there are any recovery actions available against the directors. It funds those sorts of actions by liquidators and may be interested in doing so in this matter if the examinations produce helpful evidence. You have an obligation as liquidator to conduct the examinations if there is a funding offer and you will not be performing those duties properly if you don’t.’”

The plaintiffs also rely on Levitt Robinson’s letter of 27 February 2020 as alerting Mr Moss to the fact that Levitt Robinson were continuing to act for the Franchisee Claimants and requiring him to take steps to correct paragraph 74 of his confidential affidavit. For the reasons explained at [218] above, the letter does not establish on the balance of probabilities that Levitt Robinson were in fact acting for the Franchisee Claimants at that time. The letter was capable of conveying that impression to Mr Moss, but I have accepted his evidence that he did not read it that way at the time for the reasons explained at [216]-[217] above. I reject the plaintiffs’ contention that Mr Moss knowingly or recklessly misled the Court by failing to take steps to correct paragraph 74 of his confidential affidavit after receiving Levitt Robinson’s letter dated 27 February 2020.
As referred to at [234]-[238] above, Levitt Robinson’s letter dated 29 April 2020 did alert Mr Moss to the fact that Levitt Robinson were, at that time, acting for at least one of the Franchisee Claimants. The public examinations had been substantially, but not entirely, completed at that time. Mr Moss took no steps to bring to the Court’s attention that the position stated in paragraph 74 of his confidential affidavit had changed in that Levitt Robinson were now acting for one or more Franchisee Claimants.
However, it was not put to Mr Moss in cross-examination that, when he received the 29 April 2020 letter, he was cognisant of the fact that it altered the position described in paragraph 74 of his confidential affidavit sworn more than four months earlier. Nor was it put to him that he knew that Levitt Robinson re-commencing acting for Franchisee Claimants (or one of them) was a material matter that required disclosure to the Court. Nor was it put to him that he ought to have known, or that he refrained from turning his mind to or seeking advice about, the materiality of that fact.
The evidence does not support an inference that Mr Moss knew that the changed circumstances should be disclosed to the Court or deliberately refrained from turning his mind to whether disclosure was required. There is no evidence that Levitt Robinson or Piper Alderman alerted the Liquidator to the need to consider whether disclosure was required. Neither Levitt Robinson nor the Funder had control over the public examinations, which had already been substantially completed. The examinations were being conducted for a proper purpose and on the instructions of the Liquidator, given with the benefit of independent legal advice. Levitt Robinson were subject to both the “implied undertaking” and the express undertaking noted by the Court on 3 February 2020 and referred to at [210]-[211] above. Levitt Robinson’s letter dated 29 April 2020 informed the Liquidator that they had complied with the undertaking, and there is no evidence that suggests otherwise. It was clear from that letter that they were aware that they remained bound by the undertaking unless and until the Court released them and they required the Liquidator’s instructions to apply to the Court to be released. The Liquidator, unswayed by any objective of Levitt Robinson, declined to give those instructions. In all of those circumstances and putting the benefit of hindsight to one side, it is regrettable but understandable that the Liquidator did not think to notify the Court of the changed circumstances before the public examination resumed on 1 May 2020.
For those reasons, the plaintiffs have not established that Mr Moss knowingly or recklessly misled the Court by failing to bring the changed position to its attention after receiving Levitt Robinson’s letter dated 29 April 2020.
As the plaintiffs submitted, liquidators are held to high standards of honesty, probity and impartiality: Edge at [44]-[50] and the authorities there referred to. For the reasons above, I reject the plaintiffs’ contention that the Liquidator knowingly or recklessly misled the Court, falling short of those standards and breaching the duties pleaded by the plaintiffs, by swearing his confidential affidavit including paragraph 74, or in failing to make any further disclosure to the Court upon receiving Levitt Robinson’s letter dated 27 February 2020 and 29 April 2020. For completeness, I note that there is no evidence that Levitt Robinson re-commencing acting for a Franchisee Claimant adversely affected the Liquidator’s independence and impartiality in the conduct of the examinations on 1 May 2020 or in any other aspect of the winding up.

Issue 3: Did the Liquidator obtain an unauthorised profit or breach his obligation of independence and impartiality by requesting Mr Dresner to contribute to remuneration?

