Re: Southern Cross Petroleum Sales P/L (in Liq) No. Scgrg-97-1183 Judgment No. S6617

[1998] SASC 6617

SOUTHERN CROSS PETROLEUM SALES (SA) PTY LTD (IN LIQUIDATION) V HIRSCH & SILVER

Civil

LANDER J

Southern Cross Petroleum Sales Pty Ltd (In Liquidation) “The Company” was placed under administration pursuant to s436A of the Corporations Law on 28 October 1996. By resolution of the creditors of the Company the administrator of the Company, John Maxwell Morgan, was appointed as liquidator on 22 January 1997 pursuant to s439C of the Corporations Law.

On 6 August 1997 the liquidator sought orders for the examination of Richard John Pearce, a director of the company.  He also sought an order for the examination of Mrs Pearce. 

On 3 September 1997 orders were made for the examination of Mr and Mrs Pearce.

Mr Pearce was examined on 13 October 1997 and the examination continued on 13 November. 

On that same day application was made to the Court for the examination of Avi Silver and Eddie Hirsch.  The application was supported by an affidavit of 11 November 1997 sworn by the liquidator.  On 13 November 1997 orders were made for their examination by Judge Bowen Pain, a Master of this Court.  The orders also required Messrs Silver and Hirsch to produce a number of documents.

On 1 December 1997 Messrs Silver and Hirsch made application for the setting aside of the order for examination and the order requiring production of the documents identified in the order of the Master.  They also sought access to the affidavit of John Maxwell Morgan relied upon for the purpose of the initial application and access to the transcript of the public examination proceedings.

The application came on for hearing before the Master on 4 December 1997.  The Master allowed Messrs Hirsch and Silver access to the affidavit of the liquidator sworn on 11 November 1997.  He allowed the liquidator to file a further affidavit which had been sworn on the day of the hearing, 4 December 1997.  He refused the appellants’ application for an adjournment to answer that affidavit.  He also refused an application by the appellants to cross examine the liquidator on those two affidavits.  He rejected the appellants’ application for access to the evidence of the public examination.  He dismissed the application to set aside the orders of 13 November 1997.

It is from those orders that the appellants appeal.

The grounds of appeal are:

“1.The learned Judge erred in failing to give any or any adequate reasons for rejecting the submission of the appellants as to the terms of the orders made on 13 November 1997.

2.The learned Judge erred in failing to consider or to properly consider or to address or properly address the submissions of the appellants as to the terms of the orders made on 13 November 1997.

3.The learned Judge erred in:

3.1allowing the applicants’ counsel and instructors only to look at:

3.1.1parts of the transcript of the examination of Mr Pearce; and

3.1.2the affidavit of John Maxwell Morgan sworn 11 November 1997;

3.2refusing to release the said transcript and affidavit material to the applicants’ counsel and instructors.

4.The learned Judge erred in declining to exercise his discretion to adjourn the application to allow time for the applicants to call on the Notice to Produce served on John Maxwell Morgan.

5.The learned Judge erred in declining to exercise his discretion to adjourn the application to allow time for the applicants to call on the subpoenas which the learned Judge granted leave for the applicants to issue against Whyalla Refiners Pty Ltd and David John Aspinall.

6.The learned Judge erred in holding that the evidence presented by the applicants did not raise the prospect that the liquidator John Maxwell Morgan was seeking to use the procedure available under section 596B for an impermissible purpose.

7.The learned Judge erred in exercising his discretion to refuse the applicants’ application to cross examine John Maxwell Morgan on the affidavits sworn by him on 11 November 1997 and 4 December 1997.

8.The learned Judge erred in refusing to grant the applicants a stay of his orders to allow time for the applicants to appeal therefrom.

9.The learned Judge erred in failing to adjourn the application to allow the applicants to file an affidavit in response to the affidavit of John Maxwell Morgan sworn 4 December 1997.”

Apart from costs the appellant sought the following orders on the appeal:

“1.     That the appeal be allowed.

2.That the respondent John Maxwell Morgan make available for inspection by the applicants and their counsel and solicitors the affidavit sworn by him on 11 November 1997 and filed pursuant to Section 596C of the Corporations Law supporting the application made by him and heard on 13 November 1997 before Judge Bowen Pain, that the Court summons the applicants for examination about the examinable affairs of Southern Cross Petroleum Sales (SA) Pty Ltd (In Liquidation) (ACN 007 977 380).

3.That the applicants be granted access to the transcript of the public examination proceedings.

4.That the orders 1, 2, 3 and 4 of the orders of his honour Judge Bowen Pain made 13 November 1997 compelling the applicants to attend before the Court on 8 December 1997 to be examined in respect of the affairs of Southern Cross Petroleum Sales (SA) Pty Ltd (in liquidation) (ACN 007 977 380) be discharged.”

During the hearing of the appeal a number of the issues were resolved.  The liquidator made available to the appellants a copy of the affidavit of 11 November 1997.  Later during the hearing the liquidator also made available to counsel and solicitors for the appellants the public examination of Mr Pearce.  The application to examine the liquidator on his affidavits was not pursued.  The provision of those two documents and the abandonment of the application to examine the liquidator enabled the appeal to go forward on the real issue between the parties, i.e. whether the order of the Master made on 13 November 1997 for the examination of the appellants should stand.

