BL & GY International Co Ltd v Hypec Electronics Pty Ltd

CATCHWORDS : CORPORATIONS - winding up - liquidators - control of liquidators - court's statutory jurisdiction to inquire into liquidator's conduct - scope and effect of the court's power - purpose of the court's power - the process of inquiry - inquiry ordered in 2004 upon liquidator's removal by court - death of liquidator before inquiry undertaken - whether scope of inquiry should be extended - whether order for inquiry should be permanently stayed

Bankruptcy Act 1966 (Cth), s 179(1) Companies Act 1862 (UK), s 165 Companies Act 1936 (NSW), ss 235, 236 Companies Act 1961 (Vic), s 278 LEGISLATION CITED : Companies Act 1981 (Cth), s 420 Companies (Winding Up) Act 1890 (UK), ss 11, 14, 20, 22, 25 Companies Winding Up Rules 1890 (UK), rule 68 Corporations Act 2001 (Cth), ss 473(1), 477(2A), 477(2B), 477(6), 479(3), 480, 536, 561(1), 598, 1321 Uniform Civil Procedure Rules 2005 (NSW), rule 36.15(1)

Albarran v Members of the Companies Auditors and Liquidators Disciplinary Board [2007] HCA 23; (2007) 81 ALJR 1155 Australian Securities and Investments Commission v Ariff [2009] NSWSC 829 Australian Securities and Investments Commission v Edge [2007] VSC 170; (2007) 211 FLR 137 BL & GY International Co Ltd v Hypec Electronics Pty Ltd; Mead v Watson [2001] NSWSC 705; (2001) 164 FLR 268 BL & GY International Co. Limited v Hypec Electronics Pty Ltd [2001] NSWSC 841 BL & GY International Co Ltd v Hypec Electronics Pty Ltd [2002] NSWSC 38 BL & GY International Co Ltd v Hypec Electronics Pty Ltd [2004] NSWSC 1119 Commissioner for Corporate Affairs v Harvey [1980] VR 669 GIS Electrical Pty Ltd v Melsom [2002] WASCA 302; (2002) 172 FLR 218 Hall v Poolman [2009] NSWCA 64; (2009) 75 NSWLR 99 Hypec Electronics Pty Limited (in liq) v Mead [2003] NSWSC 934; (2003) 179 FLR 295 Jago v District Court of New South Wales [1989] HCA 46; (1989) 168 CLR 23 Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434 Official Liquidator, High Court of Karnataka v Maganlal Hirachand Shar [1980] 50 Comp Cas 762 (Kar) CASES CITED : Official Liquidator, Supreme Bank Ltd v P A Tendolkar [1973] 3 SCR 364 O'Toole v Mitcham (1977) 2 ACLR 471 Parthasarathi Sinha v Official Liquidator, Ballygungle Real Property and Building Society Ltd [1976] 46 Comp Cas 555 (Cal) Phillips v Homfray (1883) 24 ChD 439 Re Alfaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262 Re Bauhaus Pyrmont Pty Ltd [2006] NSWSC 742 Re British Guardian Life Assurance Company Ltd [1880] 14 ChD 335 Re Fermoyle Pty Ltd; Commwealth v Brown (1982) 62 FLR 413 Re Fox Home Loans Pty Ltd [2005] NSWSC 1050 Re Glowbind Pty Ltd [2003] NSWSC 1190; (2003) 181 FLR 108 Re J W Murphy and P C Allen; BPTC Ltd (1996) 19 ACSR 569 Re Macchia; Macchia v Nilant [2001] FCA 7; (2001) 110 FCR 101 Re Republic of Bolivia Exploration Syndicate Ltd [1914] 1 Ch 139 Star Poultry Pty Ltd v Ryan [2009] FCA 688; (2009) 7 ABC(NS) 688 Sutherland Shire Council v Stamatakos [2002] NSWCA 406; (2002) 38 MVR 200 Vink v Tuckwell [2008] VSC 100; (2008) 66 ACSR 30 Walton v Gardiner [1993] HCA 77; (1993) 177 CLR 378

PARTIES : Hypec Electronics Pty Ltd (in liquidation) - Applicant/Respondent Estate of David Patrick Watson - Respondent/Applicant

COUNSEL : Mr M J Cohen - Hypec Electronics Pty Ltd Mr J B Simpkins SC/Mr E C Muston - Estate of David Patrick Watson

SOLICITORS : Norton Rose Australia - Hypec Electronics Pty Ltd Wotton + Kearney - Estate of David Patrick Watson

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2001/58913 BL & GY INTERNATIONAL CO LTD v HYPEC ELECTRONICS PTY LTD JUDGMENT Background 1 Hypec Electronics Pty Ltd ("Hypec") is in the course of winding up by the court. The winding up order was made as long ago as 7 May 2001. 2 Mr Watson was appointed liquidator when the winding up order was made. He was removed from office in December 2004. The current liquidator is Mr Whittingham. 3 Mr Watson's removal was ordered following a four day hearing in October 2004 before Gzell J. His Honour published reasons on 2 December 2004: BL & GY International Co Ltd v Hypec Electronics Pty Ltd [2004] NSWSC 1119. Orders to give effect to that decision were made on both 9 and 16 December 2004. These included orders for the removal of Mr Watson and the appointment of a new liquidator and orders with respect to costs. Among the orders made on 16 December 2004 (and entered on 21 December 2004) were these: "6. That pursuant to s 536(1)(b), Corporations Act 2001 (Cth) the proceedings are referred to the Registrar at 9.30am on 2 February 2005 for directions to be made with respect to any inquiry as to the amount of loss sustained by the Company as a result of the misconduct of David Patrick Watson as the liquidator may wish to prosecute, such inquiry to be conducted by a Judge or Master as the Court may hereafter direct and be limited to loss possibly occasioned by the failure of David Patrick Watson to take adequate steps to investigate and enforce claims by the Company: 6.1 against Hypec International Technology Services Pty Ltd and its directors for having taken over the goodwill of the business of the Company; 6.2 against Hypec International Technology Services Pty Ltd for repayment of a debt of $25,000 recorded in the Company's ledger; 6.3 against Lamron Pty Ltd for repayment of a loan of $195,339.33 recorded in the Company's ledger and 6.4 against Quoin Island Resort Development Pty ltd for repayment of a loan of $295,300 recorded in the Company's ledger. 7. That David Patrick Watson pay to the Company such an amount as it found, upon the said inquiry, to constitute the loss suffered by the Company as a result of his misconduct." 4 It will be convenient to refer to order 6 of 16 December 2004 as "the existing inquiry order". The present applications 5 On 10 and 11 August 2010, I heard two applications. Each concerns the existing inquiry order, that is, the order expressed to be made by reference to s 536(1)(b) of the Corporations Act 2001 (Cth). 6 One application is brought by Hypec, at the instigation of the present liquidator, by interlocutory process filed on 14 May 2010. It is an application for orders which, if made, would expand the description of the inquiry as set out in the existing inquiry order. 7 The other application is brought by the legal personal representative of Mr Watson (who died on 18 July 2009) and seeks an order either vacating or permanently staying the existing inquiry order. The legal personal representative of Mr Watson was, by consent, joined as respondent to Hypec's interlocutory process on 7 June 2010. 8 The basic contention of Hypec, through the current liquidator, is that, in addition to defaults relating to the particular matters mentioned in the existing inquiry order, Mr Watson fell into dereliction of duty by not recognising and getting in as assets of Hypec properties referred to as "Lot 1 Laughtondale" and "the larger Quoin Island property". These and other alleged shortcomings are said to warrant an inquiry wider than that ordered in December 2004 - indeed, the order Hypec now seeks refers in general terms to "an inquiry as to damages, as to the amount of loss incurred or suffered by [Hypec] by reason of misconduct of the former liquidator of [Hypec], David Patrick Watson." 9 Mr Watson's estate contends that, particularly in light of Mr Watson's death in July 2009, there is no continuing foundation for any inquiry under s 536 of the Corporations Act in relation to his activities as liquidator of Hypec and that any such inquiry would be pointless. The 2004 proceedings and later events 10 In his reasons published on 2 December 2004, Gzell J canvassed many aspects of the history and activities of Hypec and Mr Watson's administration as its liquidator. His Honour's overall conclusion was that Mr Watson had not acted impartially and had favoured the interests of Mrs Lucy Guitar Mead (nee Yang) over those of Mr Colin Anthony Mead. It is relevant to record that Mr Mead and Mrs Mead were at material times, the only directors and shareholders of Hypec and that, by the time the winding up proceedings were initiated, they were divorced and locked in matrimonial litigation over property. 11 The winding up application in respect of Hypec was brought by BL & GY International Co Ltd ("BL & GY"), a Taiwan company owned by Mrs Mead's family. BL & GY sought winding up of Hypec in insolvency on the basis of an unsatisfied statutory demand relating to a judgment debt arising from a default judgment. There were allegations that Mrs Mead had concealed the default judgment and the statutory demand from Mr Mead and had, in effect, engineered the winding up of Hypec in concert with her family. 12 On 25 September 2001 (that is, some five months after the making of the winding up order in respect of Hypec), the default judgment obtained by BL & GY was set aside by order of Sully J (BL & GY International Co. Limited v Hypec Electronics Pty Ltd [2001] NSWSC 841). Mr Mead, acting for Hypec by leave granted by Einstein J (BL & GY International Co Ltd v Hypec Electronics Pty Ltd; Mead v Watson [2001] NSWSC 705; (2001) 164 FLR 268), not only brought the application that resulted in the default judgment being set aside, but also defended successfully BL & GY's debt claim against Hypec when it came before Mathews AJ for hearing on the merits (BL & GY International Co Ltd v Hypec Electronics Pty Ltd [2002] NSWSC 38). 13 Quite separately, Mr Watson, as liquidator, had caused Hypec to seek to recover certain assets standing in the names of Mr Mead and Mrs Mead. Campbell J made orders in late 2003 for the transfer of certain properties to Hypec but declined to make like orders in relation to other properties: Hypec Electronics Pty Limited (in liq) v Mead [2003] NSWSC 934; (2003) 179 FLR 295. In 2009, long running litigation in the Family Court of Australia resulted in orders for the transfer of additional assets to Hypec, which had become a party to the matrimonial litigation between Mr Mead and Mrs Mead. 14 Returning to Gzell J's decision of 2 December 2004, it is, I think, relevant to note the principal findings that contributed to his Honour's overall conclusion adverse to Mr Watson: (a) Mr Watson persistently opposed Mr Mead's proceedings before Einstein J, before Sully J and before Mathews AJ. As an example, before Mathews AJ it was submitted that Mr Mead should not have an order for costs despite freeing Hypec of an enormous debt. (b) Before Campbell J, Mr Watson opposed the exclusion of the four properties which were the subject of earlier orders in the Family Court from the recovery of properties by Hypec. (c) Mr Watson appeared in the Family Court proceedings for the purpose of denying Mr Mead access to the only funds available to him to pay the costs of the proceedings successfully taken by him on behalf of Hypec. (d) Mr Watson opposed the application before Campbell J to restrict his powers in relation to further intervention in the Family Court. (e) After serious allegations of fraud against BL & GY, Mr Watson continued to be funded by BL & GY and did not inform Mr Mead or the court of his source of funds. (f) Mr Watson failed to inform either the court or Mr Mead of the different alleged balance dates of the debt said to be due to Hypec as a basis for asserting fraud on BL & GY's part. (g) Mr Watson failed to investigate the allegation that the goodwill of Hypec had been taken over by Hypec Information Technology Services Pty Ltd without consideration. (h) Mr Watson urged the solicitors for BL & GY to put on evidence to rebut the evidence of Mr Mead after he had been given leave by Einstein J to move to set aside the default judgment on behalf of Hypec. Gzell J described this as "an extraordinary abandonment of the impartiality demanded of a liquidator". The making of the existing inquiry order 15 The application for Mr Watson's removal was by interlocutory process filed in the winding up proceedings on 19 December 2003. The applicant was Mr Mead. He applied in his capacity as a contributory. Mr Mead filed an amended interlocutory process on 27 August 2004 seeking, among others, an order: "That David Patrick Watson be removed as liquidator of the First Defendant [that is, Hypec] pursuant to s 473(1) of the Corporations Act 2001. (a) Order that there be an inquiry as to the amount of the loss sustained by the company as a result of the misconduct of the liquidator, David Patrick Watson in the performance of his duties. (b) Refer the proceedings to a Master to undertake the said inquiry. (c) Order that the liquidator, David Watson, pay to the company such amount as may be found by the Master to be necessary to make good the loss as found at the conclusion of the inquiry." 16 The last two paragraphs of Gzell J's reasons of 2 December 2004 were: "135 I propose to make an order for the removal of the liquidator and the appointment of his replacement. I propose to order that the liquidator personally pay Mr Mead's costs of the proceedings.

136 Mr Mead also sought an order that there be an inquiry as to the amount of loss sustained by Hypec as a result of the misconduct of the liquidator in the performance of his duties. The liquidator submitted that Mr Mead did not have the standing to seek such an order. I will hear the parties on that issue. I will hear the parties on appropriate terms of orders including the appropriate form of the costs order. I direct the parties to bring in short minutes of orders reflecting my reasons." 17 The proceedings came before Gzell J on 9 December 2004 for the making of orders. His Honour dealt with the removal of Mr Watson as liquidator and his replacement by Mr Taylor. When the matter came back before Gzell J on 16 December 2004, counsel for Mr Mead handed up short minutes and referred to "a difficulty" in relation to Mr Taylor and the need to appoint someone other than him to replace Mr Watson. Gzell J pronounced orders dealing with that aspect, the effect of which was to install Mr Green as the new liquidator in place of Mr Watson (Mr Green was later replaced by Mr Whittingham).

18 After the orders for the appointment of a new liquidator had been dealt with, counsel for Mr Mead referred to aspects of the short minutes concerning costs and continued: "Then to number 6, the matter for inquiry pursuant to the suggestion of my learned friend [counsel for Mr Watson]. We have identified with [sic] some specifics of the proposed inquiry. I understand that there is no contest of an inquiry in those terms. Paragraph 7 just follows on from that. We come to the matter. Mr Taylor [counsel for Mr Watson] points out that the inquiry would be for the decision of the new liquidator. My learned friend seeks to have recognised that the pursuit of that inquiry and how it is conducted and so on is a matter for the new liquidator and that seems to be correct." 19 The existing inquiry order refers to four particular matters for investigation. Gzell J made findings about the first of them, being the matter in paragraph 6.1 concerning possible expropriation of Hypec's business by Hypec Information Technology Services Pty Ltd, a company owned by Mrs Mead, her sister and her mother. His Honour found that Mr Watson had sufficient information to warrant investigation of possible expropriation. He referred, in particular, to information about the formation of the other company by Mrs Mead, her mother and her sister; the fact that the new company operated from Hypec's premises and used a letterhead carrying the Hypec logo and address; and a circular sent by Mrs Mead stating that "the company name has changed to Hypec Information Technology Services Pty Ltd" and that "all future payments will need to be made to this company name". 20 There was no reference by Gzell J to any debt of $25,000 owed by Hypec International Technology Services Pty Ltd to Hypec (paragraph 6.2 of the existing inquiry order), any loan of $195,339.33 by Hypec to Lamron Pty Ltd (paragraph 6.3) or any loan of $295,300 by Hypec to Quoin Island Resort Development Pty Ltd (paragraph 6.4). 21 It appears, in light of the statement by Mr Mead's counsel counsel quoted at paragraph [18] above, that a consensus had been reached between Mr Mead (a contributory) and Mr Watson (the removed liquidator) as to the matters that would be the subject of inquiry and that they agreed that the court should make orders 6 and 7 as set out at paragraph [3] above. Gzell J's observations about the transfer of Hypec's business to Hypec Information Technology Services Pty Ltd show that his Honour had formed an opinion that there were questions regarding the propriety of the transaction. But there is nothing to indicate that the court had formed any similar opinion (or any opinion at all) on any of the paragraph 6.2, 6.3 and 6.4 matters. 22 The reasons of 2 December 2004 also show that the court had come to no conclusion at all as to whether a s 536 inquiry should be ordered as sought in the amended interlocutory process or, indeed, whether Mr Mead had standing to seek such an order. Gzell J made that plain in paragraph [136] of his reasons, set out at paragraph [16] above, when he said that the question whether a s 536 inquiry should be initiated by the court - as well as the question of Mr Mead's standing - was something for future consideration and decision. 23 In the end, the court was not asked to determine those questions on their merits. Rather (and as the transcript extract at paragraph [18] above shows), the applicant for the orders (Mr Mead) and the respondent to that application (Mr Watson) joined in asking that the court make the orders set out at paragraph [3] above and the court acceded to that joint request. Section 536 - scope and effect 24 As has been noted, the existing inquiry order, which is the subject of the applications now before me, is expressed to be an order pursuant to s 536(1)(b) of the Corporations Act. Section 536 provides: "(1A) In this section: 'liquidator' includes a provisional liquidator.

(1) Where: (a) it appears to the Court or to ASIC that a liquidator has not faithfully performed or is not faithfully performing his or her duties or has not observed or is not observing: (i) a requirement of the Court; or (ii) a requirement of this Act, of the regulations or of the rules; or (b) a complaint is made to the Court or to ASIC by any person with respect to the conduct of a liquidator in connection with the performance of his or her duties; the Court or ASIC, as the case may be, may inquire into the matter and, where the Court or ASIC so inquires, the Court may take such action as it thinks fit.

(2) ASIC may report to the Court any matter that in its opinion is a misfeasance, neglect or omission on the part of the liquidator and the Court may order the liquidator to make good any loss that the estate of the company has sustained thereby and may make such other order or orders as it thinks fit.

(3) The Court may at any time require a liquidator to answer any inquiry in relation to the winding up and may examine the liquidator or any other person on oath concerning the winding up and may direct an investigation to be made of the books of the liquidator." 25 The appendix to these reasons traces the history of s 536 and refers to its origins in an English provision of 1890 under which the Board of Trade supervised liquidators. When that provision was transplanted to New South Wales, the supervisory role was given to the court. The same shift occurred in relation to supervision of trustees in bankruptcy when the Bankruptcy Act 1924 (Cth) adopted a provision taken from English legislation vesting the supervisory function in the Board of Trade. 26 Under the current Corporations Act, s 536 is one of several provisions by means of which the court supervises liquidators in a court-ordered winding up. Others are: s 1321 which allows the court, on the application of a person aggrieved, to confirm, reverse or modify any act or decision of a liquidator; s 477(6) which makes exercise by a liquidator of the powers conferred by s 477 as a whole "subject to the control of the court" and allows any creditor or contributory to apply to the court in respect of any exercise or proposed exercise of any of those powers; provisions of which ss 477(2A) and 477(2B) are examples forbidding certain action of a liquidator without the approval of the court; s 479(3) which allows a liquidator to apply to the court for directions; s 480 under which release of a liquidator requires an order of the court; and s 473(1) empowering the court to remove a liquidator on cause shown. 27 There was reference in Re J W Murphy and P C Allen; BPTC Ltd (1996) 19 ACSR 569 at 570 to a general law supervisory jurisdiction of the court over court-appointed liquidators or, more, precisely, an "inherent power of the court to supervise and guide the activities of its own officer". In Albarran v Members of the Companies Auditors and Liquidators Disciplinary Board [2007] HCA 23; (2007) 81 ALJR 1155 at [31], however, members of the High Court noted that "historical considerations concerning the role of liquidators did not disclose the exercise by the courts of any general role in the exercise of functions of a disciplinary nature" such as those of the Companies Auditors and Liquidators Disciplinary Board; and that "significant powers to supervise the conduct of liquidators" was given to the Board of Trade by the United Kingdom legislation of 1890. 28 The transfer of the supervisory function under what is now s 536 from an administrative body to the court when the section became part of Australian law was referred to by Marks J in Commissioner for Corporate Affairs v Harvey [1980] VR 669, a case concerning s 278 of the Companies Act 1961 (Vic) which was identical, in substance, with the New South Wales s 278 set out in the appendix to these reasons. After referring to certain questions of construction and interpretation noted by Young CJ (Gillard J and McGarvie J concurring) in O'Toole v Mitcham (1977) 2 ACLR 471, Marks J stated (at 688-9) several important conclusions, including these: 1. Once an inquiry is undertaken by the court, the inquiry is not confined to the matters which caused the court to initiate the inquiry. 2. Under what is now s 561(1), the court has full jurisdiction over the conduct of the liquidator and may "proceed, paying due regard to the dictates of fairness, as it considers fit in the particular circumstances". 3. Once the court is informed of any matter bearing on the conduct of the liquidator, "it has jurisdiction to inquire into that conduct and the ambit of inquiry is for the court to determine. The ambit may well include, if the court considers it prudent to do so, inquiry into other liquidations, current or complete, with which the liquidator is or has been concerned". 29 The case before Marks J arose under the equivalent of s 536(2) by reason of the making of a report to the court by the Commissioner for Corporate Affairs. Much of the discussion therefore centred on the concept of "misfeasance" and the causal connection indicated by the words "has sustained thereby". These are matters not directly relevant to a s 536(1)(b) inquiry. 30 Given the juxtaposition of s 536(1) and s 536(2) and the reference in the latter alone to an order that the liquidator make good loss that the estate of the company has sustained by the liquidator's misfeasance, neglect or omission, there is a question whether such an order may form part of "such action as [the court] thinks fit" when it is s 536(1), rather than s 536(2), that is the governing provision. In Re Fermoyle Pty Ltd; Commwealth v Brown (1982) 62 FLR 413, Crockett J said (at 426): "The juxtaposition of the two generally expressed powers in successive subsections might be thought to require that in sub-s (1) the power 'to take such action' must be construed as meaning a power other than one to order the making good any loss; otherwise, why did the legislature choose to grant the specific additional power in sub-s (2)? I have found it unnecessary to reach a conclusion about these competing interpretations as I consider that, even if I possessed the power, the case is not one for ordering the respondent to make compensation." 31 The question thus left unanswered by Crockett J was addressed by Dodds-Streeton J in Australian Securities and Investments Commission v Edge [2007] VSC 170; (2007) 211 FLR 137. Her Honour expressed the view (at [88]) that s 536(1) will support an order requiring the payment of compensation: "In my opinion, the power to "take such action as it thinks fit" should be construed to encompass making orders for compensation for loss. Subsection (1) would otherwise have a serious limitation on its effective operation. In some cases, it would not be possible effectively to remedy the consequences of a contravention or breach of duty found in an inquiry under subs (1) unless a report pursuant to subs (2) had also been made. While the predominant view is that the subsections create independent powers, there is considerable functional overlap. The Court's power under subs (1) to 'take such action as it thinks fit' (derived from the provision's historical antecedents, which assumed a role by the Board of Trade) is extremely broad. It clearly includes, but is not limited to, a power to make orders (the principal form of 'action' taken by a court). The literal breadth of the power conferred by subs (1) should not be read down to exclude compensatory orders, which appear necessary to the effective operation of the subsection." 32 It is by no means clear that, in a case arising in England at the end of the nineteenth century, the Board of Trade could have ordered a delinquent liquidator to render compensation to the company's estate. The relevant provision of 1890 (which is set out in the appendix to these reasons) envisaged that the Board of Trade, upon complaint made to it about a liquidator's conduct, should "inquire into the matter" and might "take such action thereon as may be deemed expedient". There was no express power of the Board of Trade to require the payment of compensation for misfeasance. Nor was there any need for the Board of Trade to be able to impose such a requirement since, as will be seen (see paragraphs [55] and following below), the court had long possessed such a power under a different statutory provision. 33 Particularly in light of the opinion expressed by Dodds-Streeton J as to the scope of the present s 536(1) (and noting the similar position in bankruptcy: Re Alfaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262), however, I proceed on the basis that an inquiry under that section may result in an order that the liquidator make good loss sustained by the estate of the company. 34 Such an order would not be an order for the payment of damages for negligence or breach of contract or equitable compensation for breach of an equitable obligation. It would be an order founded on the statutory provision - but, of necessity, paying attention to the content of the liquidator's duties, the extent and nature of his or her failure to perform them and an assessment of the extent of the financial detriment occasioned to the estate. General law notions would necessarily contribute to the findings about duty and breach and play a role in determining causation and remoteness. In a s 536(1) case, resort will not necessarily be had to reasoning of the kind employed in, say, Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 in construing the words "has suffered … loss or damage by conduct …"; although, in a s 536(2) case, that approach might be entirely appropriate, given the statutory language ("loss that the estate of the company has sustained thereby …"). 35 It is, however, important to note that, by analogy with the approach taken in bankruptcy, a s 536 inquiry should not be the occasion for trying what is really an action for negligence or other breach of duty by a liquidator. I regard as relevant to s 536 observations of French J in Re Macchia; Macchia v Nilant [2001] FCA 7; (2001) 110 FCR 101 relation to similar provisions of the Bankruptcy Act 1966. His Honour said (at [44]): "In my opinion, however, s178 and s179 do not extend to provide statutory mechanisms for pursuing claims for damages for torts said to have been committed against a bankrupt in the administration of the estate or otherwise under the general law. That is not to say that conduct which attracts remedial intervention under these control provisions may not also give rise to causes of action in tort or otherwise. Nor does it preclude the possibility that orders may be made under these sections based upon common law or equitable rights. But the sections are not mechanisms by which bankrupts or others can pursue claims for damages for malfeasance in public office or for negligence or for the tortious breach of statutory duties. Broad as it is, the essentially supervisory function of s178 and s179 does not extend to such wide ranging application. In Re Gault; Gault v Law (1982) 57 FLR 165, Ellicott J found a breach of trust to have been committed by the trustee of a deed of arrangement under PtX of the Act, to which s179 was applicable, but declined to order an inquiry under that section. His Honour observed that the applicant debtor was "free to pursue such rights (if any) as he may have against the respondent for breach of trust whether under the Bankruptcy Act or the general law" (at 196). I do not doubt that there is some overlap between the orders that may be made under these sections and general law remedies and that the orders may involve the grant of what amounts to relief for a general law cause of action. But whatever the extent of that overlap, it does not, in my opinion, extend to claims for damages for losses unrelated to the bankrupt estate itself." 36 In summary, s 536 appears capable of supporting a compensatory order where the court finds, upon inquiry, that an order of that kind is necessary to the effectuation of the section's purpose; and, while the court's power in that respect is not otherwise subject to limitation and a s 536 inquiry is not the occasion for trying an action for negligence or breach of duty, general law concepts will necessarily inform the decision whether such an order should be made and the basis on which it should be made. Section 536 - purpose 37 While it may thus be open to the court, in a s 536(1) case, to order that loss to the estate be made good by the liquidator, the order the court makes in a particular instance will be determined by the whole of the circumstances. What the court "thinks fit", in s 536(1) terms, will be judged according to what is best calculated to achieve the purpose for which s 536 exists. 38 In seeking to identify that purpose, counsel for Mr Watson's estate drew attention to the following passage in the judgment of Burchett AJ in Re Glowbind Pty Ltd [2003] NSWSC 1190; (2003) 181 FLR 108 at [21]: "The section appears in Division 3 of Part 5.6 of the Act. Division 3 is headed 'Liquidators', and the section is headed 'Supervision of Liquidators'. In this context, it seems quite clear that the section was intended to state with some precision the manner in which the court, in particular circumstances, will exercise its power of supervision over liquidators, who are its officers. The same historical approach which McLelland J [in Re J W Murphy and P C Allen; Re BPTC Ltd (1996) 19 ACSR 569] found to be appropriate to the consideration of s 479(3) is equally applicable to a consideration of the scope and purpose of s 536. The section is to be distinguished from s 1321, which confers the jurisdiction that is generally appropriate to be exercised when the reversal or modification of a decision of the liquidator is in question. S 536 is rather 'concerned with aspects of the conduct of liquidators that are likely to attract sanctions for disciplinary reasons': McPherson The Law of Company Liquidation (4 ed, 1999) at 389. If, as McPherson points out ( ibid ), a decision of a liquidator, apparently arrived at in good faith, is to be challenged, the appropriate course is not to be found in s 536, but in s 1321. The position is explained in Belvista Pty Ltd v Murphy (1993) 11 ACSR 628 at 630. Where an inquiry under s 536 is appropriate, this will be because the court considers that inquiry to be 'in the public interest', and 'it is satisfied that there is a prima facie case' to justify subjecting the liquidator to it: McPherson op cit at 388; Burns Philp Investments Pty Ltd v Dickens (1993) 11 ACLC 272 at 273." 39 Reference was also made to observations of Robson J in Vink v Tuckwell [2008] VSC 100; (2008) 66 ACSR 30: "[81] As quoted above in Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd , McLelland J of the Supreme Court of New South Wales said in respect of s 420 the predecessor to s 536 that it was 'concerned with aspects of the conduct of liquidators which are liable to attract sanctions or control for what might broadly be described as disciplinary reasons'. He repeated this observation in Belvista Pty Ltd v Murphy which I have quoted above. His observation was quoted with approval by the Full Federal Court in Leslie v Hennessy . … [86] A complaint under para 536(1)(b) with respect to the conduct of the liquidator in connection with the performance of his or her duties should be confined to the liquidator's failure to observe the matters referred to in para 536(1)(a) and normally should be concerned with aspects of the conduct of liquidators which are liable to attract sanctions or control for what might be broadly described as disciplinary reasons. Normally, the court should be satisfied that there is a public interest being served in holding the inquiry." 40 Of particular importance is what was said by the Court of Appeal (Spigelman CJ, Hodgson JA and Austin J) in Hall v Poolman [2009] NSWCA 64; (2009) 75 NSWLR 99: "[53] The court must bear in mind the place of s 536 in the regulatory system established under Australia's corporations legislation when construing the section. It must be recognised that this section, together with the virtually identical provision applicable to controllers of the property of a corporation in s 423, is a broadly expressed supervisory jurisdiction over the conduct of persons in control of the affairs of a corporation, in circumstances where normal market forces and the exercise by shareholders of their rights to control are attenuated or non-existent. These powers are one part of a range of regulatory powers conferred on the court and/or ASIC to ensure the lawful, orderly and efficient conduct of the affairs of corporations during such a period. The detailed regulatory scheme found in the Corporations Act (Cth) manifests in this, as in so many other respects, the central significance of corporate conduct for the economic and social life of the nation. … [61] The powers conferred by s 536 have a common element, namely that they are powers of a regulatory nature concerned with the supervision of liquidators of all kinds. The court has a long-established role in the supervision of court-appointed liquidators, and s 536 confers a statutory supervisory jurisdiction in respect of liquidators of all kinds. … [66] It is pertinent to recognise that the powers conferred by s 536(1) are vested in both the court and the regulator, and therefore that the court is performing a regulatory role, in the sense that its function under s 536, like the function of ASIC under the section, is supervisory. Although the power conferred by s 536(3) is conferred on the court alone, it is of the same supervisory nature. As predecessors to s 536(1) said expressly, the court is to 'take cognizance of the conduct of liquidators': Companies Act 1896 (Vic), s 146; Companies Act 1936, s 235; Companies Act 1961, s 278; see O'Toole v Mitcham (1977) 2 ACLR 471 at 473, per Young CJ (Gillard J and McGarvie J agreeing); nothing in the explanatory memorandum to the Companies Bill 1981 suggests that the change of wording introduced in the Companies Code was intended to alter the court's role. … [69] One of the considerations relevant to the exercise of the discretion under each of the powers in s 536 is whether or not there is another appropriate remedy: see Leslie v Hennessy (at [6]). Accordingly, where an issue is raised as to whether a decision made by a liquidator should be reversed or modified, the appropriate procedure is under s 1321: see Belvista Pty Ltd v Murphy (at 630), per McLelland CJ in Eq; Re Glowbind (at 465 [21]), per Burchett AJ. Section 536 should not be used to assist a person engaged in litigation with a liquidator akin to discovery, at any rate where the litigation does not involve the kind of supervisory issues characterised by McLelland CJ as 'disciplinary reasons': see Re Bauhaus Pyrmont Pty Ltd (In Liq) [2006] NSWSC 742 per Barrett J. … [100] Section 536 constitutes part of the armoury of the supervisory jurisdiction of the court with respect to liquidators. The approach identified by McLelland J in Northbourne Developments , to the effect that such supervision is in a general sense, 'disciplinary' is applicable. In my opinion, a complaint under s 536(1)(b) requires some form of communication requesting the court to take steps to rectify or review something that had been done by a liquidator. A plea to exercise a statutory power to excuse default on the part of a former officer of the company, by reason of the conduct of the liquidator in pursuing litigation against him or her, is not such a request." 41 As the several judicial statements about s 536 make clear, the emphasis is on regulation, supervision, discipline and correction of liquidators in the interests of honest and efficient administration of the estates of companies subject to winding up. The interest to be served is a public interest. The section is not concerned in any direct way with vindication of private rights. Rather and as Steytler J said in GIS Electrical Pty Ltd v Melsom [2002] WASCA 302; (2002) 172 FLR 218 at [49] echoing an observation of McLelland CJ in Eq in Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434 at 438, it "is concerned with aspects of the conduct of liquidators which are liable to attract sanctions or control for what might be broadly described as disciplinary reasons". The pre-occupation is, as I put it in Re Bauhaus Pyrmont Pty Ltd [2006] NSWSC 742 at [4], with "the broader question of due administration of the winding up in the public interest". Section 536 - process 42 Proceedings under s 536 involve three stages. At the first stage, the court, upon application made, decides whether an inquiry into the liquidator's conduct is warranted. In Hall v Poolman (above), the Court of Appeal pointed out that that there need not be a prima facie evidentiary case of lack of faithful performance or observance of requirements. But the applicant must point to something about the liquidator's conduct that is a sufficient basis for making an order for inquiry; and it is desirable that this be articulated in pleaded form: Re Fox Home Loans Pty Ltd [2005] NSWSC 1050. Once such a basis has been shown, the court has a discretion whether or not to order an inquiry.

43 If the court sees fit to order an inquiry, the proceeding moves to its second stage and the inquiry itself takes place. Despite being an "inquiry", the second stage must be structured so as to be adversarial in nature, with the liquidator enjoying all the usual safeguards and protections: Commissioner for Corporate Affairs v Harvey (above).

44 The task of the court at the second stage is to make a judgment about the liquidator's conduct, viewed in the light of the whole of the requirements applying to liquidators and taking account, of necessity, of the circumstances of the particular winding up. What the liquidator ought properly to have done will be conditioned by circumstances. Thus, for example, a liquidator without funds will not be expected to act in the same way as an adequately funded liquidator. In the same way, a liquidator has a degree of freedom in allocating available resources and prioritizing work. Leaving to one side matters of dishonesty, lack of due care and obvious failure to address the decision at hand, it can never be said in the abstract that a liquidator who fails to take a certain step (or, for that matter, one who takes a certain step) thereby engages in misconduct. Context is all-important.

45 If, having heard the competing submissions at the second stage, the court decides that the liquidator's conduct was in some way deficient, it embarks upon the third stage and decides whether or not to make an order. The nature of the order will depend on the nature of the deficiency found. As noted above, the orders at the court's disposal include an order that the liquidator make good loss occasioned by the liquidator's deficient conduct. The predominant consideration, however, is effectuation of the purpose for which s 536 exists and, therefore, what is needed by way of regulation, supervision, discipline and correction for the due administration of the winding up in the public interest.

46 The power of the court at the third stage is the power to "take such action as it thinks fit". But that power is not exercisable unless and until the second stage has been completed by means of an inquiry. This is the effect of the statutory language: ". . . and where the Court . . . so inquires, the Court may take such action as it thinks fit" [emphasis added]. The court cannot take substantive action except as a consequence of an inquiry. It follows that it is not open to the court, as a matter of jurisdiction, to make an order simply on the basis that relevant parties consent to the making of the order.

47 This is illustrated, in the analogous bankruptcy context, by the recent case of Star Poultry Pty Ltd v Ryan [2009] FCA 688; (2009) 7 ABC(NS) 688. Section 179(1) of the Bankruptcy Act 1966 (Cth) says that the court may, on the application of any of certain persons: ". . . inquire into the conduct of a trustee in relation to a bankruptcy and may do one or both of the following: (a) remove the trustee from office; and (b) make such other order as it thinks proper."

48 In the Star Poultry case, two creditors asked the court to make, with the consent of the trustee, orders that the trustee be removed, that another person be appointed in his place, that the fixed sum costs of the applicants be paid by the trustee and that the trustee not reimburse himself for those costs out of the bankrupt estate. Although the need for an inquiry is perhaps not so clear on the terms of the Bankruptcy Act provision (which does not include the words "where the Court . . . so inquires" as a prelude to the grant of power), Gray J said (at [3]): "The application has been referred to me, as duty judge, by the registrar dealing with the bankruptcy list, on the basis that, although the orders sought are sought by consent, an inquiry by the Court into the conduct of the respondent as trustee in bankruptcy appears to be a prerequisite to the making of any order for the removal of the respondent from the office of trustee in bankruptcy. It is, therefore, necessary to examine the material before the Court, to determine, by way of inquiry, whether the removal and the consequential orders are justified in the circumstances.

49 Only after examining the evidence and finding a "sufficient breach of duty or negligence" did his Honour accede to the joint request of applicants and respondent to make the particular orders (and see, in relation to s 536 itself, Australian Securities and Investments Commission v Ariff [2009] NSWSC 829 at [30], where the inquiry proceeded on the basis of agreed facts).

Effect of the existing inquiry order 50 The existing inquiry order (see paragraph [3] above) marks, in this case, the conclusion of the first of the three stages I have described. The existing inquiry order does, however, raise certain questions of construction. 51 The order is, in terms, no more than an order that "the proceedings" be referred to the registrar "for directions to be made" with respect to a particular matter. That matter is "any inquiry" as to a particular amount "as the liquidator may wish to prosecute". The amount is "the amount of loss sustained by the Company as a result of the misconduct of" Mr Watson". The order then says by whom "such inquiry" is to be conducted and that it is to be subject to a limitation: "such inquiry to . . . be limited to loss possibly occasioned by" Mr Watson's "failure" to "take adequate steps to investigate and enforce claims by the Company" against three companies (and in one case the company's directors) "for" certain things described in 6.1 to 6.4. 52 The terms of the order raise a number of questions of construction. It is, however, sufficiently clear that, subject to the stated limitation, the focus is upon quantification of "loss sustained by the Company as a result of misconduct of" Mr Watson, so that the necessary initial focus will be upon whether Mr Watson was guilty of "misconduct". Because of the limitation, that focus will be confined to Mr Watson's "failure" to "take adequate steps to investigate and enforce claims by the Company" in respect of the particular matters stated in 6.1 to 6.4; and such "failure", if any, in that respect as is found to amount to "misconduct" will alone be relevant. 53 As a preliminary, however, it will be necessary to discover the scope of the inquiry desired by the liquidator, since the order is concerned only with "any inquiry . . . as the liquidator may wish to prosecute". 54 Let it be assumed that the liquidator wished to see an inquiry that had the fullest scope allowed by the terms of the order (an assumption consistent, I think, with the liquidator's present application to have the scope expanded). The first step in the inquiry would be to ascertain the full facts and circumstances surrounding Mr Watson's alleged "failure to take adequate steps to investigate and enforce" the 6.1 to 6.4 claims of Hypec. There would then be a question whether any failure actually established in such a respect entailed "misconduct". Only when a failure had been identified and shown to have the quality of "misconduct" would it be possible to address the question of the amount of any "loss sustained by" Hypec "as a result of the misconduct". Questions of causation and the nature of the relevant causal link would arise at that point. The sequence I have outlined is consistent with the statutory scheme. Comparison with misfeasance inquiry 55 I digress to consider a matter that seems to me to be significant. Section 165 of the Companies Act 1862 (UK) was the forerunner of s 598 of the present Corporations Act. Section 165 was in these terms: "Where, in the course of the winding up of any company under this act, it appears that any past or present director, manager, official, or other liquidator, or any officer of such company, has misplaced or retained in his own hands or become liable or accountable for any monies of the company, or been guilty of any misfeasance or breach of trust in relation to the company, the Court may, on the application of any liquidator, or of any creditor or contributory of the company, notwithstanding that the offence is one for which the offender is criminally responsible, examine into the conduct of such director, manager, or other officer, and compel him to repay any monies so misapplied or retained, or for which he has become liable or accountable, together with interest after such rate as the Court thinks just, or to contribute such sums of money to the assets of the company by way of compensation in respect of such misapplication, retainer, misfeasance, or breach of trust, as the Court thinks just." 56 I mention this old provision about the misfeasance summons procedure because the power it gave the court to "examine into the conduct of" a liquidator (or director, manager or other officer) is very similar to the power conferred by s 536(1)(b) of the Corporations Act to "inquire into" a "complaint made … with respect to the conduct of" a liquidator. 57 It was held in England in 1865 that s 165 of the Companies Act 1862 could not be deployed against the executors of a deceased officer: Re East of England Bank (Felton's Executors' case) (1865) LR 1 Eq 219. Subsequently, in Re British Guardian Life Assurance Company Ltd [1880] 14 ChD 335, Hall VC said of the section that "there is a total absence of power to investigate the conduct of a dead man under it". 58 The rationale under corresponding Indian legislation was stated in Parthasarathi Sinha v Official Liquidator, Ballygungle Real Property and Building Society Ltd [1976] 46 Comp Cas 555 (Cal) at [11]. Because the court is empowered to examine into the conduct of an officer and to compel the officer to contribute to any loss that has been caused to the assets of the company in liquidation, the liability "is fixed upon the director personally". The Calcutta court quoted the following passage in the judgment of Beg J of the Supreme Court of India in Official Liquidator, Supreme Bank Ltd v P A Tendolkar [1973] 3 SCR 364 at [32]: "This power does not, on the language of these provisions, extend to making compulsive orders against heirs of delinquents. As the power to take these special proceedings is discretionary and does not exhaust other remedies, although the court may, as a matter of justice and equity, drop proceedings against delinquent directors, managers or officers who are no longer alive, leaving the complainant to his ordinary remedy by a civil suit against the assets of the deceased, yet where no injustice may be caused by continuing these proceedings against a past director, even though he be dead, the proceedings could continue after giving persons who may be interested, opportunities to be heard. But even such proceedings can only result in a declaration of the liability of a deceased director, because the language of [the relevant section], as already noticed, does not authorise passing of orders to compel heirs or legal representatives to do anything. Such compulsive proceedings, as may become necessary, against those upon whom devolved the assets or the estate of a deceased delinquent director, who may have become liable, could only lie outside [the section]." 59 That explanation gave rise to the following statement in Official Liquidator, High Court of Karnataka v Maganlal Hirachand Shar [1980] 50 Comp Cas 762 (Kar) at [21]: "It is unnecessary to go into the reasons why misfeasance proceedings cannot be continued against the legal representative of a deceased director particularly in cases where no declaration against the director has been made by the court in which the proceedings have been initiated, for the obvious reason that the language of [the relevant section] clearly indicates that what is impeachable under those sections is the personal conduct of the director or other person who had been responsible for causing loss to the company in the course of participating in the business and management of the company. This personal conduct can only be defended by such person with the facts and knowledge that he possesses and it cannot be defended by others who are ignorant of anything that the deceased director might or might not have done in the course of such management and business of the company. Therefore, legal representatives can never be stated to be in a position to defend, no matter how detailed or elaborate the pleadings of misfeasance on the part of a director or other person may be, in proceedings under [the section]. They will be placed in a very difficult position if they are exposed to defend the action of somebody about which they might not have knowledge at all." 60 I mention the approach taken under s 165 of the Companies Act 1862 (UK) and provisions derived from it because of the resemblance between the process under that section and the process under s 536 of the Corporations Act. The focus is, in each case, on inquiry into the conduct of an individual and that individual's adherence to norms of behaviour. The inquiry is personal to him or her. It seems to have been assumed in Re Republic of Bolivia Exploration Syndicate Ltd [1914] 1 Ch 139 at 167 that misfeasance summons proceedings could not be continued against a director who had died. 61 The point is made in several of the cases that if a liquidator seeks to recover from the estate of a deceased officer for wrong done to the company by that officer, the claim should be formulated in a suit brought in the ordinary course, with causes of action identified and pleaded. Only then can it be seen what particular conduct of the deceased is in issue and needs to be considered by the estate and which claims survived to be pursued against the legal personal representative according to principles discussed in Phillips v Homfray (1883) 24 ChD 439 as subsequently modified by statute (and see Sutherland Shire Council v Stamatakos [2002] NSWCA 406; (2002) 38 MVR 200). Some factual matters 62 In arguing against expansion of the scope of any inquiry and in favour of the proposition that no inquiry should now take place, Mr Watson's estate relies on the passage of time and its effects. Mr Watson's death in July 2009 is a factor of particular significance. It is necessary to refer also to matters concerning the existence and availability of relevant documents. 63 Mr Watson was represented most recently before his death by Wotton + Kearney, solicitors. That firm now represents Mr Watson's estate. Etheringtons acted for Mr Watson in proceedings against Allianz as to whether professional indemnity cover responded to any liability that might flow from the existing inquiry order. TressCox acted for Allianz. 64 TressCox held 74 boxes of documents from the Allianz litigation. An employee of Wotton + Kearney recently inspected the contents of the 74 boxes in an attempt to discover which files and papers of Mr Watson were among them. The employee found things such as file notes and correspondence of Mr Watson and his employer, Mr Turnbull, from times before Mr Watson's removal as liquidator of Hypec but these are among a vast quantity of other paper that is not well indexed. The Wotton + Kearney employee says that it is not possible to say whether the documents of Mr Watson and Mr Turnbull held in the 74 boxes make up the whole or only part of their files. 65 Another solicitor with Wotton + Kearney has inspected files retained by Norton Rose, the solicitors for the current applicant. That solicitor concluded that it is impossible to tell which documents formed part of the files relating to Mr Watson's work and that Norton Rose clearly do not hold a full set of such files. 66 Etheringtons have informed Wotton + Kearney that they hold "extracts of Watson's files" that "make up 26 lever arch files". Access has not been possible because the current liquidator has not consented. Wotton + Kearney have been told by the current liquidator that he does not have "Watson's files". Mr Watson's insurance broker told Wotton + Kearney that Mr Watson's employer, Mr Turnbull, does not have any of the files relating to Mr Watson's work. 67 Mr Hodgson, who was Mr Watson's assistant, has told Wotton + Kearney that his role was limited and that, after the passage of time, he has no independent recollections. Mr Turner, who also assisted Mr Watson, told Wotton + Kearney that he was involved only for the first two or three months in statutory aspects. 68 Inquiries of Mr Watson's widow (who is also his legal personal representative) brought the response that he did not keep work documents at home. 69 Mr Dominello, a solicitor who had acted for Mr Watson, expressed to an employee of Wotton + Kearney a belief that the liquidator who followed Mr Watson "took all the files". Other inquiries and investigations made by Wotton + Kearney have not brought to light Mr Watson's files. 70 It is thus clear that documents that might explain what Mr Watson did and why he did it - as well as why he did not do certain things - are not available to his estate. Nor, of course, is Mr Watson able to elucidate facts and offer explanations.

Conclusions 71 The s 536(1) process is one directed to the regulation, supervision, discipline and correction of liquidators. Section 536(1)(b) is concerned with investigation of a complaint about a liquidator's conduct with a view to deciding whether and, if so, how the court should intervene to ensure the due administration of a particular winding up or windings up generally in the public interest. Only after that examination has been completed can the court address the question of remedial or protective action. 72 The concept of inquiry by the court and the need for the inquiry to be structured as an adversarial proceeding (see paragraph [43] above) mean that the liquidator whose conduct is in question is a necessary party. The proceeding is not, of its nature, one in which it is sought to establish a liability of the liquidator or to see a liability imposed upon the liquidator. Rather, the liquidator might be expected to give an account of his conduct to the court and to be dealt with personally by the court. 73 It is, in my opinion, foreign to the terms and the purpose of s 536(1) that the legal personal representative of a deceased liquidator should become the effective respondent to the adversarial proceeding pursued by way of inquiry into the conduct of that liquidator. The legal personal representative does not know why the liquidator did what the liquidator did or why the liquidator did not do what he or she did not do. It is impossible to obtain through the legal personal representative any explanation of the liquidator's conduct. And whatever the liquidator may or may not have done while living, his or her legal personal representative does not stand in need of regulation, supervision, discipline or correction on account of it. 74 There is, in this case, the added point that, despite what appear to be reasonable efforts, Mr Watson's estate has been unable to obtain relevant records and files. There must be a question whether the estate is entitled to such records and files as may be available, given that Mr Watson was an employee and that he was replaced as liquidator. The successor liquidator might be expected to retain documents belonging to the company and the employer might have a superior right to documents obtained in the course of employment. 75 In short, Mr Watson's legal personal representative is neither amenable to the s 536(1) jurisdiction nor in a position to defend the type of adversarial proceeding that the present liquidator wishes to engage in by way of s 536(1) inquiry. 76 I have, to this point, said nothing about order 7 (set out at paragraph [3] above). For reasons already stated, it may be accepted that, upon and in consequence of the completion of an inquiry under s 536(1) into the conduct of a liquidator, the court may order that the liquidator pay compensation to the estate of the company in liquidation. But it is only at that end point that such an order could be an appropriate order. In the present case, agreement between Mr Mead and Mr Watson apparently caused the court to make order 7 even though there had been no inquiry. The statutory pre-condition to any "action" of the court under s 536(1) created by the words "and, where the Court … so inquires" was not satisfied. There was accordingly no jurisdictional basis for the making of order 7 by way of "action" under s 536(1), in the sense that, in the circumstances existing when it was made, the court's power to make it had not become exercisable. It follows that order 7 was, in terms of rule 36.15(1) of the Uniform Civil Procedure Rules 2005, made "irregularly"; also that the absence of the necessary jurisdictional basis constitutes "sufficient cause" as referred to in that rule. Order 7 should therefore be set aside pursuant to rule 36.15(1). 77 Returning to the existing inquiry order and the context in which it currently operates, it is relevant to refer to principles on which the court protects the integrity of its processes. 78 In Jago v District Court of New South Wales [1989] HCA 46; (1989) 168 CLR 23 at 47, Brennan J said: "An abuse of process occurs when the process of the court is put in motion for a purpose which, in the eye of the law, it is not intended to serve or where the process is incapable of serving the purpose it is intended to serve " [emphasis added] 79 Subsequently, in Walton v Gardiner [1993] HCA 77; (1993) 177 CLR 378, his Honour said (at 411): "[I]n the context of abuse of judicial process, the concept of alien purpose is relevant to two questions: whether the party instituting the proceedings has done so for an alien purpose and whether the proceedings themselves are serving an alien purpose." 80 In the same case, Mason CJ, Deane J and Dawson J said at 392: "The inherent jurisdiction of a superior court to stay its proceedings on grounds of abuse of process extends to all those categories of cases in which the processes and procedures of the court, which exist to administer justice with fairness and impartiality, may be converted into instruments of injustice or unfairness. Thus, it has long been established that, regardless of the propriety of the purpose of the person responsible for their institution and maintenance, proceedings will constitute an abuse of process if they can be clearly seen to be foredoomed to fail. Again, proceedings within the jurisdiction of a court will be unjustifiably oppressive and vexatious of an objecting defendant, and will constitute an abuse of process, if that court is, in all the circumstances of the particular case, a clearly inappropriate forum to entertain them. Yet again, proceedings before a court should be stayed as an abuse of process if, notwithstanding that the circumstances do not give rise to an estoppel, their continuance would be unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which has already been disposed of by earlier proceedings. The jurisdiction of a superior court in such a case was correctly described by Lord Diplock in Hunter v Chief Constable of the West Midlands Polic e as 'the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right thinking people'. In Jago v District Court of New South Wales , at least three of the five members of the Court clearly rejected 'the narrower view' that a court's power to protect itself from an abuse of process in criminal proceedings 'is limited to traditional notions of abuse of process'. Mason CJ considered that a court, 'whose function is to dispense justice with impartiality and fairness both to the parties and to the community which it serves', possesses the necessary power to prevent its processes being employed in a manner which gives rise to unfairness. His Honour quoted, with approval, the following remarks of Richardson J of the New Zealand Court of Appeal in Moevao v Department of Labour : 'public interest in the due administration of justice necessarily extends to ensuring that the Court's processes are used fairly by State and citizen alike. And the due administration of justice is a continuous process, not confined to the determination of the particular case. It follows that in exercising its inherent jurisdiction the Court is protecting its ability to function as a Court of law in the future as in the case before it. This leads on to the second aspect of the public interest which is in the maintenance of public confidence in the administration of justice. It is contrary to the public interest to allow that confidence to be eroded by a concern that the Court's processes may lend themselves to oppression and injustice'. " 81 In the circumstances that have prevailed since Mr Watson's death in July 2009, the existing inquiry order and the present liquidator's desire to take advantage of it cannot have any objective other than that of seeking to extract money from the estate of the deceased liquidator under the pretext of an inquiry into the conduct of the deceased person. That objective of the present liquidator is alien to the purpose for which the s 536 process exists. No "action" that the court now takes under s 536(1) - including action requiring the deceased liquidator's estate to pay money to the company in liquidation - can secure or contribute to the regulation, supervision, discipline or correction of the deceased liquidator in the public interest. An inquiry under s 536(1) into a complaint with respect to Mr Watson's conduct in periods before his removal in December 2004 cannot, following his death, produce any outcome consistent with the purpose for which the power to make inquiry exists. 82 If the company in liquidation had any cause of action against Mr Watson at his death which continued to be maintainable against his legal personal representative (and, despite the passage of time, remains available), then the present liquidator may cause the company to sue accordingly. But that, of course, is something quite separate from a s 536(1) inquiry. 83 The court should not make any order purporting to expand the scope of the inquiry contemplated by the existing inquiry order. Rather (and because the existing inquiry order is not now capable of producing any result consistent with the statutory purpose), the court should, in the exercise of its inherent jurisdiction, order that the existing inquiry order be permanently stayed. Orders 84 The orders of the court are as follows:

1. Order that order 6 of the orders made herein on 16 December 2004 be permanently stayed.

2. Order that order 7 of the orders made herein on 16 December 2004 be set aside.

3. Order that the interlocutory process filed by Hypec Electronics Pty Ltd on 14 May 2010 be dismissed. 85 The question of the costs of the two interlocutory processes is at this stage reserved for future argument.

The progenitor of s 536 of the Corporations Act 2001 (Cth) is s 25 of the Companies (Winding Up) Act 1890 (UK), one of several related provisions under which the Board of Trade exercised functions in relation to court-appointed liquidators. The scheme of the sections is instructive.

Under s 14 of the Act of 1890, a person other than the official receiver appointed by the court as liquidator was forbidden to act until he had notified his appointment to the registrar of joint-stock companies and given security in the prescribed manner to the satisfaction of the Board of Trade (if the required security was not duly given, the court was required to rescind the order appointing the liquidator: Companies Winding Up Rules 1890 Rule 68). Under s 11, the Board of Trade specified the manner in which and times at which a liquidator was to pay his receipts into the Companies Liquidation Account at the Bank of England. An account of a liquidator's receipts and payments was to be sent at least twice a year to the Board of Trade, which was to cause the account to be audited and sent to creditors (s 20). It was the Board of Trade that performed the function of releasing a liquidator and determining objections to release, subject to an appeal to the court (s 22).

Section 25 then provided: "(1) The Board of Trade shall take cognizance of the conduct of liquidators of companies which are being wound up by order of the court, and in the event of any such liquidator not faithfully performing his duties and duly observing all the requirements imposed on him by statute, rules, or otherwise with respect to the performance of his duties, or in the event of any complaint being made to the Board by any creditor or contributory in regard thereto, the Board shall inquire into the matter, and take such action thereon as may be deemed expedient. (2) The Board may at any time require any liquidator of a company which is being wound up by order of the court to answer any inquiry made by them in relation to any winding up in which the liquidator is engaged, and may, if the Board thinks fit, apply to the court to examine on oath the liquidator or any other person concerning the winding up. (3) The Board may also direct a local investigation to be made of the books and vouchers of the liquidator of any company which is being wound up by order of the court."

The powers of the Board of Trade under s 25 were powers of control and regulation. The Board was a supervisory body charged with the duty of dealing with dereliction by liquidators. Section 25 was in no way concerned with recoveries for the benefit of creditors and contributories.

These provisions were carried over into the Companies (Consolidation) Act 1908 (UK) and the Companies Act 1929 (UK) and imported into New South Wales as part of the Companies Act 1936. Under the New South Wales provisions, however, the role assigned by the English legislation to the Board of Trade was given to the court. Sections 235 and 236 of the Act of 1936 were as follows: "235 . The court shall take cognizance of the conduct of liquidators of companies which are being wound up by the court, and, if a liquidator does not faithfully perform his duties and duly observe all the requirements imposed on him by the statute, rules, or otherwise with respect to the performance of his duties, or if any complaint is made to the court by any creditor or contributory or by the Minister in regard thereto, the court shall inquire into the matter, and take such action thereon as it thinks expedient. 236. (1) The court may at any time require any liquidator of a company which is being wound up by the court to answer any inquiry in relation to any winding up in which he is engaged, and may examine him or any other person on oath concerning the winding up. (2) The court may also direct a local investigation to be made of the books and vouchers of the liquidator."

The "Minister" was the Minister for the time being administering the Companies Act 1936.

There was a reassignment of functions when like New South Wales provisions were enacted as part of the Companies Act 1961. In addition, the court was given a further power. Section 278 of the 1961 Act was as follows: "(1) The Court shall take cognisance of the conduct of liquidators, and if a liquidator does not faithfully perform his duties and observe the prescribed requirements or the requirements of the Court or if any complaint is made to the Court by any creditor or contributory or by the Board in regard thereto, the Court shall inquire into the matter and take such action as it thinks fit. (2) The Commission or the Board may report to the Court any matter which in its opinion is a misfeasance, neglect or omission on the part of the liquidator and the Court may order the liquidator to make good any loss which the estate of the company has sustained thereby and make such other order as it thinks fit. (3) The Court may at any time require any liquidator to answer any inquiry in relation to the winding up and may examine him or any other person on oath concerning the winding up and may direct an investigation to be made of the books and vouchers of the liquidator."

The references in s 278 to the "Board" and the "Registrar" were references to the Companies Auditors Board and the Registrar of Companies respectively.

The further power created by s 278 of the 1961 Act is the court's power in s 278(2), exercisable upon report by an administrative body, to order a liquidator to "make good any loss which the estate of the company has sustained" by "a misfeasance, neglect or omission on the part of the liquidator". This had no counterpart in the provisions of the earlier legislation dealing with supervision and control of liquidators although the Act of 1961, like both earlier and later legislation, made provision for a summary action by way of misfeasance summons for recovery by a liquidator, including from a previous liquidator.

It was in the Companies Act 1981 (Cth) and corresponding State and Territory Codes that the provisions first assumed a form similar to the present form. Section 420 of that Act was in these terms: "(1) If - (a) it appears to the Court or to the Commission that a liquidator has not faithfully performed or is not faithfully performing his duties or has not observed or is not observing - (i) a requirement of the Court; or (ii) a requirement of this Code, of the regulations or of the rules; or (b) a complaint is made to the Court or to the Commission by any person with respect to the conduct of a liquidator in connection with the performance of his duties, the Court or the Commission, as the case may be, may inquire into the matter and, where the Court or the Commission so inquires, the Court may take such action as it thinks fit. (2) The Commission may report to the Court any matter that in its opinion is a misfeasance, neglect or omission on the part of the liquidator and the Court may order the liquidator to make good any loss that the estate of the company has sustained thereby and may make such other order or orders as it thinks fit. (3) The Court may at any time require a liquidator to answer any inquiry in relation to the winding up and may examine him or any other person on oath or affirmation concerning the winding up and may direct an investigation to be made of the books of the liquidator."

When the Corporations Law superseded the 1981 legislation with effect from 1 January 1991, s 536 was included in terms relevantly indistinguishable from those of the present Corporations Act provision. **********

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