The plaintiffs allege that the Liquidator’s receipt of the $26,000 contribution to fees was a breach of his fiduciary duty not to obtain an unauthorised profit and a breach of his duty of impartiality and independence. The plaintiffs’ submissions in support of those allegations characterise Mr Dresner’s payment of $26,000 on 21 September 2018 as an unauthorised profit on the basis that Mr Dresner was under no legal obligation to make that payment towards the Deed Administrators’ remuneration in circumstances where the DOCA had been terminated and the payment was not made voluntarily because Mr Dresner had not been informed that the DOCA had been terminated.
The Liquidator correctly accepts that Mr Dresner was under no legal obligation to make the payment. However, I have found for the reasons explained at [92]-[110] above that the Liquidator requested rather than demanded the payment, and that Mr Dresner knew at the time that he made the $26,000 payment that the DOCA had been terminated for default and the Company had been placed into liquidation. Thus, the payment was neither unauthorised nor involuntary. Mr Dresner authorised it by acceding to the Liquidator’s request and transferring the funds. If Mr Dresner did so under some misapprehension that the DOCA remained on foot, he alone is responsible for failing to read and comprehend the plain terms of the correspondence that the Liquidator had sent to him on 1 June 2018, 28 August 2019 and 29 August 2019. There is no evidence to suggest that the Liquidator had any reason to suspect that Mr Dresner did not understand the true state of affairs.
As referred to at [107] above, the Liquidator’s receipt of the $26,000 payment from Mr Dresner was immediately disclosed in an updated Declaration of Independent, Relevant Relationships and Indemnities lodged with ASIC on 2 October 2018 which was subsequently included in the statutory report to creditors dated 22 November 2018. As the updated declaration makes plain, the Liquidator could derive no benefit from the payment unless until remuneration was fixed by the creditors or the Court. The Liquidator’s conduct as one of the Administrators and Deed Administrators and as Liquidator would be laid open to scrutiny in any application for creditor approval or to the Court in respect of his remuneration. The plaintiffs did not articulate how his receipt of the payment allegedly affected or would allegedly affect the Liquidator’s independent and impartial discharge of his functions in the winding up of the Company. Nor did they articulate the nature of the deviation from the proper performance of the Liquidator’s functions that a fair-minded observer might reasonably apprehend might result from his receipt of the payment. In my opinion, there is no logical connection between the payment (noting the constraints on the Liquidator’s ability to benefit from it) and Liquidator’s discharge of his powers and functions in the winding up of the Company.
For those reasons, I reject the plaintiffs’ contention that the Liquidator’s receipt of the $26,000 contribution to fees was a breach of his fiduciary duty not to obtain an unauthorised profit and a breach of his duty of impartiality and independence.

Issue 4: Did the Liquidator breach his duty to preserve and realise the assets of the Company or breach his obligation of independence and impartiality by failing to take steps to investigate and recover any amounts owed to the Company by the Franchisee Claimaints?

I reject the plaintiffs’ allegation that the duties owed by Mr Moss as Administrator, Deed Administrator and Liquidator required him to do more than he did to attempt to recover amounts allegedly owing to the Company by its former franchisees.
I have referred at length to the evidence concerning the amounts allegedly owing by former franchisees earlier in these reasons. The substance of the evidence is summarised at [137] above and it is convenient to repeat that summary here:

“… the franchisees had stopped paying fees due to disputes they had with the Company in late 2017 prior to the appointment of the Administrators,^[35] those disputes had not been resolved by the Company going into external administration, the franchisees were alleging that they had been misled into entering into the franchise agreements (which the Administrators had terminated),^[36] none of the former franchisees had made any payment in response to the Administrators’ demand issued on 5 February 2018^[37] and the only information available to the Liquidator to consider further recovery steps was the list of franchisee names and amounts that Mr Dresner had provided in February 2018.^[38] The Liquidator had no invoices or other documents substantiating the alleged debts (despite having sought invoices and other relevant records from Mr Dresner on several occasions),^[39] and the Company had not maintained any financial records.^[40] The Administrators’ letter dated 5 February 2018 had drawn a response from only one franchisee, LFI Investments, which disputed the alleged debt and sought particulars of its calculation.^[41] No such particulars could be provided in the absence of the invoices, books and records that had not been produced to the Liquidator.”
35. See [24] above.
36. See [128]-[129] above.
37. See [28] above.
38. See [33]-[40] and [44] above.
39. See [26], [64], [85] and [99] above.
40. See [22]-[23] and [46] above.
41. See [29]-[30], [79], [81]