The appellants put two arguments in support of their appeal.  First they argued that the orders should be set aside because the court could not be satisfied that either of the appellants might be able to give information about the examinable affairs of the Company.  Alternatively, they argued that if they were persons who might be able to give information about the examinable affairs of the Company, the liquidator was using the examination process for an improper purpose.

The Examinable Affairs Of The Company

Apart from being a director of the Company Mr Richard Pearce was also a director of Whyalla Refiners Pty Ltd and Nerrima Pty Ltd.

The appellants are directors of Viewlink Pty Ltd which, between December 1993 and July 1994, established a chain of nine service stations in the Adelaide Metropolitan area trading under the name “United”.  Although each of the sites was separately owned the operations of the United chain were conducted through Viewlink Pty Ltd.

In about October 1994 negotiations commenced between Whyalla Refiners Pty Ltd and Viewlink Pty Ltd for the purchase of the United sites.  Those negotiations culminated in three agreements which were executed on 31 March 1995.

Pursuant to those agreements, Viewlink Pty Ltd agreed to lease the United sites to Whyalla Refiners Pty Ltd for five years for a total rent of approximately $3.4M.  It agreed to sell to Whyalla Refiners Pty Ltd the freehold sites operated as part of the United chain for a total of approximately $5.8M payable at the expiration of the lease period on 31 March 2000.  It further agreed to sell to Whyalla Refiners Pty Ltd all the plant and equipment on the United sites for a total of approximately $500,000 payable on 31 March 1995 and agreed to sell its stock to Whyalla Refiners Pty Ltd as at 31 March 1995.

It is alleged that it was a term of the plant agreements, being one of the three documents executed on 31 March 1995, that Whyalla Refiners Pty Ltd would provide consultancy services to Viewlink Pty Ltd which, in consideration of those consulting services, would pay to Whyalla Refiners Pty Ltd a monthly instalment of $3,250.  It is asserted that the sum of $39,000 per year (being the sum of $3,250 per month) was payable during the term of the plant licences, i.e. from 31 March 1995 until 23 December 1998.

Viewlink Pty Ltd claims that the agreement was varied at the request of Whyalla Refiners Pty Ltd on or about 18 April 1995.  At that time it is said that Mr Pearce spoke to the appellant Mr Silver and told him that the group wanted the consultancy fee paid to a different entity.  Mr Silver told Mr Pearce to put the request in writing which was done.  Thereafter the sum of $3,250 per month was paid to Nerrima Pty Ltd, of which Mr Pearce was also a director.

It is asserted that the rental for the sites was increased by $3,250 during and after the negotiations for the purpose of payment of the consultancy fee by Viewlink Pty Ltd to Whyalla Refiners Pty Ltd.  It is claimed that the arrangement for the payment of consultancy fees was put in place for the purpose of benefiting in the first instance Whyalla Refiners Pty Ltd and thereafter Nerrima Pty Ltd and, indirectly, Mr Pearce.

The Company became the operator of the nine former United sites on 1 October 1995.  In that respect it is said by the liquidator that the Company paid the increased rental to Viewlink Pty Ltd which in turn paid the amount of the increase of rental, namely $3,250, to Nerrima Pty Ltd.  In those circumstances it is said that Mr Pearce obtained a benefit at the expense of the Company.

It is said by the liquidator that consultancy payments were made to Nerrima Pty Ltd at the expense of the Company between 1 October 1995 and until his appointment as administrator on 28 October 1996.  On or shortly before 4 November 1996 the United sites operated by the Company were “relinquished” to Whyalla Refiners Pty Ltd.

The matter is somewhat complicated by the fact that Whyalla Refiners Pty Ltd has brought proceedings in Victoria against Viewlink Pty Ltd five of the companies which were the parties to the agreement for the sale of plant and equipment, the appellants, three other corporations, and another individual.  In those proceedings Whyalla Refiners Pty Ltd claims to be entitled to the unpaid consultancy fees and in particular claims that the consultancy fees have not been paid since 30 April 1995.

As I have already indicated Viewlink Pty Ltd defends that aspect of the proceedings upon the basis that there was an assignment of the consultancy fees to Nerrima Pty Ltd and payment was made to that company. 

Whyalla Refiners Pty Ltd also claims that it made an overpayment in relation to the lease of some of the sites which were the subject of the transaction of 31 March 1995.  In particular it claims that it made an overpayment in relation to the Pennington site of $25,000, the Marryatville site of $31,250, and the Pooraka site of $25,000.  Those claims are not relevant for consideration of this matter.

Whyalla Refiners Pty Ltd is a secured creditor and the major creditor of the Company.  At the time of the appointment of the liquidator the Company was indebted to Whyalla Refiners Pty Ltd in the sum of $4,060,560. 

The appellants claim that they were not directors or other officers of the Company.  They further claim that they had no dealings with the Company either at 31 March 1995 or any time thereafter.  They further claim they have no documents relevant to the subject matter of the inquiry.  They say, in those circumstances, they cannot be persons who may be able to give evidence about the examinable affairs of the company.

Their obligation, if it arises, to give evidence in relation to the examinable affairs of the company can only arise under s596B.  In my opinion it may only arise in the circumstances of this case in relation to s596B(1)(b)(ii), and therefore only if the Court is satisfied that the appellants may be able to give information about the examinable the affairs of the corporation.

Examinable affairs is defined in s9 of the Corporations Law in the following terms:

“ “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);”

Affairs is also defined:

“ “affairs”, in relation to a body corporate, has, in the provisions referred to section 53, a meaning affected by that section;”

Both of those sections incorporate s53 which I also set out:

“53.For the purposes of the definition of “examinable affairs” in section 9, section 53AA or 260, paragraph 461(e), section 487, subsection 1307(1) or section 1309, or of a prescribed provision of this Law, 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:

(b)...

(c)the internal management and proceedings of the body;”

(The other paragraphs are irrelevant).

It can be seen that examinable affairs is a very wide concept.  It includes any aspect of the management of a corporation including any business, trading, transaction and dealing and the outgoings and expenditure of the company as defined.

It seems to me that if this Company paid an excess of rent of $3,250 per month which in turn was returned to one of its directors, an inquiry into that transaction and dealing and the outgoings and expenditure incurred by the corporation must be within the examinable affairs of the Company.

It is quite conceivable that a prospective examinee will have had nothing to do with the company directly but be able to give evidence in relation to the examinable affairs of the company.  In the present appeal I accept that the appellants had no direct dealings with the Company but that does not, in my opinion, prevent them being summoned to give evidence in relation to the examinable affairs of the Company.

Division 1 of Part 5.9 of the Corporations Law gives powers to eligible applicants to investigate the examinable affairs of a corporation. 

“Eligible applicants” is defined as:

“(a)   the Commission [meaning the Australian Securities Commission]; or

(b)     a liquidator or provisional liquidator of the corporation; or

(c)     an administrator of the corporation; or

(d).... an administrator of a deed of company arrangement executed by the corporation; or

(e)     a person authorised in writing by the Commission to make:

(i)applications under the Division of Part 5.9 in which the expression occurs; or

(ii)    such an application in relation to the corporation.”

Immediately before an appointment as liquidator/administrator or a person authorised in writing by the Commission to make an application, and at the time of the making of the application, eligible applicants would ordinarily be persons unfamiliar with the affairs of the Corporation.

The purpose of the legislation is to allow an eligible applicant to gather information.  The legislation is designed to assist an eligible applicant in obtaining information by requiring examinable officers or other persons to attend before the court for their examination in relation to the examinable affairs of a corporation.  The eligible applicant also has the power to call upon the court to issue a summons to an examinable officer or other person to produce at the examination documents which relate to the examinable affairs of the corporation.  The legislation therefore assists in the gathering of information and for confirming information already in the eligible applicant’s hands.

The scheme of the legislation is to give the eligible applicant that information for at least three purposes.  The first purpose relates to the winding up generally, and the protection of the interests of creditors.  It may be used to protect the interests of creditors by assisting in the recovery of assets of the corporation for distribution to the creditors.

As well as protecting the interests of creditors the information is also gathered to determine whether any person who has taken part or been concerned in the examinable affairs of the corporation may have been guilty of misconduct in relation to the corporation.  The power is clearly available to the eligible applicant so that information may be obtained to determine whether any person has been guilty of misconduct in relation to the corporation, and for the purpose of bringing proceedings (whether civil or criminal) against that person: Hamilton v Oades (1989) 166 CLR 486.

The third purpose for which the legislation exists is for the public interest in assisting the regulation of corporations.  The legislation acts to remind those who act as examinable officers of the corporation, or who deal with a corporation, that they are at risk that if any of the circumstances giving rise to an application by an eligible applicant arise, they may be called upon to be publicly examined about their conduct in relation to the corporation.  It is in the public interest that those who act as examinable officers of corporations and those who take part or are concerned in the examinable affairs of a corporation are obliged to impart their knowledge of the affairs of the corporation in the event that the corporation becomes subject to administration or winding up.  In that sense the legislation serves the public interest as well as the private interest of creditors.  “The honest conduct of the affairs of companies is a matter of great public concern today”:  per Windeyer J, Rees v Kratz Mann (1965) 114 CLR 63 at 80.

None of that is to suggest that the appellants in the present case have been guilty of any misconduct in relation to the Company.  The section not only provides that those who may have been guilty of misconduct may be subject to examination but it also provides that anyone who may be able to give information about the examinable affairs of a corporation will be amenable to the jurisdiction.  The person may indeed be the victim of someone else’s misconduct.

The proceedings are for the purpose of obtaining information and in that sense they are investigative.  That is why the sections are couched in the terms that they are.  Section 596A requires a court to summon a person if the court is satisfied that the person is an examinable officer of the corporation and has been during the two years prior to any of the circumstances mentioned in s596A(b).

An examinable officer is defined in s9 in the following terms:

““examinable officer”, in relation to a corporation, means:

(a)a director, secretary or executive officer of the corporation; or

(b)a receiver, or receiver and manager, of property of the corporation (whether appointed under a provision contained in an instrument, or by a court); or

(c)an administrator of the corporation; or

(d)an administrator of a deed of company arrangement executed by the corporation; or

(e)a liquidator or provisional liquidator of the corporation (whether or not appointed by a court); or

(f)a trustee or other person administering a compromise or arrangement made between the corporation and any other person or persons;”

All the persons answering the description of examinable officer within the definition should be able to give evidence about the examinable affairs of the corporation.  Clearly a director, secretary, executive officer, receiver, administrator, liquidator or trustee administering a compromise or arrangement made between the corporation and any other person or persons should be able to provide an eligible applicant with information which relates to the examinable affairs of the company.  For those reasons the court is given no discretion and must summon any of those persons for examination.

There are, however, other persons both inside or outside the corporation who may be able to give information about the examinable affairs of the corporation.  Persons inside the corporation include those employees of the corporation who were not a director, secretary or executive officer of the corporation.  Alternatively, they may have been a director, secretary or executive officer of the corporation but more than two years before the events provided for in s596(A)(b).  Whilst they have held a lesser position or a less immediate position within the corporation they may still be able to give information about the examinable affairs of the corporation.

Further, persons outside the corporation who have dealt with the corporation may also be able to give information about the examinable affairs of the corporation.  Whether they can in due course will depend, of course, upon the examination itself.  The eligible applicant will be restricted in questions of the prospective examinee to the examinable affairs of the corporation.  It will usually become evident at an early stage of the examination whether or not the examinee is in a position to give information about the examinable affairs of the corporation.

However, in obtaining the order for an examination under s596B the eligible applicant does not have to establish that the prospective examinee can give information about examinable affairs of the corporation, but only needs to satisfy the court that they may be able to give such information.  In that sense it is only necessary that the evidence adduced by the eligible applicant satisfy the court to the civil standard that the prospective examinee may be able to give information about examinable affairs of the corporation.

There are two ways in which a prospective examinee is protected.  First, it is the court that issues the summons to the examinee and it is the court which oversees the conduct of the examination.  Further, the court will rule upon questions asked of an examinee about the corporation or any of its examinable affairs and the court will decide whether the questions come within the definitions of examinable affairs and whether the questions are appropriate: s597(5B).  The very fact that the examination takes place before a member of the court is adequate protection for a person who may be able to give information about the examinable affairs of the corporation.         The Master conducting the examination has the obligation to ensure that the examiner is limited to questions relating to the examinable affairs of the corporation and that no questions go outside those affairs.

Secondly, there is the further protection of an examinee contained in s597B.  If an eligible applicant obtains an order against a person under s596A or s596B, or obtains an order that a person make an affidavit under s597A, without reasonable cause the court may order that the eligible applicant or any other person who took part in the examination in the case of a summons pay some or all of the costs of the examinee.  Eligible applicants and any other person who takes part in an examination must be aware that if they obtain a summons for the examination of any person without reasonable cause the court may order that they pay the costs incurred by the person to whom the summons is directed and who is subjected to the examination.

Moreover, it is only a restricted group of persons who come within the description of an eligible applicant.  Some are officers of the court and others, including administrators and the Commission and persons authorised in writing by the Commission, would be within the reach of the court.  The court is in a position to discipline those who might use the procedure without reasonable cause, even apart from using the power under s597B.

If an arrangement, understanding or transaction was entered into between Viewlink Pty Ltd and Whyalla Refiners Pty Ltd whereby Whyalla Refiners Pty Ltd would pay excessive rent to be set off against a consultancy fee which would in due course be assigned to a company associated with one of the directors of the lessees, namely Whyalla Refiners Pty Ltd and later Nerrima Pty Ltd then that arrangement, understanding or transaction may come within the examinable affairs of the Company upon the Company assuming the operation of the businesses, because, by reason of that arrangement understanding or transaction the Company might have been called upon to pay a rent greater than it otherwise would.

It seems to me that the transaction, as it has been identified both by the liquidator and the appellants, is a transaction that may fall within the examinable affairs of the company and that therefore the appellants are persons who may be able to give information about the examinable affairs of the corporation.

The fact that an eligible applicant has satisfied the court that the proposed examiners are persons who may be able to give evidence is not an end to the matter.  The making of an order under s596B (in contra distinction to an order under s596A) involves the exercise of a discretion.  That discretion falls to be exercised when the eligible applicant has established one of the qualifying criteria in s596B.

The discretion is unfettered but must be exercised judicially.  In exercising that discretion the court might have regard to the expressed purpose of the examination; the importance of the information to the eligible applicant; the seriousness of the matters to be inquired into; the use to which the information obtained on the examination might be put; the possibility of an advantage to the eligible applicant which he or she would not otherwise enjoy and the concomitant disadvantage to the prospective examinee; the availability of the information from other sources; the cost to the prospective examinee in attending for examination; whether the information sought is so peripheral to make the attendance of the prospective examinees oppressive; and the wider public interest in investigating the affairs of the corporation.

In this case the information is not otherwise available to the liquidator.  The information may be important not only for the purpose of protecting creditors by recovery of assets but also for determining whether any person has been guilty of misconduct in relation to the Company.  The matter to be inquired into is not a peripheral one.  It may be of little importance to the appellants but it is a matter of importance to the Company because it goes directly to the question of the proper governance of the Company in the period leading up to its failure.  It may be that the appellants will suffer a disadvantage by having to publicly explain the transaction in which Viewlink Pty Ltd was involved.  However that is the usual consequence of an order of this kind and in this case is not enough to say that the court should have exercised its discretion against making the orders.

Improper Purpose

The appellants’ alternative argument was that the liquidator was using the examination process for an improper purpose.

The appellants argued that the liquidator was using the examination process for the purpose of assisting Whyalla Refiners Pty Ltd (its major secured creditor) in the prosecution of its proceedings in Victoria in which the appellants are defendants.  It was argued that the assistance that was being offered included collecting evidence for use by Whyalla Refiners Pty Ltd in those Victorian proceedings.  It was also said that there was forensic advantage in using this procedure to cause undue inconvenience to the appellants and inflicting additional costs on them.

The appellants claim that there are a number of indicators from which it should be inferred that the predominant purpose of the liquidator is an improper one.  It was said that the liquidator has consistently refused to put before the court all relevant matters known to him, both favourable and unfavourable, which are pertinent to the application to examine the appellants and, in particular, in answer to the appellants’ contention that the liquidator seeks to have them examined for the predominant purpose of assisting Whyalla Refiners Pty Ltd in its litigation in Victoria.

The submission was particularised in the following way.  First it was said that the liquidator’s behaviour in the proceedings in failing to disclose the affidavit relied upon for the purpose of the order, and in failing to disclose the transcript of the examination of Pearce, was evidence of improper motive.  Secondly, it was said that the liquidator disclosed to Whyalla Refiners Pty Ltd the transcript of the evidence of Mr Pearce in circumstances where such disclosure was improper and, if not in breach of the terms of an order of the court, the disclosure was in breach of the spirit of that order.  Thirdly, the liquidator has consistently failed to advise the court and the appellants whether Whyalla Refiners Pty Ltd was funding his legal costs in pursuing the examination of the appellants.  Fourthly, that the liquidator paid a month’s rent on the sites, which payment was not for the benefit of the company but for the benefit of Whyalla Refineries Pty Ltd.

It was submitted that for all of those reasons the court should infer that the liquidator’s predominant purpose was an improper purpose, namely to assist Whyalla Refiners Pty Ltd generally and, in particular, in its litigation in Victoria.

Like any other process the investigative process given to eligible applicants under part 5.9 of the Corporations Law cannot be abused.  If an eligible applicant uses the proceedings for the purpose of obtaining an advantage for which the proceedings are not designed, or for obtaining some other collateral advantage beyond what the law offers, then that will amount to an abuse of process: Williams v Spautz (1992) 174 CLR 509 at 526-527.

Whether a particular application amounts to an abuse of process will depend upon the purpose motivating the eligible applicant.  If the eligible applicant is motivated by an improper purpose, and that improper purpose is at least the predominant purpose, then that will amount to an abuse of process: Re Excel Finance Corporation Ltd (Receiver and Manager appointed); Worthley v England (1994) 52 FCR 69. The fact that an examination may give the eligible applicant an advantage qua the examinee or some other party in some other proceedings does not necessarily mean that the application has been made for an improper purpose.  The very nature of the proceedings allow for the real possibility that an eligible applicant will obtain an evidentiary advantage or a forensic advantage not otherwise available to other parties to other litigation.  That is accepted because it is perceived that the Australian Securities Commission, or a liquidator or a provisional liquidator, or an administrator of a corporation are at a real disadvantage, in investigating the affairs of a corporation and in ascertaining the whereabouts and the value of assets and the responsibility for the collapse of the company.  It has been thought necessary to invest those persons with very wide powers for the purpose of obtaining information.

However the investigative powers given by Part 5.9 can only be used for the purposes for which they are designed. They cannot be used for a collateral purpose. Specifically they cannot be used for the advancement of a party’s interest which are separate from or even adverse to the corporation’s interest. That is because the powers would then be used not for the purpose of the protection of the creditors or the ascertainment of any misconduct in relation to the corporation but for a purpose for which Part 5.9 was not designed.

Whyalla Refiners Pty Ltd was, at the time of the appointment of the liquidator, a secured creditor and the major creditor of the Company.  Minutes of a meeting of creditors held on 4 November 1996 (incorrectly described as 4 October 1996) show that of a total of creditors of $5.66 million Whyalla Refiners Pty Ltd was a creditor to the extent of $4.06 million.

As I have already indicated Whyalla Refiners Pty Ltd has brought proceedings in Victoria against Viewlink Pty Ltd claiming the damages to which I have referred.  No doubt it would be in Whyalla Refiners Pty Ltd’s interests to be aware of the evidence of the appellant in relation to its claim in Victoria.  It would also be in Whyalla Refiners Pty Ltd’s interests that the examinations take place because any written record of an examination under this part which is signed by the examinee (which can be required of the examinee under s597(13)) can be used in evidence in any legal proceedings against that examinee.  It would therefore be in Whyalla Refiners Pty Ltd’s interests that there be a record of the examination which, if the transcript suited Whyalla Refiners Pty Ltd’s interests, could be tendered at the Victorian proceedings.

In my opinion, if this application has been brought by the liquidator for the predominant purpose of assisting Whyalla Refiners Pty Ltd in its litigation in Victoria, then that would amount to an improper purpose.

On the face of it there would be no apparent advantage to the Company in aiding Whyalla Refiners Pty Ltd in its litigation in Victoria.  If Whyalla Refiners Pty Ltd was successful in its litigation in Victoria that would not reduce the indebtedness of the company to Whyalla Refiners Pty Ltd and so there is no advantage in that respect: Re Excel Finance Corporation; Worthley v England (1994) 14 ACSR 407 at 428. Moreover, the claim brought by Whyalla Refiners Pty Ltd in Victoria is inconsistent with the position which the liquidator would wish to adopt if the liquidator wished to recover any assets of the Company from the appellants or Viewlink Pty Ltd.

Therefore, it appears to me that if it is established that the predominant purpose for these examinations is to aid or assist Whyalla Refiners Pty Ltd in the prosecution of its litigation in Victoria then that would be an abuse of the process given to the liquidator in Part 5.9 of the Corporations Law.  If that has been established then the orders for the examination of the appellants ought to be set aside. 

It is necessary, therefore, to examine the four particular matters upon which the appellants rely for the purpose of determining whether the liquidator’s predominant purpose was an improper one.

I will deal with the fourth matter first.  It was put during oral argument that on 30 September 1996 the liquidator paid the October month’s rent on the sites in circumstances where the rental was paid not for the advantage of the company but for the benefit of Whyalla Refiners Pty Ltd to which the sites were surrendered shortly after payment of the rental.  It was submitted that the minutes of the first meeting of creditors of 4 October 1996 showed that the sites were relinquished to Whyalla Refiners Pty Ltd by that date.  It was submitted that the payment of rent shows the close relationship between the company and Whyalla Refiners Pty Ltd. 

The submission is based upon a misunderstanding of the facts which arises out of a mis-statement of the date of the first meeting of creditors of the Company. 

Exhibited to Mr Hirsch’s affidavit of 1 December 1997 are the minutes of the first meeting of creditors of the Company held at the offices of B.D.O. Nelson Parkhill.  The minutes claim that the first meeting took place on 4 October 1996.  The minutes are in error.  The respondent was not appointed administrator of the Company until 28 October 1996.  He convened the first meeting of creditors five business days after the date of his appointment, on 4 November 1996.  The rent for November 1996 for all sites fell due at the beginning of November 1996 and he returned the nine sites to Whyalla Refiners Pty Ltd without paying the rent.

The submission is therefore based upon the incorrect premise that the document exhibited to the appellant’s affidavit correctly identifies the date of the first meeting.  When understood as I have explained, it cannot be said that there was anything sinister about payment of the rent for the sites in October when regard is had to the fact that the respondent was not appointed until 28 October 1996.  In the circumstances the fourth matter does not support any inference that the predominant purpose of the respondent was improper.

In the first instance the respondent refused to disclose the affidavit which he had sworn on 11 November 1997 in support of the application for the orders.  During the hearing of the application to set aside the orders the respondent handed over that document for examination by the appellants’ legal adviser.  A copy was not then made available.  During the hearing of this appeal a copy of the affidavit was made available.  The respondent also refused, at first, to hand over the transcript of the examination of Mr Pearce claiming that the evidence contained in the transcript had been given in circumstances where it was subject to an order for its confidentiality.

On 15 October 1997 Judge Bowen Pain made an order that until the completion of the examination of Mr Pearce the transcript not be released to any other person other than the liquidator and those representing him.

The order was made upon the application of the respondent’s counsel.  Subsequent to the making of the order, the respondent refused to make the transcript available to the appellants but did make the transcript available to Whyalla Refiners Pty Ltd.

The circumstances in which the transcript was released to Whyalla Refiners Pty Ltd were the subject of evidence from the respondent and a Mr James Marsh, a solicitor with Fisher Jeffries.  The respondent sought leave, which was given, to adduce further evidence from the respondent and Mr Marsh in answer to a claim by the appellants that there had been a wrongful release of the transcript of Mr Pearce’s examination to Whyalla Refiners Pty Ltd.  Pursuant to that leave on 23 February 1998 the respondent and Mr James Marsh swore affidavits which were tendered at the further hearing of this appeal.

When Mr Pearce was examined before the Master two other persons were present apart from the legal advisers for the respondent Mr Geddes: a friend of Mr Pearce and Mr Aspinall, a director of Whyalla Refiners Pty Ltd.

On 14 October 1997, Mr Aspinall requested a copy of the transcript of the examinations from the respondent.

The respondent advised Mr Aspinall that he was contemplating seeking an order for the confidentiality of the transcript and in those circumstances did not believe it was appropriate to hand the transcript over to Mr Aspinall.

Apparently, on the same day, Mr Aspinall approached Whyalla Refiners Pty Ltd’s solicitor Mr Marsh of Fisher Jeffries and told him that he had asked the respondent if he could have a copy of the transcript of the examinations in relation to the Company.  He told Mr Marsh that the respondent had said that Whyalla Refiners Pty Ltd should apply for a specific order from the Master for the release of the transcript.  As a result Mr Marsh then telephoned the secretary to the Master and told her that Whyalla Refiners Pty Ltd wished to obtain a copy of the transcript.  He asked her to check with the Judge whether that was possible and advised her that if necessary he would bring a formal application before the Judge in chambers.  He was advised by the secretary that she had spoken to the Judge and the Judge had told her that he had no objection to Whyalla Refiners Pty Ltd seeing the transcript.  Mr Marsh then told her that he wanted to make his position quite clear, namely that Whyalla Refiners Pty Ltd proposed to obtain a copy from the liquidator’s office.  The secretary again spoke to the Judge and told Mr Marsh that the Judge said he had no objection to that course.

Mr Marsh sent a letter confirming the conversation.  The letter was exhibited to Mr Marsh’s affidavit.  It was in the following terms:

“We refer to your telephone conversation with James Marsh on 14 October 1997.

We confirm that our client, Whyalla Refiners Pty Ltd, wishes to obtain a copy of the transcript of the public examination in the above matter pursuant to Corporations Law Section 597(14A) in its capacity as a creditor of the company. We confirm that our client has agreed with the liquidator’s office that the liquidator will order an extra copy from the court reporting service and provide that to our client. We confirm that his Honour has stated that he has no objection to that course of action.”

The circumstances of the release of the transcript of Mr Pearce’s examination to Whyalla Refiners Pty Ltd were confirmed in an affidavit sworn by the respondent on 23 February 1998.  He confirmed that he did not make the transcript available to that company until such time as he obtained a clearance from the Master.

The first two particulars of the appellants’ submission show the appellants to complain not only of the failure of the respondent to disclose the transcript of the examination of Mr Pearce to them, but also of the disclosure of the transcript of Mr Pearce’s examination to Whyalla Refiners Pty Ltd .

I do not believe that it would be possible to infer any improper motive upon the part of the liquidator for the failure to disclose the affidavit which he swore in support of his application for the orders made on 13 November. Specifically s596C of the Corporations Law provides that an affidavit supporting an application for an examination is not available for inspection except so far as the Court orders: s596C(2). A court will however order the disclosure of an affidavit in support of an application to a prospective examinee when the justice of the case requires: Re Excel Finance Corporation Ltd, Worthley v England (1994) 52 FCR.69; Re British and Commonwealth Holdings Plc (Nos 1 and 2) (1992) Ch 342.

It is the practice of this Court (and was prior to the enactment of s596C) for the affidavits in support of an application for an examination to be sealed up and not to be made available to any party except upon order of the Court.

There is nothing, in my opinion, sinister in the fact that this liquidator conformed with the usual practice of the court. I am not prepared to infer that there was anything improper at all in the failure to hand over the affidavit in support of the application. There are good reasons for withholding the affidavit from a prospective examinee. An affidavit which complies with s596C, the rules made under the Corporations Law and the obligation to make full disclosure may put an examinee upon notice of the matters which are to be the subject of the examination and therefore render the examination nugatory.  In those circumstances it is usually appropriate, subject to the caveat mentioned in re Excel Finance Corporation Ltd and re British and Commonwealth Holdings, to keep the affidavit or affidavits supporting the application from the prospective examinee.

Further, I would not be prepared to infer that there was anything improper in the respondent failing to make the evidence of an examinable officer of the Company available to a prospective examinee.  It is the transaction or understanding which arises out of negotiations and conversations between Mr Pearce and the appellants which is the subject of the proposed examination.  It would not be appropriate to allow prospective examinees unrestricted access to the examination of a party to that transaction or understanding in advance of the examination.  Again the provision of the transcript may well render the examination nugatory.

For those reasons I cannot accept the first particular of the submission that there was anything improper or even questionable about the liquidator’s behaviour in failing to disclose the affidavit relied upon for the purpose of the order and in failing to disclose the transcript of the examination of Mr Pearce.

That leads me to the second matter.  As I have already indicated it was put that the respondent’s disclosure to Whyalla Refiners Pty Ltd of the transcript of evidence was improper in that if it was not in breach of the terms of the order of the Court it was certainly in breach of the spirit of that order.

When the matter was first raised before me I had regard to the order which had been made by the Master and I had considerable doubts about the propriety of the release of the transcript to Whyalla Refiners Pty Ltd.  It struck me that it was inappropriate on the one hand to seek an order restricting the release of the transcript to the liquidator and those representing him and at the same time release the transcript to a third party. 

