- Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd

Supreme Court of NSW|2019-01-25|Before: Black J

Solicitors: H & H Lawyers (Applicants) Koffels (Respondent) File Number(s): 2018/297388

Judgment

By Interlocutory Process filed on 13 December 2018, the Applicants, Mr Lee, Mr Choi, Ms Han and IBN Global Pty Ltd ("IBNG") sought a range of relief in respect of liquidator's examinations which had been set down to take place on 31 January 2019. The application was filed just before the end of the 2018 Court term and, by reason of the impending examination dates, it was heard during the Court vacation, over three half-days on 21, 24 and 25 January 2019. I made orders declining an application for an extension of time to bring the application, and determining associated matters, on those days and indicated that I would subsequently publish my reasons for judgment. These are my reasons for judgment.

The affidavit evidence

Before turning to the several applications, it is desirable that I set out several background facts and identify the affidavit evidence on which the parties relied.
Mr Choi holds 4 shares, Ms Han holds 3 shares and Ms Yeo holds 3 shares in Ji Woo International Education Centre Pty Ltd (in liq) ("Ji Woo"). Ji Woo previously provided education agency and consultancy services to persons, largely from South Korea, who travelled to Australia to study. Another company associated with the Applicants, IBNG, now provides the same services as Ji Woo. Mr Lee holds 80 shares, Mr Choi holds 10 shares and Ms Han also holds 10 shares in IBNG and Mr Choi and Ms Han are its directors.
On the application of Ms Yeo, Ji Woo was reinstated and a liquidator was appointed to it by an order made by the Federal Court of Australia on 8 December 2017, after a contested hearing in which that reinstatement was opposed by the Applicants or some of them. The judgment of the Federal Court of Australia in Re Ji Woo International Education Centre Pty Ltd (Deregistered); Yeo v Australian Securities and Investments Commission (ASIC) [2017] FCA 1480 ("Reinstatement Judgment") was tendered, with a limiting order that it was not proof of the facts found but only of the information presently available to the Liquidator. Gleeson J there found (at [133]-[139]) that: "The purpose of the reinstatement application is to permit the appointment of a liquidator, to investigate possible claims by the company against Mr Choi and [IBNG]. I accept that the circumstances in which Ji Woo ceased to trade are worthy of investigation because, on the face of it, it appears that Ji Woo gave up a valuable business for no consideration. On the other hand, there are factors which might support a conclusion that reinstatement is not just, particularly, Ms Yeo's possible acquiescence in events about which she now complains. There is no evidence of any likely prejudice if the company is reinstated. Reinstatement would enable the possibility of proceedings, of the kind contemplated by Ms Yeo, to be investigated …. I accept that public policy favours reinstatement of the company to enable the proposed investigation to be conducted and the potential causes of action to recover funds for the benefit of Ms Yeo to be explored. On the current evidence, there appears to be a real question about whether Ms Yeo's legal rights as a shareholder were defeated by the manner in which Ji Woo's business was taken over by [IBNG]. I do not accept that Ms Yeo's custodial sentence is a factor which weighs against reinstatement of the company. The main purpose of the reinstatement is to investigate the circumstances in which the business of the company was apparently transferred to [IBNG] for no consideration. The investigation will not focus on Ms Yeo's likely credit in relation to any proposed action to be brought on behalf of the company, although it is probably a relevant matter for assessment by a liquidator. I am not satisfied that Ms Yeo's custody will significantly impair a liquidator's investigation. … Ji Woo's reinstatement is required in order to enable a liquidator to conduct the investigations identified on Ms Yeo's behalf and to determine whether to take action on the behalf of the company. Taking all of the above matters into account, I am satisfied that it is just that [Ji Woo's] registration be reinstated and that I should exercise the discretion to make the order for reinstatement sought by Ms Yeo." (Footnotes omitted)
Mr Elkerton was subsequently appointed liquidator of Ji Woo by the Federal Court of Australia, in place of the former liquidator. It appears that Ms Yeo, or a former shareholder and director of Ji Woo, Mr Hwang, have provided funding for the conduct of the liquidation. The Applicants claim that IBNG has claims against Ms Yeo in respect of amounts misappropriated by her from IBNG. Ms Yeo has been the subject of proceedings in South Korea in respect of the affairs of IBNG, although there is a dispute as to the current status of those proceedings which it is not necessary to resolve. It appears that Mr Lee and Mr Hwang, and interests associated with them, are in competition in South Korea and Australia and have been involved in earlier litigation, including Re Ji Woo International Education Centre Pty Ltd [2016] NSWSC 1060 and may also be involved in other ongoing litigation. The solicitors who acted for Ms Yeo in the proceedings to reinstate Ji Woo also act on behalf of Mr Elkerton, the present liquidator of Ji Woo.
On 31 October 2018, upon the Liquidator's application, the Court issued a summons for examination of Mr Choi under s 596A of the Corporations Act 2001 (Cth) and summonses for examination of Mr Lee and Ms Han under s 596B of the Corporations Act. Mr Choi was served with a summons for examination on 1 or 2 November 2018. Mr Lee and Ms Han were served with a summons for examination in early November 2018, although their evidence and the evidence of their solicitor were inconsistent as to the date on which that examination summons was served. On 7 November 2018, the Court issued several orders for production, including to Mr Choi as public officer of IBNG, and IBNG was served with that order on 7 or 8 November 2018.
On 13 December 2018, on the application of Mr Choi, Mr Lee and Ms Han, I granted leave for each of them to be heard in the application under r 2.13 of the Supreme Court (Corporations Rules) 1999 (NSW), without becoming party to it and, by consent, granted them leave to inspect the Liquidator's affidavits sworn 27 September 2018 and 6 November 2018 and his solicitor's affidavit dated 23 November 2018.
The Applicants relied on the affidavit dated 12 December 2018 of their solicitor, Mr Hong. The Applicants also relied on three affidavits of Mr Choi. In his first affidavit dated 21 December 2018, Mr Choi says that he was personally served with the examination summons on or about 1 November 2018 and that IBNG was served with the order for production on or about 8 November 2018. His evidence is that he was outside Australia for some time after the examination summons was served, between 3 and 7 November 2018 and 22 and 26 November 2018, and attended a significant international student expo organised by IBNG in South Korea for part of that period; that he was extremely busy in that period; and that he was occupied at home since his wife had become pregnant with their first child, who was due to give birth on 3 January 2019. Mr Choi says he was "unable" to seek "proper legal advice" about his rights in respect of the summons for examination and order for production until 26 November 2018 when he engaged his current lawyers, as distinct from the lawyers who had acted for him in previous proceedings concerning associated matters. Mr Choi's affidavit also addresses the nature of IBNG's business and its income and identifies the suggested commercial risks arising from the production of confidential information by it. Mr Choi's evidence is also that the liquidator had not sought specific information from Mr Lee, Ms Han or Mr Choi before issuing summonses for examination and had not investigated any liability of Ms Yeo to Ji Woo with regards to a suggested misappropriation of funds or reported to shareholders with reference to the utility of his investigations or properly and independently investigated whether Ms Yeo consented to the establishment and operation of IBNG.
