Re Eurostar Pty Ltd (in liq)

[2003] NSWSC 633

CITATION:	Re: Eurostar Pty Ltd (In Liquidation) (Receivers and Managers Appointed) & Ors [2003] NSWSC 633
HEARING DATE(S):	11 July 2003
JUDGMENT DATE:	11 July 2003
JURISDICTION:	Equity
JUDGMENT OF:	Campbell J
DECISION:	Some disclosure of documents permitted, some refused.
CATCHWORDS:	CORPORATIONS - receivers managers and controllers - when receiver appointed "eligible applicant" for purpose of conducting examinations under Part 5.9 Corporations Act 2001 - circumstances for receiver to disclose documents produced under compulsory process for such an examination - CORPORATIONS - winding up - "eligible applicant" appointed to conduct examinations - circumstances in which that "eligible applicant" can disclose documents produced on compulsory process for purpose of the examination
LEGISLATION CITED:	Corporations Act 2001 (Cth)
CASES CITED:	New Cap Reinsurance Corporation Holding Limited [2001] NSWSC 835; [2001] ACL Rep 120 NSW 145 Wellness Pty Limited v Hamilton-Bond & Co [2002] NSWSC 1259
PARTIES :	David John Winterbottom - (Plaintiff/Applicant) - As Receiver of: Eurostar Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service Aldavilla Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service Bellbrook Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service Coffs Harbour Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service Crescent Head Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service Grafton Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service Great Lakes Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service Iluka Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service Kempsey Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service Nambucca Valley Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service Port Macquarie Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service South West Rocks Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service Taree Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service Wagga Wagga Pty Limited (In Liq) (Receivers and Managers Appointed) King Bros Bus Service Yamba Pty Limited (In Liq) (Receivers and Managers Appointed) M B Sales Australia Pty Limited (In Liq) (Receivers and Managers Appointed) AP & PJ King Pty Limited (In Liq) (Receivers and Managers Appointed)
FILE NUMBER(S):	SC 2390/03
COUNSEL:	J Stoljar - (Plaintiffs/Applicant) K Horler AM QC - (A & P King) CRC Newlinds - (Esanda) J White - (CBA, CBFC Limited & Warwick Marks) R Lancaster - (Irisbus) L Shipway, solicitor - (DaimlerChrysler Australia/Pacific)
SOLICITORS:	Mallesons Stephen Jaques - (Plaintiffs/Applicant) Prider & Co Lawyers - (A & P King) Minter Ellison - (Esanda) L E Taylor - (CBA, CBFC Limited, Warwick Marks) Blake Dawson Waldron - (Irisbus) Allens Arthur Robinson - (DaimlerChrysler Australia/Pacific)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

CAMPBELL J

FRIDAY 11 JULY 2003 - (Revised 14 July 2003)

2390/03 EUROSTAR PTY LTD (ADMST APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) (IN THE MATTER OF) RE DAVID JOHN WINTERBOTTOM & 16 ORS

JUDGMENT – Ex Tempore

1 HIS HONOUR: This is an application which is made by one of the receivers and managers of a large group of companies which were connected with the operation of bus lines by the King brothers. Those receivers and managers have been appointed as “eligible applicants” by ASIC, under the regime for conducting of examinations concerning corporations contained in Part 5.9 of the Corporations Act. As such eligible applicants they have conducted numerous examinations of people connected with the affairs of the King bus companies. For the purpose of those examinations orders to produce documents were issued, and complied with.

2 Today, at a time when those examinations have been carried on for numerous days, the receiver seeks the leave of the Court to use and disclose to third parties documents produced to the Court by the various people and companies that have produced them in response to an order for production. The particular use and disclosure which the receivers seek is:

· (A) for the receivers carrying out investigations in the course of the receivership of the companies,

· (B) to assist any creditor of any of the King Bros companies in recovering moneys owing to them including by creditors bringing claims against any person in relation to matters associated with the creditors’ relationships with the King Bros companies, and

· (C) to assist the New South Wales police and ASIC in their investigations.

It is common ground that the King Bros companies have, between them, a very substantial deficiency of assets, and that some criminal charges have been laid against Mr Anthony King and Mr Peter King who were formerly involved in the administration of the companies.

3 The receiver has informed the Court that some of the “issues which have arisen during the receivership of the King Bros companies” are:

“(a) the unavailability of the directors of the King Bros Companies and the complete lack of assistance the Receivers have received from them;
(b) the inconsistency between financial information provided to creditors of the King Bros Companies and the financial information revealed through the investigations of the Receivers and their staff;
(c) the inconsistency between actual buses located and buses apparently financed to, or owned by, the King Bros Companies;
(d) the attempted transfer of assets of the King Bros Companies shortly prior to the appointment of administrators and receivers and managers, including the attempted transfer of Department of Transport contracts which are significant assets of the Group; and
(e) the use of proceeds of the sale of assets of the King Bros Companies for personal purchases by Anthony Patrick King and Peter James King, the directors of the Group.”

4 The receiver also informs the Court that other issues which have arisen in the receivership are:

“(a) buses which the King Bros Companies financed or refinanced through financiers appear never to have existed;
(b) vehicle identification numbers of many of the buses for which the King Bros Companies arranged finance through financiers are identical to save for changes of one digit or letter;
(c) information contained in letters on Daimler Chrysler letterhead appears to be false; and
(d) information contained in at least one letter on Irisbus Australia letterhead also appears to be false.”

5 The receiver has also expressed the view that the documents which were produced to the Court for the purposes of the examinations and other records of the examinations:

“(a) would be of use to the Receivers in carrying out investigations for the purpose of the receivership of the King Bros Companies, such as in:
(i) identifying the whereabouts of any assets of the King Bros Companies;
(ii) supplementing the books and records of the King Bros Companies located to date outside of the Examinations;
(iii) ascertaining and resolving competing claims to assets of the King Bros Companies;
(iv) ascertaining who was involved in the apparently fraudulent transactions referred to above; and
(v) pursuing remedies the King Bros Companies might have in respect of the transactions referred to above;
(b) may assist certain of the creditors of the King Bros Companies in recovering monies owing to them, including by creditors bringing claims against third parties in relation to matters arising from the creditors’ relationships with the King Bros Companies; and
(c) may assist the authorities, such as the NSW Police, in their investigations.”

6 Various of the people who have produced documents to the Court have consented to orders of the kind that the receivers seek. The making of orders of the full extent the receivers seek is opposed by three groups of parties.

7 The first of those groups of parties is, Mr Anthony King and Mr Peter King. Their attitude is that they do not oppose type A of the orders sought. With one exception, they also do not oppose type B of the orders sought. That exception concerns certain documents which were produced by a Mr Warmsley, who, it appears to be common ground, was at one time a solicitor in private practice, who ceased to be a solicitor in private practice and became a senior executive of the King Bros companies and, after a comparatively short time, went back to private practice as a solicitor. Some documents which were produced by Mr Warmsley are ones which the King brothers say may contain privileged material, and they should have the opportunity to make any claim for privilege before those documents are released to anyone. The King brothers oppose type C of the orders.

8 The second party which opposes is Esanda, a company which provided finance to some of the King companies. It does not oppose an order of type A or C, but say that an order of type B is premature in the circumstances, and in its generality is flawed in principle.

9 The third group of opponents to the orders are the Commonwealth Bank, one of its related companies, and certain individuals connected with the bank and that related company. They do not oppose an order of the general type of type A (though they have some reservations about its drafting), nor an order of the general type of type C. They, like Esanda, oppose an order of type B.

10 The statutory framework within which this application needs to be decided has been examined in considerable detail by Santow J in New Cap Reinsurance Corporation Holding Limited [2001] NSWSC 835; [2001] ACL Rep 120 NSW 145. That was a case where a liquidator sought directions from the Court about whether he should provide access to documents which had been produced for a compulsory examination, to five nominated investors (“the Saville interests”) in the company which had failed. I will not repeat the analysis of the statutory provisions which his Honour made. I would observe, so far as this present application is concerned, that, though the present applicant is a receiver rather than a liquidator, he is also someone who is an “eligible applicant", and hence has the various statutory powers arising under Part 5.9 of the Corporations Law conferred on him.

11 Santow J, in New Cap concluded, at para [14], that there was a legislative intention to facilitate prosecution of, inter alia, civil proceedings, which is advanced by the powers which Part 5.9 conferred on "eligible applicants". He saw the provisions in Part 5.9 as assisting a wider statutory purpose of “investigating and potentially prosecuting (civilly or criminally) those who have contributed to the circumstances that have led to a corporate collapse.”

12 His Honour identified, at para [17], two separate bases upon which access to documents obtained under compulsory process at or for the purposes of an examination might be granted. The first was that disclosure of the documents offered “sufficient prospect of assisting the beneficial winding up [of the corporation] by increasing or protecting or conserving the assets available in the winding up.” The second was that disclosure “facilitated the prosecution of civil or criminal proceedings, whether contemplated or already commenced, including civil proceedings by individual creditors, where those civil or criminal proceedings bear upon the circumstances that have led to, or are associated with, the corporate collapse, or where the company being wound up is a defendant or co-defendant in actual or contemplated legal proceedings, whether civil or criminal, that may have a bearing on the winding up.”

13 There was evidence before His Honour in that case, which he sets out at para [22] of his judgment, that the Saville interests were contemplating the bringing of proceedings. There was also evidence that any recovery made by the Saville interests, from certain people who were specifically identified, should be of benefit to the general body of creditors, because the Saville interests would no longer be entitled to prove in the winding up to the extent of their recovery. In that way, it was possible that successful litigation by the Saville interests might result in a larger distribution being made from the assets to the creditors in the general body of creditors.

14 It is not only the specific statutory framework to which Santow J referred, which is relevant in an application like the present. The question of whether a Court ought permit the disclosure to people not involved in the litigation for which the documents were produced, of documents which were produced under compulsory process is one which arises outside the context of examinations. For documents produced on subpoena, there is an implied undertaking that the documents will be used only for the purposes of the proceedings, unless the Court gives leave to do otherwise. In connection with the use of documents which were produced on subpoena:

“The test which the Court uses in deciding whether it will grant permission for the documents to be used in some other way, when (as here) the documents have not been read out in open court, is that the release of the documents will not be allowed save in special circumstances and when such use will not occasion injustice to the person who produced the documents under subpoena. See Crest Homes PLC v Marks [1987] 1 AC 829 at 860, Ampolex Limited v Perpetual Trustee Company (Canberra) Limited (1985) 18 ACSR 218 at 221, Holpitt v Varimu Pty Limited [1991] 103 ALR 684 at 686, and Sweetman v Australian Thoroughbred Pre-finance Pty Limited (Lockhart J unreported 23 July 1992 at 3). Deciding whether “special circumstances” have been made out involves a balancing exercise which takes into account the particular nature of the material produced, the policy underlying the implied undertaking, and any other relevant factors, and asks whether the needs of justice are better served by relieving from or maintaining the undertaking: Capital Television Group Limited v Northern Rivers Television Pty Limited (Bainton J, 4 September 1995, unreported); Woolworths Limited v Lawson [2002] NSWSC 985”:

Wellness Pty Limited v Hamilton-Bond & Co [2002] NSWSC 1259 at [8].

15 Thus, even outside this special area involving examinations, it is in some circumstances permissible for the Court to release documents which were obtained on compulsory process. The special considerations which arise from the legislative policy of Part 5.9 are an overlay on, and qualification to, the general principle about when a court will permit the use, for purposes other than the proceedings in which they were obtained, of documents obtained by compulsory process.

