The continuation of proceedings against E Connect
5 As E Connect was placed into liquidation on 10 March 2023, it was necessary to consider at the hearing of this matter whether the CER should be granted leave pursuant to s 471B of the Corporations Act 2001 (Cth) (Corporations Act) to continue the proceedings against it. It was relevant to the determination of that issue that the CER had offered an undertaking to the Court not to enforce any penalty imposed on E Connect without leave.
6 On the basis of that undertaking, leave to proceed was granted. The following paragraphs set out the reasons for that grant of leave.
7 The CER has alleged that E Connect contravened s 24B(1) of the REE Act by the conduct of its directors and agents, Mr Airey and Mr Doody. Those persons have admitted that their conduct, in providing certain information in relation to the installation of SGUs that was false or misleading, contravened the REE Act. There is no doubt as to E Connect's liability for the actions that they took in the course of carrying out their roles as directors and agents. That liability is established on the facts as they have been agreed and presented to this Court.
8 Section 471B of the Corporations Act provides as follows:
471B Stay of proceedings and suspension of enforcement process
While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:
(a) a proceeding in a court against the company or in relation to property of the company; or
(b) enforcement process in relation to such property;
except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
9 The section is analogous to ss 444E(3) and 500(2) of the Corporations Act, and the case law makes apparent that essentially the same principles apply to all three provisions. Given the frequency with which these "leave to proceed" provisions come before the courts, it is no surprise that the relevant principles have been substantially synthesised and summarised on numerous occasions.
10 The purpose of such provisions was explained some time ago by McPherson J (with whom Campbell CJ and Sheahan J agreed) in the oft-cited case of Re Gordon Grant & Grant Pty Ltd [1983] 2 Qd R 314 (Re Gordon Grant & Grant), where his Honour identified at 316 that "without the relevant restriction, a company in liquidation would be subjected to a multiplicity of actions which would be both expensive and time-consuming, as well in some cases as unnecessary". Similar observations were made much earlier in relation to the cognate section of the Companies Act 1862, 25 & 26 Vict, c 89 by James LJ in Re David Lloyd & Co (1877) 6 Ch D 339 at 344, which continue to be cited both in England and in Australia: see, eg, Re Atlantic Computer Systems Plc [1992] Ch 505, 520 - 521; JJ Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (in liq) (1986) 11 ACLR 224, 226; Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (subject to deed of company arrangement) (2016) 116 ACSR 353, 377 [87] (ACCC v Phoenix Institute) (this aspect of the judgment not being challenged on appeal: Phoenix Institute of Australia Pty Ltd v Australian Competition and Consumer Commission [2017] FCAFC 155 [15] (Phoenix Institute v ACCC)).
11 The leave to proceed requirement has elsewhere been explained as serving "to ensure that the assets of a company being wound up are administered in accordance with the relevant statutory provisions and no person obtains an advantage to which he or she is not properly entitled under those provisions", and "to enable the court to supervise claims brought against the company being wound up": Zempilas v JN Taylor Holdings Limited (in prov liq) (No 3) (1991) 55 SASR 108, 109 - 110; Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (No 2) [2009] FCA 42 [18]; Australian Competition and Consumer Commission v Campbell (No 2) [2019] FCA 1487 [6] (ACCC v Campbell (No 2)). However, it has been doubted whether the former of those characterisations can properly be said to express a "major" or "principal" purpose of the requirement, since neither the commencement of proceedings nor the entry of judgment will normally confer an advantage on a creditor, and the prohibition imposed by the relevant provisions is not directed only at proceedings by creditors but includes proceedings by shareholders and others: Commonwealth of Australia v Davis Samuel Pty Ltd (No 5) (2008) 164 ACTR 1, 4 - 5 [13] - [14] (Commonwealth v Davis Samuel (No 5)).
12 In Re Gordon Grant & Grant, McPherson J explained the practical effect and usual function of leave to proceed provisions at 317, as follows:
What is substituted for litigation in the ordinary form is a procedure by which a claimant lodges a verified proof of debt with the liquidator, who admits or rejects it wholly or in part, and from whom an appeal lies to a judge, who determines that appeal de novo primarily on affidavit material … There can be no doubt that ordinarily such a procedure is, and is designed to be, much more expeditious and less expensive than ordinary proceedings by way of action. …
The question whether a claimant should be permitted to proceed by action, or should be required to submit his proof of debt and, if dissatisfied, appeal to a judge, is therefore reduced largely to one of choosing between alternative forms of procedure. … It, of course, follows that it is quite impossible to state in an exhaustive manner all the circumstances in which leave to proceed may be appropriate, but in the past they have been said to include factors such as the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved, and the stage to which the proceedings, if already commenced, may have progressed.
13 This passage was quoted with apparent approval by the Full Court of this Court, comprising Wilcox, Burchett and Beazley JJ, in Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 (Vagrand) at 555 - 556. It suggests that the starting point when considering an application for leave under s 471B will be that the applicant must lodge a proof of debt unless it can demonstrate that there is good reason to depart from that procedure: Swaby v Lift Capital Partners Pty Ltd (in liq) (2009) 72 ACSR 627, 631 [26] (Swaby). See also OD Transport (Australia) Pty Ltd (in liq) v OD Transport Pty Ltd (1997) 80 FCR 290, 294; Eopply New Energy Technology Co Ltd v EP Solar Pty Ltd [2013] FCA 356 [22]. The applicant, in this sense, bears the onus of establishing a case for leave to be granted.
14 It was recognised by the Full Court in Vagrand, at 553, that the question of leave under provisions like s 471B "is always a matter of discretion". However, as the terms of the provision indicate, the legislation is silent as to the principles to be applied in determining an application for leave: Rushleigh Services Pty Ltd v Forge Group Ltd (In Liq) (Receivers and Managers Appointed); In the Matter of Forge Group Ltd (In Liq) (Receivers and Managers Appointed) [2016] FCA 1471 [14]. The discretion is accordingly unconfined: Secretary, Department of Health and Ageing v Prime Nature Prize Pty Ltd (in liquidation) [2010] FCA 597 [15] (Secretary v Prime Nature Prize). Indeed, some have gone so far as to describe it as "absolute", albeit that it must be exercised fairly and judicially: see King v Yurisich (2006) 59 ACSR 598, 600 [13]; Commonwealth v Davis Samuel (No 5) at 6 [19]; Australian Securities and Investments Commission v Axis International Pty Ltd (No 7) [2011] FCA 812 [8]; QNI Resources Pty Ltd v Park (2016) 116 ACSR 321, 331 [46]. In other cases, however, it has been described in apparently conflicting terms as "broad but not absolute": see Swaby at 631 [23]; Hu v PS Securities Pty Ltd as trustee of the Joseph Family Trust [2011] NSWSC 303 [20]; Australian Pipe & Tube Pty Ltd v QBE Insurance (Australia) Limited [2015] FCA 1135 [8].
15 Notwithstanding the breadth of the discretion, it is possible to identify certain factors that might generally inform its exercise - as is apparent, for instance, from the final sentence of the passage from the judgment of McPherson J in Re Gordon Grant & Grant extracted above. Although lists of such factors have at this point been compiled, quoted and reformulated in a significant number of cases, it must always be borne in mind that each application is ultimately to turn upon its own facts and the question of leave cannot be approached by treating the factors as comprising as "shopping list" to be worked through routinely by litigants: Australian Competition and Consumer Commission v Advanced Medical Institute Pty Limited (Administrator Appointed) (No 3) [2011] FCA 348 [5] (ACCC v Advanced Medical Institute (No 3)), referred to in Murphy v Astute Projects Pty Ltd [2018] FCA 2118 [5] - [7]; Hastie Group Ltd (in liq) v Multiplex Constructions Pty Ltd (Formerly Brookfield Multiplex Constructions Pty Ltd) (No 2) (2021) 155 ACSR 217, 220 [8]. That having been said, the Court may be guided by previous decisions when identifying the factors that are to be considered in the case before it, having regard, also, to the underlying purpose served by the leave to proceed requirement, as explained above: Secretary v Prime Nature Prize [15]; ACCC v Phoenix Institute at 377 [87].
16 In the present case, several relevant factors were identified in the CER's submissions in support of its application for leave. Given the fact-specific nature of the inquiry, and prior judicial warnings against approaching the principles concerning leave to proceed too prescriptively, it was appropriate for such an attempt to be made to define the matters most pertinent to the exercise of discretion in this case. There can be little utility, by contrast, in an applicant distilling from the vast library of authorities concerning s 471B and its analogues, and presenting to the Court, a lengthy consolidated list of all matters that might historically have had some bearing on the question of leave in other cases, each of which it then endeavours to address. A degree of judgment must be brought to the task of deciding what ought and ought not to be considered.
17 It is apparent from the CER's submissions on this point, and no doubt correct as a matter of principle, that the question of leave in this case is affected to a substantial extent by the fact that these proceedings involve the pursuit of pecuniary penalties, declarations and injunctions by a regulator. This gives rise to a relatively distinctive list of matters of foremost relevance to the exercise of the discretion under s 471B, between which there is some degree of overlap. Those matters can be set out as follows:
(a) Whether the applicant has established that there is a serious question to be tried: Vagrand at 556; Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd [1997] FCA 1484. An applicant must generally establish that it has a good claim with a solid foundation, but it is perhaps unnecessary to establish a prima facie case: J & J Richards Super Pty Ltd ATF the J & J Richards Superannuation Fund v Linchpin Capital Group Ltd (in liq) [2020] FCA 1772 [8]; Buckingham v Pan Laboratories (Australia) Pty Ltd (in liq) (2004) 136 FCR 102, 109 [68]. It follows that the applicant need not prove every element of the claim that it wishes to make out, though mere assertion will not suffice: Commonwealth v Davis Samuel (No 5) at 7 [29], citing Tolhurst Druce & Emmerson v Maryvell Investments Pty Ltd [2007] VSC 271 [157] - [164].
(b) Whether the relief sought is not otherwise available in the liquidation process, particularly by the lodging of a proof of debt: Australian Competition and Consumer Commission v Link Solutions Pty Ltd (2008) 68 ACSR 561, 565 [11] (ACCC v Link Solutions); Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (in liq) [2017] FCA 521 [21], [23] - [24] (ACCC v AIPE); Australian Competition and Consumer Commission v Birubi Art Pty Ltd (No 2) [2018] FCA 1785 [15] (ACCC v Birubi (No 2)). The inability to obtain relief by that process, including the imposition of pecuniary penalties and the grant of declarations and injunctions, is a significant factor favouring the grant of leave to proceed.
(c) Whether there is a public interest in enforcing compliance with, and preventing conduct that is in contravention of, a statutory scheme: ACCC v Phoenix Institute at 377 - 378 [89]; ACCC v Birubi (No 2) [9]. See also ACCC v Advanced Medical Institute (No 3) [5] - [6], [20]; Australian Competition and Consumer Commission v ACN 135 183 372 (Administrators Appointed) (formerly known as Energy Watch Pty Ltd) [2012] FCA 586 [6]. If there is, this may favour the grant of leave to proceed, though the weight to be afforded to this factor will turn upon a consideration of all of the circumstances of the particular case: see, eg, ACCC v Link Solutions at 566 [16] - [17].
(d) Whether there is a public interest in allowing the applicant to fulfil a statutory duty, particularly for the purpose of obtaining orders that give effect to the objective of general deterrence: Australian Competition and Consumer Commission v Artorios Ink Co Pty Ltd [2013] FCA 753 [10] - [11] (ACCC v Artorios Ink); ACCC v Campbell (No 2) [13]; Fair Work Ombudsman v Foot & Thai Massage Pty Ltd (in liquidation) [2019] FCA 1601 [15]; Fair Work Ombudsman v Blue Sky Kids Land Pty Ltd (in liquidation) [2020] FCA 718 [11].
(e) The stage to which the proceedings have progressed, and the extent to which the applicant has expended time, effort and money in prosecuting its claim: Re Gordon Grant & Grant at 317; Meehan v Stockmans Australian Cafe (Holdings) Pty Ltd (1996) 22 ACSR 123, 127; Speiser v Locums Financial Management Pty Ltd (1996) 22 ACSR 478, 482 - 483; ACCC v Artorios Ink [12]. The nearer the proceedings are to completion, and the greater the expenditure on them, the more appropriate the grant of leave to proceed may be on the balance of convenience.
(f) Whether the claims in the proceedings raise complex questions of fact that are more appropriate for determination by the Court rather than under a proof of debt procedure: Phoenix Institute v ACCC [154]. It must be borne in mind, however, that requiring a liquidator to engage in complex litigation has the potential to distract inappropriately from the liquidation process and reduce the funds available to meet the claims of creditors. This outcome would seem to run contrary to the purpose intended to be served by the requirement of leave to proceed, as explained in Re Gordon Grant & Grant and other cases.
(g) The potential for creditors of the company to suffer prejudice: Re AJ Benjamin Ltd (in liq) (1969) 90 WN (Pt 1) (NSW) 107, 110; Swaby at 631 - 632 [29]; ZOLL Medical Australia, in the matter of Cardiac Defibrillators Australia Pty Ltd (in liq) v Cardiac Defibrillators Australia Pty Ltd (in liq) [2022] FCA 167 [25]. This prejudice can be alleviated by an undertaking not to enforce any relief without the Court's leave: ACCC v Phoenix Institute at 386 [127]; Commissioner of Taxation v International Indigenous Football Foundation Australia Pty Ltd (in liq) [2017] FCA 538 [15]; Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2020] FCA 474 [9]; Australian Securities and Investments Commission v ACBF Funeral Plans Pty Ltd [2022] FCA 871 [14]. However, it should not be thought that the giving of such an undertaking materially advances the case for leave to proceed; it is typical for courts to condition the grant of leave by imposing on the applicant a requirement that such an undertaking be provided: Water Efficiency Labelling and Standards Regulator v Renaissance Traditional Bathrooms Pty Ltd [2020] FCA 1757 [47].
(h) Finally, the fact that the company has no ability to pay a penalty sought in the proceedings does not weigh against the grant of leave: ACCC v AIPE [26]; ACCC v Birubi (No 2) [10], [14]. As explained below, there may still be utility in a regulator progressing claims for pecuniary penalties and other relief against a company in liquidation where to do so would advance the objective of general deterrence.
18 There is no need to consider and address in any great detail the extent to which the above principles apply in the present case. Their application, on the agreed facts as they stand, leads inexorably to the conclusion that leave should be granted. First, the CER has established a clear case that E Connect has contravened the REE Act. The directors of the company have admitted the facts necessary to support the regulator's allegations. Secondly, the relief sought against E Connect is not recoverable by way of a proof of debt, as it requires the Court to determine whether or not to impose the relevant pecuniary penalties and to make orders in relation to the declarations and injunctions sought by the CER. Thirdly, there is clearly a strong public interest in the enforcement of the REE Act against contravenors, including E Connect, so as to further the policy objectives advanced by the legislation and to deter others from contemplating non-compliance with its provisions. Finally, there will be no prejudice to the creditors of E Connect, as the CER has undertaken not to enforce any monetary relief against E Connect while it remains in liquidation without the Court's leave. It is also relevant to note that the liquidator does not oppose the making of the orders sought by the CER.
19 For these reasons, it was concluded at the hearing of this matter that it was appropriate to make an order, pursuant to s 471B of the Corporations Act, that the CER have leave to continue the present proceedings against E Connect.