By a second affidavit dated 21 January 2019, Mr Choi referred to his engagement of three other law firms, in respect of associated proceedings, and indicated that he did not have legal representation with respect to "these proceedings" (or, more precisely, this application) until he engaged his current solicitors. A third affidavit of Mr Choi referred to Mr Hwang's involvement in proceedings in South Korea. Other aspects of that affidavit, which sought to demonstrate that Ms Yeo had "relinquished" her shares in IBNG, but were incapable of demonstrating any legally effective transaction to that effect, were not admitted in evidence.
By his affidavit dated 21 December 2018, Mr Lee refers to his earlier involvement in business, including Ji Woo, with Mr Hwang and to several subsequent proceedings in which they have been involved. Mr Lee explained his delay in bringing an application to set aside the examination summonses by his business commitments in relation to the student expo between 9 and 22 November 2018, and to the fact that he was helping his wife, Ms Han, where they had had their first child in June 2018, and was not able to instruct his present solicitors until he came back to Australia (after the student expo) on 3 December 2018.
Ms Han's affidavit dated 21 December 2018 indicated that she gave birth to her first child with Mr Lee in June 2018; acknowledged that she had returned to work in October 2018; but indicates that she had relied on Mr Lee to deal with the examination summonses and had prioritised work and parenting responsibilities over any response to those summonses. Her evidence was that she was not aware of any urgency to take action until she met with Mr Lee and Mr Choi with her current solicitors on about 5 December 2018.
The Applicants also read an affidavit of their solicitor, Tin-Loch Shea dated 21 December 2018, which related to dealings between the legal representatives which are not material for present purposes.
The Liquidator in turn relies on his affidavits dated 27 September 2018, 6 November 2018 and 9 January 2019 and on his solicitor's affidavit dated 23 November 2018. The Liquidator's first affidavit, on which he had relied in support of the issue of the examination summonses, referred to his appointment as liquidator and the circumstances in which Ji Woo had been reinstated by the Federal Court of Australia and to several findings made by Gleeson J in that judgment (which, as I noted above) was admitted in evidence, with a limiting order, not as proof of the facts found but as evidence of matters known to the Liquidator, including that there were serious discrepancies in the evidence of Mr Choi, Mr Lee and Ms Han given before her Honour; Ms Yeo had been deprived of the value of her 30% shareholding in Ji Woo by, inter alia, its deregistration without her consent; that Ji Woo should be reinstated to permit the appointment of a liquidator and the investigation of possible claims by Ji Woo against Mr Choi and IBNG, and those matters were worthy of investigation, where it appeared that Ji Woo had given up a valuable business to IBNG for no consideration; and that there appeared to be a real question whether Ms Yeo's rights as shareholder had been defeated by the manner in which Ji Woo's business had been assumed by IBNG. Not surprisingly, the Liquidator relied on those matters as supporting the issue of the summonses for examination and orders for production. The Liquidator's further affidavit dated 6 November 2018 related to the orders for production that were sought against several parties.
By his third affidavit, in reply, dated 9 January 2019, Mr Elkerton led evidence that he had given consideration to the value of any claims by Ji Woo, and that the examination summonses and orders for production are directed to assisting him to form a view as to the likelihood of recovery against IBNG and/or any of Mr Choi, Mr Lee and Ms Han, and the possible quantum of such claim or claims (Elkerton 9.1.19 [2] (admitted as evidence with a limiting order under s 136 of the Evidence Act 1995 (NSW) as evidence of the Liquidator's state of mind)). Mr Elkerton also refers (in evidence similarly limited under s 136 of the Evidence Act) to having had regard to the observations of Gleeson J in the Reinstatement Judgment in forming the opinion that the relevant matters were appropriate to be examined under ss 596A and 598B of the Corporations Act.

Scope of the statutory examination regime and a preliminary issue

Before turning to the specific orders sought by the Applicants, I should note the applicable statutory regime and address a preliminary matter raised by Mr Smallbone who appears for the Applicants. Section 596A of the Corporations Act requires a court to issue a summons for examination where specified conditions are satisfied, including that the proposed examinee was an "officer" (including a director) of a corporation during a specified period. Section 596B(1) of the Corporations Act provides that a court may summons other persons for examination in specified circumstances.
I have regard to the purpose and scope of liquidators' examinations, and the circumstances in which they may be at aside, as summarised Re New Tel Ltd (in liq); Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 145 FCR 176 at [252] where Lander J (Ryan and Crennan JJ concurring) observed that: "1. The power given to the court to summon a person for examination is a coercive power. 2. The purpose of the power is to be gleaned from the legislation. 3. The following legitimate purposes emerge: 3.1 First, an examination is designed to serve the purpose of enabling an eligible applicant to gather information to assist the eligible applicant in the administration of the corporation. 3.2 Second, it assists the corporation's administrators to identify the corporations assets, both tangible and intangible. It also allows the corporations liabilities to be identified. 3.3 Third, the purpose is to protect the interests of the corporation's creditors. 3.4 Fourth, it serves the purpose of enabling evidence and information to be obtained to support the bringing of proceedings against examinable officers and other persons in connection with the examinable affairs of the corporation. 3.5 Fifth, it assists in the regulation of corporations by providing a public forum for the examination of examinable officers of corporations. 4. If an eligible applicant applies for an order for the examination of a person for a purpose unconnected with the purposes authorised by the legislation that will be an abuse of process and the order, if obtained, will be set aside. 5. The procedure may not be used to allow a party to obtain a forensic advantage and, if it is, any order obtained will be set aside. 6. The procedure may not be used as a dress rehearsal for the cross-examination of a person in a pending or subsequent action. However, it is not improper to seek an order of the Court to summon a person for examination whilst litigation is pending against that person or entities connected with that person. 7. The question whether in any particular case the applicant has used the procedure abusively will depend upon the applicant's purpose in seeking the order and all of the surrounding circumstances. It will not be an abuse unless an offensive purpose is at least the predominant purpose. 8. It will be an offensive purpose if the application cannot be characterised as being for the benefit of the corporation, its contributories or creditors. 9. A creditor may, if first authorised by ASIC, apply to the Court for an order to summon for examination a person for the purpose of obtaining information in relation to a debt owed to the creditor if such an examination would be in the interests of the corporation or its creditors as a whole. 10. A creditor may not use the procedure for the purpose of obtaining a forensic advantage which would not have been available to the creditor if the corporation had not gone into administration." That analysis was also adopted by Barrett J in Wily Re LED (South Coast) Pty Ltd [2009] NSWSC 946; (2009) 76 NSWLR 248 at [36] and by Gleeson JA in Re Cardinal Group Pty Ltd (in liq) [2018] NSWSC 748 at [15].
Rule 11.5 of the Corporations Rules deals with an application to set aside an examination summons and relevantly provides that: "(1) This rule applies if a person is served with an examination summons. (2) Within 3 days after the person is served with the examination summons, the person may apply to the Court for an order discharging the summons by filing: (a) an interlocutory process seeking an order discharging the summons, and (b) an affidavit stating the facts in support of the interlocutory process. (3) As soon as practicable after filing the interlocutory process seeking the order and the supporting affidavit, the person must serve a copy of the interlocutory process and the supporting affidavit on: (a) the person who applied for the examination, and (b) unless that person is ASIC or a person authorised by ASIC--ASIC."
Mr Smallbone raised a preliminary issue, submitting, at one point, that the entirety of the Corporations Rules (and presumably the corresponding rules adopted in the Federal Court of Australia and the Supreme Courts of other States), and later, in the submission on which he ultimately settled, that rule 11.5 of the Corporations Rules or the three words "[w]ithin 3 days" at the beginning of rule 11.5(2) were invalid. In support of that submission, Mr Smallbone addressed the nature of the Court's power to make rules in respect of its jurisdiction under the Corporations Act, and the history of the Corporations Rules, although his submissions did not recognise that those rules were harmonised with the Corporations Rules of the Federal Court of Australia and other State Supreme Courts in order to promote the objectives of the national regime for corporations regulation. Mr Smallbone also referred to the scope of rule 11.5(2) of the Corporations Rules. It is not necessary to address those submissions given the findings which I reach on other grounds below.
Mr Smallbone submitted that it was "strange" that any application to set aside an examination summons should be the subject of a three day limitation period. It does not seem to me that there is anything strange about that time limit, where there is an obvious public policy in requiring that applications to set aside examination summonses brought promptly, given the public role of liquidators' examinations and the need to bring insolvency administrations to a close as quickly as possible. That time limit also mitigates the substantial difficulties for the parties, the court and the community (well-illustrated by this matter) if an application to set aside examination summonses is not promptly brought, so that a court may have to displace other hearings for other parties in order to determine that application, or defer an examination which has already been set down before a Registrar where the basis for doing so has not been established on the merits and may never be established, or leave the application to set aside the examination to become moot if the examination proceeds before it is determined. That time limit has also been adopted in the Corporations Rules of this Court, the Federal Court of Australia and other state Supreme Courts dealing with corporations matters in the harmonised Corporations Rules. Mr Smallbone also submitted that it was "even more strange" that r 11.5 of the Corporations Rules and the relevant Court form did not require a warning of that time limit. It may well be desirable that a warning of that time limit be included in the prescribed form, although its absence is not material in this case, for the reasons noted below. Mr Smallbone also advanced lengthy submissions seeking to establish a suggested lack of rationality in a short time limit to set aside an examination summons, which it is not necessary to address given the findings which I reach below on other grounds.
Mr Smallbone submitted that r 11.5(2) of the Corporations Rules, or at least the three-day requirement in that rule, was not a rule for carrying the Supreme Court Act 1970 (NSW) into effect, because its tendency was to negate the Court's jurisdiction and to prevent one class of litigants (presumably, those seeking to set aside examination summonses) invoking the Court's jurisdiction. Mr Smallbone also made extensive submissions as to the scope of the Civil Procedure Act 2005 (NSW) and the Court's rule-making power, which it is also not necessary to address given the findings that I reach below. Mr Smallbone also addressed the principles applicable to dealing with the inconsistency between rules, including inconsistency involving the Corporations Rules, but without reference to the recent consideration of that issue by the Court of Appeal in Choy v Tiaro Coal Ltd (in liq) [2018] NSWCA 205; (2018) 130 ACSR 475.
Mr Smallbone's ultimate submission was that the three-day limit in rule 11.5 was invalid, because, he submits, that the short time period frustrates the exercise of any right to set aside the examination summons. I will assume, without deciding, that that rule might be invalid if it had that effect: Wall v Commissioner of Railways (1905) 7 WALR 206; Harrington v Lowe [1996] HCA 8; (1996) 190 CLR 311; Minister for Immigration and Multicultural Affairs v Singh [2000] FCA 377; (2000) 98 FCR 77. I do not accept that that rule frustrates, prevents or deters the exercise of the court's jurisdiction to set aside an examination summons, or is invalid for that reason, where the time to bring such an application may be extended in an appropriate case: compare Harrington v Lowe above, where the High Court upheld the validity of a rule imposing a short time limit on applications to review decisions of registrars on the same basis.
Here, as Mr Smallbone recognised, the Court has power to extend the time to bring an application to set aside an examination summons under rule 1.12 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). Applications of that kind are frequently made and granted and the Applicants themselves invoke the Court's power to extend the time to bring such an application in this case. For example, in Re Bridgeport - Advisers and Asset Managers Pty Ltd [2005] NSWSC 757, Barrett J held that the time to set aside an examination summons under r 11.5(2) of the Corporations Rules could be extended under UCPR r 1.12, and extended the time in that case, although dismissing the application to set aside the examination summonses. It does not, of course, follow that the rule is invalid simply because the basis for an extension of time is not available in a particular case, because the application for that extension of time does not have sufficient merit to succeed.
Mr Smallbone also developed a complex submission, by reference to s 61 of the Civil Procedure Act 2005 (NSW) and the High Court's decision in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175, which appeared to be directed to a proposition that the fact that a step is taken out of time does not invalidate proceedings. Mr Smallbone submitted that the Court had no power to set aside any part of the Interlocutory Process that was held to be out of time on the Liquidator's application. Mr Smallbone acknowledged that the Court had power to act on its own motion under s 63(4) of the Civil Procedure Act, but submitted that that power is controlled by the overriding purpose and the Court's inherent duty to consider the exercise of its jurisdiction for the administration of justice. I also do not consider it necessary to deal with this submission in detail. If a basis for an extension of time to set aside the examination summons is established on the merits, then I would grant such an extension. If it is not, then it would not promote the just, quick and cheap resolution of the real issues in dispute in the proceedings or the purposes of the statutory regime for the external administration of insolvent companies to proceed with or accede to an application to set aside an examination summons that is brought out of time.