16 I shall deal first with whether an order of type C should be made.

17 In the present case, none of the people who produced documents to the Court for the purpose of the examinations object to those documents being made available to the police or ASIC. At the risk of saying the obvious, they have important public responsibilities, concerned with the operation of the law. The only people who object are Mr Anthony King and Mr Peter King. Thus, this is a circumstance in which even the general law about making available to third parties documents produced under compulsory process would favour the release of the documents to the police and ASIC.

18 In opposition to the release of the documents Mr Horler QC informed me of a fact, which is common practice in examination like these, that though the Kings have been examined, they have claimed privilege in relation to the answers which they gave their examination, and in consequence the answers which they gave cannot be used by the police, or other authorities, against them. He has pointed out that the King brothers have already been charged, and in consequence the police must have had enough evidence for it not to be an abuse of process for the charges to have been laid.

19 As well as the general law principles favouring the release of the documents, in my view, the purposes identified by Santow J in New Cap are ones which should be applied here. The making available of the documentary information to the police, in circumstances where it appears to be common ground that there is at least enough material for the laying of the charges not to be an abuse of process, is well within the statutory purpose for which information which has been compulsorily acquired under Part 5.9 can be used. Though the answers themselves cannot be used as evidence against the King brothers, the answers, or documents referred to in them, might still be of assistance. There is no question of the limitation on use of answers, where privilege against self-incrimination is claimed, applying to documents which were produced to the Court but not referred to in evidence.

20 Mr Horler submits that if any orders of this kind were made, they should be restricted to the use to the material being used for the conduct of the receivership and not for any other purpose. A restriction of this kind would be one which frustrated the statutory purpose, rather than carrying it out. I will not impose a restriction like that. I therefore will make an order that the applicant be granted leave to use and disclose the documents produced to the Court by each of the people or corporations who produced it in response to an order for production, for the purpose of assisting the New South Wales Police and ASIC in their investigations.

21 The regime of examination established by Part 5.9 dispenses to some extent with the privilege against self-incrimination, by s 597 (12), but does not dispense with the privilege against legal professional privilege. The documents which have been produced might possibly, given the fact they were produced by Mr Wormsley, and also given the fact that he was a solicitor who at one time acted as solicitor for the King brothers' companies, contained privileged material. I would not make any order permitting any release of the material produced by Mr Wormsley until such time as there had been a reasonable opportunity given to the King brothers to ascertain whether they wished to make a claim for legal professional privilege concerning any of that material. I would propose to set a timetable for inspection of documents produced by Mr Wormsley, and the formulation and argument of any claims there might be concerning privilege.

22 The claims which Esanda and the Commonwealth Bank interests make, are ones which require a closer examination of the legislative scheme. Under s 596F(1)(e), the Court may at any time give “a direction about access to records of an examination.” Section 597(13) and (14A) provide:

“(13) The Court may order the questions put to a person and the answers given by him or her at an examination to be recorded in writing and may require him or her to sign that written record.
(14A) A written record made under subsection (13):
(a) is to be open for inspection, without fee, by:
(i) the person who applied for the examination; or
(ii) an officer of the corporation; or
(iii) a creditor of the corporation; and
(b) is to be open for inspection by anyone else on paying the prescribed fee.”

23 As Santow J pointed out in New Cap, there is a distinction between the "written record" referred to in s 597 (14A), and the "records of the examination" referred to in s 596F(1)(e). The "written record" in s 597 (14A) can be inspected as of right by any creditor of the corporation. That includes, it is common ground, any documents which were marked for identification and shown to a witness in the course of the examination. Thus, there is no basis upon which the receiver could resist, even if he wanted to, a request by a creditor of the corporation to inspect that material.

24 Section 596F(1)(e) confers on the Court a discretionary power, which enables it to give access to, amongst other things, documents which were produced under compulsory process for the purpose of the examination, but were not actually used in the course of the examination. In the New Cap decision, at para [39], Santow J said:

“I am satisfied that there are a number of sources of power available to the liquidator to do that which he does not oppose doing, namely to make available the documents which were utilised in the examination either by directly being marked for identification or as other ways being produced for the examination. I see no sensible distinction between the two categories of documents. The documents not marked for identification were still capable of informing the examination and influencing the questions asked. Indeed the liquidator's submissions appear to favour that access. Thus I would include in any access all documents produced, in the absence of any evidence from those opposing access that a document was produced which was entirely extraneous to any possible purpose of the original examination.”

25 It will be observed that His Honour there was dealing with the facts of the particular case before him. He was not purporting to say, and did not say, that in all cases there will never be a distinction between documents which were directly marked for identification, and documents which were otherwise produced for the purpose of the examination.

26 The attitude of Esanda and the Commonwealth Bank parties is that the type B order which is sought by the receiver is indiscriminately wide and indeed so wide that it should not be made. I agree. The starting point of an application like the present one is that documents obtained on compulsory process ought not be used for other purposes, except to the extent that a statute says otherwise (eg s 597(14A)), or there are special circumstances which justify departure from the usual implied understanding. Giving effect to the statutory policy in Part 5.9 can be such a special circumstances. But the statutory purpose of assisting creditors to recover from people who have been involved in the downfall of a corporation is one which the Court needs to be persuaded has a realistic prospect of being carried out by any order which it makes permitting access. The evidence now before me goes no further than the passage I have quoted at para [4] above. It does not identify any creditors who might make applications for recovery against people involved in the downfall of the Kings companies, does not identify any documents or classes of documents which might be shown to those people or to any such people, and does not give any reason to believe that there is a real prospect, rather than an abstract or theoretical possibility, that disclosure of documents would assist a creditor in making a recovery. It is to be observed that in New Cap Reinsurance Santow J had before him a proposal to release documents to a particular creditor, in circumstances where that creditor was proposing to or to bring, or at least contemplating bringing, action against particular identified parties.

27 The Commonwealth Bank submits that the proposed orders have an additional vice. It submits that a receiver is appointed to benefit the secured creditor who appoints him, and, subject to exercising his powers in a way which complies with any general law duties to the company of which he is a receiver, and complying with statutory obligations, he acts in the interests of the secured creditor. It submits that a receiver owes no duty to the general body of creditors, and helping creditors is none of a receiver’s business.

28 I would accept that that is so, so far as the general run of receivers goes. However, once a receiver has been appointed as an eligible applicant for the purpose of Part 5.9, an additional range of powers falls upon him. It is only because he has been appointed an eligible applicant that a receiver has the standing to conduct an examination at all. Once the receiver is an eligible applicant, he is put in a situation where he has been entrusted with the carrying through of the purposes which underlie Part 5.9. Thus, I would not accept that it is never possible for a receiver to disclose to a creditor information which has been gained in a compulsory examination.

29 There are, as well, some problems which have been raised by the bank concerning what is to be done about retaining confidentiality of certain documents, which it claims are confidential. If there were to be a regime whereby confidential documents were permitted to be disclosed to a particular party, on terms of undertakings as to confidentiality, and perhaps also, on terms restricting the use which could be made of those documents, those problems may be able to be addressed and overcome. The present form of order type B which is sought does not enable those problems to be addressed.

30 I therefore propose to decline to make an order of type B concerning documents produced by Esanda, and the Commonwealth Bank and its associated persons. This, however, is to be without prejudice to any other application which might be later made for the making of an application for leave to disclose documents which is more focused, so far as the intended disclosees are concerned and the documents to be disclosed are concerned. No order is needed to enable the receivers to perform their statutory duty under s 597(14A).

31 I will not seek to formulate orders now. Rather, I will request parties to bring in short minutes of order to give effect to these reasons for judgment.

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Last Modified: 07/31/2003