In the Matter of Mendarma Pty Ltd (in liquidation) [2006] NSWSC 1306

Supreme Court of NSW|2006-11-09|Before: White J

CITATION : In the Matter of Mendarma Pty Ltd (in liquidation) [2006] NSWSC 1306

JURISDICTION : Equity Division Corporations List

DECISION : 1. Order that the summons for examination addressed to each of the applicants dated 27 September 2006 be discharged; 2. I direct the parties to provide to my Associate by 5.00 p.m. this Friday their submissions on costs; 3. I reserve costs.

Corporations Act 2001 (Cth) LEGISLATION CITED : Trade Practices Act 1974 (Cth) Bankruptcy Act 1966 (Cth) Supreme Court (Corporations) Rules 1999 (NSW)

Sule Arnautovic in his capacity as liquidator of Think Systems Pty Ltd [2006] NSWSC 787 Re New Tel Limited (In Liquidation); Evans v Wainter Pty Ltd (2005) 221 ALR 331; 54 ACSR 284 Re Southern Equities Corporations Ltd (in liq); Bond & Caboche v England (1997) 25 ACSR 394 CASES CITED : Re Coretel Pty Ltd; Linker v Nilant (2003) 48 ACSR 178 Re One Twenty Seven Corporation Pty Ltd (1995) 13 ACLC 1600 Hong Kong Bank of Australia Limited v Murphy (1992) 28 NSWLR 512 Normans Wines Limited (in liq); Harvey v Burfield (2004) 49 ACSR 628 Re Laurie Cottier Productions Pty Ltd (in liq) (1992) 9 ACSR 513; (1992) 11 ACLC 178

In the Matter of Mendarma Pty Ltd (in liquidation); PARTIES : Larry King & Anor v Geoffrey McDonald & Anor

COUNSEL : Applicants: S Chrysanthou Respondents: S Golledge

SOLICITORS : Applicants: Speed & Stracey Respondents: N/A

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

4101/06 In the Matter of Mendarma Pty Ltd (in liq); Larry King & Anor v Geoffrey McDonald & Anor JUDGMENT 1 HIS HONOUR: This is an application by Mr Larry Edward King and Mrs Pamela Elizabeth King to set aside summonses for examination issued by the Court pursuant to s 596B of the Corporations Act 2001 (Cth) on the application of the liquidators of Mendarma Pty Ltd (In Liquidation), for them to attend at 10.00 am today, and from day to day until excused, to be examined on oath or affirmation about the examinable affairs of Mendarma. They are also required by the summonses to produce documents relating to their dealings with Mendarma. 2 The issues on the application are:

(a) whether the examination summonses were sought for an improper purpose; (b) whether the summonses should be set aside on the ground that the liquidator who sought them, Mr Geoffrey McDonald, failed to make full and frank disclosure of all material matters in his affidavit in support of the application; (c) whether the summonses should be set aside or adjourned on discretionary grounds; and (d) whether the summonses should be adjourned because the liquidators failed to give notice of the examination to the company's creditors as required by s 596E of the Corporations Act . 3 The background to the application is as follows. Mr and Mrs King are directors of Denham Properties Pty Ltd. On 12 May 2004, Denham Properties entered into a loan agreement with Mendarma as borrower, and a Mr Mark Peters as guarantor. Mr Peters was the sole director of Mendarma. 4 Clause 2.1 of the loan agreement contains an acknowledgement by Mendarma that it had received $36,000,000 as advances from Denham Properties. The agreement recites that Mendarma and Mr Peters had requested an extension of the repayment date for those advances. It contains terms upon which future advances, if any, were to be made, and provides a schedule for repayments of advances up to 30 June 2006. 5 Other agreements were entered into on 12 May 2004, including the grant of an option by Mendarma to Denham Properties for Denham Properties to purchase horses acquired by Mendarma from advances made under the loan agreement. 6 On 15 June 2005, Mendarma gave a mortgage to Denham Properties over horses of Mendarma listed in a schedule to the mortgage, together with their present or future progeny, or additional or substituted horses. The mortgage secured all moneys payable by Mendarma to Denham Properties. 7 On 11 October 2005, Mr and Mrs King commenced proceedings number 5348 of 2005 in the Equity Division of this Court. The proceedings were brought against Mr Mark Peters and Mrs Tina Peters. By their summons, Mr and Mrs King sought a declaration that they had dissolved a racing syndicate partnership between themselves and Mr and Mrs Peters. They sought consequential orders. 8 On the same day, Denham Properties gave notice under the mortgage requiring Mendarma to remedy a default under the mortgage by repaying principal alleged to be outstanding in the amount of $15,000,000 and interest of $10,734,042. On 26 October 2005, Denham Properties appointed Mr Max Donnelly and Ms Robyn Duggan of Ferrier Hodgson as receivers and managers of the horses secured by the mortgage. 9 On 3 November 2005, Mr Peters appointed Mr Richard Albarran and Mr McDonald as administrators of Mendarma pursuant to s 436A of the Corporations Act. On 9 November 2005, Mr and Mrs Peters filed a cross-claim in proceedings 5348 of 2005 against Mr and Mrs King, Denham Properties, Mr Donnelly and Ms Duggan, and Mendarma. Mr and Mrs Peters did not obtain leave to bring the cross-claim against Mendarma. There is no evidence as to whether they had the administrators' written consent to do so (see s 440D of the Corporations Act). 10 By their cross-claim, Mr and Mrs Peters sought declarations that they and Mr and Mrs King, and not Mendarma, were the owners of the horses. They also sought other relief. The other relief sought included declarations that the mortgage was not validly entered into or, alternatively, was void. Alternatively, they sought declarations that certain of the horses were not covered by the mortgage. They claimed that Mr Donnelly and Ms Duggan should be restrained from acting as receivers and managers of the horses. 11 Mr and Mrs Peters sought a declaration that Mr and Mrs King and Denham Properties were estopped from asserting that the mortgage and the loan agreement were valid and enforceable or secured any debt claimable from Mendarma or Mr Peters. They alleged that Mr Peters was induced to sign the various agreements by misrepresentations made by Mr and Mrs King. They sought an order under s 87 of the Trade Practices Act 1974 (Cth) declaring the mortgage, the loan agreement and the deed of option to be void. 12 It is not apparent what right Mr and Mrs Peters had to assert that no mortgage had been given by Mendarma to Denham Properties, or that the mortgage was void, or that the loan agreement or the mortgage or the option should be declared void. Nor is it apparent what right they had to seek declarations as to the proper construction of the mortgage. Such claims belong to Mendarma. 13 On 10 November 2005, there was a creditors' meeting at Mendarma. Denham Properties had provided a proof of debt of almost $77,000,000. Other proofs of debt were received by the administrators. There were eleven such proofs ranging from $495 from a firm of solicitors, to $125,000 claimed by Mr Peters. Some of the other creditors appear to be associated with Mr or Mrs Peters. A proof was lodged by Pathold No. 23 Pty Ltd, which is a shareholder of Mendarma. There is no evidence as to the circumstances of the other creditors. 14 All the creditors who had lodged proofs, except Denham Properties, gave proxies to Mr Peters for the creditors meeting. Denham Properties failed to pass a resolution removing the administrators and substituting its nominees. The resolution failed to obtain the approval of the majority of creditors by number (Corporations Regulations 2001 (Cth) 5.6.21). 15 The minutes record Mr Albarran as saying that: " The proof of claim received by Denham was not bona fide and that he would be shortly writing to Denham in an effort to substantiate their claim. The Chairman stated that he was awaiting legal advice with respect to charge in favour of Denham and that would also be contacting them in this regard (sic)" .

16 The second meeting of creditors was held on 30 November 2005. At that meeting Mr Albarran advised that: " There were serious issues with respect to the validity of the Fixed Charge granted to Denham over the horses owned by the company. The Chairman stated that he had sought legal advice with respect to this issue and is preparing to commence legal proceedings ... The Chairman advised that preliminary legal advice he had received were that the charge was void in general and also voidable against the liquidator".

