Deputy Commissioner of Taxation v Australian Securities and Investments Commission

Jurisdiction 5 The application was expressed as being made under s 596F(1)(a) of the Corporations Act. That section provides that the Court may give directions as to the matters to be inquired into at an examination. However, the orders sought on the application were not of that character. Rather, as I have noted, they sought orders to the effect that the examination summonses addressed to Mr Fogarty and Mr Asquith and the orders for production of documents by Fopar be amended or set aside. 6 There is power for a party to apply to the Court to review the Registrar's exercise of power under s 596A or s 596B: see s 35A of the Federal Court of Australia Act 1976 (Cth). Such a review is in the nature of a hearing de novo: Mazukov v University of Tasmania [2004] FCAFC 159 at [24] and Deputy Commissioner of Taxation v Australian Securities and Investments Commission [2013] FCA 623 at [36]-[37] (Kenny J). The parties may advance new evidence on such an application. They may seek to rely upon evidence put before the Registrar, but that evidence is not automatically received. A judge of the Court then determines the matter afresh unfettered by the Registrar's decision. 7 There is also provision for a person served with an examination summons to apply to the Court to discharge the summons: r 11.5 of the Federal Court (Corporations) Rules 2000 (Cth). The summons may be discharged in the exercise of the power if it is demonstrated to be an abuse of process: Re New Tel Ltd (in liq); Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 145 FCR 176 at [252] (Lander J). Rule 11.5 provides for the application to be brought within three days of service and for the application to be served on the Australian Securities and Investments Commission. These procedural requirements were not met. 8 The parties proceeded on the basis that the application regularly invoked a jurisdiction to amend or set aside the summonses and the orders if they were shown to be an abuse or the orders were expressed in terms that meant they were not sufficiently comprehensible to facilitate compliance. In the circumstances, I will treat the application as one in which a limited review was sought of the orders made by the Registrar on 12 August 2019.

Context 9 It is not in dispute that Mr Asquith is a person to whom s 596A of the Corporations Act applies because he was an officer of RFP. Therefore, it was not necessary for the liquidators to demonstrate by affidavit that he had taken part or been concerned in or may be able to give information about the examinable affairs of RFP in order for the summons to issue against Mr Asquith. Therefore, it is clear that in his case there is no affidavit that might be made available for inspection in the exercise of the discretion conferred by s 596C. 10 However, Mr Fogarty was not an officer of RFP. Therefore, a summons could not issue against him unless he was demonstrated by the liquidators to be a person who could assist with the examinable affairs of RFP. 11 In support of the application, reliance was placed upon an affidavit of Mr Tharby a lawyer employed by the solicitors for the Applicants. It produced correspondence exchanged between the lawyers for the parties but did not otherwise depose to any factual basis for the application. 12 In response to the application, the liquidators did not seek to rely upon the affidavit that had been sworn in support of the application under s 596B. Instead, Mr Teoh, a solicitor acting for the liquidators, produced company searches that showed that Vantage Holding Group Pty Ltd (Vantage) was the holding company for RFP, Fopar was the major shareholder of Vantage and Mr Fogarty was the sole director and shareholder of Fopar. On that basis, Mr Fogarty was characterised in submissions for the liquidators as the individual who controlled and benefited from the affairs of RFP. 13 Mr Teoh further deposed on information and belief that: (1) On 12 August 2015, Fopar registered a security interest against Vantage; (2) The liquidators had not seen any documents substantiating the security interest; (3) RFP sold its business on about 15 January 2016; (4) Following the sale, net funds of $7,808,221.99 were paid out by RFP and recorded in RFP's three loan accounts with Vantage; (5) Of the payments recorded in the Vantage loan accounts, at least $4,537,375.55 was paid to Fopar; (6) The payments were recorded in particular MYOB accounts of RFP (copies of which were produced) (MYOB Account Details); (7) There were no security interests registered by Vantage or Fopar against RFP; and (8) According to the directors' report as to affairs for RFP, it owes $20,982,857.54 to creditors. 14 In the above circumstances, the matter said to be relevant to the examinable affairs that supports the notices and the order is the payment of proceeds of the sale of the business of RFP to Vantage where there is no evidence to support the existence of a secured interest in respect of the payment. The matter was argued on that basis without any reliance upon the affidavit in support of the original application to the Registrar under s 596B which related to a number of parties in addition to the Applicants. Although it was hinted that the liquidators should not be allowed to shift their ground as to the basis of the application from that advanced before the Registrar when the orders were obtained, there was no evidence to support a claim that the ground had shifted. In any event, in the view I take of the jurisdiction invoked by the Applicants, the matter proceeds de novo. The affidavit of Mr Teoh provided the limited factual basis upon which the particular categories in dispute were supported. 15 As it was not explained how the application might proceed by way of interlocutory application in which there could be some form of challenge to the orders made by the Registrar (as distinct from an application to review those orders), I will approach the matter on the basis that the original affidavit was not relied upon to support those aspects of the orders that are challenged by the present application.

The disputed categories in the order directed to Fopar 16 Fopar challenged the categories of documents in paragraphs (a)(x), a(xi), (b), (c), (e) and (f). A challenge to a requirement to produce directors and officers insurance policies was not pressed on the basis that there were no such documents. 17 Paragraph (a)(x) of the order is expressed as follows: (a) all documents regarding the negotiation and sale of business from the RFP and its related and/or associated entities to the PSC Insurance group of companies in or around January 2016 for the overall sum of $31.57 million ('Sale') namely: … (x) all documents from 1 January 2016 to 30 June 2017 circulated internally within Fopar regarding the payment and allocation of proceeds from the Sale, including but not limited to: (A) the recording of each ledger entry in Fopar's accounts corresponding to the following accounts recorded in RFP's MYOB accounts: (1) MYOB ledger account number 1-1721, (2) MYOB ledger account number 2-1517, and (3) MYOB ledger account number 2-1251 (B) the repayment of any loan owing to Vantage by RFP; (C) the repayment of any loan owing to Fopar by Vantage and/or RFP; 18 Two complaints are raised. First, it is said that the words 'circulated internally' are vague and introduce uncertainty of a kind that a notice recipient should not have to resolve under pains of possible contravention of the Corporations Act or contempt. It was argued that Fopar was a company with only one part time employee and one director. In that context it was said that it was uncertain what would amount to internal circulation of the kind described in the order. There was no evidence as to the precise circumstances of Fopar and its employees. However, even if they are as described in submissions, it seem to me that the order is tolerably clear. It requires the production of documents that are internal to the affairs of Fopar in the sense that they are not copies of documents that have been externally communicated. This could be made abundantly clear by requiring the production of documents that are 'internal to Fopar'. 19 The second complaint concerns the use of the MYOB Account Details as the means to describe the categories in paragraph (a)(x)(A). Although the notice is directed to Fopar, it describes the category by reference to the ledger accounts of RFP and seeks documents that are 'the recording of each ledger entry in Fopar's accounts' that correspond to the specified MYOB Account Details. Expressed in that way the notice imposes an obligation that requires knowledge and an understanding of the MYOB Account Details. It is entirely unclear what is meant by 'corresponding' in a context where the MYOB Account Details are said to relate to loan accounts for Vantage. 20 It was submitted that if there is no knowledge of such documents then the appropriate response will be not to produce documents. I do not agree. The notice should be in a form that enables the recipient to be able to understand the nature and extent of the requirement to be met. It is not appropriate for the notice to use a means of describing a category of documents that assumes knowledge of very specific accounting detail for another entity. It should adopt language that enables the recipient to understand what is required and to then locate those documents. Otherwise, there is a risk of non-compliance by a party simply because it does not know what may fall within the category as described. There being no evidence to suggest that Fopar by its officers would know what the ledger accounts of RFP related to or what was meant by the reference to corresponding Fopar accounts, the notice should be amended by deleting the requirement in paragraph (a)(x)(A). 21 For the same reasons, the requirement in paragraph (a)(xi)(A) should be deleted. 22 Paragraph (b) sought all bank statements of Fopar from 1 January 2016 to 30 June 2018. There is no evidence to support the bank statements after 30 June 2017 relating to the examinable affairs that have been identified. It was said that the category was also supported because the liquidators had an interest in knowing whether Fopar was in a financial position to meet any claim. Given that the category does not seek current information as to the financial position of Fopar, I do not accept that basis as a justification for the category of documents. 23 The category should be amended to refer to the period ending on 30 June 2017. 24 Paragraph (c) seeks all Fopar's financial statements as at the dates 30 June 2015; 30 June 2016; 30 June 2017 and 30 June 2018. Significantly, the notice defines 'financial statements' in the following terms: 'financial statements' means balance sheets, profit and loss statements and ledgers extracted from financial or management accounts either in draft or finalised form, and the accounting database upon which the aforementioned balance sheets, profit and loss statements and ledgers are based in electronic form (for example electronic MYOB file). 25 Therefore, the category seeks the entirety of Fopar's financial records in electronic form as at each of the four dates mentioned. There can be no justification for such a wide category of documents given the examinable affairs identified by the liquidators. They have not sought to justify a general examination of the financial affairs of Fopar. The application is justified solely by reference to the events concerning the loan payments following the sale of the business of RFP. Nevertheless, I accept that the manner in which the accounts may deal with the receipts referred to in the affidavit of Mr Teoh is properly a matter for inquiry as part of the examinable affairs of RFP. 26 Having regard to the nature of the definition of financial statements, the category should be amended to read, 'Fopar's financial statements as at 30 June 2016 and 30 June 2017 excluding the accounting database upon which the financial statements are based'. 27 Paragraph (e) seeks the minutes of meetings of Vantage from 1 January 2015 to 30 June 2016. It is possible that copies of those minutes may be in the possession of Fopar. It is possible that the minutes deal with matters relating to the loan accounts. There is a sufficient basis for those matters to be sought given that documents brought into existence before and after the loan payments might contain information that relates to the overall financial structure as between the entities. 28 Paragraph (f) seeks minutes of meetings of directors and members of Fopar from 1 January 2015 to 30 June 2016. The reasons I have given as to paragraph (e) apply with more force as to Fopar. I do not accept the challenge to this category.

The disputed categories as to Mr Fogarty 29 For the reasons I have given, the same approach should be adopted as to paragraphs 2(a)(iv), (a)(v), (c), (e) and (k) of the summons to Mr Fogarty because those paragraphs are expressed in similar terms to those in the orders directed to Fopar. 30 Paragraph (f) seeks the personal tax returns of Mr Fogarty. It was submitted that they may be relevant to some form of tracing claim that might be advanced if a claim could be brought against Fopar. It may be that the evidence concerning the security interest together with the evidence of Mr Fogarty's position as sole shareholder and director supports a summons seeking documents from him. However, it has not been demonstrated why it is necessary to obtain his personal tax returns for that purpose save to the extent that they concern the financial year ended 30 June 2017. 31 It was separately claimed that the documents were relevant to assessing whether Mr Fogarty might have the financial resources to meet a judgment or for the purpose of identifying whether funds can be traced. The connection with the taxation returns for earlier and later years has not been established. 32 The summons should be confined to the taxation return for the year ended 30 June 2017.

The disputed categories as to Mr Asquith 33 The categories of documents sought from Mr Asquith are the same as those sought from Mr Fogarty. There is no reason to adopt a different approach in relation to Mr Asquith. For reasons I have given, the summons should be amended as described above.

Application for production of affidavit pursuant to s 596C 34 As I have indicated, the liquidators did not seek to support the terms in which the summons and orders were expressed by reference to the affidavit on the original application under s 596B. Further, the submissions for Fopar and Mr Fogarty did not seek to dispute the matters raised in the affidavit of Mr Teoh. Rather, they sought to demonstrate the irrelevance of the categories of documents that were challenged and an abuse of process by reason that the categories exceeded that which could be reasonably justified given the explanation advanced to support them. 35 In those circumstances, the only affidavit material received on the present application for limited review of the orders of the Registrar were the affidavits of Mr Tharby and Mr Teoh. No other affidavit was received on the application and therefore there was no basis upon which the earlier affidavit (which still supports other orders made by the Registrar that are not on review) might be sought for inspection. In any event, having regard to the manner in which the argument proceeded there could be no prejudice to the Applicants on the present application by reason that they were not able to inspect the original affidavit. The application to inspect must be refused.

Costs and form of orders 36 Having regard to the nature of the jurisdiction invoked by the application, namely a review of the Registrar's decision, the appropriate form of order is for fresh orders in the same terms as those made by the Registrar to be made by the Court, but varied so as to give effect to these reasons. I will direct that the liquidators bring in minutes of orders to give effect to these reasons. 37 As to costs, there has been a measure of success enjoyed by both parties. In those circumstances my provisional view is that there should be no order as to costs. I will make an order in those terms but reserving liberty to apply to vary the order as to costs. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin.