Ansell Ltd v Davies

Background 5 The history to this application is described in detail in the affidavit of Mr Christopher Cook, sworn 27 May 2011. Mr Cook and Mr Morgan Lane (both of Worrells Solvency and Forensic Accountants) were appointed joint and several liquidators of Valhalla Labour Hire Pty Ltd ("the company") on 10 July 2008 pursuant to a resolution of the director of the company (Mr Wayne Atkinson) and a resolution by the members of the company pursuant to s 499 of the Act. It follows that, for the purposes of the Act, the relation-back day was 10 July 2008 as per the definition of "relation-back day" in s 9 of the Act. Three years after the relation-back day is 10 July 2011. 6 Prior to liquidation the company had been engaged in the business of labour hire, and had also undertaken contract work in the construction industry. It appears that a cause of the company's insolvency may have been its inability to collect debts from trade debtors. 7 The company has had limited assets, or funding from which to pay the remuneration and expenses of the liquidators. Between 10 July 2008 and 14 November 2008 the liquidators collected $60,000 in debtors and $28,000 in collection of cash balances. 8 From material before the Court it appears that the prospective respondents were described in company records as employees of the company prior to liquidation. It also appears that Mrs Atkinson's salary was $156,624 per annum, Mr Daniel Atkinson's salary $120,640 per annum, and Mr Michael Atkinson's salary $128,960 per annum. On 23 April 2009 Mr Cook wrote to Mrs Atkinson requesting further details of three payments made to her in January, February and April 2008. On 25 May 2009 Mrs Atkinson informed Mr Cook that she was not able to provide any documentation or information in respect of these payments. 9 On 11 August 2009 a further advice to creditors was sent by Mr Cook summarising the dealings over the previous 12 months. The total cash at bank as at 11 August 2009 was $6,177.12. 10 In 2009 the liquidators decided that they would pursue the Australian Taxation Office ("ATO") in respect of a preference claim. Between 11 August 2009 and 30 September 2010 Mr Cook deposed that he and Mr Lane: finalised their investigations in the company's debtors and retention claims; continued investigations into preferences and voidable transactions; completed investigations into outstanding superannuation; recovered $134,371 from the ATO preference action; collected a further $2,000 in GST Collected/Refunds and $2,000 in Contributions Received; incurred a further $25,000 in remuneration, costs and outlays. 11 The cash at bank as of 30 September 2010 was $127,265.59. 12 On 8 October 2010 Mr Cook wrote to former directors of the company, Mr Butcher and Mr Finlay, requesting details of the employment of the prospective respondents with the company. In a letter exhibited to Mr Cook's affidavit, Mr Finlay replied, inter alia, that: certain related parties were paid remuneration in excess of what would be commensurate with their experience and qualifications; and Mrs Atkinson was not employed by the company nor did she provide any services to the company. 13 In light of this information the liquidators have commenced further investigations into the employment of the prospective respondents with the company. Mr Cook deposes that he believes additional payments were made by the company to Mr Daniel Atkinson and Mr Michael Atkinson but in the absence of a Court order he is not able to obtain relevant bank records. Mr Cook also deposes that it is questionable whether Mrs Atkinson performed any duties for the benefit of the company to entitle her to be remunerated to the extent to which she was, or at all. 14 In summary, Mr Cook deposed that the liquidators' position was that a claim was likely to exist against the prospective respondents, that there were reasonable prospects of success, and to that extent it would not be unfair by granting an extension of time to expose those parties to the continuing prospect of suit. Mr Cook also deposed that he had conducted real property searches in the names of the prospective respondents and that each potential examinee was the registered owner of real property. 15 On conclusion, in summary Mr Cook deposed that: The liquidators had been reluctant to date to commence proceedings against prospective respondents due to some potential evidentiary issues and an inability to precisely measure the quantum of any claim. There has been some delay in obtaining the necessary funds in the administration (particularly from an ATO preference claim) in order to pursue further voidable transactions. Further evidence is needed to quantify the claims against each party, namely by tracing the payments from the company's bank account and obtaining better evidence on the tasks performed for the benefit of the company by the three related employees. The liquidators consider that a public examination pursuant to s 596A and s 596B of the Act will be beneficial and assist the company in obtaining the information required to assess whether the contemplated proceedings would be brought for the benefit of the company and whether there is a cause of action. The liquidators have instructed lawyers to file an application for an examination, however they are advised by the lawyers that such examination is likely to be held in late July 2011 (which is more than 3 years after the relation-back date). Accordingly, the liquidators seek a six month extension of the time to make an application pursuant to s 588FF(1) against prospective respondents in order for the liquidators to have sufficient time to conduct the public examination and consider the material and evidence gleaned from that examination. 16 The matter first came before me on 6 June 2011. At that time however I adjourned the hearing because it was not clear to me at that time that the prospective respondents had been served with the application and supporting material. I also ordered that material including the originating process filed 1 June 2011, relevant affidavits, the submissions filed by the liquidators on 6 June 2011 and the transcript of the hearing on 6 June 2011 be served upon the prospective respondents. 17 At the hearing before me on 20 June 2011, Mr Jiear tendered two affidavits sworn by Ms Margaret Adams on 14 June 2011, and one affidavit sworn by Mr David Humphries on 8 June 2011. Ms Adams deposed, inter alia, that she was a process server, and had served copies of the documents on Mr Michael Atkinson and Mr Daniel Atkinson on 11 June 2011 at the Carina Mine Site, Yilgarn, Western Australia. Mr Humphries depose, inter alia, that he was a licensed investigator, and that he had served copies of the documents on Mrs Cathryn Atkinson on 7 June 2011. 18 There was no appearance in Court on 20 June 2011 by the prospective respondents. Exhibited to an affidavit of Mr Christopher Cook sworn 17 June 2011 is a copy of a letter Mr Cook deposes was sent by Mr Wayne Atkinson to Hynes Lawyers, the solicitors for the liquidators. Mr Cook deposes that the letter was attached to an email sent 16 June 2011 at 1.49 pm. The letter states as follows: QUEENSLAND FEDERAL COURT NUMBER QUD 119/11 IN THE MATTER OF VALHALLA LABOUR HIRE PTY LTD (IN LIQUIDATION) I have been made aware that the liquidator in the above matter have made an application to extend the liquidation of the company. It was on the grounds they wish to do further examinations into payments made by the company. At the time of the liquidator being appointed (Worrells Solvency & Forensic accountants) I provided all information requested by Worrells. This included all accounts and records held by the company accountant. In this information were the details of all transaction now in question by Worrells. Also provided were time sheets and invoices by the individuals now in question. They have now had that information for over three years and have never questioned the payments before. The payments made were at industry rates for the work provided and were not excessive to the work they were doing so I can not understand why they now wish to look at those payments. I am not in a financial position to afford a solicitor to represent me at this time. Nor take time of work to fly the Queensland to represent myself at the hearing as I am in a remote part of Western Australia. In the past three years I have been fully compliant with Worrells and my accountant has always sent all documentation in a timely manner. My request is that the extension not be granted and the company be closed so I can finally get on with my life. If you have any question please do not hesitate to contact me on ….. at any time. Kind regards Wayne Atkinson. [errors in original] 19 A copy of this letter was also emailed to the Queensland Registry of the Federal Court. 20 Finally, at the hearing on 20 June 2011 Mr Jiear submitted that, in view of the current location of the prospective respondents, the liquidators would be making application for public examinations to be held in Western Australia.

Relevant Principles 21 By s 588FF(3) the legislature has prescribed a limitation period by when an application under the section must be commenced. It is trite to observe that limitation periods are usually enacted for specific reasons. The genesis of the three year period prescribed by s 588FF(3) can be seen in the 1988 report of the Australian Law Reform Commission General Insolvency Inquiry, also known as the Harmer Report, where the Commission recommended a three year limitation period after public submissions to the Commission complaining about the sometimes inordinate delay in commencing proceedings in respect of voidable transactions, and judicial observations critical of the general delays associated with the winding up of insolvent companies (The Law Reform Commissioner Report No 45 General Insolvency Inquiry 1988 Vol 1 para 688). The recommendation of the Commission was implemented in subsequent amendments to the Corporations Law (Explanatory Memorandum to the Corporate Law Reform Bill 1992 (Cth) para 20), producing the legislative position currently in place under s 588 FF. 22 An order made pursuant to s 588FF(3)(b) is made in the exercise of judicial discretion. In Kugel, in the matter of Charben Haulage Pty Ltd (in Liquidation) [2009] FCA 1039 at [23] Emmett J explained that three questions must be considered in determining whether or not to grant an extension under s 588FF, namely: First, there must be an explanation for the delay in bringing proceedings within the three-year period. Second, a preliminary view of the merits of any proposed proceeding must be considered. Third, any possible prejudice resulting from the grant of the extension must be taken into account. 23 In a subsequent decision arising from the same proceedings (Charben Haulage Pty Limited (In Liquidation) [2010] FCA 477 at [9]) his Honour also noted as relevant issues as to: whether any suggestion had been advanced on behalf of the prospective defendants to a claim pursuant to s 588FE that they would suffer any forensic disadvantage or detriment by reason of the delay; whether relevant evidence may be lost as a result of the delay; whether it is oppressive to prospective defendants to allow an action to be brought long after the circumstances that gave rise to it have passed. People should be allowed to arrange their affairs and utilise their resources on the basis that claims can no longer be made against them; the public interest requires that there be an end to disputes as soon as possible (see Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 552). 24 The entitlement of a prospective respondent to be heard in opposition to the making of such an order is clear: Ansell Ltd v Davies [2008] SASC 203 at [58]-[59], BP Australia Limited v Brown [2003] 58 NSWLR 322 at [136], McGrath v National Indemnity Company [2004] NSWSC 391 at [5]. 25 I note a similar casting of relevant principles by Finn J in Taylor v Woden Constructions Pty Ltd [1998] FCA 1228 and Austin J in Green v Chiswell Furniture [1999] NSWSC 608 at [15].

Decision 26 In this case I am prepared to grant an order to the liquidators pursuant to s 588FF(3)(b) extending the time for bringing applications pursuant to s 588FF(1) against each of the prospective respondents for the following reasons. 27 First, the application was filed by the liquidators on 1 June 2011. The final date by when the application could have been made was 10 July 2011, being three years after the relation-back day: s 588FF(3)(b). Although I need not decide this point in light of the timing of the application before me, there is authority that an application for an extension of time under s 588FF(3)(b) must be made within that three year period: BP Australia Limited at [118], McGrath at [18] and [162]. 28 Second, I am satisfied that the each of the prospective respondents has been served, in a timely manner, with material relevant to the application. This is clear from the affidavits of Ms Adams and Mr Humphries. No appearance was entered by any of the prospective respondents in Court opposing the application. 29 Mr Wayne Atkinson in his unsworn letter claims that he is (and possibly some or all of the prospective respondents are) in a remote location, and that he himself is unable to finance a journey to the Federal Court in Queensland to appear in the proceedings or afford legal representation. However: while on the material before the Court it appears that Mr Wayne Atkinson is under financial pressure, is not possible to identify whether any of the prospective respondents are similarly constrained; on the material it is not possible to identify whether any of the prospective respondents were able to make arrangements for representation at the hearing of 20 June 2011; there is no material before me to suggest that the prospective respondents could not, for example, have sought to appear by telephone or video link. 30 I make these observations on the basis that it is unfortunate that no sworn evidence has been provided as to any forensic disadvantage or detriment which would be suffered by the prospective respondents, notwithstanding that they have had an opportunity to file same. 31 Third, I note the unsworn evidence of Mr Wayne Atkinson that he has always sought to cooperate with the liquidators, and that he - and presumably the prospective respondents - will suffer prejudice should an extension of time be granted because he and his family wish to move on with their lives beyond the liquidation of the company. However, I am satisfied that, should the liquidators not have the opportunity to properly investigate whether proceedings should be brought against the prospective respondents, the creditors of the company will suffer prejudice both from: the missed opportunity of having the affairs of the company properly investigated and administered in an orderly fashion in terms of the provisions of the law (Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 at 659); and more specifically - the missed opportunity to recover funds which may properly belong to the company and which should be available for distribution to creditors. 32 Fourth, I am satisfied that the liquidators have properly explained the reasons for their delay in commencing proceedings in respect of the prospective respondents. In particular, I note: the evidence of Mr Cook that the company was short of funds to undertake litigation, that the company then recovered funds from the ATO, and that these funds will enable the liquidators to conduct appropriate inquiries and investigations to decide whether proceedings should be brought against the prospective respondents; and the evidence of Mr Cook that the liquidators became aware of the prospect of an action against the prospective respondents only after receiving a letter from the former director of the company, Mr Finlay, on 11 October 2010. 33 I am also satisfied that the liquidators' request for an extension of time of nine months beyond the expiration of three years from the relation-back day is appropriate, in light of the apparent remoteness of location of the prospective respondents. To that extent, I do not consider the order sought by the liquidators is oppressive to the prospective respondents. 34 Finally, I am satisfied at this preliminary stage that the merits of proposed proceedings against the prospective respondents are such that the order sought by the liquidators be made. In particular I note evidence of Mr Cook that: he was informed by Mr Finlay, the former director of the company, that Mrs Atkinson was not a consultant of the company, and performed no duties entitling her to the remuneration paid to her; copies of invoices provided by Mrs Atkinson showed payment of sums to her by the company in round figures, with no adjustment for GST; monies paid to Mr Michael Atkinson and Mr Daniel Atkinson were near double the wages of their contemporaries; and the liquidators have conducted searches in respect of assets owned by each of the prospective respondents and believe that they would be able to satisfy an adverse order made against them. 35 To that extent I accept the submission of the liquidators that they have reasonable prospects of success in respect of proposed proceedings, and that it would not be unfair, by granting an extension of time, to expose the prospective respondents to the continuing prospect of suit. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier.