Banerjee, in the matter of City Steel Pty Ltd (in liq) [2024] FCA 481

INTRODUCTION 1 These reasons concern an originating application brought by Shumit Banerjee in his capacity as liquidator of City Steel Pty Ltd (in liquidation) seeking orders extending the time pursuant to s 588FF of the Corporations Act 2001 (Cth) within which to bring proceedings in respect of certain alleged voidable transactions. The relief is framed in two alternative formulations. First, that time be extended in respect of voidable preference claims including City Steel generally. Secondly, and in the alternative, that time be extended in respect of voidable preference claims available to City Steel against only four named parties. Mr Banerjee also seeks various ancillary orders including costs and suppression of confidential materials. In the course of the hearing counsel for the plaintiff accepted that it would not be appropriate to make a shelf order in the broader formulation but in doing so sought to extend the narrower formulation of the relief claimed to six named parties. 2 The application was heard ex parte with notice having been given to the six parties against whom the relief was ultimately sought. The application was adjourned to enable the plaintiff to properly confirm the materials over which confidentiality was sought were confined to those that were necessary. On resumption of the hearing redacted materials were tendered together with a filleted version of one confidential exhibit. 3 Prayers 4 and 5 of the application, which concerned service and granting leave to affected persons to set aside orders were not pressed at the hearing on the basis of the notice given. The liquidator gave notice of this application to the solicitor acting for each of the following six persons (Adamantia Konstantis, Konstantis Holdings Pty Ltd ACN 126 173 859, Christos Konstantis, Spiridon Konstantis, Anastassios Konstantis and Bill Karantonis) (together the Interested Persons). Where necessary, for the purposes of distinguishing between them, I will refer to the individuals by their first names. The plaintiff served a copy of the application and the supporting affidavit of Mr Banerjee on the Interested Persons. Following receipt of these materials, the Interested Persons' solicitor responded confirming that the Interested Persons would not seek to be heard on this application and, importantly, that they did not consent to the application. Counsel for the plaintiff referred to the first part of this communication in his written submissions but not the latter part. It was only during the hearing upon questioning by the Court that the fact that the Interested Persons did not consent to the application was drawn to the Court's attention. This is regrettable, and at best careless. On an application such as this the Court is entitled to expect the plaintiff to be completely candid and comprehensive in exposing the position communicated by persons affected by the relief sought.

BACKGROUND 4 City Steel was incorporated on 3 December 2014 as a wholly owned subsidiary of Konstantis Holdings. Konstantis Holdings has four directors, being Spiridon, Adamantia, Christos and Anastassios. On 11 March 2021, Mr Banerjee was appointed as the voluntary administrator of City Steel upon the resolution of its sole director Anastassios (Director). In April 2021, a Deed of Company Arrangement (DOCA) was proposed by the Director and accepted by resolution at a meeting of creditors. The DOCA proposal was subsequently withdrawn prior to its execution and Mr Banerjee was appointed liquidator of City Steel on 8 May 2021. 5 Since his appointment as liquidator, Mr Banerjee has investigated City Steel's affairs, issued reports to creditors, explored potential claims available to City Steel, issued letters of demand, commenced court proceedings including for the issue of examination summonses and document production, negotiated, and settled claims and obtained a report as to the company's solvency. Mr Banerjee has formed the opinion that City Steel was insolvent at all times from 1 July 2019. 6 Mr Banerjee has explored potential claims for uncommercial transactions and/or unreasonable director-related transactions against Spiridon, Adamantia, Anatassios and Konstantis Holdings. I will refer to them as the Prospective Respondents. I note they are a subset of the Interested Persons and are the four people against whom the narrower relief sought in the application was originally framed. Mr Banerjee sent letters of demand in respect of the claims he had identified in March 2023. In August 2023, Mr Banerjee commenced a proceeding to pursue court examinations and orders for production against the Prospective Respondents. Mr Banerjee deposes his negotiations with the Interested Persons culminated in the entry into a conditional Deed of Settlement on 22 December 2023. The settlement was subject to Mr Banerjee obtaining creditor approval in accordance with ss 477(2A) and/or 477(2B) of the Corporations Act. Meetings of creditors were held in February 2024 but the resolution which sought creditor approval pursuant to ss 477(2A) and 477(2B) was not passed. Thereafter the plaintiff acted relatively promptly in bringing this application. Mr Banerjee says that because of the entry of the Deed of Settlement, he has not pursued the court examinations at this time. Mr Banerjee deposes to his intention to pursue examinations and press the orders for production before commencing any proceedings in respect of the voidable transaction claims. On that basis the period of extension sought is 12 months.

EVIDENCE 7 The plaintiff relied upon the following evidence: (1) Affidavit of Constantinos Joseph Vosnakis (a solicitor acting for the plaintiff) affirmed on 8 April 2024; (2) Affidavit of Mr Banerjee affirmed on 7 March 2024 and exhibit SB-1 and an edited version of confidential exhibit SB-2 thereto; and (3) exhibit 1 being a report to creditors dated 8 February 2024 which is redacted to preserve confidentiality over a portion of the report.

APPLICABLE LEGAL PRINCIPLES 8 The applicable principles on an application of this kind have been succinctly summarised in Cussen, in the matter of Monarch Tower Pty Ltd (in liquidation) [2023] FCA 192 at [16]: The power to make a shelf order is a discretionary one. In exercising the discretion, the court should consider the following factors: (a) the adequacy of the liquidator's explanation for the delay in commencing proceedings; (b) a preliminary view of the merits of the proposed proceedings; and (c) a balancing of the case for granting the extension against any actual prejudice to the respondents that is likely to arise from granting the extension. See Re Cohalan & Mitchell Roofing (in liq) [2020] VSC 222 at [30]‑[33] (Sifris J)).

Relation - back day and filing of application 9 On 16 April 2021, at meeting of creditors, the creditors of City Steel resolved to accept the Director's proposal to execute a DOCA. I infer that it was in accordance with s 444A of the Corporations Act. As a consequence, City Steel was required to execute the DOCA within 15 business days, that is by 7 May 2021: s 444B(2)(a). This did not occur because on 28 April 2021, the Director withdrew the DOCA proposal. Such non-compliance with s 444B(2) had the effect of engaging s 446A(1)(b) and City Steel is therefore taken by operation of s 446A(2) to have passed a special resolution that it be wound up voluntarily. On 10 May 2021, Mr Banerjee filed a Form 505 with ASIC confirming that he had been appointed liquidator of City Steel on 8 May 2021. 10 The relation - back day is provided by item 5 of s 91 of the Corporations Act which relevantly provides that the relation - back day is the s 513C day in relation to the administration, which is the day the administration began. Administration is defined in s 9 as having the meaning given in ss 435C and 1381 of the Corporations Act. Section 435C(1)(a) provides that the administration of a company begins when an administrator of a company is appointed under s 436A, 436B or 436C. The relation - back day is therefore 11 March 2021, when Mr Banerjee was appointed as the voluntary administrator by resolution of the Director of City Steel and the relevant three year period expired on 10 March 2024. This application is taken to be filed on 8 March 2024 and was therefore filed within the relevant three year period.

Matters relevant to the determination of the shelf order

Reason for the delay in bringing proceedings 11 I was satisfied on the evidence before me that the liquidator has been diligent in administering the liquidation and that this application was brought promptly upon the need for it being crystalised by the creditors' refusal to approve the conditional Deed of Settlement.

