Flanders v Beatty; Re Brash Holdings Limited

Supreme Court of NSW|2019-09-17|Before: Rees J

Solicitors: Colin Biggers & Paisley (Applicants) Turks Legal (Respondent) File Number(s): 2019/247850

EX TEMPORE Judgment

HER HONOUR: This is an application to set aside orders for production issued on the application of Giles Woodgate, the deed administrator of Oneoz Pty Limited (subject to Deed of Company Arrangement). The application is brought under rule 49.19 of the Uniform Civil Procedure Rules 2005 (NSW). The orders for production have been issued to Strathleigh Investments Pty Limited, TCW Pty Limited and William Watson, who is the sole director of these two companies. The companies are registered mortgagees over property in Bowral, of which the registered proprietor is Martha Street Developments Pty Limited.

Power to seek orders for production

The first ground on which the applicants seek to set aside the orders for production is that, if the DOCA does not contain an express power to conduct a public examination of the examinable affairs or to conduct any investigation, then the administrator has no basis for seeking to have the Court issue orders for production under section 597(9) of the Corporations Act (that power being incidental to a proper issue of an examination summons), and the orders for production must be set aside.
There are three answers to this. First, clause 1.1 of the DOCA provided that the powers in schedule 8A to the Corporations Regulations 2001 (Cth) were included in the deed "except insofar as the Deed provides otherwise". Schedule 8A includes conferring powers on the administrator, in Item 2(j): to bring, prosecute and defend in the name and on behalf of the company or in the name of the administrator any actions, suits or proceedings; and, in Item 2(zg): to do anything else that is necessary or convenient for the purpose of administering this deed.
The DOCA contains no provisions which provide otherwise. The absence of a provision to conduct investigations for examinations is not providing otherwise: it is not providing at all. Accordingly, it seems to me that the DOCA, by incorporating Schedule 8A, does give the administrator power to conduct investigations and examinations if it is necessary or convenient for the purpose of administering the DOCA.
Second, reliance was placed on section 444C(2) of the Corporations Act, but that concerns the obligations of the administrator and others before a DOCA is entered into, not afterwards, which is the situation in which Mr Woodgate now finds himself.
Third, it was submitted that a decision of the Court of Appeal of the Supreme Court of Victoria in Flanders v Beatty; Re Brash Holdings Limited (1995) 16 ACSR 324; (1995) 13 ACLC 529 is authority in support of the applicant's submission. In that case, the DOCA did confer express powers on the administrator to conduct investigations and examinations. Ormiston J, with whom Tadgell and Harper JJ agreed, noted at ACSR 333; ACLC 537: … I would conclude that the legislature saw it as important that administrators should have wide powers to obtain information and conduct any necessary examination, in much the same way as those powers were and are still given to liquidators. However, the significance of granting these powers to administrators is that the object for which they ought properly to be used should comprehend anything which fairly may be expected to advance the course of an administration, and in particular, for present purposes, an administration under a deed of company arrangement. …
The applicants relied, in particular, on a passage at ACSR 335; ACLC 539: However, as to the extent of the powers of administrators of deeds of company arrangement to seek examination of examinable officers there can be no doubt. They have not only been added to the limited list of persons who may seek examination but they have also been added in circumstances where they have a right to obtain the issue of a summons for examination almost as of course under s 596A, without the need to satisfy the tests laid down in s 596B(1)(b), except in the circumstances and for the purposes there defined. Consequently the power given to such administrators is confined only by the need to show that they are acting in the performance of their duties under the deed and not for any extraneous purpose.
However, it does not seem to me that this portion of his Honour's judgment supports a conclusion that, unless the DOCA contains an express power to issue orders for production or conduct examinations, then an administrator is precluded from doing so. Even if it did, such a comment would have been obiter where the DOCA in that case contained such an express provision.

Lack of disclosure

The second basis on which the applicants seek to set aside the orders for production is that the confidential affidavit of Mr Woodgate did not disclose to a Registrar of this Court that the real purpose of the examination summonses was to re-start settlement negotiations with Mr Anstee and extract a renewed offer to purchase Mr Brown's shares in Martha Street Developments for $500,000. It is said, in reliance on Re Southern Equities Corporation Limited (In Liq) (1997) 25 ACSR 394 at 422-423, Re One Twenty Seven Corporation Pty Ltd (1995) 13 ACLC 1,600 at 1,602 and Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512 at 520 per Gleeson CJ, with whom Mahoney and Priestley JJA agreed, that it is important that the applicant for the issue of orders for production and examination summonses make full and frank disclosure of all matters to the Court with complete candour. To these cases might be added the more recent decisions of Re Shepard (in his capacity as administrator of Hunter Bulk Materials Pty Ltd) (subject to a deed of company arrangement) (2011) 83 ACSR 436; [2011] NSWSC 467 (Ward J) In the matter of Owston Nominees No 2 Pty Ltd (in liq) (receivers and managers appointed) (2013) 94 ACSR 500; [2013] NSWSC 538 (Black J); Sutherland v Pascoe (2013) 297 ALR 44; [2013] FCAFC 15; Trevor; Re Bell Group NV (in liq) (No 2) (2017) 122 ACSR 418; [2017] FCA 927 (Jagot J).
Whilst the principle is undoubtedly correct, it does not seem to me that there is any disparity between Mr Woodgate's report to creditors and the confidential affidavit made to the Registrar. It is not a fair summary of the confidential affidavit or the report to creditors that the purpose of the examinations is simply strategic to re-open negotiations. Rather, Mr Woodgate explained, firstly to the creditors and then to the Registrar, that he wished to investigate the legitimacy of the transactions said to have extinguished the security on which the DOCA was based, which may have the result that if the transactions were found to be illegitimate then people may honour the obligations which they had previously agreed to perform. This ground fails.

Orders for production too broad

It is submitted that the orders for production issued are too broad, in particular, in that they seek a production of bank statements, correspondence, resolutions of Strathleigh Investments as the trustee of a superannuation fund, and Mr Watson's personal tax returns. The submission is not made on the basis of evidence that it would be oppressive to produce the documents, either in terms of the time or cost involved in doing so, but simply because it is said that the documents sought are not relevant to the administrator's stated purpose for seeking the same.
The permitted scope of orders for production in aid of public examinations has been usefully canvassed by Barrett J in Onefone Australia Pty Ltd v One.Tel Ltd [2007] NSWSC 1188 at [17]-[22], and if I may paraphrase: the power to require production of documents can only be exercised where production is required for the purpose of exercise of the power to conduct an examination; there must be a connection between the order for production and an examination; the Court must be able to see that the particular examinations will be assisted or facilitated by the production of the particular documents.
A key element underpinning the DOCA was the guarantee by Martha Street Developments and the fact that Martha Street Developments was then the beneficial owner of the Bowral land subject to registered mortgages to Strathleigh Investments and TCW. Oneoz's rights against Martha Street Developments, and the value of those rights, were likely of central importance to the creditors' decision to enter into the DOCA and remains critically important today. Mr Woodgate must now determine whether it is worth pursuing Oneoz's rights against Martha Street Developments. Mr Woodgate does not know, despite his efforts including requesting documents from Mr Watson, whether it is worth pursuing. Given the curious nature of the transactions as they have unfolded, it seems to me that the documents sought by the administrator may well assist or facilitate the examinations which he proposes to conduct. It seems to me that an administrator, in circumstances such as these, must be given some latitude to obtain documents to investigate what has gone on and what is the best way to proceed from here. It seems to me that Mr Woodgate is entitled to the documents sought.
In those circumstances I make the following orders: 1. Dismiss the interlocutory process filed on 3 September 2019. 2. Order the applicants to pay the respondent's costs of the interlocutory process. 3. Stand the matter over to 9.00 am on Wednesday 2 October 2019 in the Subpoena List.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 September 2019

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