In the matter of New Bounty Pty Limited

[2015] NSWSC 2023

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of New Bounty Pty Limited [2015] NSWSC 2023
Hearing dates:	23 March 2015
Date of orders:	23 March 2015
Decision date:	23 March 2015
Jurisdiction:	Equity
Before:	Brereton J
Decision:	Certain documents sought in notice to produce not required to be produced, but remainder to be produced.
Catchwords:	PRACTICE AND PROCEDURE – notices to produce and subpoenae – application to set aside notices to produce and subpoenae – whether notices to produce and subpoenae abuse of process – whether documents sought relevant to issues in proceedings.
Legislation Cited:	(Cth) Corporations Act 2001, Pt 5.3A (NSW) Uniform Civil Procedure Rules 2005, r 18.1, r 21.11
Category:	Procedural and other rulings
Parties:	Baron Corporation Pty Limited ACN 001 406 873 (first applicant/first defendant) Peter Paul Krejci (second defendant) Brian Raymond Silvia (third defendant) New Bounty Pty Limited ACN 056 983 432 (second applicant/fourth defendant) Winpar Holdings Limited ACN 003 035 523 (respondent/plaintiff)
Representation:	Counsel: M J Stevens (applicants/first and fourth defendants) P T Brennan (respondent/plaintiff) Solicitors: Somerset Ryckmans (applicants/defendants) SBA Lawyers (respondent/plaintiff)
File Number(s):	2014/226909

Judgment (ex tempore)

1. HIS HONOUR: By an amended originating process filed on 3 February 2015, the plaintiff Winpar Holdings Limited seeks orders to the effect that a deed of company arrangement entered into by the fourth defendant company New Bounty Pty Limited on 12 May 2014 be declared void or varied or not enforced, and in particular, that the issue (in apparent pursuance of that DOCA) of approximately 1.5 billion shares to the first defendant Baron Corporation Pty Limited by way of conversion of interest owed to Baron into equity be cancelled.

2. On 3 February 2015, Winpar issued to Baron a notice to produce documents for inspection, requiring production of the following documents:

1.   A copy of the income tax returns lodged by Baron Corporation to the Australian Taxation Office for the financial years ending 30 June 2011, 30 June 2012, 30 June 2013 and 30 June 2014.

2.   A copy of Baron Corporation’s Financial Reports for the financial years ending 30 June 2011, 30 June 2012, 30 June 2013 and 30 June 2014 or otherwise, a copy of all financial records for the period from 1 July 2010 to 30 June 2014 that:

(a)   correctly record and explain its transactions and financial position and performance; and

(b)   would enable true and fair financial statements to be prepared and audited.

3. On the same day, Winpar issued to New Bounty a notice to produce for inspection the following documents:

1.    A copy of the private ruling from the Australian Taxation Office made on or around 12 September 2012 referred to in clause 3.1 (Condition Precedent) of the Agreement for sale of shares between New Bounty Pty Ltd and Mark Foys Pty Ltd dated 27 August 2012 (which in turn is referred to in paragraph 21 of the Affidavit of Philip James Bart sworn on 10 October 2014).

2.   A copy of the application and all submissions made to the Australian Taxation Office in connection with obtaining the ruling referred to in paragraph 1 above.

3.    A copy of the income tax returns lodged by New Bounty to the Australian Taxation Office for the financial years ending 30 June 2011, 30 June 2012, 30 June 2013 and 30 June 2014.

4.   A copy of New Bounty’s Financial Report for the financial year ending 30 June 2014 or otherwise, a copy of all financial records for the period from 1 July 2013 to 30 June 2014 that:

(a)   correctly record and explain its transactions and financial position and performance; and

(b)   would enable true and fair financial statements to be prepared and audited.

4. By interlocutory process filed on 26 February 2015, Baron and New Bounty apply pursuant to (NSW) Uniform Civil Procedure Rules 2005, r 18.1, for an order that both notices to produce be set aside. The fundamental contention of Baron and New Bounty is that the notices are an abuse of process because they seek documents which have no relevance, even in the wide adjectival sense applicable in the context of subpoenas and notices to produce, to the issues in the proceedings.

5. It is necessary to say a little about Winpar's substantive claim. Fundamentally, Winpar contends that the administration of New Bounty in general and the DOCA in particular was an abuse of (Cth) Corporations Act 2001, Pt 5.3A, not being for the proper purposes envisaged by that Part, and in particular, that the administration could not achieve an outcome for any creditor that was not available without administration, and that the effect of the DOCA was to convert part of Baron's debt into equity in circumstances where the only purpose and the effect of the issue of equity to Baron was to dilute the minority shareholding, of which Winpar holds a part. Winpar contends that the administration and the DOCA was the culmination of a course of conduct by Baron's sole director and beneficial owner, Mr Phillip Bart, to secure for himself total ownership and control of New Bounty.

6. The issues that fall for consideration in respect of the two notices to produce are in three categories.

7. The first concerns the income tax returns and financial reports of Baron for the years ended 30 June 2011, 2012, and 2013. (I appreciate that the same paragraphs of the same notice also refer to the 2014 financial year, but for reasons that will become apparent, the documents relating to the 2014 year were separately addressed in arguments and I deal with them separately below).

8. Winpar contends that Baron's financial reports for the years in question may be expected to reveal how the interest on the debt due to Baron by New Bounty was treated by Baron, it being known that it was not brought to account in New Bounty's accounts until 2011, and then treated as a contingency until 2013, and as an actual liability thereafter.

9. If there were in the proceedings an issue as to whether the debt in respect of interest truly existed, or as to the amount of that debt, I could readily see why the way in which the interest had been accounted for by Baron in its accounts as creditor would be relevant. Moreover, it does not need to be probative against New Bounty for it to be relevant in the adjectival sense, as adding in some way, directly or indirectly, to the whole of the relevant evidence available for the proceedings. But it appears clear that Winpar does not contend that the debt does not exist, and it does not dispute the amount of it. This appears on the face of the points of the claim, as in paragraph 58, which is relied on for this purpose by Winpar, it is alleged:

At all relevant times Mr Bart had the capacity to effect significantly New Bounty's financial standing.

Particulars:

(a)   Mr Bart wholly owned and controlled the first defendant which was owed $4,552,710 by New Bounty...

10. Although paragraph 58 is traversed in the defence, what is traversed is the allegation that Mr Bart had the capacity to effect significantly New Bounty's financial standing. It has been made clear in the course of argument on behalf of the defendants that they do not dispute the allegation that Baron was owed $4,552,000 by New Bounty. It has also been made clear on behalf of Winpar that it does not allege that that debt was a sham or did not exist. In those circumstances, I am quite unable to see how documents that cast light on how Baron treated the indebtedness will illuminate any relevant issue that arises on the pleadings in the case.

11. It was argued that it would illuminate Mr Bart's capacity to affect New Bounty's financial standing, if it appeared that he did not treat it as an actual asset of Baron, yet at the same time it was treated as an actual liability of New Bounty. But that, to my mind, does not affect any assessment of Mr Bart's capacity to affect New Bounty's financial position. If he has that capacity, it is attributable to what appears to be his undisputed standing as a creditor for $4.5 million or so, and not from how the interest was treated in Baron's accounts.

12. Accordingly, it seems to me that in respect of the income tax returns and financial reports of Baron for the years up to and including 2013, the defendant's objection is well-taken.

13. I turn then to Baron's equivalent records for 2014, and concurrently to New Bounty's tax returns and financial report for 2014 (Winpar is no longer insisting on production by New Bounty in respect of earlier years, having obtained those documents from another source).

14. One would expect the 2014 documents for New Bounty to reflect the implementation of the DOCA, and to show the impact that the DOCA had had on New Bounty's financial position. In the context of the allegations made in paragraphs 59 through to 71 of the Points of Claim, the practical impact of the DOCA on New Bounty's financial position is far from irrelevant, and in that way New Bounty's reports, which effectively cover the period of the DOCA and ought to reflect its implementation, cannot be said to be irrelevant.

15. Baron's reports and returns for the same period are in a slightly different position, because Baron was not the subject of the DOCA. However, one would expect its reports to reflect implementation of the DOCA by showing the conversion of its interest debt into an asset in the form of a shareholding. Again, while that might not be the best evidence on the subject, in the context of subpoenas and notices to produce the question is merely whether it is “on the cards” that the documents sought will add in some way to the relevant available evidence. In my view, there is a sufficient prospect of that being the case that Baron's 2014 documents are not irrelevant.

16. The third category of documents production of which is in issue, are those referred to in paragraphs 1 and 2 of the New Bounty notice, which relate to a private ruling obtained from the Australian Taxation Office. The pleading refers to that private ruling in the context of the AWM share sale agreement to Mark Foy's, in paragraphs 37 to 43 of the Points of Claim. Although the Points of Defence purport not to plead to those allegations on the footing that they contain no allegation against the first and fourth defendants, a failure to plead to an allegation is a deemed admission of it. If the defendants wanted to put the plaintiff to proof of those allegations, they had to traverse them and they have not done so. Accordingly, they are taken to be admitted.

17. Ultimately, it emerged that it was anticipated – or, at the very least, hoped – that the private ruling would reveal that part of its rationale was that there had to be identity of ultimate beneficial ownership, in that if the tax losses were not to be adversely affected by the sale by New Bounty to Mark Foy's of the shares in AWM, then there had to be identity of ultimate beneficial ownership such that Mr Bart would need to have 100 per cent of the ultimate beneficial ownership. While it may or may not be that the private ruling will say that, the anticipation that it might say something to that effect is not an unreasonable one. The private ruling has been, as I have said, referred to in the pleadings, and it is also referred to in the share sale agreement the subject of paragraphs 37 and following of the Points of Claim. Ultimately, it may support or it may tend against what the plaintiff contends, but either way it is likely to add, in the relevant sense, to the available material on this question. Of course, if it did support the plaintiff's contention, it would then provide some motive for the course of conduct on which the plaintiff alleges that Mr Bart embarked.

18. For that reason, the documents sought in paragraphs 1 and 2 of the New Bounty notice are not irrelevant.

19. The Court therefore orders that:

1. Pursuant to UCPR, rule 21.11, the fourth defendant is not required to produce the income tax returns lodged by it for the financial years ending 30 June 2011, 2012 and 2013 referred to in paragraph 3 of the notice to produce addressed to it dated 3 February 2015, but is required to produce the other documents referred to in the said notice.

2. The first defendant is not required to produce the income tax returns for the financial years ended 30 June 2011, 2012 and 2013, nor its financial reports for the years ending 30 June 2011, 2012 and 2013 referred to in paragraphs 1 and 2 of the notice to produce addressed to it dated 3 February 2015, but is required to produce the other documents referred to in the said notice, namely, its income tax returns and financial reports for the year ended 30 June 2014.

3. Costs of the interlocutory process be the plaintiff's costs in the proceedings.

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Decision last updated: 18 February 2016