17 He also stated that there could be potentially $40,000,000 in other creditors that he was currently investigating. Apparently these were other parties who may have invested in the horses. 18 The minutes also record: " Chairman stated that the action by the directors personally, which was to be heard before the court on 6 February 2006, does not address all the issues. The Chairman stated that should the company be placed in liquidation the charge would be challenged on two fronts, that is, as a preference payment to Denham and declaring the charge as void generally. "

19 The reference to the action to be heard on 6 February 2006 was a reference to the fact that proceedings 5348 of 2005 had been expedited and were then listed for hearing on that day. At the meeting, a resolution was passed on the Chairman's casting vote that the company be wound up and that Messrs McDonald and Albarran be appointed liquidators. The effect of this resolution was that Mr and Mrs Peters' proceedings on their cross-claim against Mendarma was not to be proceeded with except by leave of the Court (Corporations Act, ss 439C(c), 446A(1)(a), (2) and 500(2)). 20 Nonetheless, on 2 December 2005, an appearance was filed for Mendarma. Mendarma appeared on 6 February 2006 through its legal representative when the hearing date was vacated. No leave to proceed against Mendarma has been sought by Mr or Mrs Peters. Nor, so far as appears, have the liquidators asserted that the proceedings against Mendarma are stayed, notwithstanding that on at least one occasion, as I have mentioned, they have appeared in the action. Nor does it appear that any objection has been taken, either by the liquidators, or by Mr or Mrs King, or Denham Properties, to the pursuit by Mr and Mrs Peters of claims which belong to Mendarma. No defence to Mr and Mrs Peters' cross-claim has been filed by Mendarma. 21 Mr Peters was made bankrupt on 2 May 2006. Notice was given to his trustees in bankruptcy under s 60(3) of the Bankruptcy Act 1966 (Cth) to elect whether to pursue the cross-claim. The trustee in bankruptcy did not elect to pursue the cross-claim on behalf of Mr Peters. However, Mrs Peters has proceeded with it. On 15 September 2006, she filed an amended cross-claim. The claim for orders under s 87 of the Trade Practices Act was abandoned, although the allegations of misrepresentation are maintained. 22 The amended cross-claim includes allegations that Mr and Mrs Peters did not consent to the transfer of certain horses from the partnership to Mendarma, that the mortgage was incomplete when it was signed in that the schedule of horses mortgaged to Denham Properties was not complete, and that it was "not validly entered into between Denham Properties and Mendarma". 23 It is also alleged that the loan agreement of 12 May 2004, the deed of option and the mortgage, amongst other instruments, were signed by Mr Peters without Mrs Peters' knowledge or consent, and without her authority. These are all grounds on which it might be said, to use the language of the minutes of the meeting of 30 November 2005, that the charge was "void generally." 24 Subpoenas and notices to produce have been issued by Mr and Mrs Peters to Denham Properties, and to Mr and Mrs King. They have been responded to. It appears that the reason the Equity Division proceedings 5348 of 2005 did not proceed for hearing in February 2006 was due to the then ill-health of Mr King. Those proceedings are no longer expedited. The last orders made were that the cross-defendants file defences to the amended cross-claim and give discovery. The matter is re-listed before the Registrar for directions on 12 December 2006. 25 An application by the liquidators that Mr Peters be summonsed for examination was filed on 4 August 2006. An examination summons addressed to him was issued on 7 August 2006. It required him to appear on 24 August 2006. That summons was vacated as Mr Peters was not served. However, contrary to submissions made for the applicants, a further summons has been issued to Mr Peters on 27 September 2006 for him to attend on 9 November 2006. 26 On 27 September 2006, summonses for examination were also issued to Mr and Mrs King requiring their attendance on 9 November 2006. The summonses required the production of a wide range of documents relating to their dealings with Mendarma. Their solicitors contend that all documents required to be produced by the summonses have already been produced to the Court pursuant to subpoenas or notices to produce issued by Mr and Mrs Peters. 27 The application for the issue of examination summonses to Mr and Mrs King was supported by an affidavit of Mr McDonald sworn on 27 September 2006. It was not dealt with in the way provided for by r 11.3(4)(b) of the Supreme Court (Corporations) Rules 1999 (NSW). Nor have I been able to locate the interlocutory process, which I assume was filed, seeking the issue of the summonses. However, nothing turns on that. 28 On 6 November 2006, with the consent of the liquidators, I granted access to the applicants to the affidavit of Mr McDonald pursuant to s 596C(2) of the Corporations Act. In his affidavit, Mr McDonald referred to his earlier affidavit in relation to the application to examine Mr Peters. Mr McDonald deposed that Mr and Mrs King are the directors of Denham Properties and annexed its proof of debt. He then said: " 8. The Proof of Debt of Denham alleges that: (a) On 12 May 2004 a loan agreement was executed between the Company and Denham. (b) The loan agreement comprises funds advanced to the Company or payment made on behalf of the Company from 19 August 2002. (c) On 15 June 2005 a fixed charge over certain assets of the Company was executed between Denham and the Company. 9. In my opinion, the Charge may amount to an uncommercial and or insolvent transaction within the meaning of Sections 588FB and 588FC of the Corporations Act. 10. In accordance with the requirements of Section 596C of the Corporations Act, I set out hereafter the reasons why I believe an examination should be ordered:- (a) I am conducting investigations into a number of alleged uncommercial and or insolvent transactions entered into by the Company with Denham within the period prior to my appointment as Administrator under Sections 588FB and or 588FC of the Corporations Act. (b) The information gathered at the examination will allow me to make a determination as to the likelihood of success with any action against Denham which may have caused dispositions in the assets of the Company. 11. I respectfully request that Orders be made for the examination of the Examinable Persons referred to in this affidavit because that will assist in my investigations in the affairs of the Company and the recovery of its assets. " 29 This was the entirety of the evidence in support of the application. No reference was made to the pending proceedings 5348 of 2005, nor to the fact that claims have purportedly been made by Mrs Peters on behalf of Mendarma against Mr and Mrs King and Denham Properties. 30 I have read Mr McDonald's earlier affidavit of 4 August 2006, sworn in relation to Mr Peters' examination, to which Mr McDonald referred in his affidavit of 27 September 2006. There is no reference to those matters in his earlier affidavit. 31 It is not clear when the examination summonses were served although it must have been before 27 October 2006. 32 These proceedings were commenced on 2 November 2006. No point was taken by the liquidators that the application to discharge the summonses was brought out of time (r 11.5(2) of the Supreme Court (Corporations) Rules). On 27 October 2005, the solicitors for the applicants wrote to the liquidators making the following points:

(a) that Mr and Mrs King were not involved in the management of Mendarma; (b) that Mr and Mrs King allegedly had no involvement in the affairs of Mendarma; (c) the liquidators had delayed seeking the examinations, notwithstanding that they had asserted in November 2005 that the validity of the Denham charge would be challenged; (d) that as parties to the 2005 proceedings, the liquidators would be entitled to cross-examine Mr and Mrs King in those proceedings, and that affidavits had been filed in those proceedings detailing the relationship between Denham Properties and Mendarma; (e) that all of the documents sought in the summonses had already been produced in proceedings 5348 of 2005; and (f) that Mr and Mrs King had no information about the affairs of Mendarma which was not already known to the liquidators. 33 The examination summonses were sought and issued under s 596B of the Corporations Act. That section provides: " 596B 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. " 34 The applicants' solicitors' contention that Mr and Mrs King would not be able to give information about the examinable affairs of Mendarma which was not already known to the liquidators cannot be accepted. The expression "examinable affairs" covers a very wide range of matters (ss 9 and 53 Corporations Act). The expression undoubtedly extends to the transactions between Denham Properties, or Mr and Mrs King and Mendarma. Assuming it to be the fact that Mr and Mrs King were not involved in Mendarma's management, it does not follow that they are not able to give information about Mendarma's examinable affairs. 35 There is no evidence that all of the facts about the affairs of the company about which Mr and Mrs King could give information are already known to the liquidators. For example, matters which the liquidators would be entitled to investigate include the existence or the strength of any defences that may be available to Denham Properties should an action be brought by the liquidators under ss 588FE and 588FF of the Corporations Act to avoid the mortgage as an insolvent transaction. This would include whether Denham Properties became a party to that transaction in good faith and without reasonable grounds for suspecting that the company was or would become insolvent (s 588FG(2)). 36 The liquidators would be entitled to examine facts relevant to a possible claim that the transaction was an uncommercial transaction under s 588FB. These would include the benefits, if any, to Denham Properties or to Mr or Mrs King, from entering into the transaction, and any other relevant matter. 37 As counsel for the liquidator submitted, any questioning on the circumstances in which the mortgage to Denham Properties was given would extend: " at least to any demands or other recovery action initiated by Denham following default by Mendarma, communications between the companies in respect of that default and any proposals for its remedy as well as any requests by officers of Mendarma for extensions of time or renegotiation of repayment obligations insofar as such might bear, for instance, upon the matters that could be raised in defence to the liquidator's claim, by reference to section 588FG of the Corporations Act." 38 Nor is there substance in the other grounds of objection raised in the letter of 27 October 2005, except insofar as those grounds raised the overlap between the liquidator's proposed examination and the matters to be litigated in the 2005 proceedings in which Mendarma is named as a party. 39 The alleged delay in applying for the examination summonses is not a reason for setting them aside. The order in which Mr Peters or Mr and Mrs King are examined is a matter for the liquidators. As Barrett J said in Re Sule Arnautovic in his capacity as liquidator of Think Systems Pty Ltd [2006] NSWSC 787 at [20]: "20 The fourth point (apparent absence of intention to examine Ms Field and Mr Field) may perhaps be met by the observation that Ms Field and Mr Field are in the liquidator's "camp", but there is really no evidence of that. The reality nevertheless remains that moves to examine one group of persons now is not inconsistent at all with the possibility that other persons or groups will be examined later. A liquidator is obviously free to prioritise tasks and must start somewhere." 40 I turn then to the ground that the summonses were issued with an improper purpose. It was submitted for the applicants that the issue of the summonses was sought for the improper purpose of conducting a dress rehearsal of cross-examination of the applicants either in proceedings 5348 of 2005, or in the proceedings which the liquidator has already flagged he is contemplating bringing. Reference was made to the summary of the relevant principles by Lander J in Re New Tel Limited (In Liquidation); Evans v Wainter Pty Ltd (2005) 221 ALR 331; 54 ACSR 284 (at [252]) that: " [252] In my opinion, the following propositions relevant to these appeals emerge from the legislation and the authorities: … 4. If an eligible applicant applies for an order for the examination of a person for a purpose unconnected with the purposes authorised by the legislation that will be an abuse of process and the order, if obtained, will be set aside. 5. The procedure may not be used to allow a party to obtain a forensic advantage and, if it is, any order obtained will be set aside. 6. The procedure may not be used as a dress rehearsal for the cross-examination of a person in a pending or subsequent action. However, it is not improper to seek an order of the court to summon a person for examination while litigation is pending against that person or entities connected with that person. 7. The question whether in any particular case the applicant has used the procedure abusively will depend upon the applicant's purpose in seeking the order and all of the surrounding circumstances. It will not be an abuse unless an offensive purpose is at least the predominant purpose. … "

41 In my view, the evidence does not support the submission that Mr McDonald's purpose, let alone his dominant purpose, was the improper one of conducting a dress rehearsal of cross-examination of the applicants. Such a conclusion would not be drawn merely from the fact that proceedings are pending, let alone from the fact that proceedings are contemplated against the examinees. 42 Mr McDonald deposed to his purpose in seeking the examination summonses in his affidavit. He was not cross-examined on that affidavit. There is no basis to infer that he had the purpose alleged. 43 It was submitted that this could and should be inferred from the fact that Mr McDonald did not respond to the applicants' solicitors' letter of 27 October 2005, and did not swear a further affidavit responding to the matters raised in that letter. I do not agree. In my view, there was no occasion for him to do so. The applicants cannot establish he had an improper purpose merely by making a wide range of allegations which were patently without substance, and then relying on his not responding to those allegations as a basis for inferring that he had an improper purpose. 44 I reject this ground of challenge to the summonses. 45 The second ground relied on is non-disclosure of all material matters in the affidavit in support of the application. In my view, there is substance to the second ground of challenge. In Re Southern Equities Corporation Ltd (in liq); Bond & Caboche v England (1997) 25 ACSR 394 (a decision of the Full Court of the Supreme Court of South Australia), Lander J, with whom Cox and Bleby JJ agreed, said (at 422-423): "An application for an examination summons is made ex parte. Consequently there is a heavy obligation upon the person applying for the examination summons to make full and frank disclosure of all matters which may impact upon the decision to summon a person for examination about a corporations examinable affairs.

There can be no doubt, in my opinion, that a person who makes an application of this kind is under an obligation to bring all facts and material to the court's attention which might bear upon the order to be made. The applicant has no lesser obligation than that imposed upon a party seeking an injunction ex parte. Indeed, in my opinion, the obligation for frankness and candour is even greater in an application of this kind. That is because, unlike on the return of an interlocutory injunction obtained ex parte, on the return of an examination summons the material supporting the application is not ordinarily made available to the proposed examinee.

Because the proposed examinee, ordinarily, is not privy to the information or material which was used to support the application for the examination summons, the person applying for the examination summons has the very highest obligation relating to frankness and candour and any breach of that obligation, in my opinion, ought to be viewed very seriously by the court.

The obligation is to provide to the court all material which might impact upon the order sought, including all material which might lead the court to refuse the application. The applicant must act in the place of the proposed examinee and therefore draw to the attention of the court anything which might lead the court to refuse the application". 46 In this case the affidavit was made available to the examinees. However, at the time the application for the issue of the examination summonses was made, it was not known that the affidavit would be made available to the examinees. Its being made available does not lessen the liquidator's duty of disclosure. 47 Lander J went on to say that it does not follow that an order will necessarily be set aside if all material facts are not disclosed in the supporting affidavit. His Honour said (at 424): "It cannot be said that an order obtained in circumstances where there has been a failure to disclose material facts must necessarily be set aside. Whether or not the order ought to be set aside for failing to disclose material facts will depend upon the facts not disclosed and the circumstances in which the non disclosure came about. An error of judgment in failing to disclose a fact which later becomes material may not necessarily lead to the setting aside of the order previously obtained. So also an innocent non-disclosure may not necessarily require the setting aside of the order for the examination.

On every occasion where there has been a non-disclosure and an order obtained it will be a matter of inquiry as to whether or not that non disclosure should lead to the setting aside of the order.

However, even if the order is set aside that is no bar to an application for a further order. …". 48 In Re Coretel Pty Ltd; Linker v Nilant (2003) 48 ACSR 178, Gyles J applied these principles where the liquidator of a company obtained summonses pursuant to s 596B of the Corporations Act for the examination of persons associated with a company called Nortel Networks Australia Pty Ltd ("Nortel"). Proceedings were on foot in the Supreme Court of Western Australia between the company and Nortel. The affidavit in support of the issue of the examination summonses had not mentioned the existence of the Western Australian proceedings, or the steps which had been taken in the proceedings up to that time, or the liquidator's intention to file a counter claim in those proceedings against Nortel, or the liquidator's litigation funding arrangements, or certain other matters to which it is not necessary to refer. 49 Gyles J held that the failure adequately to disclose the true situation was such to require that each of the examination summonses be discharged (at [15]-[20]). His Honour concluded by saying (at 185): "[21] The authorities to which I have referred show that this is no barrier to a fresh application made upon proper material. All I need say is that any such application would require careful scrutiny in view of the advanced stage of the litigation in the Western Australian Supreme Court and the processes of that court which are available to the administrators. At the very least there would need to be a clear explanation of precisely what information was sought to be obtained and for what purpose so that an informed judgment could be made as to whether the application accords with the principles explained in the authorities to which I have referred."

