Carter v Gartner

GREENWOOD ACJ: 1 This proceeding concerns an application by Luke Thomas ("Mr Thomas") for orders that certain persons be summoned for examination under ss 596A and 596B of the Corporations Act 2001 (Cth) ("the Act") with respect to the examinable affairs of La La Land Byron Bay Pty Ltd ("the Company" or "La La Land"). 2 Mr Thomas is a creditor and shareholder of the Company which was the operator of a bar and nightclub known as La La Land located at Level 1, 6 Lawson Street in Byron Bay, NSW. Those premises were leased from Sosiku Pty Ltd under a 20 year lease executed in July 2013. 3 Mr Thomas held 50% of the issued shares in the Company, was licensee and manager from December 2014 (mis-described in the submissions of Mr Thomas as "December 2015") to September 2015 and was a creditor of the Company due to "significant loans" he made in 2013 and 2014 to refurbish the premises of the nightclub. 4 On 25 September 2015, Mr Keri Taiaroa, the former director of the Company, signed a resolution to appoint Mr Andrew Poulter as an Administrator of La La Land. On 27 November 2015 the Company was placed into voluntary liquidation and Mr Poulter was appointed liquidator. Mr Thomas alleges that upon Mr Poulter being appointed as Administrator, Mr Poulter made a number of determinations which included "disposing of the remaining Company's asserts to LLL Nominees Pty Ltd, a company jointly owned by Taiaroa and Peter Raftopoulos." Mr Thomas also makes various other allegations that impugn the conduct of various people associated with the external administration of La La Land. 5 Mr Thomas seeks to examine the former director of the Company, Mr Taiaroa, and the liquidator (and former administrator) of the Company, Mr Poulter. Mr Thomas also seeks the issue of summonses to a range of other people, although at the Interlocutory Hearing on 12 March 2019 Mr Thomas asks this Court to issue summonses to each of the following individuals: (a) Mr Taiaroa, in his capacity described above (b) Mr Poulter, in his capacity described above (c) Mr Peter Raftopoulos, an officer of the Company (d) Mr Peter Roger, a Director of Sosiku Pty Ltd. 6 Mr Thomas has provided draft copies of the summonses he seeks. Mr Thomas sees that these four individuals produce various documents and appear at the Federal Court of Australia in Brisbane. 7 Mr Thomas deposes in his affidavit of 4 December 2018 that the purpose of the examination of Mr Taiaroa, Mr Poulter, Mr Raftopoulos and Mr Roger is to: a. Obtain information that may support an application against Taiaroa and/or Raftopoulos for: i. Breach(s) of Statutory duties owed to the Company pursuant to Sections 180-183 of the Act ii. Breach(s) of fiduciary duties owed to the Company. iii. Breach(s) of the Competition and Consumer Act 2010 pursuant to Section 18 for misleading and deceptive conduct in relation to the financial statements/status of the Company. iv. An Act(s) of fraud. v. Receipt of unreasonable director related transaction(s). vi. Compensation. b. Obtain information that may support an application against Poulter for: i. Breach of Statutory duty owed to the Company pursuant to Sections 180- 183 of the Act. ii. Breach of fiduciary duties owed to the Company. iii. Breach of the Competition and Consumer Act 2010, pursuant to Section 18, for misleading and deceptive conduct, in relation to the disposition of Company assets for nil/nominal consideration. iv. Involvement, pursuant to section 79 of the Act, and/or knowing assistance at common law, with respect to the alleged Taiaroa breach(s) of Statutory and fiduciary duties specified in sub-paragraph "a" above. v. Compensation. c. Obtain information that may support an application against LLL and other persons specified below, for involvement, pursuant to section 79 of the Act, and/or knowing assistance, knowing receipt at common law, with respect to the alleged Taiaroa and Raftopoulos breach(s) of Statutory and fiduciary duties specified in sub-paragraph "a" above. d. Obtain information that may support an application against the owner of the premises formerly leased by the Company, Sosiku Pty Ltd (the Landlord) for: i. Breach(s) of the Competition and Consumer Act 2010 for misleading and deceptive conduct, in relation to purported rental arrears owed by the Company and the validity of the Notice to Quit for failing or purportedly failing to remedy a Breach of Lease for non-payment . ii. Further and alternatively to sub-paragraph "i" above, receipt of an unfair preference payment, pursuant to Section 588F A of the Act. e. Make the application for compensation for the Company's loss and damage: i. Pursuant to Section 598 of the Act. ii. Pursuant to Division 90-20 of Schedule 2 of the Insolvency Practice Schedule (Corporations) (the Schedule), subject to leave of the Court to make the application on behalf of the Company. f. Compensate the Company's creditors. 8 This matter was initially listed for mention before Registrar Lynch of this Court on 8 February 2019. At that mention, Mr Thomas informed the Court of proceeding QUD41/2019, in which Mr Thomas seeks orders under s 598 of the Act against Mr Taiaroa, Mr Raftopoulos and LLL Nominees Pty Ltd (a company said to be "owned" by Mr Taiaroa and Mr Raftopoulos). 9 Mr Thomas has submitted that he initially sought to have QUD18/2019 and QUD41/2019 brought as one proceeding. However, because the Australian Securities and Investments Commission ("ASIC") had not authorised him as an "eligible applicant" for the purposes of Division 2 of Part 5.9 of the Act he elected to file an application for examination summonses separately. 10 It is relevant at this point to note that Mr Thomas was authorised as an "eligible applicant" for the purposes of Division 1 of Part 5.9 of the Act by ASIC on 26 October 2018. On 20 December 2018, ASIC wrote to Mr Thomas and revoked the contents of the letter dated 26 October 2018. ASIC went on to authorise Mr Thomas as an "eligible applicant" for the purposes of Divisions 1 and 2 of Part 5.9 of the Act. 11 On 15 January 2019, this Court ordered Mr Thomas to serve ASIC with the documents in QUD18/2019. Mr Thomas has provided the Court with a copy of ASIC's letter of 6 February 2019 confirming receipt of those documents. ASIC stated that "this is a matter properly left for the determination of the Court and confirms that it does not propose to intervene… or seek leave to appear…". 12 At the mention on 8 February 2019, Registrar Lynch made orders that Mr Thomas file a further affidavit as to the nature of the proceedings in QUD41/2019 and ordered that he serve Mr Poulter with a copy of his application and supporting affidavits. 13 Mr Thomas filed an affidavit on 15 February 2019 in accordance with the orders of 8 February 2019. Mr Thomas annexes to that affidavit a series of pleadings filed in the Supreme Court of Queensland in proceeding BS13700/17. It will be necessary to consider later in these reasons the nature of these different proceedings, but for now it suffices to say that the Supreme Court proceeding seeks declarations pursuant to s 1317E(1)(a) of the Act that Mr Poulter has breached his statutory and fiduciary duties and seeks various orders for compensation to the Company. 14 At the hearing on 12 March 2019, Mr Thomas gave oral evidence and affirmed a further Affidavit which he had lacked time to depose and file before coming to Court. That affidavit (marked as Exhibit 1) refers to (and annexes pleadings from) proceedings commenced by Mr Thomas in the Equity Division of the Supreme Court of New South Wales on 2 October 2015 seeking, among other things, injunctive relief to remove Mr Poulter as administrator of the Company. 15 On 12 October 2015, White J of the Supreme Court of New South Wales averted to their being a "serious question to be tried" as to Mr Poulter's appointment but declined to grant the relief sought because there was no evidence that Mr Thomas was a creditor of the Company for the purposes of s 447C of the Act, nor was there any evidence of Mr Poulter's alleged lack of impartiality. His Honour was equally not convinced that Mr Thomas' undertaking as to damage had value on the material before that Court. 16 In his affidavit affirmed in the witness box on 12 March 2019, Mr Thomas also deposes that he commenced further proceedings in the Supreme Court of Queensland on 17 August 2018 in proceeding BS8834/18 seeking injunctive relief against the sale by LL Nominees Pty Ltd of the Company's former nightclub business. Mr Thomas deposes that on 29 August 2018, Burns J of the Supreme Court of Queensland refused the application for relief. This Court is told that proceeding BS8834/18 is ongoing and is being managed by a Registrar of the Supreme Court of Queensland. 17 I now turn to the orders sought in this matter.

Examining a person about a corporation 18 The orders sought by Mr Thomas in the originating process concerning Mr Taiaroa, Mr Poulter and Mr Raftopoulos seek to invoke the Court's power conferred by ss 596A and 596B of the Act. 19 These provisions are contained in Chapter 5 of the Act which deals with external administration. Part 5.9 of Chapter 5 contains miscellaneous provisions. 20 Section 596A states: Mandatory examination The Court is to summon a person for examination about a corporation's examinable affairs if: (a) an eligible applicant applies for the summons; and (b) the Court is satisfied that the person is an officer or provisional liquidator of the corporation or was such an officer or provisional liquidator during or after the 2 years ending: (i) if the corporation is under administration--on the section 513C day in relation to the administration; or (ii) if the corporation has executed a deed of company arrangement that has not yet terminated--on the section 513C day in relation to the administration that ended when the deed was executed; or (iii) if the corporation is being, or has been, wound up--when the winding up began; or (iv) otherwise--when the application is made. 21 Section 596B, however, provides: Discretionary examination (1) The Court may summon a person for examination about a corporation's examinable affairs if: (a) an eligible applicant applies for the summons; and (b) the Court is satisfied that the person: (i) has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or (ii) may be able to give information about examinable affairs of the corporation. (2) This section has effect subject to section 596A. 22 As the terms of s 596A makes clear, the Court has no discretion as to whether to issue a summons sought pursuant to that provision. As Foster, Wigney and Markovic JJ held in Kimberley Diamonds Ltd v Arnautovic (2017) 252 FCR 244 ("Kimberley Diamonds") at [97] "Section 596A … is mandatory and the express criteria that must be satisfied do not include any requirement that it be demonstrated that the possible results of the examination justify the issue of a summons to a liquidator or any other officer". 23 The decision in Kimberley Diamonds considered at length the exercise of the examination power under s 596A of the Act. At first instance, Gleeson J held that the mandatory summonses issued under s 596A of the Act were an abuse of process and ordered that the summonses be permanently stayed. Her Honour reasoned that an examination under s 596A required a "purpose", that the Court should not interfere with the liquidation process and that there was no justification for the examination as it had no practical utility. In the latter respect, Gleeson J based her conclusion on information relied upon by the applicant which suggested that there were flaws or defects in the sales process by the liquidator with respect to a particular asset (a mine). Her Honour found that this evidence did not support a reasonably arguable case that the liquidator had failed to faithfully perform his duties. 24 The Full Court disagreed with the primary judge's conclusions and reasoning. Their Honours unanimously held that if the statutory integers in s 596A are met, the summonses must issue. There is no discretion. Further, the Full Court held that it is irrelevant whether an eligible applicant can establish any particular reason for seeking the summons, or demonstrate that the proposed examination would have practical utility or that the examination would, or would likely, achieve a particular result or indeed, that the examination would in any sense be desirable or efficacious. 25 Their Honours accepted that a summons issued in compliance with s 596A can be discharged if it is found that the applicant had an improper purpose in securing the summons, or if the summons and resulting examination is otherwise found to amount to an abuse of process. In that regard, the Full Court accepted what was said in Carter v Gartner (2003) 130 FCR 99 ("Carter") at [27] and referred to a number of cases that held that subject to statutory provision to the contrary, a court possess the power to control and supervise proceedings brought in its jurisdiction, and that power includes power to take appropriate action to prevent injustice: Jago v District Court (NSW) (1989) 168 CLR 23 at 25 per Mason CJ; Hamilton v Oades (1989) 166 CLR 486 at 502-504. Their Honours went on to note that is also well known that the power to permanently stay proceedings on the ground that they are an abuse of process should be exercised with caution and only in the most exceptional or extreme case: Moore v Inglis (1976) 50 ALJR 589 at 593; Walton v Gardiner (1993) 177 CLR 378 at 392 (per Mason CJ, Deane and Dawson JJ); O'Shane v Harbour Radio Pty Ltd (2013) 85 NSWLR 698 at [111] (per Beazley P, with whom McColl JA and Tobias AJA agreed). 26 In this case, there is no evidence that Mr Thomas' purpose is improper in the relevant sense contemplated by Branson J in Carter or by Besanko J in Harvey v Burfield (2003) 175 FLR 385 or that the summons amounts to an abuse of process. If there was such evidence, it would be a matter for the examinees to seek consequential orders on the basis of proper evidence. 27 The evidence given by Mr Thomas at the hearing on 12 March 2019 before me was all to the effect that the other proceedings in which he is involved in both this Court and in the Supreme Court of Queensland are concerned with compensation for the Company (now in liquidation) and not for his own personal benefit.

The integers of the statute 28 It is clear, on the evidence, that Mr Thomas is an "eligible applicant" and continues to hold that authorisation from ASIC. 29 It then falls to the Court to be satisfied that Mr Taiaroa, Mr Poulter and Mr Raftopoulos "are an officer or provisional liquidator of the corporation or was such an officer or provisional liquidator during or after … 2 years ending [various events are listed]". 30 Mr Taiaroa ceased to be a Director on 1 March 2017, Mr Poulter was appointed as liquidator on 27 November 2015 and Mr Raftopoulos was, as described in Mr Thomas' affidavit of 4 December 2018 "for the period including not less than 4 years prior to August 2013, Raftopoulos was responsible for the daily operations of the business premises". Mr Thomas goes on to say that Mr Raftopoulos was responsible for, inter alia, "hir[ing] and terminat[ing] the employment of staff…" and "at times Raftopoulos would give instructions to Taiaroa…". Mr Thomas deposes that Mr Raftopoulos acted as though he was a director and at times even held himself out as the sole owner of the Company". Mr Thomas also states that "Raftopoulos would make decisions that affected a substantial part of the business of the Company". 31 I am satisfied that Mr Poulter is an officer within the meaning of s 9 of the Act and that Mr Taiaroa was an officer for the purposes of that action during or after two years ending when the winding-up began. 32 With respect to Mr Raftopoulos, I am satisfied that he ought be considered an officer for the purposes of s 9 on the basis of: Mr Thomas' affirmed testimony, given he seemingly "has the capacity to affect significantly the corporation's financial standing" and/or is a person "in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation)"; the matters described in Mr Thomas' affidavit of 4 December 2018 at paras [14]-[20]; and the wide construction given to the term "examinable affairs" in cases such as Evans and Others v Wainter Pty Ltd (2005) 145 FCR 176, Lander J at [86], Ryan J agreeing at [1]-[2], and Crennan J agreeing at [265]-[271]; Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 at 311 D-E, Beaumont, Spender and Cooper JJ. 33 Accordingly, pursuant to s 596A summonses must issue mandatorily to Mr Poulter, Mr Taiaroa and Mr Raftopoulos. 34 Mr Thomas seeks the issue of a summons with respect to Mr Roger pursuant to the discretionary power in s 596B of the Act. 35 Mr Thomas addresses the discretionary considerations from [98]-[108] of his affidavit deposed 4 December 2018. Section 9 of the Act defines "examinable affairs" as: (a) the promotion, formation, management, administration or winding up of the corporation; or (b) any other affairs of the corporation (including anything that is included in the corporation's affairs because of section 53); or (c) the business affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation's examinable affairs because of paragraph (a) or (b). 36 Mr Thomas says that Mr Roger, in the eight months preceding the Voluntary Administration, was in dispute with the Company over various matters, concerning the loss of commercial floor space, rent reduction and the failure of the Company to execute a Deed of Release following a rebuild associated with a fire. 37 Mr Roger lodged a Proof of Debt at the first meeting of creditors on 8 October 2015 for the sum of $19,819.89. At the second meeting of creditors on 26 October 2015, Mr Poulter admitted a signed claim for $1,370. 38 I am satisfied that Mr Roger may be able to give information concerning the management of the corporation and other affairs associated with the expenditure of money in the dispute associated with him. I also am satisfied that Mr Roger could answer questions about the administration of the Company. Accordingly, the integers of s 596B are made out.

Summons to be adjourned 39 In his originating process filed 18 December 2018, Mr Thomas also sought the issue of summonses to the following people: (1) Nicholas Nicolauo (2) Eyal Etias (3) Brian McMahon (4) Joseph Alesci (5) Joseph Di Mauro (6) Narelle Seymour (7) John Bannister (8) Mike Freeman 40 As I noted earlier in these reasons, at the hearing on 12 March 2019, Mr Thomas did not press for the issue of these summonses at this stage. Accordingly, these summonses will be adjourned to a date to be fixed.

Conclusion 41 In the result, summonses are to issue to Mr Poulter, Mr Taiaroa, Mr Raftopoulos and Mr Roger. 42 There will be orders accordingly for the Registrar of this Court to issue the summonses. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Acting Chief Justice Greenwood.