The merits of the foreshadowed proceedings 12 I was satisfied that the evidence discloses that there is a basis for the voidable transaction claims sought to be asserted against the relevant Prospective Respondents. I further note that the liquidator has obtained orders for a program of examinations in order to further investigate the potential voidable transaction claims he has identified and that the culmination of the liquidator's investigations is likely to enhance the prospects of the claims which have been identified against the Prospective Respondents. 13 The position is different in relation to potential voidable transactions claims against person other than the Prospective Respondents. The evidence in support of this application does not address potential voidable transaction claims against persons other than the Prospective Respondents. In oral submissions, counsel for the plaintiff struggled to identify a cogent basis in the evidence for any voidable transaction claim against Christos Konstantis or Bill Karantonis. I do not accept the plaintiff's submission that the response given by these two people to the notification provided to them in the form of the originating application and the affidavit of Mr Banerjee provides a sound basis upon which to conclude even prima facie on a preliminary basis that the merits of proposed voidable transaction claims against them support extending the grant of relief to such claims against them specifically. They, through their solicitor indicated that they did not consent to the application and that they would not seek to be heard. They were not given notice that the plaintiff would seek to recast the relief sought specifically to include them. They presumably considered the fact that specific relief was not sought against them and in any event was not the subject of evidence in deciding not to participate in the hearing.

Whether the likely prejudice flowing from the grant of an extension outweighs the grant of the extension 14 In circumstances where the Prospective Respondents: (1) have had notice since at least March 2023 of the claims the liquidator seeks to bring against them; (2) have engaged in extensive negotiations with the plaintiff and reached a conditional settlement which was ultimately not approved by creditors and therefore did not become binding; and (3) being on notice of this application and in respect of the principal supporting evidence in respect of the potential voidable transaction claims against them do not consent to the application but did not seek to take any action to be heard on the application; I was satisfied that the balance of convivence favours the granting of the extension. In this regard I note that the period of the extension sought is reasonable having regard to the further work the liquidator has identified.

Should a shelf order be made or should the extension be limited to named parties? 15 As earlier mentioned, counsel for the plaintiff accepted at the hearing that the shelf order should not be made against the world at large, however sought to extend the shelf order to two other individuals not named in the relief sought in the originating application, being Christos Konstantis and Bill Karantonis. Christos was a director of Konstantis Holdings and Mr Karantonis was said to be an adviser to the Konstantis family. The plaintiffs were unable to point to any evidence of potential voidable transaction claims against Christos or Mr Karantonis. On the evidence before me, I was satisfied that a shelf order should be made against the Prospective Respondents but not against Mr Karantonis or Christos.

Should exhibit SB-2 be the subject of a confidentiality order? 16 The plaintiff seeks an order pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) for exhibit SB-2 to be suppressed until the conclusion of the liquidation of City Steel. The relevant principles are well established. I summarised the principles at [28] to [31] of Krejci, in the matter of Union Standard International Group Pty Limited (No 8) [2023] FCA 1054. It is unnecessary to repeat the principles here. Exhibit SB-2 contains without prejudice communications, a confidential conditional deed of settlement, legal advice over which privilege is not waived and other privileged communications. It also contains the liquidator's report to creditors which was prepared for the purpose of the creditors meeting to approve the settlement. I was satisfied that it is appropriate that exhibit SB-2 be kept confidential until the completion of the liquidation of City Steel or further order, whichever occurs first, save for the confidential report to creditors dated 8 February 2024. 17 As mentioned, I granted an adjournment to allow the plaintiff to: (1) remove the report to creditors dated 8 February 2024 from SB-2, redact only those portions which were truly confidential as a matter of necessity and tender the redacted report as exhibit 1 on the application; and (2) consider whether they wished to make any confidentiality application in respect of their filed submissions. 18 Following revisions by the plaintiff, I was satisfied that it is appropriate to order that revised exhibit SB-2, the redacted portions of exhibit 1 and the small portion of text that has been redacted in the outline of submissions be kept confidential. I made orders accordingly. I also ordered that the redacted outline of submissions be filed with the Court.

Costs 19 I was satisfied that Mr Banerjee's costs ought to be costs in the winding up of City Steel.

CONCLUSION 20 For these reasons, I made orders in accordance with these reasons at the conclusion of the resumed hearing earlier today. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman.