Rosenberg v Can't Escape KARMA Pty Ltd
[2025] WASC 58
•4 MARCH 2025
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: ROSENBERG & ORS -v- CAN'T ESCAPE KARMA PTY LTD [2025] WASC 58
CORAM: HOWARD J
HEARD: 19 FEBRUARY 2025
DELIVERED : 4 MARCH 2025
FILE NO/S: COR 133 of 2024
BETWEEN: LANCE MICHAEL ROSENBERG
First Applicant
ELI SHELIM
Second Applicant
GLENEAGLE SECURITIES NOMINEES PTY LTD (ACN 150 259 877)
Third Applicant
AND
CAN'T ESCAPE KARMA PTY LTD (ACN 675 973 449)
Respondent
Catchwords:
Corporations law - Application to have examination summonses set aside - Examination summonses granted under s 596A and s 596B of the Corporations Act 2001 (Cth) - Where examination summonses were granted ex parte - Whether summonses are inutile, oppressive or an abuse of process - Applications dismissed.
Legislation:
Corporations Act 2001 (Cth)
Insolvency Practice Schedule (Corporations)
Supreme Court (Corporations) (WA) Rules 2004 (WA)
Result:
Applications dismissed
Category: B
Representation:
Counsel:
| First Applicant | : | Mr A P Young KC and Mr P H Murray |
| Second Applicant | : | Mr A P Young KC and Mr P H Murray |
| Third Applicant | : | Mr A P Young KC and Mr P H Murray |
| Respondent | : | Mr W C J Zappia |
Solicitors:
| First Applicant | : | K & L Gates |
| Second Applicant | : | K & L Gates |
| Third Applicant | : | K & L Gates |
| Respondent | : | Mendelawitz Morton Commercial Lawyers |
Cases referred to in decision(s):
Bazzo v Robert Michael Kirman and William James Harris (as joint and several liquidators of Whitby Land Company Pty Ltd (in liq) [2021] WASCA 170
Entyr Ltd v Eastman [2023] WASC 469
Walton v ACN 004 410 833 Ltd (Formerly Arrium Ltd) (In liq) (2022) HCA 3
HOWARD J:
Examination summonses granted
Can't Escape Karma Pty Ltd (ACN 675 973 449) is the respondent to these applications, but was the plaintiff applicant in the underlying proceedings. I have referred to it as the plaintiff throughout this judgment.
On 28 March 2024, the plaintiff entered into a deed of assignment with the liquidator of Atari Enterprises Pty Ltd (Atari). By that, subject to the Court's approval under s 477(2B) of the Corporations Act 2001 (Cth), Atari and the liquidator assigned to the plaintiff any chose in action against third parties which was capable of assignment.[1]
[1] GHS-43 to the Simm affidavit.
On 18 April 2024, the Court granted approval (as and from 28 March 2024) to the liquidator of Atari to enter, and cause Atari to enter, the assignment deed.[2]
[2] GHS-45 to the Simm affidavit being orders made by Master Russell.
The plaintiff, on 24 April 2024, sought authorisation from ASIC to conduct public examinations under s 596A and s 596B of the Corporations Act.[3]
[3] GHS-47 to the Simm affidavit.
The plaintiff in seeking this authorisation focussed on transactions which Atari had entered into on 1 November 2023 and which will be described more fully below.
On 5 August 2024, ASIC relevantly authorised the plaintiff to be an 'eligible applicant' for the purposes of Div 1 of Pt 5.9 of the Corporations Act.[4]
[4] GHS-48 to the Simm affidavit.
Applications were then made to this Court, and on 3 October 2024, the Master granted summonses or directions to:
1.Lance Michael Rosenberg;
2.Eli Shellim; and
3.Gleneagle Securities Nominees Pty Ltd ACN 150 259 877 (Gleneagle) (together the applicants).
The first two were granted under s 596A and s 596D of the Corporations Act. The third was a direction to produce books under s 597(9) of the Corporations Act. From here I will refer to them together as the summonses.
The respective summonses were served at different dates on each of the applicants.
The present applications
By applications made on various dates, the applicants seek to set aside their respective summonses.
Both Mr Rosenberg and Mr Shellim apply under regulation 11.5 of the Supreme Court (Corporations) (WA) Rules 2004 and s 596C(2), s 596F and s 596B of the Corporations Act.
Gleneagle makes its application under s 596F of the Corporations Act and s 90‑15 of the Insolvency Practice Schedule (Corporations) set out in sch 2 of the Corporations Act and in the Court's inherent jurisdiction.
All of the applications, in the alternative to having the particular summons set aside, seek inspection of an affidavit of the plaintiff's solicitor made 1 October 2024 in support of the applications to issue the summonses.
The grounds advanced by each of the applicants in the applications are substantially the same.
Before considering the applicants' grounds, I will set out the evidence relied upon and the common factual ground.
Evidence relied upon
The applicants each rely on the following affidavits made by:
1.their solicitor, Mr P Murray, on 25 November 2024 and filed 27 November 2024 (First Murray affidavit);
2.Mr Murray on 17 January 2025 and filed the same day (Second Murray affidavit);
3.Mr Murray on 22 January 2025 and filed 23 January 2025 (Third Murray affidavit);
4.Mr Shellim on 24 January 2025 and filed the same day (First Shellim affidavit);
5.Mr Shellim on 6 February 2025 and filed the same day (Second Shellim affidavit); and
6.their solicitor, Mr N H Brown, on 18 February 2025 and filed the same day (Brown affidavit).
In opposition to the (set aside) applications, the plaintiff read and relied upon the following affidavits of:
1.George Henry Simm made and filed 24 January 2025 (Simm affidavit); and
2.their solicitor, Mr Z Weng made and filed 12 February 2025 (Weng affidavit).
Although the applicants foreshadowed objections to the affidavits relied on by the plaintiff, these were not persisted with at the hearing. I have taken all the affidavits as read without objection.
Common factual ground
On 25 January 2018, Gleneagle and Atari entered into a Bond Agreement.[5]
[5] GHS-52 to the Simm affidavit.
Two aspects of the Bond Agreement are most material.
The first is that in its introductory words, it stated that:
1.it was binding on the Parties; and
2.in due course, it was intended that it be replaced by longer form documentation.[6]
[6] GHS-52 at page 345 to the Simm affidavit.
Secondly, by Item 16 of the Bond Agreement, Atari provided security to Gleneagle 'over all assets and inventory added' during the term and there was a promise that Atari would not grant any other security over its assets to any other party without Gleneagle's agreement.[7]
[7] GHS-52 at page 347 to the Simm affidavit.
It was common ground that Gleneagle lent the sum of $800,000 pursuant to the Bond Agreement.[8]
[8] GHS-52 at page 347 to the Simm affidavit.
It appears that the money was advanced in instalments, with the first instalment occurring in about 1 February 2018, being 7 days from the date of the Bond Agreement.[9]
[9] PHM-2 at page 7 to the First Murray affidavit.
Atari did not repay the money as per the Bond Agreement. Rather, one payment of $425,000 was made on 29 January 2019.[10] From at least 30 August 2019, Atari was in breach of the Bond Agreement.
[10] Simm affidavit [70].
Atari was essentially a holding company and it owned a 100% shareholding in Atari Enterprises Trading Co (Trading Co).
Before 1 November 2023, Trading Co owed about $4.5 million to Atari.[11]
[11] PHM-5 at page 106 to the Second Murray affidavit.
On 22 August 2023 voluntary administrators were appointed to Trading Co.[12]
[12] GHS-32 at page 51 to the Simm affidavit.
At 1 November 2023, Mr Douglas was the sole director of Atari.[13]
[13] PHM-3 at page 18 to the Second Murray affidavit.
On 1 November 2023, Atari entered into:
1.a Restructure Deed[14] with Gleneagle and Rampage Nominees Pty Ltd ACN 672 621 742 (Rampage); and
2.a General Security Deed[15] with Gleneagle (together, the November 2023 transactions).
[14] GHS-61 to the Simm affidavit.
[15] GHS-62 to the Simm affidavit.
The Background of the Restructure Deed provided relevantly as follows:
A.[Atari] is the owner of the assets.
B.[Atari] owes the debt to [Gleneagle] and [Atari] is in default of its obligations to repay the debt. [Gleneagle] holds the security over the assets.
3.[Atari] is unable to repay the debt but has proposed to sell the assets to [Gleneagle] in consideration for reduction of the debt amount by the purchase price.
4.[Gleneagle] has nominated [Rampage] to acquire the assets on its behalf.
5.The restructure transaction contemplated by this deed is intended to preserve the value of the assets by allowing [Rampage] to leverage the assets under an intended recapitalisation strategy alongside the purchase of the subsidiary business. The parties acknowledge and agree that absent the restructure transaction and upon the appointment of an administrator or liquidator, the assets will not be able to be used in that manner by [Atari] and will be of a value less than the purchase price.[16]
[16] GHS-61 at page 391 to the Simm affidavit (emphasis in the original).
The Background of the General Security Deed provided relevantly as follows:
A.[Atari] owes the secured money.
B.[Atari] granted the original security interest under the bond agreement, subject to formal documentation of the parties' respective rights and obligations at a later date. This document is intended to effect that arrangement.
C.[Atari] has agreed to grant to [Gleneagle] a security interest over the collateral on the terms and conditions of this deed.[17]
[17] GHS-62 at page 408 to the Simm affidavit (emphasis in the original).
At all material times, Mr Rosenberg was the sole director of Gleneagle.[18]
[18] GHS-51 at page 341 to the Simm affidavit.
Rampage was incorporated on 1 November 2023.[19]
[19] GHS-58 at page 362 to the Simm affidavit.
On 1 November 2023, Mr Shellim was the sole director of Rampage.[20]
[20] GHS-58 at page 362 to the Simm affidavit.
On 1 November 2023, Gleneagle was the sole shareholder of Rampage and held 25% of those shares beneficially and 75% of those shares on trust for a family trust of Atari's director, Mr Douglas - the Warrior Trust.[21]
[21] GHS-58 at page 363 to the Simm affidavit; GHS-59 at page 365 to the Simm affidavit; GHS-60 at page 367 to the Simm affidavit.
On 1 November 2023, a voluntary administrator was appointed to Atari.[22]
[22] GHS-29 at page 31 to the Simm affidavit.
On 24 November 2023, Atari's administrator made a report.[23]
[23] GHS-39 at page 192 to the Simm affidavit.
On 4 December 2023, a liquidator was appointed to Atari (he had been the administrator previously appointed).[24]
[24] GHS-29 at page 32 to the Simm affidavit.
On 28 February 2024, Atari's liquidator made a report.[25]
[25] GHS-41 at page 265 to the Simm affidavit.
In both of those reports, potential breaches of the Corporations Act were identified by the administrator and liquidator respectively.[26] However, it was identified in both reports that Atari had no resources to pursue enquiries into those potential breaches.[27]
[26] GHS-39 at page 233 to the Simm affidavit; GHS-41 at page 294 of the Simm affidavit.
[27] GHS-39 at page 233 to the Simm affidavit; GHS-41 at page 294 of the Simm affidavit.
The central basis of the applications to set aside the summonses
The primary ground advanced by the applicants, and as emphasised in the oral hearing, is that there is no utility in the summonses remaining on foot.
There are other grounds advanced, principally in the applicants' written outline, and I will return to these.
The central proposition to the applicants' inutility argument is that those controlling Atari at 1 November 2023 did not owe, and could not owe, any general law or statutory obligations to any party other than Gleneagle.
The broad steps which support that proposition, as I understand them, are:
1.Atari, by the Bond Agreement, had essentially alienated all of its property in favour of Gleneagle;
2.the General Security Deed and Restructure Deed were unnecessary and essentially of no effect; and
3.the November 2023 transactions, to the extent they had any effect, simply achieved or recognised the position which had been the case since the entry into the Bond Agreement.
There is a nuance within that argument which is not material. That is that the Bond Agreement did not become effective until the first drawdown but it appeared to be common ground both that the Initial Drawdown had occurred well before 1 November 2023, and the Bond Agreement had become effective.
The applicants argued that the property of Atari was essentially Gleneagle's prior to 1 November 2023 and so no duties could be owed to any party other than Gleneagle.
The applicants in this central submission focused very heavily on whether Atari or any other party (other than Gleneagle) could maintain a claim which would, or could, sound in damages. That is because, on the submission, no property of Atari was effectively dealt with by Atari within the November 2023 transactions.
The applicants contended, rather, that:
1.Atari and its creditors had suffered no loss; and
2.therefore none of the mooted claims was sustainable.
The plaintiff's answer on the central basis
Subject to some amendments it proposes to the summonses to Mr Rosenberg and Mr Shellim (by which it seeks to narrow the scope of the documents sought), the plaintiff seeks that the summonses remain in place.
The plaintiff provided proposed amended summonses to the Court after the hearing, having foreshadowed that it would do so. For the avoidance of doubt, the proposed amendments do not resolve the applicants' complaints.
