Re Bill Express Limited (No.3)
[2010] VSC 640
•17 December 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT LIST E
No. S CI 2009 10799
| RE BILL EXPRESS LIMITED (IN LIQUIDATION) (ACN 090 059 564) | |
| BETWEEN: SANDRO DI DONATO TELE CARDS ASIA PTY LTD (ACN 101 775 900) - and – CRAIG DAVID CROSBIE and IAN MENZIES CARSON AND BETWEEN: PETER JOHN COUPER AUSTRALIAN PRIVATE NETWORKS PTY LTD - and – CRAIG DAVID CROSBIE | First Applicant Second Applicant Respondents First Applicant Second Applicant Respondents |
---
JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 July 2010 | |
DATE OF JUDGMENT: | 17 December 2010 | |
CASE MAY BE CITED AS: | Re Bill Express Limited (No.3) | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 640 | |
---
CORPORATIONS - EXTERNAL ADMINISTRATION – Examination of directors and other persons pursuant to s 596A and s 596B of the Corporations Act2001 (Cth) – Application pursuant to r 42.04(1) of the Supreme Court (General Civil Procedure) Rules 2005 to set aside subpoenas directed to examinees during the course of the examination – Whether liquidators should have sought production under examination provisions of the Corporations Act2001 (Cth) rather than causing the issue of subpoenas – Whether the employment of subpoenas in such circumstances was an abuse of process – Whether documents sought in subpoenas relate to examinable affairs of the company – Whether the subpoenas are “fishing” – Documents ordered to be produced - Application dismissed.
---
APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr Bigmore QC | Mills Oakley Lawyers |
| For the Respondents | Mr P Bick QC with Mr K Tsiakis | Freehills |
HIS HONOUR:
On 7 June 2010, Mr Di Donato and Tele Cards Asia Pty Ltd (“TCA”) made application by interlocutory process pursuant to rule 42.04(1) Supreme Court (General Civil Procedure) Rules 2005 to set aside subpoenas respectively addressed to them and dated 24 May 2010.
On 8 June 2010, Mr Peter Couper and Australian Private Networks Pty Ltd (“APN”) made a similar application that the subpoena addressed to Mr Couper and dated 24 May 2010 be set aside.
The subpoena had been issued on the application of the respondents Craig David Crosbie and Ian Menzies Carson, who are the liquidators of Bill Express Ltd (in liq) (“Bill Express”).
The respondents rely on the affidavits of Warren Ingerson and David Webb, both sworn 15 July 2010.
The application by TCA and Mr Di Donato is supported by an affidavit of Ariel Currie Borland sworn 7 June 2010 and Mr Couper’s application is supported by an affidavit of Lisa Filippin sworn 7 June 2010.
By orders made on 19 December 2009 on the application of the respondents, Messrs Di Donato and Couper were summonsed to be examined pursuant to s 596B of the Corporations Act 2001 (Cth) (“the Act”) in respect of the examinable affairs of Bill Express and its associated entities.
In the summons directed to Mr Di Donato, production was required of:
“All books and records relating to the affairs of Bill Express Limited (in liquidation) (ACN 090 059 564) and any of its subsidiaries referred to in Schedule 2 (collectively, the Bill Express Group) between the period 1 January 2005 and 8 July 2008, as are in your possession, custody or under your control including, but not limited to … .”
The summons then specified several categories of documents.
In the summons directed to Mr Couper, he was required to produce:
“All books and records relating to the affairs of Bill Express Limited (in liquidation) (ACN 090 059 564) and any of its subsidiaries referred to in Schedule 2 (collectively, the Bill Express Group) for the period from two years ending on the appointment of the administrators (8 July 2008), as are in your possession, custody or under your control, including but not limited to … .”
The summons then specified several categories of documents.
Application was made by Messrs Di Donato and Couper to have the summonses directed to them discharged, but this application was dismissed and a subsequent appeal to Davies J was unsuccessful[1].
[1](2010) 77 ACSR 556.
Mr Couper and Mr Di Donato produced a large volume of documents in two tranches on 17 February 2010 and 14 April 2010. They were each examined over several days in May this year.
The applicants’ submissions
The applicants, by the interlocutory processes, submit that the Di Donato and TCA subpoenas should be set aside on three grounds. First, because the Court should exercise its discretion to set aside any subpoena addressed to an examinee where the examination of the examinee is underway. The applicants say that instead of subpoenas, the plaintiffs should have sought production under one of the several sections available amongst the examination provisions of the Act and that the employment of the subpoena process is an abuse of process. The applicants’ position in this regard is set out in the correspondence which is extracted and exhibited to the affidavit of Ms Fillipin and Ms Borland. Secondly, the applicants say that the subpoenas seek the production of documents which do not relate to the examinable affairs of Bill Express and are therefore oppressive. Thirdly, it is said that the subpoenas are “fishing” in nature and seek production of documents beyond the scope of the examinable affairs of Bill Express.
As to the first ground, the applicants say that the examination provisions of the Act prescribes a detailed regime for judicial oversight in examination proceedings. In particular, ss 597(9) and 597(9A) give power to compel the production of books at an examination of any person after the commencement of the examinations. Those sub-sections provide:
“(9) The Court may direct a person to produce, at an examination of that or any other person, books that are in the first‑mentioned person’s possession and are relevant to matters to which the examination relates or will relate.
(9A) A person may comply with a direction under subsection (9) by causing the books to be produced at the examination.”
Mr Bigmore QC, counsel for the applicants, contends that while a Court conducting the examination has power under the Act to order the production of books at the examinations, the Act does not provide the Court with power to order the production of documents from examinees prior to their examination or from parties such as corporations who are not able to be summonsed to attend for examination. In such circumstances, Mr Bigmore says, the Courts have allowed subpoenas to be issued in order to order the production of documents. Mr Bigmore says that that is not the case in this instance, as the examinations are underway. He says that the liquidators should have sought orders under s 597(9) of the Act for the production of the documents sought. In addition, Mr Di Donato is the sole director of TCA and he could have been required to produce the documents sought from that company under s 597(9).
As to the second ground, Mr Bigmore says that any subpoena for the production of documents in an examination under s 596A or 596B can only seek production of documents are relevant to the examinable affairs of the corporation which is the subject of the examination. Mr Bigmore says that the Di Donato and TCA subpoenas seek the production of documents which are not related to the examinable affairs and should be set aside on that basis.
Section 9 defines “examinable affairs” as:
“’examinable affairs’ , in relation to a corporation means:
(a) the promotion, formation, management, administration or winding up of the corporation; or
(b) any other affairs of the corporation (including anything that is included in the corporation’s affairs because of section 53); or
(c) the business affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation’s examinable affairs because of paragraph (a) or (b).”
That definition is expanded by s 53 of the Act, which sets out further matters which form part of the affairs which include:
“Affairs of a body corporate
For the purposes of the definition of examinable affairs in section 9, section 53AA, 232, 233 or 234, paragraph 461(1)(e), section 487, subsection 1307(1) or section 1309, or of a prescribed provision of this Act, the affairs of a body corporate include:
(a)the promotion, formation, membership, control, business, trading, transactions and dealings (whether alone or jointly with any other person or persons and including transactions and dealings as agent, bailee or trustee), property (whether held alone or jointly with any other person or persons and including property held as agent, bailee or trustee), liabilities (including liabilities owed jointly with any other person or persons and liabilities as trustee), profits and other income, receipts, losses, outgoings and expenditure of the body; and
(b)in the case of a body corporate (not being an authorised trustee corporation) that is a trustee (but without limiting the generality of paragraph (a))--matters concerned with the ascertainment of the identity of the persons who are beneficiaries under the trust, their rights under the trust and any payments that they have received, or are entitled to receive, under the terms of the trust; and
(c)the internal management and proceedings of the body; and
(d)any act or thing done (including any contract made and any transaction entered into) by or on behalf of the body, or to or in relation to the body or its business or property, at a time when:
(i)a receiver, or a receiver and manager, is in possession of, or has control over, property of the body; or
(ii) the body is under administration; or
(iia)a deed of company arrangement executed by the body has not yet terminated; or
(iii)a compromise or arrangement made between the body and any other person or persons is being administered; or
(iv)the body is being wound up;
and, without limiting the generality of the foregoing, any conduct of such a receiver or such a receiver and manager, of an administrator of the body, of an administrator of such a deed of company arrangement, of a person administering such a compromise or arrangement or of a liquidator or provisional liquidator of the body; and
(e)the ownership of shares in, debentures of, and interests in a managed investment scheme made available by, the body; and
(f)the power of persons to exercise, or to control the exercise of, the rights to vote attached to shares in the body or to dispose of, or to exercise control over the disposal of, such shares; and
(g)matters concerned with the ascertainment of the persons who are or have been financially interested in the success or failure, or apparent success or failure, of the body or are or have been able to control or materially to influence the policy of the body; and
(h)the circumstances under which a person acquired or disposed of, or became entitled to acquire or dispose of, shares in, debentures of, or interests in a managed investment scheme made available by, the body; and
(j)where the body has made available interests in a managed investment scheme--any matters concerning the financial or business undertaking, scheme, common enterprise or investment contract to which the interests relate; and
(k)matters relating to or arising out of the audit of, or working papers or reports of an auditor concerning, any matters referred to in a preceding paragraph.”
Further, the notion of an entity being a connected entity as mentioned in paragraph (c) of the s 9 definition will come within that description if it is a “related entity” of the corporation or a connected entity as defined by s 64B of the Act. That defines “connected entity” as:
“Entities connected with a corporation
Body corporate
(1) A body corporate is connected with a corporation if, and only if, the corporation:
(a)can control, or influence materially, the body’s activities or internal affairs; or
(b) is a member of the body; or
(c)is in a position to cast, or to control the casting of, a vote at a general meeting of the body; or
(d)has power to dispose of, or to exercise control over the disposal of, a share in the body; or
(e)is financially interested in the body's success or failure or apparent success or failure; or
(f)is owed a debt by the body; or
(g)is engaged by the body under a contract for services; or
(h) acts as agent for the body in any transaction or dealing.”
Mr Bigmore says that although it may be accepted that the definition of “examinable affairs” is broad, it does not entitle the liquidators of Bill Express to have access to the books of all entities that have had dealings with Bill Express. As to the “business affairs of a connected entity”, as mentioned in paragraph (c) of the s 9 definition of examinable affairs, this will only be “relevant” if it has bearing upon or is connected with Bill Express or its examinable affairs.
Production is sought by the respondents of three different categories of documents as follows:
(a)documents belonging to or relating to APN and TCA;
(b)documents belonging to and relating to Technology Business Services Pty Ltd (“TBS”);
(c)documents belonging to or relating to Mr Di Donato’s dealings with the following third parties:
(i)3D Sales Force Pty Ltd;
(ii)Mr Dean Koutsounidis;
(iii)Mr Di Donato’s parents; and
(iv)Rural Access Pty Ltd.
As to (a), Mr Bigmore says that APN and TCA are not related entities of Bill Express. Mr Bigmore says that it appears unlikely that either APN or TCA are connected entities of Bill Express and it is not apparent how the documents sought relate to Bill Express or its examinable affairs.
As to the TBS documents, Mr Bigmore contended that TBS is not a connected entity of Bill Express, the documents sought appear to only make reference to TBS’s dealings with third parties and seem not to be related to Bill Express or its examinable affairs.
The “third party” documents sought in the third category appear to relate to Mr Di Donato’s dealings with the identified third parties and similarly Mr Bigmore says that it is not clear what relevance these documents have to Bill Express or its examinable affairs.
He submits on behalf of the applicants that the documents sought in the Di Donato and TCA subpoenas, with some exceptions, fall outside the scope of the examinable affairs of Bill Express and those subpoenas should be set aside on the basis that they are oppressive and an abuse of process.
Finally, Mr Bigmore says that the subpoenas amount to an indulgence in a “fishing exercise”, which he contends is impermissible, and an abuse of process. Mr Bigmore says that Mr Di Donato has already produced a great number of documents pursuant to the s 596B summons directed to him and it is not alleged that he has failed to comply with that summons or that he has further books in his possession relating to the examinable affairs of Bill Express. Because the summonses make no attempt to limit the operation of the subpoenas to documents relating to Bill Express or its examinable affairs, it is said this amounts to “fishing”, and that the subpoenas should be set aside for that reason.
I observe that the second and third grounds really appear to cover the same grounds. I consider that if the documents are referable to the examinable affairs of Bill Express then the subpoenas will not be fishing.
The respondents’ submissions
Mr Bick QC, counsel for the respondents, resisted the applicants’ application on several grounds and contended that the use of subpoenas to order the production of documents was an appropriate course to adopt in the circumstances. He submitted that the applicants, by reason of their failure to respond to an approach by the respondents to seek an alternative direction pursuant to s 597(9) should not be permitted to contend that a direction pursuant to that provision was the more appropriate course. It was also contended that in any event the categories of documents required by the subpoenas related to the examinable affairs of Bill Express and should therefore be produced pursuant to the summonses directed to Messrs Di Donato and Couper in January of this year. Mr Bick said that the documents sought are, on the basis of the respondents’ affidavit material, demonstrably referrable to the examinable affairs of Bill Express.
Mr Bick says that even if the Court finds that one or more of the categories of documents sought in the subpoena are outside the scope of the examinable affairs of Bill Express, those categories are severable and those that are within the scope of the examinable affairs of Bill Express should be ordered to be produced pursuant to the subpoenas. Finally, Mr Bick considers that the submission made by the applicants that the subpoenas have been employed in a “fishing” exercise is misconceived.
As I have said above, the respondents rely on the affidavits of Warren Ingerson and David Webb. Mr Ingerson was a director of Australian Private Networks Pty Ltd (APN) and Mr Webb is a partner of the firm PPB and is assisting in the administration of the liquidation of Bill Express Limited and its subsidiaries subject to the supervision of the liquidators, Messrs Carson and Crosbie.
As to the contention by Mr Bick that the use of subpoenas to order production of documents was proper, he contended that Part 5.9 of the Act, within which the examination provisions are to be found, is not an exclusive code and case law demonstrates that the use of subpoenas in context of an examination under Part 5.9 of the Act is appropriate. By way of example he referred to the decision of Re BPTC Limited (in liq) (No. 2)[2] where the examinees were ordered to produce documents in advance of their attendance at an examination under s 597 of the Corporations Law. Those examinees contended that the subpoenas should be set aside by reason that s 597 of the Corporations Law was an exclusive code for ordering and conducting examinations. McLelland J ordered the documents to be produced, stating that the provisions of the Corporations Law were not an exclusive code in this regard. Reference was also made to the decision of the New South Wales Court of Appeal in Meteyard v Love[3] which considered whether the subpoena provisions of the Rules of the Supreme Court of New South Wales could be called in aid of an examination under s 597 of the Corporations Act. Again, the “exclusive code” argument was raised by the recipient of the subpoena and the Court of Appeal, approving of the approach of McLelland J in Re BPTC (in liq) (No. 2), rejected that the provisions of the Act were exclusive code in respect of the production of documents.
[2](1992) 29 NSWLR 713.
[3](2005) 65 NSWLR 36.
In Re Chircan Holdings,[4] Barrett J held that s 597(9) is not the only source of jurisdiction to compel production of books relevant to an examination and added that there was no reason or policy why it should be. He considered that examinations, being proceedings of the Court, thereby attracted the range of provisions and procedures that were available in any other proceeding. He saw no reason why the subpoena provisions of the New South Wales rules of court should be excluded.
[4](2002) 21 ACLC 29 at 32.
In his submissions, Mr Bick indicated that since the introduction of the current provisions of the Corporations Act dealing with examinations, there have been no cases deciding the issue as to whether the provisions are an exclusive code in respect of the production of documents by examinees. Mr Bick says that the authorities referred to by Mr Bigmore on behalf of the applicants in support of a contention that subpoenas are only appropriate for production of documents before the commencement of an examination and where a subpoena is issued to a corporation which is not able to be summoned under the part, says that those cases referred to dealt with the particular fact situations which were before the court for consideration, i.e. the situation of production prior to commencement of the examination.
Mr Bick says that there are several reasons as to why subpoenas were directed to the applicants rather than seeking a direction pursuant to s 597(9). First, he says that the documents which have been requested of Mr Di Donato and Mr Couper were not voluntarily produced, thus the respondents have resorted to the subpoena process to compulsorily require the production of the documents. Secondly, by reason of the scheduling of Mr Di Donato’s examination, the production of documents sought by the liquidators was a matter of urgency in order that preparation could occur before the resumption of Mr Di Donato’s examination. Thirdly, because of the previous history of the matter, in particular the application by Messrs Di Donato and Couper to set aside the summonses issued pursuant to s 596B and despite the fact that such application was not successful, it resulted in significant delay in the examinations.
