- Bendigo Bank Ltd v Williams

Supreme Court of NSW|2019-12-17|Before: Black J

Proceedings 2001/58774 J R J Lockhart SC / C McMeniman (Applicants) O Jones / C L W Street (First Interested Party) M Klooster (Second Interested Party)

Proceedings 2001/58776 J R J Lockhart SC / C McMeniman (Applicants) O Jones / C L W Street (First Interested Party) M Klooster (Second Interested Party)

Solicitors: Proceedings 2001/58663 Ashurst (Applicants) Thomas Booler & Co Lawyers (First Interested Party) Harrow Legal (Second Interested Party)

Proceedings 2001/58774 Ashurst (Applicants) Thomas Booler & Co Lawyers (First Interested Party) Harrow Legal (Second Interested Party)

Proceedings 2001/58776 Ashurst (Applicants) Thomas Booler & Co Lawyers (First Interested Party) Harrow Legal (Second Interested Party) File Number(s): 2001/58663 (005); 2001/58774 (006); 2001/58776 (008)

Judgment

By Interlocutory Processes filed on 8 October 2019, Messrs McGrath and Preston in their capacities as liquidators of HIH Insurance Limited (in liq) ("HIH Insurance"), FAI General Insurance Company Ltd (in liquidation and subject to a scheme of arrangement) ("FAI General") and HIH Casualty and General Insurance Limited (in liquidation and subject to schemes of arrangement) ("C&G") (together "HIH companies") seek certain directions under s 479(3) of the Corporations Act 2001 (Cth) or alternatively under ss 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations), being Schedule 2 to the Corporations Act. The liquidators' primary position is that these directions are sought under s 479 of the Corporations Act rather than under ss 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations), where the former Act continues to apply in relation to proceedings that were ongoing before a Court at its commencement: Re HIH Insurance Ltd (in liq) [2018] NSWSC 1886. I am satisfied that that approach is appropriate. However, as Mr Lockhart (who appears with Mr McMeniman for the liquidators) points out, if that position was not correct, the Court would have a corresponding power to give the relevant directions under ss 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations) even if it did not have power to give them under s 479 of the Act. I have regard to the principles applicable to the giving of such directions, which I summarised in Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [7]-[9].
The liquidators seek a direction, first, that they are justified in seeking to effect payment of certain Dividends (as defined) to each of the Remaining Shareholders (as defined) in respect of HIH Insurance by drawing a cheque in their name as recorded in the Share Register (as defined) and sending that cheque to the address recorded in the liquidators' Internal Register (as defined), subject to specified qualifications. Second, they seek a direction that they are justified in paying the Dividends of Remaining Shareholders to the Australian Securities and Investments Commission ("ASIC") as unclaimed money under s 544 of the Corporations Act in specified circumstances. The liquidators also seek corresponding directions, in their capacity as liquidators and scheme administrators of FAI General and C&G.
Two interested parties, Bookarelli Pty Ltd ("Bookarelli") and Mr Marcel Joukhador (together, "Bookarelli parties") intervened in the application and were heard under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW) as interested persons. The liquidators did not join Bookarelli or Mr Joukhador as parties where they were seeking directions and not declaratory relief and Bookarelli and Mr Joukhador did not seek to be joined as parties. Bookarelli and Mr Joukhador were directed to file Points of Claim, although the document they filed was in the nature of submissions, which I will address below. Bookarelli and Mr Joukhador did not seek affirmative relief in the application, nor could they have done where they had not sought to be joined as parties to it.
Mr Bruce Dennis and DC Legal Pty Ltd ("DC Legal") were also heard in the application as interested persons under r 2.13 of the Corporations Rules. They also filed Points of Claim, which sought affirmative relief including orders for payment of dividends and scheme payments to a third party, Thomas Booler & Co, and payment of certain dividend and scheme payments into Court, and an order for costs. Such an application for the substantive relief that they sought was not open to them, where they chose not to be joined as parties to the proceedings. An interested person heard under r 2.13 of the Corporations Rules is ordinarily also neither required to pay nor does it recover the costs of the application. Mr Dennis and DC Legal led certain affidavit evidence and Mr Klooster (who appeared for them) made brief submissions on their behalf in respect of certain directions to pay to which I will refer below. However, the liquidators, Mr Dennis and DC Legal ultimately did not seek to have a question as to a solicitor's lien asserted by Mr Dennis or DC Legal determined, where proceedings raising that issue have now been commenced in the Equity General List. Mr Klooster accepted that the asserted lien would not prevent the Court making directions sought by the liquidators as to the manner in which distributions would be made to shareholders, if Bookarelli and Mr Joukhador do not establish the position they advanced. I therefore need not, and do not, address Mr Dennis' evidence or the submissions made by the parties as to the solicitor's lien, prior to the parties reaching that agreement.

Affidavit evidence

The parties relied on a substantial volume of affidavit evidence, although the matters in issue were ultimately relatively narrow. The liquidators relied on the affidavits of one of the liquidators, Mr Preston, dated 13 November 2017 and 3 December 2017, which had been read in respect of earlier applications. The liquidators also relied on Mr Preston's affidavit dated 3 October 2019, which sets out the circumstances of his and Mr McGrath's appointment as joint and several liquidators of HIH Insurance and of its two subsidiaries, C&G and FAI General. He also notes that C&G and FAI General are subject to creditors' schemes of arrangements under s 411 of the Corporations Act, of which he and Mr McGrath are scheme administrators. Mr Preston referred to previous directions made by the Court as to the manner in which the liquidators would deal with claims of approximately 25,100 shareholders who may have suffered loss or damage in connection with the purchase of shares and the steps which the liquidators and scheme administrators had taken to distribute interim dividends to shareholders in accordance with those directions. Mr Preston noted that Bookarelli and the solicitors which it retained, including Thomas Booler & Co or Mr Joukhador of that firm, claimed to have acted for 892 of the Remaining Shareholders (as defined) and, in the case of two shareholders who held shares as custodians, claimed to have acted for persons who had a beneficial interest in shares held by those custodians and had sought to require that the distributions payable in respect of those shares be paid to them.
Mr Preston also addressed the process which had been adopted for payment to shareholders in considerable detail and referred to the payment authorities on which Bookarelli and Mr Joukhador then relied, including a range of forms of payment authorities provided by Bookarelli and Thomas Booler & Co to the liquidators. In particular, Mr Preston identified 13 types of pro forma authority forms that had then been identified, and noted that no such authority had been provided in respect of 399 of the 894 Remaining Shareholders. Mr Preston also pointed to several difficulties in respect of the form of payments, including issues such as a failure to specify the name of the grantor and as to execution of the relevant forms in respect of companies and executors. I do not consider it necessary to address those issues in respect of individual forms, for the reasons noted below. Mr Preston also referred to the circumstances in which Bookarelli and Thomas Booler & Co had claimed to represent the relevant shareholders in respect of earlier proceedings, and to communications received from several persons denying that Thomas Booler & Co had acted for them. By a further affidavit dated 18 October 2019, Mr Preston referred to an amount of approximately $14.6 million which had been paid to shareholders on 11 September 2019, and the amount of $2,152,157.02 which has not yet been paid to the remaining shareholders, whose claims are the subject of this application.
By a further affidavit dated 3 December 2019, Mr Preston referred to correspondence with the Law Society of New South Wales, in respect of managers appointed to the practice of DC Legal and identified three further types of pro forma authority forms provided by the Bookarelli parties to the liquidators and the receipt of a further 203 authority forms from the Bookarelli parties in respect of the Remaining Shareholders. Mr Preston also noted that a number of the Remaining Shareholders were now deceased. By another affidavit dated 16 December 2019, Mr Preston refers to the receipt of another 67 additional authority forms from the Bookarelli parties after he had sworn his affidavit of 3 December 2019 and to further correspondence, taking the total number of additional authorities to the figure of 270 to which I refer below.
The liquidators also relied on an affidavit of their solicitor, Mr Dylan Rogers, dated 16 October 2019 establishing service of the application on Thomas Booler & Co, another solicitor's firm and Bookarelli. In the event, Mr Joukhador who appears to be associated with Thomas Booler & Co, and Bookarelli, appeared in the application. An affidavit dated 16 October 2019 of Tu Pham established that notice of the proceedings had been given to the ASIC, which did not seek to be heard in the proceedings. An affidavit dated 21 October 2019 of Hiroshi Oya, a solicitor also acting for the liquidators in the application, addressed further correspondence with Thomas Booler & Co and Harrow Legal Pty Ltd and annexed a letter dated 18 October 2019 from ASIC confirming its view that the matter was properly left for the Court's determination and that it did not propose to intervene in the applications or seek leave to appear. An affidavit of Ms Jacqueline King dated 17 December 2019 referred to service of documents relating to the proceedings.
Bookarelli in turn relied on the affidavit dated 21 October 2019 of its director, Mr Paul Riik. Large parts of that affidavit were inadmissible in form, although not objected to, and the parties were agreed that I would treat that as going to the weight of that evidence. Mr Riik contended that Bookarelli was a litigation funder responsible for funding a compensation action brought by shareholders and creditors in HIH Insurance against the liquidators. Mr Riik addressed, by assertion, the liquidators' concern that correspondence from Bookarelli to shareholders was potentially misleading, to which I refer below. Mr Riik advanced various assertions as to the manner in which the liquidators had dealt with authorities and directions to pay, and contended that the liquidators did not bring the validity or applicability of the authorities given to them into question at an earlier time. No claim for estoppel was, or could be put, including because Bookarelli did not seek to be made party to the proceedings. Mr Riik also referred to a dispute in respect of payment of the costs of the earlier proceedings, which is not before me and which I need not further address.
Mr Riik also asserted (Riik 21.10.19 [11]-[12], also not in an admissible form, that: "Bookarelli has agreements with the Shareholders who provided the Authorities the subject of these proceedings to lodge claims on their behalf and to fund the litigation against the Applicants. Bookarelli is currently funding the action against HIH … on behalf of these shareholders all of whom have provided Bookarelli with the authorities in question. There has never been a problem in other aspects of this matter between the Applicants and Bookarelli or between Bookarelli and numerous other parties in the Liquidations and Administrations of Sons of Gwalia, ION Limited and Compass Resources Limited."
Mr Riik referred to 384 written authorities and directions to receive monies or nominate persons to whom dividends and scheme payments should be made; referred to 17 allegedly defective authorities; and claimed that five of them had since been rectified. Mr Riik also identified Mr Joukhador as the principal of Thomas Booler & Co, which was Bookarelli's legal representative, and also asserted, again not in an admissible form, that that firm had been authorised in writing by shareholders/creditors to receive dividends and scheme payments for shareholders funded by Bookarelli. Mr Riik in turn restricted Bookarelli's claims to persons from whom it had contended it had received valid authorities and directions, as specified in Annexure C to his affidavit, and referred to the scope of reg 5.6.70 of the Corporations Regulations 2001 (Cth) and to clause 39 of the relevant scheme of arrangement, to which I will refer below.
Mr Riik fairly acknowledged that where shareholders had not provided Bookarelli with proper written authorities, their monies could be paid to them, if located, or into the unallocated monies fund and indicated (Riik 21.10.19 [22]) that: "Bookarelli also does not propose to pursue the Claims of other Shareholders who requested us to deal and assist with their claims but who have not provided us with written proper authorities and directions."
It appears that Bookarelli does not pursue claims in respect of monies due to the three shareholders who had specifically challenged its entitlement, although Mr Riik addressed dealings with those shareholders, again by assertion, in his affidavit.

Bookarelli's and Mr Joukhador's reliance on authority forms

I will first turn to the claims of the interested parties, before returning to the question whether the directions sought by the liquidators should be made if those claims are not established. The matters in issue have been narrowed because the interested parties do not seek to press claims to the distributions to be made to 364 Remaining Shareholders, as to which authorities and directions have not been provided to the liquidators, and the liquidators generally accept (subject to execution issues which they have reserved) that 270 authorities and directions recently provided to them comply with statutory requirements and are binding upon them. An issue remains to be determined as to the status of earlier pro forma authority forms ("authority forms") given by 260 of the Remaining Shareholders.
A preliminary question arises as to whether the authority forms would bind the liquidators if they do not comply with Form 550 and reg 5.6.70 of the Corporations Regulations does not apply to them. Mr Lockhart submits, and I accept, that the authority forms are not binding on the HIH companies or the liquidators unless they are in accordance with Form 550 and have binding effect by reason of reg 5.6.70 of the Corporations Regulations. As Mr Lockhart points out, a payment direction or authority provided by a creditor to a debtor is generally not binding on the debtor, unless that debtor has made an express or implied promise to pay in accordance with that authority: Perth Freight Lines Pty Ltd v BM2008 Pty Ltd (in liq) [2011] VSCA 62 at [51]. There is no suggestion that the HIH companies or the liquidators had made such a promise or implied promise. Subject to the application of reg 5.6.70 of the Corporations Regulations and Form 550, it follows that the liquidators are not bound by the relevant directions. It seems to me that, subject to the Regulations and that form, the issues the liquidators have raised in respect of the authority forms on which the interested parties rely would readily justify their making payment to shareholders directly, leaving the interested parties to exercise any rights they may have against the persons whom they contend are their clients.
In a list of issues for the hearing (MFI 2), the liquidators identified a further question as whether any of the authority forms on which the Bookarelli parties relied were in accordance with reg 5.6.70 of the Corporations Regulations and Form 550 so as to bind the liquidators. Mr Lockhart points out that, although there are 13 or more different types of authority forms (and a fourteenth version which is accepted by the liquidators for 270 shareholders as noted above, subject to execution issues), they all use the language of an authorisation or direction to pay nominated persons, as follows: "I/We, hereby also authorise and direct [named entity] receive any dividends or other amounts in Trust on my behalf in respect of my/our claims against the abovementioned Companies and relating to my shares in HIH and direct payment of any such dividends to [named entity]."
The Bookarelli parties rely on reg 5.6.70 of the Corporations Regulations, which provides that, where a creditor to whom a dividend is payable lodges an authority in accordance with Form 550 with a liquidator, the liquidator must pay the dividend to the person to whom payment is directed by that authority. The Bookarelli parties contend that the authority forms are in accordance with Form 550 so that obligation applies. The parties refer to the consideration of the relevant regulation and Form 550 in Perth Freight Lines Pty Ltd v BM2008 Pty Ltd (in liq) above at [51], where Kyrou AJA (with whom Maxwell P agreed) observed that: "The right to give an authority pursuant to reg 5.6.70 of the regulations is one of the incidences of ownership of shares. The exercise of the right does not mean that the beneficiary of the authority acquires any proprietary rights in the shares. Nor does the authority constitute an assignment. Regulation 5.6.70 requires an authority to be in accordance with Form 550 and that form contemplates that the authority is revocable. The effect of an authority which subsists at the time that a dividend becomes payable is that the liquidator is bound by reg 5.6.70 to make the payment in accordance with the authority. The authority does not confer on the beneficiary of the authority any rights against the company itself so as to give rise to an offsetting claim against the company."
The liquidators in turn identified an issue whether the authority forms were in accordance with or substantially complied with Form 550 where several forms of them, particularly the later versions, extended well beyond the matters specified in Form 550. The parties differed as to the basis on which that would be determined, although that dispute would have no impact on the outcome of the matter and it is not necessary to resolve it.
Mr Lockhart refers to s 25C of the Acts Interpretation Act 1901 (Cth) which provides that: "Where an Act prescribes a form, then strict compliance with the form is not required and substantial compliance is sufficient." Mr Lockhart submitted that substantial compliance would not be established with a statutory form where there was a failure to answer a critical question or comply with an essential requirement of the prescribed form: Bendigo Bank Ltd v Williams [2000] FCA 482; (2000) 173 ALR 175 at [19]; Yilmaz v Minister for Immigration and Multicultural Affairs (2000) 100 FCR 495 at [69]-[70]. Mr Lockhart also referred to Lion Energy Ltd v Tulloch Lodge Ltd (in liq) [2014] FCA 259, where White J held, in respect of an issue as to whether there had been compliance with Form 551 of the Corporations Regulations, that that regulation was not excluded and that substantial compliance was sufficient, and (at [34]) that: "Whether or not there has been "substantial compliance" with a prescribed form is a question of fact, to be determined having regard to the extent to which the form has been completed as directed and to the nature and significance of any omissions or inaccuracies. This in turn directs attention to the apparent purpose of the form's requirements."
Mr Jones, who appears for the Bookarelli parties contended that s 25C of the Acts Interpretation Act did not apply although he largely accepted that a test of "substantial compliance" follows from the phrase "in accordance with" used in reg 5.6.70. Mr Jones submits that that test should be applied in the manner indicated in Farrugia v Farrugia [2000] FCA 385; (2000) 99 FCR 16, referring to Re Asset Risk Management Ltd (1995) 59 FCR 254 at 257, namely that: "What the Court is concerned with is the practical effect of what has been done, which should be compared with the practical effect the legislature appears to have sought to achieve." The application of that test would make no difference to the result in the relevant circumstances.
Mr Lockhart in turn summarised the essential elements set out in Form 550, namely that the form is addressed to the liquidator; it contains the relevant authority and request to pay all dividends declared for the company to a specified person at a specified address; and that the authority remains in force until it is revoked by the person giving it in writing. Mr Lockhart submits that a document that is in accordance with or complies or substantially complies with Form 550 would identify to a liquidator, including by the use of the heading "Form 550" which is not contained in the authority forms on which the Bookarelli parties rely, that the document is in the nature of, and is limited to, an authority and request to pay. Mr Lockhart also submits that at least the later classes of authority forms on which the Bookarelli parties rely are not "in accordance with" and do not comply, or substantially comply, with form 550 because they contain a range of matters which extend well beyond what is contemplated by that Form. The later authority forms contain, for example, statements that the creditor authorised other persons to lodge a proof of debt or claim on their behalf, and Form 550 does not contemplate that such an authority will be given. Some of the later authority forms seek to authorise specified persons to appeal to a Court in respect of a rejection of a proof of debt or claim, and some seek to authorise those persons to attend mediations or enter settlements on the claimant's behalf.
Mr Jones responds that the Court should direct attention to the significance of the additional matters included in the form, having regard to the purpose which Form 550 seeks to achieve, and whether those inclusions detract from that purpose, such that substantial compliance has not been achieved. Mr Jones submits that the additional matters to which I have referred above do not prevent substantial compliance with Form 550, where they are not "inconsistent" with the content of that form. Mr Jones asks, rhetorically, how those inclusions can detract from the purpose of enabling the liquidator to comply with reg 5.6.70 of the Corporations Regulations by making payment to a particular person, and submits that they are "superfluous" or may be of "tangential" significance to the liquidators, but leave the liquidator in no doubt as to whom payment must be made.
I am inclined to the view that the authority forms are not in accordance with or in substantial compliance with Form 550 less by reason of any direct inconsistency (other than in respect of revocability, which I address below, where direct inconsistency exists) but because Form 550 prescribes the matters to be addressed in such a notice to a liquidator, and the identification of a materially different and wider range of matters is not in accordance with and does not substantially comply with that form. The difference seems to me to be one of substance, where a liquidator, in seeking to determine whether a direction has been given in accordance with Form 550 and reg 5.6.70, should not have to seek to search for that direction in a range of other material dealing with other matters, and a creditor who may be prepared to give such a direction should not also be required to give other authorities as to other matters in order to do so. However, it is not necessary to reach a final conclusion as to that matter given the findings I have reached on other grounds.
The second issue is whether the authority forms were in or substantially in accordance with Form 550 where later versions (Ex A1, Forms 5-13) provided that they were irrevocable, by contrast with Form 550 which provides that "[t]his authority remains in force until revoked by me/us in writing." That provision is inconsistent with the elements of Form 550, as summarised by Kyrou AJA in Perth Freight Lines Pty Ltd v BM2008 Pty Ltd (in liq) above at [51]. As Mr Lockhart points out, the provision for revocation in Form 550 imposes a temporal limit on the effectiveness of the authority, so that it is effective unless and until the creditor advises the liquidator of its revocation in writing, and has the consequence that that form is properly characterised as a mere authority or revocable mandate. Mr Jones responds to the liquidators' contention that the relevant direction was made irrevocable, rather than revocable, by submitting that Kyrou AJA's observation in Perth Freight Lines Pty Ltd v BM2008 Pty Ltd (in liq) above "is saying nothing about whether revocably is so critical to the Form 550 as to be necessary to give rise to substantial compliance". Mr Jones submits that the amendment made to that form removes a difficulty that the person giving the authority might later seek to revoke it, by indicating that they do not wish to do so. That is, of course, not a difficulty from the perspective of a person seeking to revoke that authority, but instead a recognition of his or her ability to change his or her mind. For completeness, Mr Lockhart also points out, and I do not understand the interested parties to contest, that a revocable authority or request by a shareholder or creditor to the HIH companies or the liquidators to pay the debt to Bookarelli or other third parties would not constitute an equitable assignment of the debt to those third parties, but that an irrevocable authority would be more likely to do so: Re Whitting; Ex parte Hall (1879) 10 Ch D 615; Re Williams [1917] 1 Ch 1.
With all respect to the ingenuity of Mr Jones in submissions in this respect, I am unable to accept that an authority form that provides the opposite of the prescribed form (ie that it is irrevocable rather than revocable) is in accordance with that form. That difference is again one of substance, because the prescribed form preserves and draws attention to a creditor's ability to change his or her mind, and the authority form on which the Bookarelli parties rely sought to achieve the opposite result. I can more readily find that difference is significant where the Bookarelli parties or their advisers plainly thought it sufficiently important to reverse rather than retain the wording of Form 550 in that respect. The change in the language on the authority forms on which the Bookarelli parties rely, to seek to change them from revocable authorities to irrevocable authorities, changes the essential character of the authority, and has the consequence that it is not in accordance with and does not substantially comply with Form 550. For that reason, the later authorities that adopt that form do not have binding effect on the liquidators under reg 5.6.70 of the Corporations Regulations, and do not alter the general law position that the liquidators are free not to comply with the relevant direction.
The third issue is whether earlier versions of the authority forms, which did not provide that they were irrevocable, are effective where they authorise "Dennis & Company, Solicitors" to receive dividends and directed payment to the trust account of that firm (Ex A1, Forms 1, 2, 3, 4, 4A). The liquidators point out and Mr Dennis' evidence is that DC Legal acquired the business of Dennis & Company around July 2009; the Law Society appointed a manager to the practice of DC Legal in June 2016; and that law practice has since been wound up and, I infer, its trust account has been closed. The liquidators submit, and I accept, that the fact that DC Legal has recently opened a bank account titled "trust account" does not cure that difficulty, because that is not a trust account of "Dennis & Company, Solicitors" where that firm no longer exists; that is the position even if DC Legal or Mr Dennis has registered the business name "Dennis & Company", because an account maintained by DC Legal under a business name under which it may trade is not an account of a different firm of solicitors that has ceased to exist; and the relevant account is in any event not a trust account in the relevant sense, because it is not a solicitor's trust account complying with relevant regulatory requirements under the Legal Profession Uniform General Rules 2018 (NSW), including, in r 35, as to the manner in which such an account is titled and maintained. The early directions authorising payment to Dennis & Company, Solicitors to be paid to its trust account cannot take effect, because there is no such firm and no such account.
The liquidators identify a further question as to execution issues in respect of the first thirteen versions of the authority forms. The liquidators identify a range of execution issues with the authority forms, including issues as to the identification of the name of the grantor, issues as to the form of execution of authorities by the relevant company, by executors for an estate, or where a power of attorney is relied on but the power of attorney has not been provided, and issues relating to the identity of the firm or person which has the benefit of the relevant authority. Mr Lockhart submits that the liquidators would only be able to form a concluded view as to whether authorities could be relied on, where there are potential execution defects in them, if they reviewed each of them and obtained legal advice in respect of them, and that would be a time consuming and costly exercise. It seems to me that the liquidators could form a view as to that issue, in respect of substantially all of the execution defects, by categorising them as they have done in submissions. That matter would not support the directions sought, in global terms, if it were not justified on other grounds. The liquidators also identify a question as to execution issues in respect of the fourteenth version of the authority forms, which is in the form of Form 550. That issue does not arise in this application and, to the extent the parties cannot resolve it or the liquidators do not reach their own judgment about it, would need to be the subject of a separate application.
For completeness, I should note that, by their Points of Claim, Bookarelli and Mr Joukhador also contended that the directions sought by the liquidators could not be given, because s 479 of the Act does not confer power on the Court to exempt, by direction, the liquidators from compliance with reg 5.6.70. As Mr Lockhart points out, that proposition misapprehends the question. The liquidators are not seeking a direction that they are not obliged to comply with reg 5.6.70, if that applies, but contend that the authority forms in which the Bookarelli parties rely are not in accordance with Form 550 and that reg 5.6.70 of the Corporations Regulations therefore does not impose any obligation on the liquidators to comply with them. The liquidators have established that proposition.
For the reasons set out above, the early forms of authority forms (Ex A1, Forms 1-4A) are not binding on the liquidators because payment cannot be made to the trust account of Dennis & Company, Solicitors. The later versions (Ex A1, Forms 5-13) are not binding at least because the amendment from Form 550, to provide that they are irrevocable rather than revocable, has the result that they are not in accordance with that form. The Court will direct that the liquidators are not bound to act in accordance with those directions.

The effect of the schemes of arrangement

The liquidators also point out, correctly, that reg 5.6.70 of the Corporations Regulations does not apply to the schemes of arrangement that apply in respect of FAI General and C&G, but nothing turns on that matter where the liquidators have fairly accepted that they will exercise their discretion under the schemes of FAI General and C&G to effect payment in accordance with any Forms 550 that are found to be binding on the liquidators of HIH Insurance.
A further issue arises as to whether clause 39.1 of the schemes of arrangement applicable to FAI General and C&G requires payment in accordance with a direction to pay in favour of Bookarelli if the applicants decide to make payment by cheque. That clause relevantly provides that: "Payments to a Scheme Creditor under The Australian Scheme may be made, in the absolute discretion of the Scheme Administrators: (a) by cheque in favour of the Scheme Creditor concerned or as such Scheme Creditor may direct and sent through the post at the risk of such Scheme Creditor to the last known address of such Scheme Creditor or to such other address as such Scheme Creditor may from time to time notify to a Scheme Company … (c) in such other manner as the Scheme Administrators may from time to time determine. The cost of using any such other manner shall be an expense of the Scheme Creditor concerned and deducted from the relevant payments. Mr Lockhart points out that the schemes also confer, in cl 43.1(aa), power on the scheme administrators to do all things incidental to the exercise of their functions and powers as set out in cll 42-43 of the schemes and, in cl 43.1(bb), to do all things they consider necessary or desirable for the purpose of giving effect to or carrying out the Australian Scheme (as defined).
Mr Jones submits that, once the liquidators have determined to make a distribution by cheque, then cl 39.1(a) of the schemes requires them to send that cheque to such other address as the scheme creditor may from time to time notify to a scheme company, being the address nominated in the authority forms (assuming they are properly executed) even if they do not take effect under reg 5.6.70 of the Corporations Regulations. I do not accept that submission. First, it seems to me that the "absolute discretion" set out in the introductory words of that clause should not be read down, as Mr Jones contends, to apply only to a choice between the three mechanisms, but allows the scheme administrators to take a different approach if they consider it appropriate to do so. That construction of the clause is consistent with its language and its obvious commercial purpose, where the three mechanisms set out in that clause may become inappropriate over time or in particular circumstances. Assuming, without deciding, that the scheme administrators would be obliged to exercise that "absolute discretion" in good faith, and even if they were also required to do so reasonably, then the concerns they have identified as to the form of the directions given by the Bookarelli parties would support an exercise of the discretion differently and in good faith in the present case.
Second, even if (contrary to my view) the "absolute discretion" conferred on the scheme administrators by that clause is confined to a choice between the three payment mechanisms specified in that clause, the third of those mechanisms extends to "payment in such other manner as the Scheme Administrators may from time to time determine". That provision would permit a determination that payment is to be made by cheque paid directly to shareholders, notwithstanding the authority forms on which the Bookarelli parties rely, having regard to the concerns identified by the liquidators as to those forms, and leaving the Bookarelli parties to exercise such rights as they may have against the shareholders.

Other issues

For completeness, I should note several other issues raised by the liquidators. First, several shareholders have denied that the Bookarelli parties are authorised to act for them. It is not necessary to determine that issue given the findings I reach on other grounds.
Second, the liquidators also submit that they have become aware of potentially misleading communications received by a shareholder from the Bookarelli parties to the effect that it would only receive a dividend in the liquidation if it entered into an agreement with the Bookarelli parties, at a time, they contend, the Bookarelli parties were on notice that the liquidators proposed to admit shareholders' claims and pay such dividends, without requiring further action from them. Mr Lockhart refers to potentially misleading correspondence from Bookarelli to shareholders, and relies on a letter dated 13 February 2019 from Thomas Booler & Co to Colonial First State, enclosing correspondence dated 2 May 2018 from Bookarelli, which appeared to assert that the provision of authority to Bookarelli or Thomas Booler & Co was a prerequisite to the admission of the relevant shareholder's claim and payment in the liquidation. I do not consider that it is necessary or appropriate to determine a claim for misleading and deceptive conduct in this application, which is not constituted in a form which would allow findings of contested facts, and Mr Lockhart fairly accepted that this matter should be treated as indicating only a matter which leads the liquidators to have concerns as to complying with Bookarelli's demands. It is, in any event, possible to determine this application on the grounds set out above.
Third, Mr Lockhart addresses an issue in respect of two shareholders which appear to be custodians registered as the legal owner of HIH Insurance shares, where the Bookarelli parties have asserted that they act for the person holding beneficial interests in those shares. Mr Lockhart points to an observation of Brereton J in Re HIH Insurance Ltd (in liq) above, which recognised the practical difficulties in the liquidators inquiring into and ascertaining whether a shareholding is held on trust. Even apart from the conclusions that I have reached on other grounds, I am satisfied that the liquidators would be justified in making payments to those shareholders as the registered owners, leaving them to distribute those payments to any persons with beneficial entitlements to the shares, and leaving Bookarelli, Mr Joukhador, Mr Dennis and DC Legal to enforce any rights which they may have against those persons.

Whether the directions sought by the liquidators should otherwise be made

The remaining issue addressed by the liquidators in submissions is the process which they propose to adopt to identify shareholder addresses and make payments to shareholders. As I noted above, the liquidators seek directions that they are justified in seeking to effect payment of Dividends (as defined) in respect of HIH Insurance, FAI General and C&G to each of the Remaining Shareholders (as defined) by drawing a cheque in their name as recorded in the Share Register (as defined) and sending that cheque to the address recorded in the liquidators' Internal Register (as defined), subject to specified qualifications, and that they are justified in paying the Dividends of Remaining Shareholders to ASIC as unclaimed money under s 544 of the Corporations Act in specified circumstances.
The liquidators address in evidence, and Mr Lockhart outlines in submissions, the process which will be adopted to identify addresses of shareholders, by reference to an "internal register" which has been established by the liquidators, and a process of shareholder circulars and undertaking additional searches. I am satisfied that that process is appropriate. I am satisfied that the manner of payment proposed by the liquidators would be appropriate, for the reasons that that approach was previously appropriate in making distributions to other HIH Insurance shareholders, unless the Bookarelli parties could establish an obligation on the part of the liquidators to pay the dividends to them rather than to the Remaining Shareholders. As I have noted above, I am satisfied that no such obligation has been established.

Orders and costs

For these reasons, I make orders in the form sought by the liquidators in respect of each of the companies. There will be no order as to costs, in accordance with the usual position where interested parties appear under r 2.13 of the Corporations Rules.

Amendments 30 December 2019 - Additional appearance noted. 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: 30 December 2019

Legal Profession Uniform General Rules 2018(NSW)

Corporations Act 2001(Cth)ss 411, 479, 479(3), 544

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