(See also Re One Twenty Seven Corporation Pty Ltd (1995) 13 ACLC 1600 at 1602.) 50 In Hong Kong Bank of Australia Limited v Murphy (1992) 28 NSWLR 512 Gleeson CJ said (at 518-519) that: " … the fact that current proceedings are pending makes it necessary for the court to be alert to the possibility that a proposed application might be used for an improper purpose. " 51 I accept that the claims brought, or purportedly brought, by Mrs Peters in proceedings 5348 of 2005 do not raise the same issues as those upon which the liquidator has deposed in his affidavit he wishes to examine. Mr and Mrs Peters, and now Mrs Peters, do not, and could not, claim to have the transactions set aside as insolvent transactions under ss 588FE and 588FF of the Corporations Act. However, Mrs Peters does seek orders for the setting aside of the mortgage on various grounds, assuming that she is permitted to advance a claim on behalf of the company. It does not appear that any objection has been taken to date by anyone to her doing so. There will be a substantial overlap of the factual matters relevant to her claims and to the claim which the liquidator has foreshadowed bringing to set aside at least the mortgage as an insolvent transaction. The same facts will need to be examined, particularly in relation to issues such as whether Denham Properties acted in good faith, or what benefits were derived by it, or by Mr and Mrs King, from the transaction. 52 The liquidators have not only foreshadowed their seeking orders that the mortgage is voidable against them, but also have asserted that it is "void generally". 53 There is a risk that the examinations will provide Mrs Peters with a forensic advantage in the conduct of her proceedings which is not obtainable in those proceedings. 54 The pendency of those proceedings, the stage they have reached, and the role the liquidator has played, or proposes to play, in those proceedings, are material matters for a Registrar to have considered in exercising the discretionary power conferred by s 596B of the Corporations Act to issue the examination summonses. Those matters were not disclosed in the supporting affidavit. Had the issues raised on behalf of the company by Mrs Peters been described in the supporting affidavit, the Registrar may well have wished to ascertain what was the potential for, or the risk of, the transcript of the examination being used in a way which would advantage Mrs Peters' claims in proceedings 5348 of 2005 through a rehearsal of cross-examination in relation to facts which will be in issue in those proceedings. 55 The Registrar may, for example, have been prompted to enquire whether Mrs Peters, or creditors associated with Mr or Mrs Peters, were funding the liquidator's examinations. It was said for the liquidator that all that could have been disclosed was that the proceedings were pending; that no leave had been given to Mrs Peters to bring a claim on behalf of the company; and that the proceedings against Mendarma were presently stayed. However, more may have been required. The Registrar may have wished to know what attitude the liquidator had taken, and proposed to take, to the 2005 proceedings. If he had given, or proposed to give, active support to Mrs Peters in relation to the claims she has brought, some of which would be for the company's benefit if they are successful, then that would have been a material matter for the Registrar to take into account in assessing the risk that the examinations would be used otherwise than for their intended purposes. 56 Counsel for the liquidator submitted that the fact that a director's interests may be advantaged by a liquidator's examination proceeding does not render the examination an abuse, provided it can be shown that some legitimate interest of the company and its creditors is being pursued (Re Normans Wines Limited (in liq); Harvey v Burfield (2004) 49 ACSR 628; Re Laurie Cottier Productions Pty Ltd (in liq) (1992) 9 ACSR 513; (1992) 11 ACLC 178). I accept that principle. However, it does not follow from that principle that it would be legitimate for the examination to be allowed to be used to provide another party with an advantage in litigation that that party is conducting against the examinees, which is not available to ordinary litigants. 57 Had the 2005 proceedings, and the issues raised in them, been raised in the supporting affidavit, the Registrar would also be expected to have considered the current status of those proceedings, and whether there was any pressing reason in connection with the conduct of the liquidation why the examinations should be held before those proceedings were concluded. 58 In my view, the non-disclosures I have referred to were material to the decision of the Registrar to summons the applicants for examination. The matters may have affected that decision. It does not follow that the summonses should necessarily be set aside. However, as Lander J said in Re Southern Equities Corporation, in the passage I have quoted, the Court regards a breach of the obligation to make full disclosure seriously. There is no basis to infer in this case that the non-disclosure came about through an error of judgment as to the materiality of the matters not disclosed. Nor am I in a position to decide whether, had those matters been disclosed, the decision would have been the same. Whether, on a fresh application, either the Registrar or a Judge would make an order for the issue of a summons could well depend upon the further enquiries to which I have referred. Of course, the discharge of the examination summonses is not a bar to the liquidators' applying afresh on an affidavit which makes full disclosure of all material matters. 59 For these reasons, I order that the summons for examination addressed to each of the applicants dated 27 September 2006 be discharged. 60 I direct the parties to provide to my Associate by 5.00 p.m. this Friday their submissions on costs. I reserve costs.

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.

Trade Practices Act 1974(Cth)

(Corporations Regulations 2001(Cth)

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