I do not consider that any of these factors carry great weight for the employment of the subpoena process. As to the first, provided the documents relate to the examinable affairs of Bill Express, the documents can be directed to be produced pursuant to s 597(9). Secondly, I do not consider that the subpoena process would result in any swifter production of them. A direction under s 597(9) has the force of an order of the Court in much the same way as a subpoena does and it would be just as convenient if not more so for such a direction to be made in the course of the examination. As to the last factor, it seems that whatever course was adopted, Messrs Couper and Di Donato would have respectively resisted production of the documents by the appropriate procedural mechanism on the basis that they do not have the necessary connection with the examinable affairs of Bill Express.
Mr Bick says that in the event that the Court considers that the use of subpoenas was inappropriate, his clients seek a direction pursuant to s 597(9) of the Act for production of the documents identified in the subpoenas. He contended that the documents sought are in any case ones which relate to the examinable affairs of Bill Express and should have been produced pursuant to the original summonses served on Messrs Couper and Di Donato and they should be produced.
He says that despite an approach being made by Freehills, the solicitors for the liquidators in this regard, no response was received. Mr Bick says that if there had been an accommodation by the applicants in that regard the controversy the subject of the current application would have been discharged.
Mr Bick says that in respect of the subpoena directed to TCA that the employment of the subpoena process was necessary because the provisions of s 597 of the Act do not contemplate a corporation being summonsed and for this reason the ancillary powers of the Court was the only mechanism to obtain production of the documents. Mr Bick made reference to the decision of McLelland J in Re BPTC Limited (in liq) (No. 2)[5] where he stated:[6]
Unless the Court had power, outside the terms of s 597 itself, to order the production of documents for the purposes of an examination under s 597, not only would there be a serious potential impediment to the effect of conduct of such examinations, but there would be no power at all to make an order requiring the production of documents by a corporation for the purposes of a s 597 examination, since a corporation cannot be ordered to attend for examination.
[5](1992) 29 NSWLR 713.
[6]At 719.
The applicants had contended that as Mr Di Donato is the sole director of TCA that a direction should have been sought for the production of these documents from him and that the issue of a subpoena to TCA is not appropriate. The applicants had also contended that the subpoena issued to Mr Di Donato could have sought production of documents from him in his capacity as the sole director of TCA.
Mr Bick submits that as the documents sought are documents of TCA, that the appropriate mechanism for their production was through a subpoena issued to it. Mr Bick says that that procedure was appropriate in the circumstances. On this subject, reference was made to the statement of McLelland J in Re BPTC Limited (in liq) (No. 2)[7] where he stated:
When a law is made against (or a subpoena is served on) a corporation requiring it to produce documents, it is permissible and common practise to require the corporation by its proper officer ‘to produce documents …‘ but the order (or subpoena) in such a case is addressed to the corporation itself. It is quite another matter (and in my view impermissible) to address the order (or subpoena) to ‘the proper officer’ of a corporation.[8]
[7](1992) 29 NSWLR 713.
[8]Ibid at 719.
I consider that once an examination is underway, the more appropriate course is for those conducting the examination to seek directions for production of the subject documents under s 597(9). However, while s 597(9) is an obvious mechanism for obtaining documents in the course of an examination, because the examination is a proceeding in the court, the ancillary provisions of the rules, including the issue of subpoenas, are available. The applicants have a mechanism to agitate issues in respect of the documents sought to resist production, as they have in this case. I do not consider that s 597(9) creates an exclusive code for the production of documents in the course of the examination and I will not discharge the subpoenas on that basis.
Mr Bick says that a survey of the case law including the earlier cases such as Re BPTC (in liq) (No. 5)[9] and Meteyard v Love[10] and Re Bernsteen (No. 2)[11] reveals that a summons for public examination will be set aside for being too wide uncertain or oppressive where the documentation sought (a) does not properly relate to the examinable affairs of a corporation; (b) are otherwise not required for the examination;[12] (c) relate to the disclosure of particularly sensitive documents, such as privileged or confidential documents;[13] and/or (d) are too broad in time or description or go far beyond the legitimate interests of the liquidator.[14]
[9](1993) 10 ACSR 756.
[10](2005) 65 NSWLR 36.
[11][2007] FCA 48.
[12]Re BPTC (in liq) (No. 5) 1995 10 ACSR 756.
[13]Re Bernsteen (No. 2) [2007] FCA 48.
[14]Ibid
Mr Bick contended that the notion of what are examinable affairs is dynamic in the sense that its scope shifts as the examination progresses and matters come to light. What was considered an examinable affair at the beginning of the examination may cease to be so and vice versa. In this sense, documents which, at the outset of the examination might not have been considered to be within the examinable affairs of the company, will become so in the light of material which has emerged in the course of the examination. Mr Bick says that the scope of what would be regarded as the examinable affairs of Bill Express has broadened to include the categories of documents set out in the subpoenas directed to Messrs Di Donato and Couper and TCA as deposed to in the affidavit of Mr Webb, who related the relevant testimony given at the examination.
Mr Bick, in his submissions in respect of the individual categories of documents identified in the subpoenas, relies on Mr Webb’s evidence in support of his submissions that the documents identified were related to the examinable affairs of Bill Express. Mr Webb’s affidavit makes reference to Mr Di Donato’s testimony at his examination. Mr Webb says that he was present during the majority of the examinations and was present for the whole of Mr Di Donato’s examination on 7, 10 and 11 May 2010. In a similar way he relied on the affidavit of Mr Ingerson, a former director of APN to demonstrate the connection of APN and the other entities referred to in his affidavit to the examinable affairs of Bill Express.
Mr Bigmore stated, sensibly in my view, that if I determined that the subpoena process was not the appropriate one but if the court considered the categories of documents for which production was sought and determined that they related to the examinable affairs, his clients would be unlikely to resist production.[15] I have determined however that while the subpoena process, while not being the most appropriate course, was open to the respondents to employ.
[15]T3020-3021.
In my view, the practicable course is to consider each individual category of documents and assess, having regard to the testimony at the examinations, together with the submissions of the parties and the affidavit material filed by the respondent liquidators and rule whether the documents should be produced. I certainly see no point at all in postponing that process to another day in the context of an application by the liquidators for a direction under s 597(9) that the subject documents be produced.
1. All documents constituting Australian Private Networks Pty Ltd (APN) financial accounts for the financial year ending 2005
In the course of his examination on 7 May 2010, Mr Di Donato was asked questions relating to the financial accounts of APN and he was asked to bring to the Court copies of that company’s financial accounts for the years 2005 to 2008 inclusive. That request was followed up by a letter from the solicitors for the plaintiffs to Mr Di Donato’s solicitors on the same day. Mr Di Donato voluntarily produced to the liquidators’ copies of the financial accounts for APN for the years 2006 to 2008 inclusive on 10 May 2010. Mr Di Donato’s solicitors have stated upon instructions that Mr Di Donato was not able to locate a copy of the 2005 accounts.
Mr Ingerson in his affidavit deposed that he was a director of APN from late 2002 to 1 October 2007. Mr Ingerson details the nature of the connection between APN, On Q, Bill Express and TCA. Mr Bick contended that Mr Ingerson’s evidence, in particular the matters deposed to paragraphs 25 to 29, demonstrates that On Q and Bill Express controlled and managed the finances of APN by “sweeping” or appropriating APN’s funds into a bank account which was controlled by On Q and Bill Express, paying the expenses of APN and retaining the remainder of APN’s revenue. Mr Bick also made reference to paragraph 52 of Mr Ingerson’s affidavit which stated that his primary reason for resigning as a director of APN was his belief that the financial accounts for that company for the 2007 financial year were potentially inaccurate.
Mr Bick stated that it was clear that the financial accounts of APN for the years for which production was sought were relevant to the examinable affairs of Bill Express because of the connection between the finances of APN and Bill Express and the manner in which Bill Express dealt with APN’s funds. He noted that, in Mr Di Donato’s examination when questions were put to him as to APN’s financial accounts, no objections were raised. Mr Bick contended that this demonstrated that there was a nexus between the accounts of APN and the purposes for which the Bill Express examinations were being conducted which, among other things, was to enable the liquidators of Bill Express to gather information to assist them in the investigation of the officers and other persons involved with Bill Express. Mr Bick also said that the fact that the accounts for the other years for APN were produced without objection lends force to this submission.
In my view, the accounts of APN for which production is sought relate to the examinable affairs of Bill Express having regard to the evidence given at the examination in respect of the transactions taking place between Bill Express and that company and they should be produced. If the documents cannot be produced then that is another matter but I do not see any good reason to strike this category from the subpoena.
2.All documents referring to, relating to or evidencing the payment made by APN to Vodaphone of $2million on behalf of Bill Express (in liquidation) on or around 4 April 2007 and the surrounding circumstances
Mr Di Donato concedes in his written submissions at paragraphs 30 and 34 that this category appears to relate to the examinable affairs of Bill Express and has made no submissions to the contrary. In my view the documents referred to relate to an “affair” of Bill Express, being related to its “business, trading, transactions and dealings (whether alone or jointly with any other person or persons and including transactions and dealings as agents, bailee or trustee)”, … as mentioned in the definition s 53 of the Act.
3. All documents constituting correspondence between APN and the Commonwealth Department of Communication, Information Technology and the Arts concerning the loans between Technology Business Systems Pty Ltd and APN recorded in the APN financial accounts for the year ended 30 June 2007 and 30 June 2008.
In Mr Webb’s affidavit, at paragraph 8, he deposes to Mr Di Donato’s testimony at his examination on 10 May 2010 in response to questions relating to correspondence passing between APN and the Commonwealth Department of Communication, Information Technology and the Arts in respect of loans between TBS and APN recorded in APN’s accounts for the 2007 and 2008 financial years. Mr Di Donato agreed to search for such documentation and bring them to court the following day. This request was followed up by a letter from the liquidator’s solicitors to Mills Oakley on that day, however, Mr Di Donato’s solicitors indicated in a letter of 11 May 2010 to the liquidator’s solicitors that Mr Di Donato was unable to locate any such correspondence.
I agree with Mr Bick’s submissions that these documents relate to the examinable affairs of Bill Express for the same reasons that I have provided in respect of category one.
4.All documents constituting the Minutes of the Board of Directors of APN for the 2007 financial year
In response to a request to produce these documents in the course of the examination, Mr Di Donato’s solicitors indicated that he was unable to produce any Minutes of the Board of Directors Meetings for the period specified.
At paragraphs 54 and following of his affidavit, Mr Ingerson states that the 30 June 2007 accounts were presented at the APN board meeting in or about June 2007 at the offices of On Q/Bill Express. Mr Ingerson stated when he reviewed the accounts the revenue recorded in the financial accounts was not consistent with his understanding of the amounts that had been received from the Australian Government pursuant to the Australian Broadband Guarantee Accreditation Scheme. He states that the accounts of APN for that period noted that there were loans payable to TBS in the sum of approximately $15million, which he and the board had never been made aware of. He stated that he and the other directors of APN asked for an explanation of the TBS loan from Mr Di Donato as he was the only director of APN who said he had been aware of the existence of that loan. Mr Ingerson says that after what he describes as heated discussions between the directors of the board of APN, Mr Di Donato left the meeting and returned accompanied by Mr Ian Cristiansen, a director of Bill Express. Mr Ingerson said that Mr Cristiansen addressed the board of APN and indicated the financial records were in the possession of Mr Couper and these would be made available to the directors of APN in order to satisfy them of the accuracy of the financial accounts. Mr Ingerson says however that that information was never provided.
In my view, the documents sought relate to the examinable affairs of Bill Express by reason of the connection between APN and Bill Express and the transactions referred to involving those entitles. The documents should be produced if they are able to be.
5.All documents constituting the executed agreements between Bill Express and Telecards Asia including an executed share sale agreement signed in or around 2008
In their submissions at paragraphs 30 and 34 and applicants accept that this category would appear to relate to the examinable affairs of Bill Express and I will order that they be provided.
6.All documents evidencing an agreement between Sandro Di Donato and Hal and/or Ian Cristiansen, Technology Business Systems Pty Ltd (TBS) or Bill Express regarding the payment to Sandro Di Donato of $450,000 in or around October 2007
This transaction is a reference to a loan recorded on the TBS general ledger on 9 October 2007 whereby Mr Di Donato was loaned $450,000. In response to questions concerning this transaction put to him at his examination, Mr Di Donato stated that the funds were paid to him under an agreement that he had entered into with Messrs Ian and Hal Cristiansen. The agreement was to the effect that Mr Di Donato sold his business to the On Q Group Limited in return for the $450,000 advance. That advance would be applied by Mr Di Donato to discharge the mortgage over his parents’ house. The funds were paid by TBS to a company 3D Sales Force Pty Ltd, a company associated with Mr Di Donato’s cousin. The advance was made on or around 17 August 2007 and approximately two weeks later two payments totalling $250,000 were paid out of the 3D Sales Force account. Mr Di Donato received $74,770.32 and the balance, $375,229.68, was paid to a Dean Koutsomidas. In June 2007, Mr Di Donato signed a confirmation that TBS and its subsidiaries owed Bill Express an amount of $31.983 million. By reason of the provisions of s 53(a) of the Act, I consider that the documents concerning this transaction are related to the examinable affairs of Bill Express as they concern the “business, trading, transactions and dealings” of Bill Express. Mr Bick says that there may be a potential cause of action available to the liquidators of Bill Express in circumstances where Bill Express has loaned monies to TBS and TBS has advanced those monies to Mr Di Donato. It may be open to the liquidators of Bill Express to establish that the funds paid out of TBS can be characterised as funds of Bill Express and be recoverable by Bill Express. Mr Bick says that to the extent that there are any documents in existence in connection with the transaction they are relevant to the examinable affairs of Bill Express. I agree and the documents should be produced.
7.All documents referring to, relating to, or evidencing the $450,000 paid from Technology Business Systems Pty Ltd to 3D Sales Force Pty Ltd in or around October 2007
In my view, the documents sought relate to the examinable affairs of Bill Express for the same reasons that I have expressed in regard to the documents sought in Category 6 and they should be produced.
8.All documents referring to, relating to, or evidencing the $450,000 paid by 3D Sales Force Pty Ltd to Dean Koutsoumidis, solicitor for Sandro Di Donato in or around October 2007
In my view, the documents sought relate to the examinable affairs of Bill Express for the same reasons that I have expressed in respect of the documents sought in category 6 and they should be produced.
9.All documents referring to, relating to, or evidencing the manner and purpose for which the $450,000 received by Dean Koutoumidis from 3D Sales Force Pty Ltd in or around October 2007 was utilised, including a copy of the mortgage discharged in relation to the property of Mr and Mrs Di Donato Snr
In my view, the documents sought relate to the examinable affairs of Bill Express for the same reasons that I have express in respect of the documents sought in category 6 and they should be produced.
10.All documents relating to the purpose for which the funds obtained from the mortgage of Sandro Di Donato’s parents’ house when registered were applied
Again, these documents are said to relate to the transaction involving the payment of the $450,000 by TBS to discharge Mr Di Donato’s parents’ mortgage. I agree with Mr Bick’s submission that the application of the funds obtained from the initial mortgage is an examinable affair as there is a probability that those documents concern the “business, trading and transaction and dealings” that Bill Express was involved in. The documents should be produced.
11. All documents constituting or evidencing the agreement between Sandro Di Donato and Bill Express dated 29 February 2008, regarding the sale of shares in Telecards Asia Pty Ltd
The applicants have admitted in their submissions at paragraphs 30 and 34 and in footnote 20 that this category appears to relate to the examinable affairs of Bill Express. In my view, as the subject transaction for which documents are sought clearly involves Bill Express, I consider that the documents relate to the examinable affairs of Bill Express and should be produced.
12.All documents referring to, relating to, or evidencing the $1.5m paid by APN to Ultimate Internet Pty Ltd in or around April 2008, and the circumstances surrounding the payment
Mr Bick contends that the bank statements of Bill Express and APN show that $1.5m was transferred to APN in round dollar amounts by Bill Express in a time period which correlates with the payments made to Ultimate Internet Pty Ltd by APN. Mr Bick says that his clients are entitled to documentation which enables them to assess whether there is a viable cause of action available to them by reason that the funds the subject of the transaction may be able to be recovered by them, presumably by tracing proceedings. Because of the correlation as to time between the respective transactions described, I consider such documentation is within the ambit of the examinable affairs of Bill Express. The documents should be produced.
13. Bank statements of all accounts held in the name of APN for the period 1 January 2007 to 30 June 2007
At his examination on 7 May 2010, Mr Di Donato was requested to bring to Court copies of APN’s bank statements for the period sought and this was confirmed by a letter from the solicitors for the liquidators to Mr Di Donato’s solicitors. Mr Di Donato subsequently voluntarily produced the majority of such bank statements. The liquidators now require the production of the of the bank statements of APN for the period 1 January 2007 to 30 June 2007. In support of his submissions in this regard, Mr Bick referred to the affidavit of Mr Ingerson at paragraphs 47 to 50, which describe Mr Ingerson’s understanding of the operation of the bank accounts of APN such that they were controlled and managed by the same persons as the Bill Express accounts. In addition, as stated earlier, APN’s revenue was “swept out” or “appropriated” into an account controlled by Bill Express and its associated entities, APN’s expenses were paid for by On Q and Bill Express with the surplus of APN’s revenue being retained by On Q/Bill Express. Mr Bick contends that there were a series of questions regarding transactions on the APN bank accounts asked at Mr Di Donato’s examination and no objection was taken to them. He says that there is a connection between the accounts of APN and one of the purposes for which the examination was being conducted was to enable the liquidators of Bill Express to gather information to assist them in the bringing of proceedings arising out of transactions involving Bill Express. Mr Bick noted that Mr Di Donato had voluntarily provided copies of the APN bank statements for the period 1 July 2007 to 30 June 2008 and what is sought are the same category of documents for an earlier period.
In my view, for the same reasons as previously expressed in regard to the earlier categories involving APN and its transactions, I consider that the documents sought are required to be produced as they relate to the examinable affairs of Bill Express.
14.Bank statements of all accounts held in the name of Rural Access Pty Ltd for the period 1 July 2004 to 8 July 2008
Mr Di Donato is the sole director of Rural Access Pty Ltd and is also the ultimate shareholder of the company through his shareholdings in TBS and Equip Rentals Pty Ltd. Rural Access Pty Ltd borrowed funds from Seiza Capital Pty Ltd under a facility with a number of other borrowing parties for a loan of $3,499,472 plus interest. Those funds were applied in the exercise of options in On Q Group Limited. It is contended by Mr Bick that the exercise of these options is an examinable affair of Bill Express in that $3.6m of the $3.952m was repaid to discharge the Seiza loan from funds in the TBS St George bank account. This bank account, according to Mr Webb’s affidavit, had several sub‑accounts, including sub‑accounts in the names of Bill Express, Net On Q Pty Ltd and Rural Access Pty Ltd. These accounts operated in such a way that one sub-account could be in credit and a linked sub-account in debit up to the amount of the credit in the related sub-account with the overall account balance being recorded as zero. Mr Bick says that the liquidators wished to investigate whether the repayments of the Seiza Capital loan facility were in reality ultimately made by Bill Express and as such the documentation in relation to this transaction is relevant to the examinable affairs of Bill Express. In order to investigate that transaction, the liquidators seek access to the bank statements of Rural Access Pty Ltd to determine whether Rural Access Pty Ltd has made any payments in respect of the discharge of the Seiza Capital loan facility.
Mr Bick submits that the involvement of Rural Access Pty Ltd in the Seiza Capital loan facility transaction and the likely interrelationship between that company and Bill Express as part of a wider group of companies is sufficient reason for the records of Rural Access Pty Ltd to be regarded as being within the scope of the examinable affairs of Bill Express.
Again, given the definition of “examinable affairs” and “affairs” provided in the Act and extracted above, I consider that it is probable that the documentation sought under this category relates to the examinable affairs of Bill Express and should be produced.
15. Original back-up portable disk containing a copy of information from the server of On Q Group Limited, Bill Express, TBS and APN which is in the possession of Mr Couper, in so far as the documents relate to APN
In the subpoena addressed to Mr Couper he is asked to produce the same documents save that the concluding words “in so far as the documents relate to APN” do not appear in the document description in his subpoena. The evidence given by Mr Couper at his examination on 11 May 2010 has apparently given rise to this request for production. In his testimony on that day, he stated that he retains possession of a copy of certain computer servers at the premises of 677 The Boulevard, Eaglemont. He stated that he had placed a copy of such material onto a back-up portable disk. Shortly after this testimony, on 19 May 2010, the solicitors for the liquidators wrote to Mills Oakley Lawyers, the solicitors for both Mr Di Donato and Mr Couper, stating:
We are instructed that this copy of such books and records referred to in Mr Couper’s evidence, constitute books and records of On Q, TBS and Bill Express. On this basis, we are instructed by the liquidators of Bill Express, who have in turn received letters of consent from the liquidators of On Q and TBS, to request the production of the copy of the servers in the possession of Mr Peter Couper. We attach a signed consent from the respective liquidators.
In response, Mills Oakley indicated that the material requested contained over 1 terabyte of data and that it contained the books and records of On Q, Bill Express and its subsidiaries, TBS and its subsidiaries and APN. Mills Oakley Lawyers stated that it needed further time to identify and remove the documents from the disk that constituted the books and records of APN and requested the liquidators to meet the costs for this task. In response, the liquidators instructed the Couper subpoena to be issued and included this category as Document 15 in the Di Donato subpoena, in so far as the documents on the disk relate to APN.
Mr Bick pointed to the evidence of Mr Ingerson in his affidavit at paragraphs 44 to 51 where he stated:
44.…. Hal Cristiansen told me in or around January 2005 that the two public companies, Bill Express and On Q, and nine private companies including TBS, were run as one group.
45.This meant that all of the companies shared the same marketing, finance and overall management functions. This structure allowed for the reduction of overhead expenses for each individual entity because services were only paid for by each entity on an ‘as needs’ basis.
46.It was my belief and the belief of the original APN shareholders that after the date of the Acquisition, APN became a part of the larger Group referred to above.
47.The finances of APN were managed by the same finance team as the other entities in the Group, which was overseen by Peter Couper.
48.APN money, including the money received from the Australian Government pursuant to the Scheme, would be received into the APN bank account, and then soon after would be transferred to an undisclosed Group bank account, which was shared by the other entities in the group, through a sub‑account structure.
49.The transferring of APN funds to an unknown Group account was never discussed or approved by the APN board.
50.On Q/Bill Express used the money to pay APN’s expenses and provide money to APN as otherwise required and the surplus funds were kept by the wider group.
51.Hal and Ian Christiansen oversaw the operation of all the companies in the Group. “Despite the separate board of directors of APN, to my observation in my capacity as a director of APN through the period of 2005-2007, APN was under the control of Hal and Ian Christiansen.”
It is evident, on the basis of the evidence of Mr Ingerson extracted above, that the affairs of Bill Express and APN were so closely intermingled that the documents of APN on the server disk relating to APN are an “affair” of Bill Express by reason of the dealings and transactions which took place so as to justify an order that the disk be produced. Because the liquidators have secured the consent of the liquidators of On Q and TBS and the balance of the disk contains documents of Bill Express and the books of APN, the disk should be produced.
Further it is said by Mr Webb in paragraph 36 of his affidavit that the disk was made by Mr Couper in the course of his employment with On Q and as such the disk is the property of On Q. The liquidators of that company have, as I have said, consented to the liquidators of Bill Express having custody of the disk.
Mr Couper adopted the arguments of Mr Di Donato in respect of the production of this item and, for the same reasons I have expressed above, I consider that Mr Couper should produce such item.
The TCA subpoena
The TCA subpoena seeks production of three categories of documents. I shall deal with each in turn.
All documents relevant to the acquisition of 75% of the share capital in Australian Private Networks Pty Ltd by Telecards Australia Pty Ltd
Mr Bick based his contention that these documents related to the examinable affairs of Bill Express by reference to paragraphs 17 to 24 of Mr Ingerson’s affidavit. The most significant segments of that part of the affidavit are as follows:
17. After an approximate period of 14 months, the directors of APN agreed to a proposal by Hal Christiansen on behalf of On Q/Bill Express that the wider group referred to above, being the companies within the On Q/Bill Express group, would acquire 75% of the issued share capital of APN in exchange for On Q/Bill Express funding the cost of developing APN’s business [the ‘wider group referred to above’ is a reference to On Q and Bill Express and nine other companies which included TBS and Technology Business International Pty Ltd].
…
19. During discussions with Hal Christiansen I was told by him, and believed, that On Q/Bill Express was the company acquiring the 75% issued share capital in APN.
20. Once the due diligence with respect to APN was completed by Gordon Tudor, the business manager for the wider group referred to in paragraph 16 above, a contract prepared by Tresscocks Lawyers was sent to the chairman of APN for execution. The contract sent to APN to execute named Telecards Asia Pty Ltd (Telecards) as the acquiring entity.
21. This was the first time that I and the APN board became aware of the involvement of Telecards in the transaction.
22. I scheduled a face to face meeting with Hal Christiansen in Melbourne to discuss with him why Telecards was involved in the proposed transaction with APN.
23. At this meeting, Hal Christiansen explained to me that due to the relationship between Bill Express and telecommunication companies such as Telstra Corporation Limited and Optus Mobile Pty Ltd, Bill Express sought to hold their interest in APN through a special purpose vehicle in order to disguise the fact that Bill Express had acquired a majority interest in a direct competitor of Bill Express’s major suppliers.
24. I was satisfied with the explanation provided to me by Hal Christiansen and still regarded that he agreement between APN and Telecards was essentially an agreement between APN and On Q/Bill Express and that Telecards was nothing more than an intermediary in the transaction.
25. The terms of the agreement were to the effect that 75% of the issued share capital in APN would be acquired by On Q/Bill Express/Telecards and in return On Q/Bill Express/Telecards would fund the cost of running and further developing APN’s business.
26. I estimate the costs of running APN for the first 8 to 9 months after the liquidation was approximately $80,000 per month.
I consider that on the basis of the above passage from Mr Ingerson’s affidavit that the subject transaction is an examinable affair of Bill Express by reason of Bill Express’s involvement in it. It may well be that such shares in APN are an asset of Bill Express if Bill Express has ultimately funded them as contended by Mr Ingerson. The subject transaction is clearly one involving the affairs of Bill Express in that it relates to the … “trading, transactions and dealings” of Bill Express as defined by s 53(a) of the Act and the documents should be produced.
All documents constituting bank records of Telecards Asia which evidence the monthly payments made to APN on or around the following dates and the following amounts: [There then followed, by reference to date and amount, the description of 12 separate transactions]
Mr Bick again contended that these documents relate to the examinable affairs of Bill Express by reference to the matters raised by Mr Ingerson in paragraphs 25 to 26 in his affidavit. Mr Bick said that on the basis of that material, the source of the funds used for the acquisition of 75% of the issued share capital in APN by Telecards is an examinable affair of Bill Express and I agree. The documents sought should be produced.
All documents referring to, relating to or evidencing that Telecards Asia had accumulated monies amounting to circa $500,000 to $600,000 or any other amount prior to the acquisition by it of 75% of the share capital in APN and the application of those monies.
Mr Bick points again to paragraphs 25 and 26 of Mr Ingerson’s affidavit which he says establishes to the relevant degree that the acquisition of 75% of the issued share capital of APN by On Q/Bill Express/TCA was in consideration of funding of approximately $80,000 per month for a period of eight or nine months by TCA to APN. Mr Bick says that by reason of Bill Express’s involvement in that transaction, the accumulation of the funds in the TCA bank accounts is an examinable affair of Bill Express and the liquidators are entitled to the documents sought in order to determine whether the funds provided to APN was sourced from TCA or some other source. He says that there is a serious question as to whether Bill Express in fact funded the acquisition of the 75% of the issued share capital in APN and the liquidators are entitled to the documentation which would enable them to determine whether they have a viable cause of action in this regard.
For the same reasons that I have ordered production of other documentation in connection with the APN share transaction I consider that the documents sought relate to the examinable affairs and should be produced.
By reason of the forgoing, I will order that:
(1) The interlocutory process filed by Mr DiDonato and Tele Cards Asia Pty Ltd be dismissed.
(2) The interlocutory process filed by Mr Couper and Australian Private Networks Pty Ltd be dismissed.
---
0
4
0