The plaintiff seeks to justify the summonses, principally, by reference to the November 2023 transactions, which it described in its written submissions as the Impugned Transaction on 1 November 2023; being:
(b) immediately before the voluntary administration of [Atari] on 1 November 2023:
(i)[Rampage] was incorporated with Mr Shellim as the sole director, Gleneagle as the sole shareholder holding 25% shares beneficially and 75% shares on trust for the family trust of [Atari's] director, Mr Douglas;
(ii)Gleneagle, Rampage and [Atari] entered into [Restructure deed], where [Atari] transferred all of its assets to Rampage in consideration for a set-off of $300,000 against [Atari's] debt to Gleneagle, with those assets including the shares in Trading Co notwithstanding the statutory prohibition in s 437F of the Act; and
(iii)[Atari] and Gleneagle entered into a [General Security Deed], under which [Atari] granted a security interest in all its present and after-acquired properties to Gleneagle as security for the balance of its debt to Gleneagle.[28]
[28] Plaintiff's outline filed 12 February 2025 [3(b)].
The plaintiff contends that:
1.the Impugned Transaction is within the examinable affairs, as defined in s 53 of the Corporations Act, of Atari (this did not seem to be disputed by the applicants);
2.there are questions as to Mr Douglas' conduct in entering into the November 2023 transactions in that if,[29] as the plaintiff asserts, Atari's property was disposed of in November 2023 (or it is arguable that was the case), then Mr Douglas or his family had an interest in the party (Rampage) that was to receive the benefit of Atari's property;
3.while the Bond Agreement was in place (including as at 1 November 2023), Gleneagle had not exercised any of its security rights over the property of Atari;
4.consequently, it was, at the least, arguable that the November 2023 transactions were effective; and
5.so, it was arguable that the November 2023 transactions effectively disposed of property of Atari.
[29] Obviously, this is in contention between the plaintiff and the applicants.
The plaintiff says that there are also questions as to whether Mr Rosenberg and/or Mr Shellim may have accessorial liability under the Corporations Act or at general law, for the conduct and potential breaches of duty by Mr Douglas in his causing Atari to enter into the Impugned Transaction.
The question of whether Atari, or any other party, suffered a loss as a result of the November 2023 transactions is, on the plaintiff's submission, an open question to be resolved later. However, in the alternative, and at the least, the plaintiff submits that it does not need to establish, effectively, a prima facie case to a monetary claim in order for the summonses to remain.
The plaintiff submits that it is sufficient, for present purposes, that the summonses are consistent with and have the purpose of promoting the administration, or the enforcing, of the law of the Corporations Act. That is, it is not necessary that a party have a financial claim for the summonses to remain on foot.
Consideration and disposition of the applicants' central argument
I do not consider that the Court on these applications should seek to definitively determine the effect of the Bond Agreement and the November 2023 transactions. By that I mean that I do not need to come to a final view as to whether the applicants' argument is correct (as to whether the November 2023 transactions had no legal effect).
To set aside the summonses, however, I consider that I would need to reach a level of satisfaction as to the correctness of the applicants' position such that it would not be appropriate for the summonses to remain on foot.
I have come to the view that the applicants' principal argument or contention is no more than arguable and, indeed, at this stage it does not appear to me to be the better view.
The matters which, in my view, might be sensibly argued against the applicants' central proposition include:
1.the General Security Deed may be construed as reflecting an intention to replace the Bond Agreement with a new security arrangement;
2.such an intention may demonstrate an intention that the General Security Deed was making a new agreement, albeit one which was consistent and materially in the same terms as the earlier agreement in the Bond Agreement;
3.it is arguable that although Gleneagle had a security interest in the assets of Atari, the assets had not been alienated and Gleneagle had not taken any action to enforce its security prior to 1 November 2023;
4.the Restructure Deed expressed that there was to be a sale of Atari's assets to Rampage, rather than merely being a transfer of Gleneagle's assets to Rampage (which arguably would not require the agreement of Atari on the applicants' central argument); and
5.the parties to the November 2023 transactions clearly thought they were making agreements which had some effect having gone to the trouble of having the agreements documented by solicitors.
If it is arguable that the November 2023 transactions did dispose of Atari's assets, then, in my view, there is arguably a question of, at the least, whether Mr Douglas had breached any statutory or general obligations to Atari in disposing of assets then and, or, to a purchaser in which he, Mr Douglas, had an interest.
Given the lead up to the November 2023 transaction, if Mr Douglas had breached obligations to Atari, then it appears that there arguably are questions as to whether Mr Rosenberg and Mr Shellim were knowingly involved in a way that would have consequences in the general law or accessorial liability under the Corporations Act.
At the very least, it appears plain to me that Mr Rosenberg and Mr Shellim may have information which would be relevant to the enquiries into Mr Douglas' conduct as the director of Atari.
I am not aware of a case which suggests a particular test to be relevantly applied here. As said, I consider that I would have to be satisfied that the applicants' central contention was plainly correct or plainly the better view before I could come to the view that there was inutility in allowing the summonses to stand on the basis that no loss could have been suffered by any party by reason of the November 2023 transactions.
