Re Ezyclad Pty Ltd (in liq)
[2014] VSC 66
•12 February 2014
| Do Not Send for Reporting | ||
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
COMMERCIAL COURT
CORPORATIONS LIST
No. S CI 2013 05889
| IN THE MATTER of Re EZYCLAD PTY LTD ACN 115 523 227 (IN LIQUIDATION) in its own capacity and in its capacity as trustee of the EZYCLAD UNIT TRUST | |
| PETR VRSECKY as liquidator of EZYCLAD PTY LTD (IN LIQUIDATION) in its own capacity and in its capacity as trustee of the EZYCLAD UNIT TRUST | Applicant |
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JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 12 February 2014 | |
DATE OF JUDGMENT: | 12 February 2014 | |
CASE MAY BE CITED AS: | Re Ezyclad Pty Ltd (in liquidation) | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 66 | |
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CORPORATIONS – Liquidator – Alleged failure to produce books of account - Warrant sought pursuant to Corporations Act 2001, s 530C – Whether warrant should be subject to conditions – Whether seizure of books of account kept in electronic form includes taking a copy of the electronic record – Electronic books being non-rivalrous – Definition of books – s 9 Corporations Act 2001.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | MR H. Hassan | Saxbys Lawyers |
HIS HONOUR:
Introduction
I have before me an ex parte application dated 11 February 2014 under s 530C of the Corporations Act 2001 (the Act). The section permits a Court to issue a warrant, if certain conditions are satisfied, authorising a specified person to, amongst other things, search for and seize books of a specified company. The application is by the liquidator of Ezyclad Pty Ltd (Ezyclad). On 10 July 2013, an order was made that Ezyclad be wound up in insolvency and Petr Vrescky be appointed as liquidator of Ezyclad.
Background
Ezyclad was previously controlled by Mr Adam Michael Bond (Mr Bond), the sole director of Ezyclad.
The liquidator has identified the following companies as also being associated with Mr Bond:
(a)Global Styrene Pty Ltd ACN 135 967 912 (Global Styrene). Mr Bond is the sole director and secretary of Global Styrene. Its principal place of business is 11 Brooklyn Court, Campbellfield, which is the premises Ezyclad previously operated from;
(b)Jemik Properties (Vic) Pty Ltd ACN 152 637 888 (Jemik Properties). Mr Bond is the sole director and shareholder of Jemik Properties. Its principal place of business is also 11 Brooklyn Court, Campbellfield;
(c)Ezyclad (Aust) Pty Ltd ACN 163 848 342 (Ezyclad (Aust)) was incorporated on 20 May 2013. Mr Bond’s wife, Mrs Justine Bond (Mrs Bond), is the sole director and shareholder of Ezyclad (Aust). Global Styrene is the sole shareholder of Ezyclad (Aust), and ASIC records the principal place of business of Ezyclad (Aust) as 220 Reynard Street, Coburg; and
(d)Ezyclad (Vic) Pty Ltd ACN 163 813 698 (Ezyclad (Vic)). Mrs Bond is the sole director and secretary of Ezyclad (Vic). Global Styrene is the sole shareholder of Ezyclad (Vic). Ezyclad (Vic) was registered on 17 May 2013. Its principal office is at 220 Reynard Street, Coburg.
The property situated at 220 Reynard Street, Coburg is owned by Mr Bond. The liquidator understands that the property was the former residence of Mr and Mrs Bond. The property is currently for sale.
This Court has issued summonses for the examination of Mr Bond, who was, as mentioned, the sole director of Ezyclad, Mrs Bond, Mr Robert Pertich (Mr Pertich), who was Ezyclad’s accountant, and Mr Isaac Szmerling (Mr Szmerling), who was Ezyclad’s solicitor. The examinations are scheduled to proceed on the 18 and 19 February 2014 before Gardiner AsJ in this Court. The liquidator says that, as at the date of his affidavit, he had been provided with almost no books and records for Ezyclad for the period between 1 January 2013 and his appointment. He says that the books and records that he has been provided with, cover the period from 1 July 2012 to 31 December 2013, and are also incomplete.
The liquidator deposes that, in particular, he has not been provided with the following books and records of Ezyclad, which he expects would exist:
(a)Ezyclad’s current and up to date MYOB electronic file to 11 July 2013 (he notes that he has been provided with MYOB file with data to 31 December 2012 by Ezyclad’s former accountants);
(b)a complete set of correspondence files;
(c)electronic email files;
(d)a complete set of company tax returns and records for the 2012 and 2013 financial years;
(e)financial statements, financial reports, management reports and the like for Ezyclad for the period from 1 January 2013 to the date of the winding up order;
(f)the corporate secretarial file; and
(g)the complete accounting records of Ezyclad for the 2013 financial year.
Through his solicitors, the liquidator corresponded with Mr Bond and his advisers regarding his ongoing failure to produce all of the books and records of Ezyclad since July 2013. By letter dated 11 July 2013, the liquidator wrote to Mr Bond requesting he provide him with a “Report as to Affairs” and deliver up to him any money, property, books, papers and records of Ezyclad.
The liquidator did not receive a response to his letter and, on 8 August 2013, sent a further letter to Mr Bond. The liquidator did not receive a response to that letter, and on 21 August 2013, he sent a further letter to Mr Bond advising that he was in breach of his obligations under the Act, and requested that Mr Bond provide to him a “Report as to Affairs” as well as any books and records of Ezyclad or any property to which Ezyclad was entitled.
By letter dated 2 September 2013, the liquidator’s solicitors wrote to Mr Bond in relation to his failure to produce Ezyclad books and records, and in relation to an alleged breach of his duties to Ezyclad as a director.
On 9 September 2013, the liquidator received a letter from Mr Bond’s solicitor enclosing a completed “Report as to Affairs”, which the liquidator defines as “the RATA”. The liquidator notes that the RATA attaches the following two documents, which are entitled:
(a)“Aged Receivables [Summary]” dated 25 June 2013, which, the liquidator says, appears to have been printed at 10:29am on that day; and
(b)“Aged Payables [Summary]” for Ezyclad dated 26 June 2013.
The liquidator says that these documents are in the format of documents you would expect to be produced from MYOB electronic accounting software.
By letter dated 13 September 2013, Mr Bond’s solicitor wrote to the liquidator’s solicitors advising that:
For the most part, [the documents sought from Mr Bond] can be found in the 40 boxes that are held in the storage facility in Epping which, on our instructions has, at the very least, already been inspected by the Liquidator.
The liquidator says he has obtained from the storage facility referred to above, approximately 80 boxes of Ezyclad documents, approximately 40 of which contain records dated pre 2008, and the balance of which contained older records which are not relevant to the conduct of the administration and identification of potential causes of action which may be available to him as liquidator of Ezyclad.
By letter dated 18 September 2013, the liquidator’s solicitors wrote to Mr Bond’s solicitor advising that the documents which had previously been located in Ezyclad’s storage facility had been reviewed by the liquidator and did not contain the most recent records of Ezyclad, as was set out in their letter of 2 September 2013. The liquidator’s solicitors requested, amongst other things, that Mr Bond produce to the liquidator the current and up to date MYOB electronic files and paper records of Ezyclad up to 30 June 2013, and all emails and email files.
The liquidator’s solicitors did not receive a response to their letter of 18 September 2013, and by email transmission dated 27 September 2013, again wrote to Mr Bond’s solicitor requesting that his client produce further books and records of Ezyclad, including electronic MYOB files and email files.
By letter dated 30 September 2013, Mr Bond’s solicitor responded to the liquidator’s solicitors advising that, apart from what was contained in the boxes in the storage facility in Epping, Mr Bond had no other documents belonging to Ezyclad.
On 30 September 2013, Mr Szmerling (who is Mr Bond’s solicitor) provided the liquidator’s solicitors with a copy of his firm’s file “concerning the sale of business from Ezyclad Pty Ltd to Ezyclad (Aust) Pty Ltd”. The liquidator defines this as the “sale of business file”.
The sale of business file contains an email sent by Mr Bond to Mr Szmerling and Mr Pertich on 20 June 2013 attaching a “balance sheet spreadsheet” which, the liquidator says, appears to have been obtained from MYOB for Ezyclad for the period from July 2012 to June 2013. The liquidator defines this as the “balance sheet”.
By letter dated 3 October 2013, Mr Bond’s solicitor responded to the liquidator’s solicitors in relation to the balance of issues raised in the liquidator’s solicitor’s email transmission of 27 September 2013.
In response to the summons for examination, Mr Bond produced certain documents to this Court on 2 December 2013. Mr Bond’s solicitor wrote to the liquidator’s solicitors by letter dated 2 December 2013 setting out the documents to be produced by Mr Bond to this Court. The documents produced by Mr Bond do not include any records for the period from January 2013, nor do they include any electronic records for Ezyclad such as MYOB or email archive files. Mr Bond’s solicitor advises in his letter that the documents produced by Mr Bond, in response to the summons for examination, are the only documents that he has in his possession or power.
The liquidator’s solicitors responded to Mr Bond’s solicitor’s letter of 2 December 2013 by email sent on 3 December 2013, noting that it appeared that Ezyclad had maintained all of its records electronically in the MYOB program, but no copy of the MYOB data for Ezyclad had been provided to the liquidator or produced to the Court.
On the hearing of this proceeding on 4 December 2013, Mr and Mrs Bond were ordered to produce any further documents required to be produced pursuant to the summonses for examination by 5.00pm on 13 December 2013.
By email dated 4 December 2013, the liquidator’s solicitors wrote to Mr Bond’s solicitor attaching a copy of the orders of this Court, noting that the documents produced by Mr Bond include a number of printed email communications, and requested that the archived email file be produced.
On 12 December 2013, Mr Bond’s solicitor wrote to the liquidator’s solicitors advising that he had received from Mr and Mrs Bond additional documents for production to the Court, which he expected to have delivered to the Court on Monday, 16 December 2013.
The liquidator’s solicitors responded to Mr Bond’s solicitor’s email asking whether the electronic MYOB records for Ezyclad would be produced to the Court as part of those documents.
By letter dated 17 December 2013, Mr Bond’s solicitor wrote to the liquidator’s solicitors advising that there was no electronic MYOB available to be produced to the Court, and that:
Robert Pertich was provided with electronic MYOB information and/or hard copies of the MYOB to enable preparation of the BAS statements for the entity in the first quarter of 2013. However, Mr Pertich does not retain the MYOB in either form and deletes and/or destroys it once he has finished with it; and
[Mr Bond] has advised that the Ezyclad Computer Server crashed at the end of June 2013 and was replaced with a new Server. He has further advised that whilst there was an information transfer of what could be retrieved from the old Server to the new Server, no information or documentation relating to Ezyclad was retrieved or put on the new computer because Ezyclad was at that time already in liquidation; and
The position of the examinees is that there is no MYOB to be produced beyond that which is already in the possession of the Liquidator.
The liquidator observes that Ezyclad was not placed into liquidation until 10 July 2013. The liquidator says that the explanation provided by Mr Bond’s solicitor is curious. The liquidator says that if the server of Ezyclad had crashed and information from its server was transferred, it would be logical to assume that the information transferred from the old server to a new unspecified location, belonged to Ezyclad. He says one would expect this information to include the missing MYOB files and email archives. The liquidator says no satisfactory explanation has been provided as to how all Ezyclad’s information could have been irrevocably lost, and yet “extraneous” material has been successfully recovered and successfully transferred. The liquidator also observes that he has not been provided with the “new server” referred to in the letter of 17 December 2013 from Mr Bond’s solicitor.
The liquidator’s solicitors responded to Mr Bond’s solicitor by email on 17 December 2013 requesting that he confirm that the “old server” referred to in his letter had been produced to the liquidator directly, or, the Court. The liquidator says that he has been advised by his solicitor, Ms Sahra Connor, and verily believes that she has not received a response to her email.
The liquidator says that it appears that Ezyclad sold certain of its assets to Ezyclad (Aust) on or around 28 June 2013. He has obtained a copy of a sale of business contract dated 28 June 2013 between Ezyclad and Ezyclad (Aust). The liquidator defines this as the “sale contract”. He says that the terms of the sale contract provide for the sale of:
(a)certain plant and equipment (including machinery) valued at $47,600;
(b)goodwill valued at a $1000;
(c)intellectual property valued at nil;
(d)certain vehicles (he said it is not clear on the face of the sales contract what was paid for the vehicles); and
(e)the transfer of the leases of the business premises at 5-7 and 9-11 Brooklyn Court, Campbellfield.
The liquidator says that the sale contract expresses the consideration for the sale to be $50,000 (exclusive of GST). The liquidator says that from an examination of the bank accounts of Ezyclad, it appears that the consideration of $50,000 was received into Ezyclad’s account on 28 June 2013.
The liquidator says that the sale contract was entered into at the time Ezyclad was aware that the winding up proceedings had been issued and were listed for hearing on 10 July 2013. The liquidator says that the sale was to Ezyclad (Aust) which was a company incorporated in May 2013 and which is owned by Global Styrene, a company owned and controlled by Mr Bond.
The liquidator says that he is concerned that the sale of the business pursuant to the sale contract may have been at an undervalue, given that:
(a)the valuation of the plant and equipment transferred as part of the sale contract that was relied on was on an auction realisable basis and not a going concern basis;
(b)the financial statements for Ezyclad available to the liquidator record the relevant assets at a much higher value than the consideration paid; and
(c)the assets were sold to an entity ultimately owned by Mr Bond and controlled by his wife without undertaking a sales campaign or making enquiries as to whether any third parties may be interested in purchasing the assets.
The liquidator says that pursuant to the examination summons issued to Mrs Bond, Mrs Bond has produced a document entitled: “BUSINESS PROPOSAL FOR PURCHASE of EZYCLAD COMPANY by Ezyclad (AUST) Pty Ltd”, which the liquidator defines as the “business proposal”. The liquidator says that the business proposal refers to the intention to “revamp the existing business mode”, which the liquidator interpolates as “of the Company”, “to allow for successful (sic) business continuation”. He says that the business proposal suggests that as part of the restructure, the business previously conducted by Ezyclad, which the liquidator defines as “the business”, is being continued by Ezyclad (Aust), and/or one or more of the related entities described at paragraph 6 of the liquidator’s affidavit.
The liquidator says that he understands the business is now being conducted by Ezyclad (Aust) and possibly other entities related to Mr Bond as outlined previously in his affidavit.
Following the liquidator’s appointment as liquidator of Ezyclad, the liquidator’s office has taken steps to recover the outstanding debts referred to in the aged receivables attached to the RATA. The liquidator has been advised by a number of the creditors of Ezyclad that they have already paid the invoices, and upon investigating the matter further have been advised by certain debtors that they had paid the outstanding amount to Ezyclad (Vic) and not Ezyclad. The liquidator provides details of those in his affidavit.
The liquidator says that some of those debtors have provided him with evidence of the payment to Ezyclad (Vic) and he sought evidence of the payment from the balance of the debtors.
The liquidator says that Arthur Simpson of Simpson Hardware provided him with a copy of a letter dated 24 May 2013 from “the Team at Ezyclad” addressed to “Valued Customer”, which Mr Simpson received from Ezyclad. The liquidator says that the 24 May 2013 letter requests that Victorian customers of Ezyclad make all future payments to Ezyclad (Vic) at a certain account at NAB (National Australia Bank). Mr Simpson has advised the liquidator that he paid the outstanding debt to the Ezyclad (Vic) account in accordance with the request in the 24 May 2013 letter.
The liquidator says that on 27 September 2013, his solicitors wrote to Mr Szmerling (Ezyclad’s former solicitor), who, in addition, acted for Mr and Mrs Bond, and Ezyclad (Vic), requesting that Ezyclad (Vic) provide a summary of any monies received in relation to debts owing to Ezyclad and remit those funds to the liquidator.
By letter dated 3 October 2013, Mr Szmerling responded to the liquidator’s solicitor’s letter of 27 September 2013 and advised that the only payment received by Ezyclad (Vic) was a payment from DBF Tools of $7,939.89. The liquidator says that the payment from DBF Tools was the only specific payment referred to in his solicitor’s letter of 27 September 2013.
The liquidator draws the following conclusions. He says that on the basis of the matters set out in his affidavit he believes that:
(a)Ezyclad maintained MYOB records for the period from 1 January 2013 to at least 30 January 2013 (and presumably to the date of his appointment) as is evidenced from the documents attached to the RATA and the document attached to Mr Bond’s email of 20 June 2013.
(b)The explanation as to the failure of the server provided by Mr Bond in his solicitor’s letter of 17 December 2013 is not credible, and was not provided until a summons for examination had been served upon Mr Bond. The liquidator says that further, the letter from Mr Bond’s solicitor incorrectly states that Ezyclad was placed in liquidation in June when this did not occur until July. He says further that the letter fails to satisfactorily explain how Ezyclad’s information could have been irrevocably lost and yet unspecified extraneous material that did not belong to Ezyclad was successfully transferred to a “new server”. The liquidator notes that neither the “old” or the “new” server belonging to Ezyclad has been provided to him.
(i)He has repeatedly sought, with the assistance of his solicitors, the electronic records of Ezyclad from Mr Bond on numerous occasions since his appointment. Mr Bond has not provided him with a satisfactory explanation for the absence of electronic records.
(ii)The sale of business file contains 2 email communications sent by Mr Bond to Mr Szmerling on 1 July 2013 (one being a response to an email sent by Mr Szmerling) and there is no mention of Ezyclad’s server having had any issues.
(iii)Mr Bond has had access to documents from Ezyclad’s MYOB printed on 26 June 2013 (as it attached to the RATA).
(c)The business is now being operated by other entities related to Mr Bond and his wife, and it is likely that the electronic records of Ezyclad (including MYOB details, customer lists, email correspondence and the like) are being used by those other entities in their conduct of the business.
(d)Based on the ongoing reluctance of Mr Bond to surrender these books and records to the liquidator or to his solicitors, the liquidator has formed the view that Mr Bond, Mrs Bond and/or entities related to them are concealing the documents or have removed them by placing them into the possession, custody or control of one or more of the related entities described in paragraph 6 of his affidavit.
(e)Mr and Mrs Bond may attempt to delete or destroy the books and records that he is seeking in order to frustrate the liquidator’s ongoing investigation into the affairs of Ezyclad.
(f)The two MYOB documents attached to Mr Bond’s Report as to Affairs are not the only company documents which have been retained by Mr Bond. The liquidator says that Mr Bond has provided no explanation as to why he had access to those documents in September 2013 but no other Ezyclad documents;
(g)The electronic records of Ezyclad and any additional company documents are likely to be located at one of the two premises from which the Ezyclad business had previously operated and from which the business continues to operate, being 11 Brooklyn Court, Campbellfield and 7 Sammut Street, Smithfield, New South Wales.
Form of warrant sought by the liquidator
On the basis of these matters, the liquidator requested the Court to issue a warrant against Mr Bond, Mrs Bond, Global Styrene, Ezyclad (Aust), Ezyclad (Vic) and Jemik Properties (Vic) pursuant to s 530C of the Act in the form which he exhibited to his affidavit. The liquidator defines this as “the warrant”.
The liquidator says that he intends, with the assistance of the persons specified in the warrant, to execute the warrant at the premises which he has previously identified.
The liquidator says that in relation to the capture and review of electronic documents and information, he has engaged Mr David Caldwell (Mr Caldwell) and Mr Simon Ezard (Mr Ezard) of Forensic IT Pty Ltd (Forensic IT) to attend with him (or his staff) upon the execution of the warrant and arrange for images to be taken of the computers and networks contained on the sites. The liquidator exhibited copies of the curriculum vitae of Mr Caldwell and Mr Ezard. He says that it is envisaged that Mr Caldwell and Mr Ezard will thereafter undertake an analysis of the data collected to identify and isolate any Ezyclad records. He says that the analysis will likely use search terms and temporal limitations to identify the documents of Ezyclad.
The liquidator says that he spoke with Mr Caldwell regarding the process of performing such a search. The liquidator was informed by him that, until the number, size and type of the servers, computers and devices to be searched is known, it is not possible to formulate a definitive search methodology.
The liquidator says that he is further informed by Mr Caldwell that it would be impractical and intrusive to undertake detailed searches of each individual server, computer or other device whilst on site as each search might take an extended period of time and it would be unduly disruptive.
The liquidator says that the seizure of the electronic records needs to be undertaken in a manner which minimises the impact it has upon the business and its current employees. Accordingly, he says Mr Caldwell has informed him that a preliminary search will be undertaken to ascertain whether any server, computer or other device contains any electronic documents which:
(a)were created prior to 17 May 2013 (being the date of incorporation of Ezyclad (Aust)) and which contains the word “Ezyclad”;
(b)were created prior to 20 May 2013 (being the date of incorporation of Ezyclad (Vic)) which contains the word “Ezyclad”; or
(c)contains emails which were sent from or received by an email address which ends with the suffix “@ezyclad.com.au”.
The liquidator says that if such a document is identified on a server, computer or device, then Mr Caldwell and/or Mr Ezard will simply create a disk image (effectively an electronic copy) of the electronic records on that server, computer or device. The liquidator defines this as “copied material”.
The liquidator says that the process for collecting the necessary disk image may take several hours. He says that this will be done in a manner which minimises disruption to the business either by use of specialist equipment that permits the equipment to continue to operate whilst the image is captured, or by removing the server, device or computer to be imaged off site after business hours and returned the next day.
The liquidator says that the copied material will be held securely by Forensic IT on their premises subject to further order of the Court.
The liquidator says that Forensic IT will subsequently search the copied material to identify all of the documents which are records of Ezyclad based on temporal and key word searches.
He says that Forensic IT has advised the liquidator that it will provide the liquidator, his solicitors and the warrant parties (or their solicitors) a list of the documents from the copied material that have been identified as “books” of Ezyclad as a result of those searches.
The liquidator says that Mr Caldwell and Mr Ezard will provide the warrant parties (or their solicitors) with access to and copies of the copied material upon the provision of reasonable notice and an undertaking by them to pay the reasonable costs of Forensic IT in facilitating such access.
The process envisaged is that within seven days of the provision of the lists referred to above, the warrant parties (or their solicitors) would advise the liquidator’s solicitors which of the files and lists of documents they agree are Ezyclad documents, and which of the files are not Ezyclad documents.
The liquidator says that Forensic IT will then provide him and his solicitors access to and copies of the agreed Ezyclad documents upon the provision of reasonable notice.
The last step in the process is that the liquidator’s solicitors and the warrant parties (or their solicitors) will then attempt to agree whether the disputed documents are in fact Ezyclad documents. If this cannot be agreed the parties may need to apply to the Court for further directions.
Relevant provisions of the Corporations Act 2001
Section 530A(1) of the Act provides:
[Delivery of books to liquidator] As soon as practicable after the Court orders that a company be wound up or appoints a provisional liquidator of a company, or a company resolves that it be wound up, each officer of the company must:
(a) deliver to the liquidator appointed for the purposes of the winding up, or to the provisional liquidator, as the case may be, all books in the officer’s possession that relate to the company, other than books possessed of which the officer is entitled, as against the company and the liquidator or provisional liquidator, to retain; and
(b) if the officer knows where other books related to the company are - tell the liquidator or provisional liquidator where those books are.
Section 530B(1) says:
[Person cannot retain books] A person is not entitled, as against the liquidator of a company:
(a) to retain possession of books of the company; or
(b) to claim or enforce a lien on such books, that such a lien is not otherwise prejudiced.
“Books” is defined in the Corporations Act 2001 to include:
(a) a register; and
(b) any other record of information; and
(c) financial reports or financial records, however compiled, recorded or stored; and
(d) a document;
but does not include an index or recording made under Subdivision D and Division 6 of Part 6.5.
As mentioned above, this is an application is made under s 530C of the Act. Section 530C provides that:
530C(1) [Concealment of removal of property or books] The Court may issue a warrant under subsection (2) if:
(a) a company is being wound up or a provisional liquidator of a company is acting; and
(b) on application by the liquidator or provisional liquidator, as the case may be, or by ASIC, the Court is satisfied that a person:
(i) has concealed or removed property of the company with the result that the taking of the property into the custody or control of the liquidator or provisional liquidator will be prevented or delayed; or
(ii) has concealed, destroyed or removed books of the company or is about to do so.
530C(2) [Search and seizure of property or books] The warrant may authorise a specified person, with such help as is reasonably necessary:
(a) to search for and seize property or books of the company in the possession of the person referred to in subsection (1); and
(b) to deliver, as specified in the warrant, property or books seized under it.
530C(3) [Warrant holder may break into building etc] In order to seize property or books under the warrant, the specified person may break open a building, room or receptacle where the property is or the books are, or where the person reasonably believes the property or books to be.
530C(4) [Custodian of property or books must retain] A person who has custody of property or a book because of the execution of the warrant must retain it until the Court makes an order for its disposal.
Authorities
The Court’s power is discretionary but the discretion is only enlivened if the Court is satisfied that the elements of s 530C(1) have been established. There has been a good deal of judicial observations on the exercise of this power and, in particular, whether it is appropriate or not to impose conditions on the relevant warrant.
In Cvitanovic v Kenna & Brown Pty Ltd,[1] Young J, of the Supreme Court of New South Wales, considered an application to issue a warrant under s 530C of the Act. In the relevant circumstances before his Honour, his Honour granted a warrant subject to the following conditions:[2]
[1](1995) 18 ACSR 387 (Cvitanovic).
[2]Ibid, 387.
(i) The warrant must be issued to a specific person, who must be named, and the warrant can use the words “with such help as is reasonably necessary”.
(ii) The warrant should note that before the warrant is executed the specified person shall announce on the property that he or she is there to execute the warrant.
(iii) The warrant is not to be executed less than one hour after the announcement and the occupants must be given the opportunity of voluntarily handing to the specified person all the documents referred to in the warrant.
(iv) The period of one hour should also be available for the occupants to seek legal advice and to facilitate this the specified person is to be accompanied by a solicitor employed independently of the liquidator.
(v) The specified person is to be accompanied by no more than two or three other persons, other than the independent solicitor and the person named in the warrant.
(iv) All searches should be carried out, if at all possible, in the presence of an occupant of the premises.
(vii) A list is to be made of all the documents that are removed and a copy of the list is to be given to an occupant of the premises over the age of 18 years.
(viii) The specified person is not to go onto the premises before 8 am, nor execute the warrant after 6 pm.
(ix) If no-one is in attendance when the specified person first calls, then the warrant is not to be executed until an occupant comes onto the property. If, on a second occasion, the specified person calls and there is no-one present on the property the warrant may be executed.
(x) The liquidator must give to the court a personal undertaking to be responsible for any damage or loss occasioned by any person as a result of the execution of the warrant or, alternatively, a bank guarantee in the sum of, at least, $50,000 as security for the loss sustained by any person must be lodged with the Registrar.
His Honour went on to say:[3]
A problem with warrants is that they are construed very restrictively by courts because of a concern for the liberty of the subject and the subject’s freedom from compulsory process, so that a person who acts outside the terms of the warrant, even if that person acts honestly, can often find themselves liable in conversion or trespass. It is appropriate that the warrant be worded in specific language to protect the person to whom it was issued as much as possible against such claims. On the other hand it must be flexible enough so that there is no impediment to the proper seizure of books or records of the company which are not known to exist by the liquidator at the time he or she applies for the warrant.
[3]Ibid, 390.
Subsequently, in Bassoak v Rellgrove,[4] Austin J observed that it was not necessary in all cases to impose conditions upon the granting of a warrant.[5] In the Federal Court of Australia in Morton v Robins,[6] Northrop J declined to attach conditions to a warrant issued under s 530C.
[4][2006] NSWSC 262.
[5]Ibid, [55].
[6](1996) 14 ACLC 197 (Morton).
Morton was referred to and cited with approval by Goldberg J in Australian Securities Commission v Samson,[7] where his Honour said: [8]
Having regard to the context and content of s 530C, notwithstanding the observations of Young J, I consider it appropriate to follow the procedure adopted in this court by Northrop J and other judges of the court as to the form of warrant which should be issued. I am not satisfied at the present time that the conditions referred to by Young J should be inserted in the form of the warrant or required as a condition of the execution of the warrant.
[7](1997) 24 ACSR 555.
[8]Ibid, 557.
His Honour issued the warrant in an unconditional form.
In a decision in this Court in Re Global SDR Technologies Pty Ltd (provisional liquidator appointed); Pattison v May,[9] Whelan J commented on the difference between the practice in the Federal Court of Australia and the Supreme Court of New South Wales concerning the imposition of conditions on warrants. Whelan J said:[10]
It does not seem to me that either approach should be invariably followed. In the particular circumstances here it seems to me that the Federal Court approach is the appropriate one. The liquidator's solicitor has indicated that a letter will be given to the Mays, or delivered to the Mays, as soon as the warrant is executed, and a copy of the letter has been handed to me, which I have initially placed on the court file.
[9](2005) 224 ALR 464 (Pattison v May).
[10]Ibid, [14].
It is apparent from these authorities that it is within the power of the Court to impose conditions to the warrant pursuant to s 530C. In my view, some of the orders proposed by the applicant to be included with the order for the issue of a warrant are conditions that preferably should be included in the warrant itself rather than in the order for the issue of the warrant.
Furthermore, the Court’s power under s 530C is discretionary and, therefore, in my opinion the section does not require that the Court either issue a warrant in an unconditional form or not at all. In my view, the discretion means that conditions which limit the full ambit of what the Act permits may be imposed.
I will now consider whether I am satisfied, pursuant to the requirements of s 530C(1), that a person has concealed or removed property of the company with the result that the taking of the property of the company into the custody or control of the liquidator has been prevented or delayed. I will also consider whether I am satisfied that a person has concealed, destroyed or removed books of the company or is about to do so.
On the basis of the evidence set out above, I am satisfied that both of those conditions have been satisfied in relation to Mr Bond, Mrs Bond, Global Styrene, Ezyclad (Australia) and Ezyclad (Vic) Pty Ltd. I am not satisfied, however, in respect of Jemik Properties. I do not think that there is sufficient evidence to suggest that Jemik Properties, under the guidance of Mr Bond, has concealed, destroyed or removed property or books, as the section refers to.
I am mindful that this is an ex parte proceeding. However, this case seems to me to have the hallmarks of a classic Phoenix Company case which this Court is all too familiar with. “Phoenix Company” is a term used to describe a company which has a similar name to a failed company that takes over the business of the failed company with much the same directors or managers as the failed company.[11] Whether this is the case in this matter or not is yet to be decided.
[11]Dean-Willcocks and Another v Commissioner of Taxation (Cth) (2004) 51 ACSR 353, 357 [36].
I am satisfied for present purposes that Mr Bond has not performed his obligations under the Act to produce the books of account of Ezyclad. Further, I find difficulty in accepting the reasons given by Mr Bond’s solicitors for there being no electronic MYOB file available to be produced to the Court. However, this is an ex parte application and there may well be a reasonable explanation to be provided.
The liquidator has submitted that the order for the issue of the warrant contain conditions on the exercise of the warrant. As mentioned, I consider these should be included in the warrant itself rather than in the order authorising the issue of the warrant. I accept that the conditions suggested by the liquidator are appropriate in the circumstances.
I turn to the draft order and draft warrant handed up to me.
Paragraph 1 of the draft warrant refers only to one person who fits the description of a person referred to in s 530C(1), being Mr Bond. In my view, the proposed warrant should be amended to include the three companies and Mrs Bond as I have already referred to.
The draft warrant also specifies that the person who is authorised to access the specified premises can:
access, search and take copies of, any electronic records as may be stored on any computer, server or any other storage medium at the Premises from which such electronic records are capable of recovery in order to search them to identify records that form books of the Company.
In my view, “books” of the company include electronic information, which is non–rivalrous. Accordingly, it is possible for a person – authorised by the warrant - to search for and to seize books (within the definition of the Act) in an electronic form without the person - the subject of the warrant - in possession of such electronic information, from losing seizure or possession of the electronic information itself. In my opinion, electronic information is of a nature that can be seized (within the meaning of the Act) by copying it. The nature of electronic information is such that one cannot distinguish between what is said to be a copy and what is said to be the original. The information contained in both forms is exactly the same. This is the nature of a non-rivalrous entity or thing.
Therefore, I consider it appropriate for the warrant to make clear that seizure includes taking copies of electronic records. Such a clarification would also have the effect of satisfying what Young J said in Cvitanovic,[12] where his Honour said:[13]
A problem with warrants is that they are construed very restrictively by courts because of a concern for the liberty of the subject and the subject’s freedom from compulsory process, so that a person who acts outside the terms of the warrant, even if that person acts honestly, can often find themselves liable in conversion or trespass. It is appropriate that the warrant be worded in specific language to protect the persons to whom it is issued as much as possible against such claims.
[12]Cvitanovic (1995) 18 ACSR 387.
[13]Ibid, 390.
Young J’s decision is authority for imposing conditions on these types of warrants. Therefore, within the warrant, the word “and” in the phrase “…and to access, search…” should be amended to “including to access…”
In my view, it is in the interests of the parties that the Court conveys clearly what is encompassed by the warrant so that both the liquidator and the people who are going to be subject to it know precisely what the liquidator is entitled to do under the warrant.
The other thing I should mention is that the liquidator, who is the specified person under s 530C(2), should be the one that is present to supervise the seizure. I notice that in annexure A (conditions of warrant) of the draft warrant that the liquidator is not actually going to see what is seized until he receives the report. The procedures are set out in his affidavit. This should be amended accordingly.
To incorporate the conditions in the warrant, the warrant should say that it is issued subject to certain conditions which can be set out in table form at the end.
Because this is an ex parte application, it is appropriate that the liquidator give an undertaking as to damages as the price of obtaining the order. One of the conditions also should be that any applications that are made by any of the named parties concerning the warrant should be made returnable before me.
As for the draft order, the conditions relating to the warrant should be incorporated into the conditions to be attached to the warrant, save for the part of the draft order relating to the prothonotary issuing the warrant.
Finally, I am satisfied that the delivery of the material seized by the liquidator to Forensic IT will be in compliance with s 530C(2)(b). For clarity, this should be set out in the conditions which are to be attached to the warrant.
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