I reject the plaintiffs’ submission that Mr Moss showed no interest “from the outset” in chasing the amounts allegedly owing by former franchisees. Mr Moss and his office were plainly interested in recovering any such amounts owing. They sought further information from Mr Dresner, which elicited only the paltry and inconsistent information referred to at [33] and [47]-[48] above which was in turn inconsistent in some respects with the RATA that Mr Dresner had completed at the commencement of the administration. They made demands and requests for books and records, including invoices. Mr Dresner produced no invoices. I reject Mr Dresner’s evidence that Mr Moss did not ask him for invoices as it is plainly wrong in light of the contemporaneous documents referred to at [26], [64], [85] and [99] above. Notwithstanding the absence of any information other than Mr Dresner’s inconsistent lists, the Deed Administrators wrote to the former franchisees seeking recovery of any amounts owing.
As referred to at [36]-[38] above, the Deed Administrators also instructed Lazarus Legal to take steps to recover the alleged debts in the hope that the firm, with its history of acting for the Company, might have some familiarity with relevant facts that would compensate for the absence of any documentation supporting the alleged debts.
It would plainly have been futile to instruct Piper Alderman to undertake this work, as they had no such historical involvement in the dealings between the Company and the franchisees. Contrary to the plaintiffs’ submissions, these were not simple debts to recover in the absence of any supporting documentation. Amongst other reasons, the calculation of any amount owing depended in part of the franchisee’s gross turnover.^[42] Mr Moss did not even have the invoices setting out the Company’s calculation and basis of calculation of the amounts allegedly owing, let alone the source information on which any such calculation had been based.
42. See [87] above.
The plaintiffs’ submissions inconsistently criticise Mr Moss for:

retaining Lazarus Legal to attempt to recover the alleged debts in circumstances where more information was needed (which Mr Dresner had failed to provide); and

failing to engage Piper Alderman to pursue such recoveries (in circumstances where Mr Dresner never provided any additional information despite the Deed Administrators’ further request for invoices on 24 April 2018).

These criticisms are unfounded in the unusual circumstances affecting this external administration that I have referred to above. It is telling that the plaintiffs do not identify any additional step that might have been taken by the Deed Administrators (and subsequently by the Liquidator) or by Piper Alderman on their instructions after their correspondence with LF Investments reached the point in April 2018 referred to at [85] above. LF Investments requested a full reconciliation of the amount that the Company claimed to be owed. Mr Dresner persisted in failing to provide invoices despite a renewed request for those documents on 24 April 2018 as referred to at [64] above. As I have said at [88] above, the plaintiffs’ assertion that it may have been open to Mr Moss to instruct some other law firm to attempt recovery action against the former franchisees on a “no win no fee” is fanciful in all the circumstances.
The high point of the plaintiffs’ argument is the submission that Mr Moss did not specifically request copies of invoices issued by the Company to former franchisees and that Mr Dresner would have provided the invoices if only he had been specifically asked to do so. That submission is without merit. Mr Dresner was required to produce the Company’s books and records, and was specifically asked on 24 April 2018 to produce invoices issued for services rendered by the Company prior to the date of the DOCA. In circumstances where the Company’s sole business was as franchisor to the franchisees, that request related solely or primarily to invoices for the amounts that Mr Dresner claimed the former franchisees owed to the Company for franchise fees. This would have been obvious to Mr Dresner given his knowledge of the Company’s business.
Contrary to the plaintiffs’ submissions, there was no “preferential treatment of the franchisee creditor claims over the franchisee debtor claims” in the Liquidator’s statutory report to creditors dated 22 November 2018 referred to at [133]-[140] above. In the circumstances referred to at [305] above, the Liquidator’s nil valuation of the “franchisee debtor claims” was plainly reasonable. There is no evidence to suggest that the Liquidator would not have revisited that valuation if Mr Dresner had belatedly provided invoices or any other information that would provide a starting point for that inquiry. As referred to at [138]-[139] above, the Liquidator adopted the same approach to the Franchisee Claims as to the claims of Mr Dresner and Holdings in the 22 November 2018 report. All claims were included in the list of projected creditors’ claims, notwithstanding that all claimants were yet to provide the Liquidator with documentation supporting their claims.
I reject the plaintiffs’ submission that Mr Moss’s true reason for not taking any action against the franchisees was that he had “disabled himself from being able to bring those claims by aligning himself with the interests of the franchisees in their dispute with the Company and its associated parties”. For all of the reasons explained at [251]-[289] above, the arrangements pursuant to which Mr Moss instructed Levitt Robinson to act for him in the public examinations that were funded under the terms of the Funding Agreement did not amount to Mr Moss aligning himself with the interests of the Franchisee Claimants in pursuing their claims.
The plaintiffs also criticise the Liquidator for not seeking to examine the former franchisees and to investigate the amounts allegedly owing by them to the Company at the public examinations. In my opinion, that criticism lacks substance in circumstances where Mr Dresner’s failure to maintain financial records for the Company and his failure to supply even the relevant invoices issued by the Company to the franchisees deprived the Liquidator of the starting point for any questions that might have been asked of franchisees about these alleged debts. As referred to at [229] above, questions were asked of Mr Dresner during the examinations in relation to the components of the alleged debts and in relation to the location of any further books and records he may have.

Issue 5: Did the Liquidator fail to serve the 29 August 2019 report to creditors on Mr Dresner and Holdings? If so, was that a breach of his duties?

The Liquidator did not fail to serve the 29 August 2019 report to creditors on Mr Dresner and Holdings. My reasons for this finding are explained at [171]-[180] above.

Issue 6: Do any or all of the matters the subject of issues 1 to 5 constitute actual bias on the part of the Liquidator or give rise to a reasonable apprehension of bias?

The plaintiffs rely on the substance of the allegations and criticisms that I have rejected above as constituting actual bias or giving rise a reasonable apprehension of bias. For all of the reasons already addressed under Issues 1 to 5 above, I reject the plaintiffs’ contention that the Liquidator was biased or that his conduct gave rise to a reasonable apprehension of bias.

Issue 7: Should the Liquidator be removed from office?

Under s 90-15(1) and 3(b) of the IPS, the Court has power to make an order removing a liquidator. That power may be exercised on the Court’s own initiative during proceedings before the Court. The Court may take into account the matters in s 90-15(4), including whether the liquidator has faithfully performed or is faithfully performing their duties and the seriousness of the consequences of any action of failure to act by the Liquidator. It is well established that “it should not be seen to be easy to remove a liquidator merely because it can be shown that in one or possibly more respects, his or her conduct has fallen short of the ideal” and that an order for removal will only be made if it is demonstrated that this would be “for the better conduct of the liquidation having regard to the need for confidence in the integrity, objectivity and impartiality of a winding up”: Re St Gregory’s Armenian School (in liq) [2012] NSWSC 1215 at [24] – [25]; Re FW Projects Pty Ltd (in liq) [2019] NSWSC 892 at [87]-[88]; Sands Contracting Pty Ltd v Foodcorp (Vic) Pty Ltd [2020] FCA 1274 at [78][-[82].
The plaintiffs accept that they bear the onus of establishing that it is in the interests of the Liquidation for Mr Moss to be removed. They rely on the alleged breach of duty addressed under Issues 1 to 5 above and also on alleged actual bias or reasonable apprehension of bias (even if the alleged breaches of duty are not established) as the basis for removing the Liquidator from office. It follows from my rejection of those allegations that the plaintiff’s claim for an order removing the Liquidator must be dismissed.
For completeness, I would add that, in my opinion, the evidence and findings do not reveal any other reason for the Court to remove the Liquidator acting on its own initiative.

CONCLUSION AND ORDERS

For all of the above reasons, there will be an order dismissing the proceedings. I am not aware of any reason why the costs should not follow the event but I will make costs orders in terms that preserve the ability of any party who wishes to apply for a different costs order to make that application.
The orders of the Court are as follows:

Order that the proceedings are dismissed, save in relation to the question of costs as to which orders 2 to 5 below apply.

Subject to orders 3 to 5, order the plaintiffs to pay the defendant’s costs of the proceedings on the ordinary basis in such amount as may be agreed or assessed.

Grant liberty to any party seeking a costs order different to order 2 above to apply by no later than 16 May 2022 specifying the costs order sought and providing written submissions of no more than 4 pages in support of that application. Any such application is to be made by email to the Associate to Williams J and served on each other party.

In the event that any party exercises the liberty to apply granted by order 3 above, direct each other party to provide any written submissions in response to the application by no later 23 May 2022. Any such submissions are to be sent by email to the Associate to Williams J and served on each other party.

Stay the operation of order 2 above until 5pm on 24 May 2022.

**********

Endnotes

Amendments

10 May 2022 - Spacing errors fixed

Decision last updated: 10 May 2022

Medium Neutral Citation:	In the matter of Fogo Brazilia Holdings Pty Ltd (in liq) [2022] NSWSC 556
Hearing dates:	24-25 March 2021 and 25, 26 and 28 May 2021
Date of orders:	9 May 2022
Decision date:	09 May 2022
Jurisdiction:	Equity
Before:	Williams J
Decision:	Proceedings dismissed.
Catchwords:	CORPORATIONS – winding up – liquidator’s fiduciary and statutory duties – liquidator’s obligation of independence and impartiality – whether liquidator breached duties or acted to favour the interests of one group of creditors to the detriment of the company and creditors as a whole by conducting examinations under Part 5.9 of the Corporations Act 2001 (Cth) and by engaging solicitors to act for the liquidator in those examination proceedings who had acted for the groups of creditors whose interests were said to be served by the examinations – whether examinations included questions about topics that were “not legitimate” or “improper” – whether conduct of liquidator biased or gave rise to reasonable apprehension of bias – application for order removing liquidator dismissed
Legislation Cited:	Corporations Act 2001 (Cth), ss 180-183, Part 5.9 Insolvency Practice Schedule, s 90-15
Cases Cited:	Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd atf The Albans Unit Trust (1994) 14 ACSR 230 Australian Securities and Investments Commission v Edge (2007) 211 FLR 137; [2007] VSC 170 Australian Securities Commission v Franklin (2014) 223 FCR 204; [2014] FCAFC 85 Brown v Bluestone Property Services Pty Ltd [2010] NSWSC 689 Commissioner for Corporate Affairs v Harvey [1980] VR 669 Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337; [2000] HCA 63 Hearne v Street (2008) 235 CLR 125; [2008] HCA 36 In the matter of FW Projects Pty Ltd (in liq) [2019] NSWSC 892 In the matter of Kala Capital Pty Ltd (in liq) [2012] NSWSC 1073 In the matter of 77738930144 Pty Ltd (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452 In the matter of Ji Woo International Education Centre Pty Ltd [2019] NSWSC 93 In the matter of Kala Capital Pty Ltd (in liq) [2012] NSWSC 1073 In the matter of St Gregory’s Armenian School (in liq) [2012] NSWSC 892 Sands Contracting Pty Ltd v Foodcorp (Vic) Pty Ltd [2020] FCA 1274 Smarter Way (Aust) Pty Ltd v D’Aloia (2000) 35 ACSR 595; [2000] VSC 408 Walton v ACN 004 410 833 Limited (formerly Arrium Limited) (in liq) [2022] HCA 3
Category:	Principal judgment
Parties:	Fogo Brazilia Holdings Pty Ltd (First Plaintiff) Ian David Dresner (Second Plaintiff) Gavin Moss in his capacity as liquidator of Fogo Brazilia Franchise Holdings Pty Ltd (in Liquidation) (ACN 156 541 025) (First Defendant)
Representation:	Counsel: Mr J Lazarus SC with Mr A Vial (First and Second Plaintiffs) Mr R Marshall SC with Mr D F Elliott (First Defendant) Solicitors: Lazarus Legal (First and Second Plaintiffs) Piper Alderman (First Defendant)
File Number(s):	2020/163342
Publication restriction:	N/A