The respondent has since filed his own affidavit and that of Mr Marsh.  The respondent clearly was alive to the fact that the release of the transcript might be contrary to the Master’s order.  He therefore made it clear that he was not willing to provide the transcript to Whyalla Refiners Pty Ltd except with the permission of the Master which, as Mr Marsh’s affidavit shows, was first obtained. 

However, notwithstanding the cost which would be involved in a formal application, I think it would have been better if a formal application had been made to the Master for an order allowing the transcript to be made available to Whyalla Refiners Pty Ltd.

If the Master’s order was such that the transcript was not available to any party apart from the respondent then it would have been necessary to make an application to the Master for a variation of that order.  If, on the other hand, the order did not prevent the disclosure of the transcript to Whyalla Refiners Pty Ltd then there was no need for any informal application to be made to the Master.

I do believe that the order was in terms which prevented the disclosure of the transcript to Whyalla Refiners Pty Ltd and, in those circumstances, it seems to me that it would have been appropriate for an application to be made by the respondent to the Master for a variation of the order allowing for the release to Whyalla Refiners Pty Ltd.

However, that is not so much to the point in this matter.  What was argued was that the release of the transcript was contrary to the order or the spirit of the order.  I am not prepared to infer anything improper in the behaviour of the respondent in the release of the transcript to Whyalla Refiners Pty Ltd.  Clearly he was anxious to ensure that such release did not contravene an order of the Court.  In those circumstances it cannot be said that he acted in such a way from which it may be inferred that the application for the examinations had been made for an improper purpose.  I therefore reject the second particular.

The last matter which needs to be addressed is the complaint that the liquidator has consistently failed to advise the Court and the appellants whether Whyalla Refiners Pty Ltd is funding his legal costs in pursuing the examination of the appellants.

I am not sure if it is right to say that there has been a consistent refusal by the liquidator to give that information.  Recently there has been a refusal to address a complaint made by the appellants that the liquidator has failed to provide that information.  The respondent refused on the ground that the complaint was made at the time of reopening of the appeal in circumstances where the complaint was outside the scope of the matters for which I gave the parties leave to further address the Court.

At the time that the liquidator was appointed the total creditors’ claims amounted to about $5.68 million.  Of those creditors there were only two of any significance, namely: The Shell Company of Australia, which claimed to be a creditor to the extent of $1.6 million; and Whyalla Refiners Pty Ltd, which claimed to be entitled to $4.06 million.  Both claimed to be secured creditors.

It is not clear from the evidence the extent of the Company’s assets, but I assume that its liabilities far exceed its assets.  I also assume that the remaining creditors, apart from The Shell Company of Australia Limited and Whyalla Refiners Pty Ltd, are unsecured creditors.

Upon those assumptions, which I think are reasonable, it is clear that The Shell Company of Australia Limited and Whyalla Refiners Pty Ltd are the only parties likely to share in any recovery of any assets of the company.  Having regard to the amount of their respective claims and the total of the liabilities it is most unlikely that the unsecured creditors would obtain any return upon their debts.

In those circumstances it may be inferred that the unsecured creditors would not fund the Company for the purpose of it recovering any assets, which in due course would only be used for the purpose of discharging its liability to its secured creditors.  Thus, it may be inferred that the unsecured creditors would not participate in any financial assistance to the Company. 

That means that the Company can only be funding the costs of these applications and examinations out of its own funds or with the assistance of one or both of its secured creditors.

If it was funding the applications and examinations out of its own funds then, in reality, that means its secured creditors are funding the proceedings because the secured creditors would otherwise be entitled to those funds if they were not being applied for the purpose of applications and examinations.

Therefore, it must be the case that the Company is being supported either directly or indirectly by one or both of its secured creditors.  Therefore, I am prepared to infer that Whyalla Refiners Pty Ltd is either directly or indirectly supporting the liquidator financially in respect of these applications and the examinations.

There is nothing unusual about that. If there was any prospect of any recovery of assets, it would be expected that the major creditors of an insolvent company would be likely to support the Company in attempting to recover those assets. Because one or both of the Company’s secured creditors are financially supporting the company for the purpose of applications and examinations under Part 5.9, it cannot be inferred that the liquidator is therefore actuated by any improper motive.

If, however, the liquidator of the company has been motivated to make these applications for the purpose of assisting Whyalla Refiners Pty Ltd in its litigation in Victoria then that would be an improper motive.  It would be quite improper for the liquidator to use his position as liquidator of the Company to obtain evidence for the use of its major secured creditor where there was no advantage to the Company. 

In my opinion, however, there is no evidence that financial support has been offered and, more importantly, accepted by the liquidator on behalf of the Company for that improper purpose.  I am not prepared to infer, simply because Whyalla Refiners Pty Ltd is financially supporting the Company, that therefore the liquidator has been motivated by an improper purpose in making the applications for the examinations of the appellants.

In all those circumstances none of the matters particularised in support of the application for a finding that the liquidator was actuated by an improper purpose in making these applications has been made out.  It therefore must follow that both appeals must be dismissed. 

I will hear the parties as to costs.