Even if I had come to that view (which I have not), the question would remain as to whether the summonses could be justified by the plaintiff seeking the summonses for the purposes of: '[facilitating] the administration or enforcement of the law concerning the public dealings of [Atari] in external administration and its officers'.[30]
[30] This was put to ASIC as one of the reasons the plaintiff sought to undertake the examinations in the summonses: [22] in GHS-47 to the Simm affidavit. In that application, the plaintiff also cited Walton v ACN 004 410 833 Ltd (Formerly Arrium Ltd) (In liq) [2022] HCA 3 [175] (Edelman and Steward JJ); see also at [118], [123], [126] (Gageler J).
I would have held that they were.
The applicants' other grounds for setting aside the summonses
The applicants (principally by their written submissions) also contended that:
1.the summonses were oppressive for various reasons;
2.they were issued for an improper purpose; and
3.there was a lack of disclosure on the part of the plaintiff to the Court.
The oppression which the applicants contended for is primarily the direct result of their succeeding in their central argument.
If, as the submission ran, the summonses are inutile, then they would, necessarily, be oppressive.
As I have not found the summonses to be obviously or necessarily inutile, I do not accept that they are oppressive on that basis.
The applicants' argument as to the summonses having been issued for an improper purpose followed largely the same steps as the argument that the summonses were oppressive.
By parity of reasoning, I would not accept that submission.
Turning then to the lack of disclosure. The applicants point to what was said to ASIC by the plaintiff when it was seeking authorisation to become an eligible applicant. The submission, as I understand it, is that in the application to ASIC, there was no highlighting of the fact that Gleneagle was already a secured creditor via the Bond Agreement. Nor, within the application, was there a disclosure that the November 2023 transaction could have no effect.
The applicants then ask the Court to infer that those matters were not brought to its attention in the way required on the application for the summonses to issue.
The plaintiff in response drew attention to the fact that the documents relevant to the November 2023 transactions were sent to ASIC and it would have been apparent, from them, that Gleneagle was already a secured creditor before the November 2023 transactions.
Whether a non-disclosure, if it be such, is material and would lead to the setting aside of an order made ex parte is the subject of many decisions which I do not think I need to canvas.[31]
[31] See for example the review of some of the cases and principles in Entyr Ltd v Eastman [2023] WASC 469 at [55] and following.
In circumstances where I do not consider the applicants' argument about the Bond Agreement and the November 2023 transaction is unarguably correct, I do not consider the disclosure made to ASIC was materially insufficient. Nor do I draw the inference in respect of the application for this Court.
Applicants' alternative application regarding supporting affidavits
In the alternative to the primary applications to set aside the summonses, the applicants sought inspection of an affidavit which had been made in support of the application for the examinations.
The applicants identified the principles stated by the Court of Appeal in Bazzo v Robert Michael Kirman and William James Harris (as joint and several liquidators of Whitby Land Company Pty Ltd (in liq) [2021] WASCA 170 that:
Where a person to whom an examination summons has been issued applies to the court for an order discharging the summons and, in the context of that application, seeks to inspect the affidavit relied upon by the eligible applicant who applied for the summons, the court must be satisfied that the person who seeks to inspect the affidavit has an arguable case that the examination summons has been issued for an improper purpose or involves an abuse of the court's process. Ordinarily, if the person establishes an arguable case, it can be accepted that there are persuasive grounds for permitting the person or his or her legal representatives to have access to the affidavit.[32]
[32] Bazzo v Robert Michael Kirman and William James Harris (as joint and several liquidators of Whitby Land Company Pty Ltd (in liq) [2021] WASCA 170 [85] (Buss P and Tottle J, Mitchell JA agreeing).
In no way doubting the above approach set out by the Court of Appeal, in my view the approach will have much less relevance in a case such as the present where the applicants' strongest argument to set aside the summonses is that, as a matter of law, there is a lack of utility in them standing.
That is, the principles may be thought to immediately apply where the applicant has overcome a persuasive burden that is the result of the provision in s 596C of the Corporations Act which mandates a starting position of the supporting material not being available. The inutility argument is, in my view, of a different type and character.
In any event, I have not concluded that, presently, the better view is that the summonses are oppressive or an abuse of process.
I do not accede to the applicants' alternative application.
Disposition
I would dismiss the applicants' applications.
I will hear the parties on the final form of the orders to be made, and costs, as needs be.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
IF
Associate to the Hon Justice Howard
4 MARCH 2025
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