NEIL RAYMOND CRIBB in his capacity as Liquidator of PHOENIX SHUTDOWN SERVICES PTY LTD (RECEIVERS & MANAGERS APPOINTED) (IN LIQ) - [2017] WASC 363

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: NEIL RAYMOND CRIBB in his capacity as Liquidator of PHOENIX SHUTDOWN SERVICES PTY LTD (RECEIVERS & MANAGERS APPOINTED) (IN LIQ) [2017] WASC 363

CORAM: MASTER SANDERSON

HEARD: ON THE PAPERS

DELIVERED : 11 DECEMBER 2017

FILE NO/S: COR 52 of 2017

BETWEEN: NEIL RAYMOND CRIBB in his capacity as Liquidator of PHOENIX SHUTDOWN SERVICES PTY LTD (RECEIVERS & MANAGERS APPOINTED) (IN LIQ)
Plaintiff

Catchwords:

Corporations law - Claim for costs by officer of company attending mandatory examination by liquidator

Legislation:

Corporations Act 2001 (Cth)

Result:

Application dismissed

Category: A

Representation:

Counsel:

Plaintiff: Not applicable
Examinee: Not applicable

Solicitors:

Plaintiff: Dentons Legal
Examinee: Murfett Legal Town Agents for Wisewould Mahony

Case(s) referred to in judgment(s):

Crosbie (as Joint & Several Liquidators of Radicle Projects Pty Ltd (in liq)) v McLachlan [2013] FCA 1101
Re Equiticorp Finance Ltd; Ex parte Brock (1992) 6 ACSR 725
Re Imobridge Pty Ltd [1998] QSC 109
Re Kempal Pty Ltd (Reciever & Manager Appointed) (in liq) (1989) 7 ACLC 1180
Re Medici Institute Pty Ltd; McVeigh v Brumley [2009] VSC 668
Re Spiraflite Ltd [1979] 1 WLR 1096

MASTER SANDERSON: Liam William Paul Bellamy was summonsed to appear for examination and for production of documents pursuant to s 596A of the Corporations Act 2001 (Cth) (the Act). Documents were to be produced in compliance with the summons by 6 June 2017 and the examination was conducted on 28 June 2017. Mr Bellamy attended in person. Together with Malcolm Kimbal Howell, Mr Bellamy is a joint and several receiver and manager of Phoenix Shutdown Services Pty Ltd (in liq) (Receivers & Managers Appointed). On 20 October 2015 Mr Bellamy and Mr Howell were appointed receivers and managers of Phoenix by Rush Corporation Pty Ltd, a secured creditor of Phoenix. Mr Bellamy, as a receiver and manager of Phoenix, is an 'officer' of Phoenix as defined by s 9 of the Act. It is worthy of note that s 596A of the Act deals with 'mandatory examination'. The liquidator of a corporation has a right to issue an examination summons without leave of the court. That stands in contrast to s 596B which deals with 'discretionary examination'. The key difference between the two sections is that the mandatory examination arises as a consequence of a person being an officer of the company. The discretionary examination requires the court to be satisfied that the person summonsed has taken part or been concerned in the examinable affairs of the company and further that the person has been or may have been guilty of misconduct in relation to the corporation.
Mr Bellamy who resides in the eastern states was provided with funds to cover his flights, accommodation and meals during the examination. Mr Bellamy now seeks his reasonable remuneration and expenses associated with his production of documents in compliance with the summons and his attendance at the examination hearing be paid by the liquidator. The amount is modest being only $10,549. A breakdown of this sum was provided as an attachment to the outline of submissions filed on behalf of Mr Bellamy and dated 16 October 2017. The amount comprises $7,400 for Mr Bellamy; the rest being legal fees incurred by Mr Bellamy in preparing for the examination.
Section 596A is silent as to the costs associated with a mandatory examination. However, s 597B is in the following terms:
Costs of unnecessary examination or affidavit
Where the Court is satisfied that a summons to a person under section 596A or 596B, or a requirement made of a person under section 597A, was obtained without reasonable cause, the Court may order some or all of the costs incurred by the person because of the summons or requirement to be paid by:
(a)in any case - the applicant for the summons or requirement; or
(b)in the case of a summons - any person who took part in the examination.
The liquidator of Phoenix opposed the order for costs. One of the arguments put was what might be referred to as a contextual argument. It was submitted that as s 596A did not deal with costs and s 597B dealt only with costs in certain circumstances it was implicit that no order should generally be made unless s 597B is satisfied. I will deal with that submission later in these reasons but first some consideration of the case law is required.
It would appear there has been no decision dealing with costs of a mandatory examination. Such authority as there is deals with discretionary examinations under s 596B. In this case it was submitted on behalf of Mr Bellamy that as a receiver and manager he was not directly concerned with the management of the company in liquidation. He says upon his appointment he and Mr Howell resolved to shut down the business. He did nonetheless have custody of certain documents and it was locating and providing copies of those documents which resulted in the majority of costs being incurred. Accordingly it was Mr Bellamy's position that his almost complete lack of involvement in and knowledge of the affairs of Phoenix was a factor to be considered on his application for costs.
Mr Bellamy maintained that he was properly considered an 'outsider' rather than an 'insider'. This idea of insiders and outsiders appears to have originated in the decision of Re Spiraflite Ltd [1979] 1 WLR 1096. It was picked up by Young J in Re Equiticorp Finance Ltd; Ex parte Brock (1992) 6 ACSR 725. In that case an examination summons had been issued pursuant to s 597 of the Corporations Law. His Honour referred with approval to the decision of McLelland J in Re Kempal Pty Ltd (Reciever & Manager Appointed) (in liq) (1989) 7 ACLC 1180, and then referred to the Spiraflite decision. His Honour said:
The auditor urged the court that it should not approach the matter in the same way as an application against a director. Megarry J rejected this approach. His Lordship said (counsel for the plaintiff) 'also sought to make a distinction between what he called "insiders" and "outsiders", and said that if litigation by a liquidator is contemplated, the court is more inclined to make an order under the section against an insider than against an outsider. He defined "insiders" as being the directors, secretary and employees of the company; and that all others, even if they were technically officers of the company (such as auditors), were outsiders. He admitted he could cite no authority either for his distinction or for his definitions, and he was able to put forward little in the way of reasoning to support either. I see little merit in the argument, which seems closely tailored to the facts of this case. Of course it may well be that in many cases the directors and those from whom the liquidator most needs information, and who are best able to give it; but there may well be many cases in which vital information is in the hands of others. The language of the section suggests no such distinction ... . What seems to me to matter more than status in the company is the information that a person, whether "insider" or "outsider", is believed to possess.' (730)
It is to be noted that the Brock case deals with the Corporations Law. The present Corporations Act has the two sections to which I have referred above. It might perhaps be said that s 596A is the 'insider' section and s 596B is the 'outsider' section. It was Mr Bellamy's position that the demarcation was not strict and that in fact a person in his position could be regarded as an outsider although the summons was issued under s 596A. In Re Medici Institute Pty Ltd; McVeigh v Brumley [2009] VSC 668, Gardiner AsJ reviewed the authorities and reached the following conclusion:
It seems the following can be distilled from the above authorities:
i.If the examinee is not directly concerned in the management of the company, he or she is entitled to the cost of attendance at the examination and in gathering together the documents, but not costs for his legal representation (Brock (No 1) at 734).
ii.An examinee is not entitled to be awarded an hourly rate which includes a profit margin. A more appropriate scale is that applying to allowances to witnesses in the court rules (Brock (No 1) at 734).
iii.Examinees who are not concerned with the management of the company are entitled to be paid for their out of pockets in a reasonable search for material and in attending the examination (Brock (No 1) at 734).
iv.Generally, the preferable procedure in regard to documents is that the liquidators should be given the documents to copy at their own expense although examinees may need to deal with the documents and charge photocopying and expenses for looking at the documents at cost (Brock (No 1) at 734).
vAs to the question of who is a company 'insider' or 'outsider', insiders are characterised as being the directors, secretary and employees of the company and all others, even if they are technically officers of the company, such as auditors, are outsiders (Brock (No 1) at 730; Re Spiraflite Ltd [1979] 1 WLR 1096).
vi.It would be unjust to require a person who had not been an officer of the company to attend for examination without provision being made in respect of their reasonable expenses for such attendance where those expenses would be substantial (Re Kempalat 1182).
vii.It would reasonable in the appropriate case to allow compensation for searching for documents, but the public interest is against making provision for a witness to confer with their staff or associates or with solicitors and Counsel or otherwise obtaining information from others which might be used in their evidence on the examination (Brock (No 2) at 18).
viii.No allowance should be made for the examinee familiarising themselves with documents in order to prepare for the examination (Brock (No 2) at 18). [16] (footnote omitted)
There were two further decisions referred to by counsel for Mr Bellamy: Crosbie (as Joint & Several Liquidators of Radicle Projects Pty Ltd (in liq)) v McLachlan [2013] FCA 1101 and Re Imobridge Pty Ltd [1998] QSC 109. Neither decision is of great assistance. Both acknowledge that the costs associated with travelling to attend an examination may be recoverable. In the Crosbie decision Justice Gordon did suggest 'there may be circumstances where it is appropriate to allow compensation for searching for documents' [27], but did not take the matter any further.
In opposition to the application the liquidator submits that as a general rule a person required by law to come before a court and give evidence has an obligation to comply and is not entitled to compensation. That is consistent with the authorities and in particular the decision of Gordon J in Crosbie. The liquidator also submits there were three reasons particular to this case why Mr Bellamy was not entitled to compensation. First it was said he did not respond to requests for information by the liquidator. Second, it was said he claimed privilege against self‑incrimination with respect to 157 of his answers. Thirdly, he gave evidence that the Form 524 lodged by him with the Australian Securities & Investment Commission was incorrect.
Insofar as that submission suggests that any entitlement to compensation should be forfeited by some alleged misconduct on behalf of Mr Bellamy it should be rejected. Mr Bellamy in his affidavit explains the steps that he took to provide information requested by the liquidator. In my view he was in no way dilatory and did not engage in conduct which was in any way unreasonable. As to the other two matters Mr Bellamy was entitled if he wished to claim privilege. It can hardly be said that in exercising a statutory right Mr Bellamy was doing something which was improper. As to the error in the Form 524 that was of no real moment and appeared to be nothing more than an oversight.
Nonetheless I am not satisfied that Mr Bellamy is entitled to the compensation he claims. I have reached that conclusion for two reasons. First, I accept the contextual argument put by counsel for the liquidator. Reading div 1 of pt 5.9 of the Act does, I think, make it plain that it is only in circumstances envisaged by s 597B that compensation can be awarded. The second reason really follows on from the first. A witness who is compelled by law to attend and be examined while entitled to travelling and related expenses is not entitled to compensation for their time and legal advice they may take. In this respect a receiver, even a receiver who has not been involved in the day to day management of the company and who might be regarded as an outsider, is in no different position from any other citizen.
Accordingly, the application for compensation will be dismissed. Mr Bellamy ought pay the liquidator's costs of the application to be taxed if not agreed.
This decision will take effect from the date of publication of these reasons.