Bailey, in the matter of Australian Recruiting Group Pty Ltd (in liq) v Young

Federal Court of Australia|2020-09-17|Before: Markovic J

Any requirement for the interlocutory process dated 17 September 2020 (Interlocutory Process) to be served on the defendants be dispensed with in the first instance.
Grant leave to the plaintiffs to make the application ex parte.
Pursuant to s 530C of the Corporations Act 2001 (Cth), the District Registrar issue warrants substantially in the form of the warrants appearing in Schedule B to the Interlocutory Process.
Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) and on the ground that the order is necessary to prevent prejudice to the proper administration of justice, until further order or the discharge of this order pursuant to Order 5 below: (a) the Interlocutory Process is to be kept confidential and, except with the leave of the Court, is not to be disclosed to anyone other than the Court and Court staff; (b) the affidavit of Liam Thomas Bailey affirmed 15 September 2020 and the exhibit thereto, the affidavit of Blake O'Neill affirmed 15 September 2020 and the exhibit thereto, and the affidavit of Blake O'Neill affirmed 17 September 2020 and the annexure thereto, remain confidential and, except with leave of the Court, are not to be open to inspection to any person other than the Court and Court staff; and (c) these Orders are to be kept confidential and, except with the leave of the Court, are not to be disclosed to anyone other than the Court and Court staff.
Within 14 days of the last date on which the warrants have been executed, the plaintiffs are to file an affidavit reporting on the execution of the warrants and annexing a list of the books and records seized.

MARKOVIC J 1 The first plaintiff, Liam Thomas Bailey (Liquidator), is the liquidator of Australian Recruiting Group Pty Ltd (in liquidation) (ARG), Australian Recruiting Connect Pty Ltd (in liquidation) (AR Connect), Australian Recruiting Group Properties Pty Ltd (in liquidation) (ARG Properties) and ARG Staffing Pty Ltd (in liquidation) (ARG Staffing) (collectively, Companies). ARG is the second plaintiff in this proceeding. 2 The Liquidator was appointed as liquidator of ARG, AR Connect and ARG Staffing on 3 October 2018 and as liquidator of ARG Properties on 17 June 2019. 3 At the time of the Liquidator's appointment to each of the Companies, David Mark Young, the first defendant, was their sole director. 4 The Companies and the Liquidator have also commenced a second proceeding against 11 defendants, including Mr Young, in this Court. 5 On 17 September 2020, on the application of the Liquidator, I made orders including an order pursuant to s 530C of the Corporations Act 2001 (Cth) (Act) directing the District Registrar to issue warrants permitting a nominated person to search for and seize property or books and records of ARG from premises at two addresses. These are my reasons for making those orders. 6 In support of the application the Liquidator relied on his affidavit affirmed on 15 September 2020 and on two affidavits of Blake O'Neill, a solicitor in the employ of the Liquidator's solicitors with the day to day carriage of the matter, affirmed on 15 September 2020 and 17 September 2020 respectively. 7 Given the nature of the Liquidator's application, it was made ex parte.

LEGAL PRINCIPLES 8 Section 530C of the Act relevantly provides: (1) The Court may issue a warrant under subsection (2) if: (a) a company is being wound up or a provisional liquidator of a company is acting; and (b) on application by the liquidator or provisional liquidator, as the case may be, or by ASIC, the Court is satisfied that a person: … (ii) has concealed, destroyed or removed books of the company or is about to do so. (2) The warrant may authorise a specified person, with such help as is reasonably necessary: (a) to search for and seize property or books of the company in the possession of the person referred to in subsection (1); and (b) to deliver, as specified in the warrant, property or books seized under it. (3) In order to seize property or books under the warrant, the specified person may break open a building, room or receptacle where the property is or the books are, or where the person reasonably believes the property or books to be. (4) A person who has custody of property or a book because of the execution of the warrant must retain it until the Court makes an order for its disposal. 9 In Tang (liquidator) v Wright, in the matter Wright's Transport Pty Limited (in liq) [2020] FCA 709 at [14] Stewart J said: A court's power to issue a warrant is discretionary, but the discretion is only enlivened if the court is satisfied that the elements of s 530C(1) of the Act have been established: Re Ezyclad Pty Ltd (in liq) [2014] VSC 66; 98 ACSR 38 at [59]. The authorities in this Court have made orders issuing a warrant generally without any conditions attached: see Morton v Robins [1996] FCA 472; 14 ACLC 119, Australian Securities Commission v Samson [1997] FCA 739; 24 ACSR 555 and Vartelas v Kyriakou [2009] FCA 1489. Ultimately, however, the question of whether conditions should be imposed is a matter for the court's discretion: see Re Ezyclad at [67]. 10 In Carrello (Liquidator), in the matter of Drilling Australia Pty Ltd (in liq) [2019] FCA 1563; 139 ACSR 187 at [6]-[9] Banks-Smith J summarised the principles relevant to the exercise of discretion under s 530C of the Act as follows: 6 Section 530C is ordinarily 'a remedy of last resort': see Cvitanovic v Kenna & Brown Pty Ltd (1995) 18 ACSR 387. 7 A warrant should be granted if the Court finds that there has been a 'persistent pattern of non-cooperation and evasion': Whitemore Holdings Ltd (in liquidation) [2004] FCA 806 at [9]-[10], affirmed in Beattie v Gray, in the matter of Control Rail Pty Limited (in liq) [2018] FCA 1524. This does not appear to be a requirement of granting a warrant, but provides useful guidance. 8 Factors that have been relied upon in deciding that a person has concealed or removed the property of the company include: (a) refusals to comply with liquidators' requests to deliver up the books and records of the company: Vartelas v Kyriakou [2009] FCA 1489 at [6]; (b) transfer of assets to, and continued use of the assets by, related companies or entities without proper accounting: Crisp, in the matter of Buchanan Group Holdings Pty Ltd v Iliopoulos [2011] FCA 1521 at [11]; and (c) moving of assets, books or records from one place to another: Crisp at [13]. 9 It is clear from the s 86 definition that property does not need to be registered to a person's name or in their custody for them to be in possession of it. Control over the property will suffice. In Beattie v Gray, the property was held in storage lockers in the defendant's mother's name. The property was considered to be in the defendant's possession: at [7].

the evidence 11 The evidence relied on by the Liquidator was detailed. In summary it established the following matters. 12 Between October 2018 and May 2019, the Liquidator made several requests under s 530A and s 530B of the Act of Mr Young and James Campbell, the Companies' chief financial officer, for the production of the books and records of ARG. There were numerous telephone conversations, as well as email correspondence, between an employee of the Liquidator and Mr Campbell in which Mr Campbell was repeatedly informed that all of the books and records of ARG needed to be produced to the Liquidator. In answer to those requests, only some of the books and records of ARG were produced to the Liquidator. 13 On 15 October 2019, the Liquidator commenced public examination proceedings in this Court. Summonses for examination were issued to Messrs Young and Campbell. Those summonses also required Messrs Young and Campbell to produce the books and records of ARG. 14 During his examination on 24 February 2020, Mr Campbell: (1) referred to a USB flash drive which was in his pocket and which he said contained all of the books and records of ARG which had previously been delivered to the Liquidator. Mr Campbell was ordered to produce, and did produce, that USB to the Court. Upon examination of the USB, the Liquidator ascertained that it contained books and records of ARG that had not previously been produced to him; and (2) gave evidence that seemed to confirm that the whole of the books and records of ARG had not been produced to the Liquidator but rather what had occurred was that particular documents were cherry picked and provided to the Liquidator. 15 The solicitors for the Liquidator wrote to the solicitor for Mr Young about this on 4 March 2020 and requested that the balance of the books and records of ARG, together with the books and records of AR Connect, ARG Staffing and ARG Properties, be produced to the Liquidator. There was no reply to that letter. A further letter was sent by the solicitors for the Liquidator on 19 June 2020 but again there was no reply. 16 During his public examination on 16 April 2020, Mr Young gave evidence that he could deliver up all of the books and records of ARG within two weeks and that he could ask the accounting department to locate them. 17 At his further examination, which took place on 5 June 2020, Mr Campbell gave evidence to the effect that any books and records of ARG would be in the possession of Mr Young and not at the offices of ARG Workforce Pty Ltd (ARG Workforce), one of the companies in a new group to which it is alleged the business of the Companies was transferred. Mr Campbell said that as far as he was aware "all of the records were with Mr Young, and we looked high and low here and could locate nothing extra, so we believed them to be with Mr Young, and have, pretty much, left it with him from that point". 18 On 8 July 2020, the Liquidator caused a further notice to be issued to Mr Young pursuant to s 530B of the Act to provide all of the books and records of ARG. In response to that notice, between 13 July 2020 and 4 August 2020, the Liquidator received 5,252 emails each attaching a single document purporting to be part of the books and records of ARG. Each of the emails were sent from the email address "reception@argworkforce.com". A review has been undertaken of those documents on behalf of the Liquidator. The documents produced are limited to invoices rendered to ARG, or otherwise to companies to which ARG appears to be related, and other entities which are not determinable from the face of the document. 19 On 10 August 2020, the solicitor for Messrs Young and Campbell sent an email to the solicitors for the Liquidator confirming he was instructed that "all of the requested documentation which our clients have in their possession, power or control has now been produced". 20 On 4 September 2020, an affidavit of Mr Young was filed and served in this proceeding in which Mr Young sets out, at paragraph 3, the financial records produced and kept by ARG from the financial year ended 30 June 2012 onwards. Most of those documents had not been previously produced to the Liquidator. 21 In that affidavit Mr Young also refers, at paragraph 5, to financial records that had not been annexed or exhibited to the affidavit because they were too voluminous to produce but which were available for inspection at the offices of ARG Workforce. On 8 September 2020, the solicitors for the Liquidator demanded that these documents be delivered to the Liquidator. The solicitor for Messrs Young and Campbell refused to do so and sought the issue of a notice to produce. 22 On 10 September 2020, a further affidavit of Mr Young was filed and served in this proceeding to which books and records of ARG were exhibited that had not been previously produced to the Liquidator. 23 The Liquidator has also issued a notice pursuant to s 530B of the Act to the former lawyers for the Companies and documents have been produced by them that have not yet been produced to the Liquidator by Messrs Young or Campbell. 24 In the Liquidator's opinion, there remain certain books and records of ARG that he would expect to have been produced to him but which have not yet been produced.

consideration 25 Based on the evidence before me, I am satisfied that there has been a clear and persistent pattern of non-cooperation and evasion in the production of the books and records of ARG. 26 Despite the repeated requests for those books and records, including those made pursuant to s 530A and s 530B of the Act, there has been, I would infer, an intentional drip feeding of material. As recently as earlier this month, after Mr Young served his evidence in this proceeding, it became apparent that the failure to produce all of the books and records of ARG is ongoing. This is so notwithstanding previous assurances that production is complete. 27 In the circumstances I was satisfied that Mr Young has concealed books of ARG and that a warrant in the form provided to the Court should issue. In that regard I note that the Liquidator seeks the issue of two warrants in identical terms but with each nominating a different address: one being Mr Young's residential address and the other being the premises of ARG Workforce. The evidence before me suggests that the books and records of ARG may be located at both of those addresses. Accordingly, I was satisfied that the warrants should issue in the form proposed. 28 As the Liquidator and his solicitors are located in Sydney and the addresses at which the warrants were to be executed are situated in Queensland, and in light of the current novel coronavirus (COVID-19) pandemic, the Liquidator proposed that a Queensland based solicitor be the person nominated to execute the warrant. I was satisfied that in the present circumstances it was appropriate for that to occur. 29 Finally, the Liquidator sought an order pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) and on the ground in s 37AG(1)(a) of that Act that the interlocutory process dated 17 September 2020, the affidavits relied on and referred to at [6] above and their exhibits, and any orders made by the Court be kept confidential and not be disclosed to any person other than the Court and Court staff until such time as an affidavit reporting on the execution of the warrants is filed, which is to occur within 14 days of the last date on which the warrants have been executed. 30 Given the nature of the application and the relief sought, I was satisfied that such an order should be made. The application was made in a proceeding in which Mr Young is a party. In light of the difficulty the Liquidator has encountered in obtaining the books and records of ARG, including in interactions with Mr Young, it is possible that if Messrs Young or Campbell become aware of this application that they may, given the events which have transpired to date, hinder the Liquidator's efforts to recover all of the books and records of ARG by execution of the warrants. If that were to occur, it would amount to conduct which would prejudice the proper administration of justice.

conclusion 31 For those reasons I made the orders sought by the Liquidator in his interlocutory process dated 17 September 2020. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.

SCHEDULE OF PARTIES NSD 2094 of 2019 Defendants Fourth Defendant: JENDAV FUTURE RETURNS PTY LTD (ACN 166 523 619)

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