Whether an extension of time to bring the application to set aside the examination summonses should be granted in this case

Mr Smallbone submitted, and I accept, that the relevance of an application for any delay by the Applicants is to whether it is just and fair to grant the extension of time that is sought, in respect of the examination summonses: Iovanescu v McDermott [2004] NSWCA 106 at [16]. Mr Smallbone also submitted that a satisfactory explanation of delay is not a pre-condition to the exercise of the power to extend time. I accept that submission, at least in the sense that time may more readily be extended for a meritorious application, even if there is a less satisfactory explanation for delay. Mr Smallbone also referred to the observation of Emmett J in Commonwealth v Sheahan [2004] FCA 1301 at [28] that an extension of time "should only be granted where there is a satisfactory explanation provided for delay and the delay has not caused prejudice of an irreparable nature", and to his Honour's recognition of the absence of prejudice to the liquidator as a significant factor in that case. Mr Smallbone also rightly drew attention to the treatment of the relevant issues by Barrett J in Re Bridgeport - Advisers and Asset Managers Pty Ltd [2005] NSWSC 757, where his Honour recognised that r 11.5 of the Corporations Rules exhibits "an expectation of prompt action", and also noted that compliance with that rule was not a pre-condition to invoking the jurisdiction, by contrast with the time limit under s 459G of the Corporations Act for the filing of applications to set aside a creditor's statutory demand. Mr Smallbone also rightly recognised that extensions of time were refused in Re 82-84 Belmore Street Pty Ltd (in liq) [2014] NSWSC 1701 and in Re Cardinal Group Pty Ltd (in liq) [2018] NSWSC 748, in each case in circumstances where the Court was satisfied of the lack of merit of the underlying application.
Mr Smallbone also addressed the chronology of service of the examination summons and orders for productions, the filing of the Interlocutory Process on 13 December 2018, and the steps taken by legal representatives after they were engaged in early December 2018. I have referred to the affidavit evidence of the Applicants dealing with their delay in seeking legal advice above.
Mr Baird, who appears for the Liquidator, responds that Mr Choi's explanation for the delay in seeking to set aside the examination summons is manifestly inadequate and insufficient to explain the delay in making the application until the last week of the Court term, when his examination was, and was known to be, listed on 31 January 2019 during the first week of the new Court term. Mr Baird submits that Mr Lee's and Ms Han's explanation is also inadequate to explain her delay. Mr Baird submits that the Court should not extend the time to bring the applications to set aside the examination summonses, which he submits were brought late and so close to the examinations listed on 31 January 2019. Mr Baird also submits that the application to set aside the examination summonses has little substantive merit, pointing to the observations made by Gleeson J in the Reinstatement Judgment and the Liquidator's reasoning for undertaking the examinations, as set out in his first affidavit, in support of the issue of the examination summonses.
Mr Baird submits that, having regard to the findings of Gleeson J in the Reinstatement Judgment and the Liquidator's expressed purpose, as set out in his affidavit, the Court could be comfortably satisfied that the examinations are being sought for a proper purpose, namely, to ascertain the likelihood of a successful recovery against IBNG and the other Applicants in relation to the transfer of Ji Woo's business to IBNG for no apparent consideration, and are for the benefit of Ji Woo and at least one of its contributories. Mr Baird also submits that the utility of the proposed examinations is established by the consideration of these matters by Gleeson J in the Reinstatement Judgment; that the funding for the examinations by Mr Hwang was also addressed in the proceedings before Gleeson J; that solicitors retained by a creditor or funder may be retained by a liquidator, in an appropriate case; that any issue as to confidentiality of documents produced under the orders for production may be addressed by appropriate undertakings given by the solicitors for the Liquidator; and, not surprisingly, that the purposes of the Liquidator are distinct from the purposes of Ms Yeo and Mr Hwang.
In accordance with the case law, I have regard to the extent of the Applicants' delay in bringing the applications, their explanation for that delay and the prospects of the applications to set aside the examination summonses in determining whether to extend the time to bring the applications. As to the extent of delay and the explanation for it, it seems to me that the matters to which Mr Choi, Mr Lee and Ms Han refer, in explanation of a relatively lengthy delay in setting aside the examination summonses, are no more than ordinary business activities and ordinary domestic commitments, albeit of persons who were overseas for part of the relevant period. I give little weight to the fact that Mr Choi and Mr Lee were present in South Korea for part of that period rather than in Australia, where there is no reason to think that there are any particular difficulties in communication between South Korea and Australia, or in the retainer of Australian solicitors by Australian companies or Australian residents, merely because they are temporarily engaged in business activities in South Korea. While I recognise that the form prescribed by the Corporations Rules did not contain a warning as to the need for any application to set aside the examination summonses and orders for production to be brought promptly, there is no reason to think that the Applicants did not recognise that the receipt of orders for examination or orders for production of documents was a serious matter which required prompt attention. This is also not a case of a short delay in seeking legal advice or bringing those applications.
It seems to me that the applications have little or no prospect of success, by reason of the matters that the Liquidator could properly take into account in determining whether to proceed with examinations, including the observations made by the Federal Court of Australia in the Reinstatement Judgment, and the fact that there is no admissible evidence in these proceedings (as Mr Russell, who appeared for the Applicants on the second day of the hearing, fairly acknowledged) that is capable of establishing that any attempt by Ji Woo's other shareholders to expropriate Ms Yeo's shares was effective under Australian law. Where there is no evidentiary basis for a submission that that expropriation was effective, Ms Yeo remains a contributory in Ji Woo; Ms Yeo will benefit from any distribution to contributories, arising from any successful proceedings brought by Ji Woo against IBNG, Mr Choi or the other Applicants; and there is no reason that Ms Yeo's entitlements as a contributory on a winding up of Ji Woo should be disregarded, even if IBNG or any of the Applicants may also have claims against her, in South Korea or Australia, in respect of the affairs of IBNG or, possibly, Ji Woo.
The application to set aside the examination summons also turns on the proposition that the examination is an abuse of process. Mr Smallbone also makes extensive submissions as to the legal principles applicable to establishing abuse of process, which it is not necessary to address given the limited factual basis for that submission. Mr Smallbone submits, variously, that the liquidation or the examinations are funded by a competitor of IBNG; the subject matter of the proposed investigation is a claim for the benefit of the minority shareholder, Ms Yeo; Ms Yeo "expressed no interest in the matter" until switching to the "funder's camp" the Liquidator has not investigated the question whether Ms Yeo consented to the transfer of the business to IBNG (although I observe that he may fairly have regard to the Federal Court's finding that she had not); the Liquidator does not suggest that he has given preliminary consideration to the value of the proposed claim; and the former liquidator has retired, without funds, and the present liquidator has engaged the funder's solicitor.
I am not persuaded that these matters establish a seriously arguable case that the Liquidator's examination is an abuse of process. First, and importantly, there is no reason to question the Liquidator's independence or to doubt that he has appropriately considered the observations of the Federal Court in its decision to reinstate Ji Woo, in order to allow the investigation of the matters that he now proposes to investigate. It does not seem to me to be the point that the funder is a competitor of IBNG, or may have its own motives to fund the examination, can support a finding of abuse of process, where that examination will be conducted by an independent liquidator and has the capacity to bring about recoveries for Ji Woo and persons interested in it. The fact that the proposed investigation will benefit a minority shareholder, Ms Yeo, does not establish an abuse of process, where it is a proper purpose of a liquidation to distribute the assets of the company to contributories after the claims of creditors have been met. Whether or not Ms Yeo expressed an interest in the matter, at an earlier point, or independently of Mr Hwang, has no impact on her entitlements as a contributory of Ji Woo. There is no basis to find that the Liquidator will not give proper consideration, at an appropriate time, to the question whether Ms Yeo consented to the transfer of Ji Woo's business to IBNG, although the Federal Court was not persuaded of that proposition. There is also no basis to find that the Liquidator will not properly investigate any claims that Ji Woo might have against Ms Yeo, and there is no reason that the Liquidator must investigate claims against Ms Yeo prior to investigating potential claims against IBNG, Mr Choi and the other Applicants.
There is no reason to think that the claims available to Ji Woo would not have real value, where it appears that it had a significant business, before the transfer of that business to IBNG, and IBNG now has a significant business. The fact that the Liquidator has retained a solicitor who has previously acted for Ms Yeo, and the funder, can be addressed by appropriate steps taken by the Liquidator, or the Court, to ensure that the Liquidator takes independent advice as necessary, and that any issues as to confidentiality are addressed. I will deal below with the application brought by the Applicants to restrain that solicitor from acting. I will also address a question of the proper scope of the order for production below. The proposition that Ms Yeo has been subject to adverse findings in the South Korean courts, in respect of her dealings with IBNG, does not establish any basis to impugn any rights which she may have as a contributory of Ji Woo.
Having regard to the extent of the delay in bringing the applications to set aside the examination summonses and the explanation for that delay, and to the prospects of the application, I am not persuaded that a case for an extension of time to set aside the examination summonses has been established in this case, and I am affirmatively persuaded that the time to set aside the examination summonses should not be extended. For these reasons, I decline to extend the time for the filing of applications to set aside the examination summonses under r 11.5 of the Corporations Rules. I did not entertain an application for an order that the summonses for examination be discharged, set aside or stayed in those circumstances, and the application for those orders was also dismissed.

Orders for production and conduct of examinations

The Applicants had originally sought that orders for production addressed to Mr Choi as Public Officer of IBNG be set aside, and that access by the Liquidator to documents produced by a third party be refused and the documents produced by that third party be returned to it or destroyed. Those orders were not pressed consequential upon the other findings that I had reached. I made orders under s 597 of the Corporations Act that the examinations of Mr Lee, Mr Choi and Ms Han take place in private, in order to protect information which the applicants contended was commercially confidential.

Application to restrain the solicitors retained by the liquidator from acting

By paragraph 9 of the Interlocutory Process, the Applicants sought an order restraining the solicitor, or firm of the solicitors, retained by the Liquidator from acting. That order appeared to be framed as an application to restrain the solicitors from acting for the Liquidator generally, although Mr Smallbone foreshadowed in submissions that he would seek to narrow the application to restrain those solicitors from acting, inter alia, in respect of the examination.
Mr Smallbone submitted that the Liquidator should be restrained from retaining the solicitors on the basis that they appear to be continuing to act for Mr Hwang, or entities associated with him, which appear to be providing funding for the liquidation or for the examinations, and for Ms Yeo. Mr Smallbone indicated a concern that if information came to the knowledge of the solicitors, and they had a continuing retainer to act for Mr Hwang, then the solicitor could use that knowledge for Mr Hwang's benefit, for example, for transactional work. Mr Smallbone referred to correspondence between the parties in respect of that issue. Mr Smallbone also submitted that the Liquidator's independence was undermined by the retainer of the solicitor who acts for, or had acted for, Mr Hwang and Ms Yeo.
Mr Smallbone fairly accepted that a liquidator may be permitted to retain a solicitor who is also retained by a creditor, at least in some circumstances, and referred to the observations of EM Heenan J in IND Energy Inc (a company incorporated in the British Virgin Islands) v Langdon [2014] WASC 364. In that case (at [138]), his Honour noted that, although "there is no absolute bar preventing an administrator from seeking and obtaining legal advice from a solicitor who acts for a party interested in the company to which the administrator is appointed", earlier cases "incline strongly towards the unsuitability of such a practice."
Mr Smallbone accepted, in submissions, that the Court may properly have regard to a liquidator's ability to retain a different solicitor, in matters that give rise to any conflict of interest, in considering whether the retainer of a creditor's solicitor impugned the liquidator's independence, but added the qualification that that was subject to the arrangement with the solicitor not giving rise to a conflict between the liquidator's independence and some other relevant interest in the winding up. Mr Smallbone relied on matters which had previously been addressed in the application for leave to extend the time to set aside the examination summonses, including the suggestion that the Liquidator had not made adequate inquiries in respect of claims against Ms Yeo, to support a submission that the retainer of Ms Yeo's solicitors had undermined or would undermine his independence. I do not accept that submission, because the Liquidator's evidence is that such inquiries remain open, and there is no suggestion that he would retain Ms Yeo's solicitors to advise him in respect of potential claims against Ms Yeo.
It is, of course, well-established that a liquidator must, in the performance of his or her duties, not only be independent, but also be seen to be independent: Re National Safety Council of Australia, Victorian Division [1990] VR 29 at 34; Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230; Australian Property Custodian Holdings Ltd v Capital Finance Australia Ltd [2012] VSC 124 at [113]; Re Anglican Development Fund Diocese of Bathurst Board (recs and mgrs apptd) [2015] NSWSC 6 at [47] (in respect of receivers); Re Bellafountain Pty Ltd [2017] NSWSC 391 at [36]ff. There are also statements in the authorities that it is "generally undesirable" for the liquidator to retain the same solicitors as a substantial creditor, however that is not "an absolute rule": Re Kala Capital Pty Ltd (in liq) [2012] NSWSC 1073 at [29]; Re Bellafountain Pty Ltd above at [40]. The guiding principle is that whether such an arrangement offends the requirement for independence of the liquidator will depend upon the circumstances: Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 1613 at [14]; Re Bellafountain Pty Ltd above at [44].
In Re 77738930144 Pty Ltd (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452, Gleeson JA similarly observed that there was no invariable rule that a liquidator may not retain solicitors who had previously acted for a substantial creditor and the question was whether such an arrangement prejudiced the liquidator's independence. In GDK Projects Pty Ltd, in the matter of Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541, Farrell J accepted that a liquidator could properly retain solicitors nominated by and previously retained by, a creditor and funder, where the solicitors had knowledge of the relevant materials and that would reduce the costs associated with the proceedings and the liquidation.
In this case, the Liquidator's evidence identifies both the solicitor's knowledge of the matters that are in issue in the examinations, and the consequential reduction of costs and expenses, and the advantage of that firm having employees who speak the Korean language, which is plainly a substantial advantage where both documents and oral communications in issue took place, in significant part, in Korean. I recognise that there are connections between Mr Hwang and Ms Yeo and the solicitors, which will require careful ongoing scrutiny by the Liquidator. However, the solicitors have offered, and the Court has noted, an undertaking which restricts both disclosure and use of the documents produced, or information contained in them, upon the examination summonses and orders for production, other than for specified purposes. The Court has also ordered that the examinations take place in private.
I am not persuaded that the Liquidator's independence is likely to be compromised by the retention of the solicitors, or that there is any real risk of a breach of confidentiality where the solicitors have offered that undertaking noted above. As Gleeson JA noted in Re 77738930144 Pty Ltd (in liq) (formerly Commercial Indemnity Pty Ltd) above, the Liquidator will need to remain alert to whether circumstances arise that might require him to take advice from another solicitor on a particular aspect of the investigations or any proceedings or more generally. For these reasons, I declined to make the order sought by the Applicants in that regard.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 February 2019

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