In the matter of Shinji Pty Ltd (in liq) [2021] NSWSC 1683

Facts

1. The company (as trustee for the Shinji Unit Trust) was the registered proprietor of property located at 90 Burrows Road, Alexandria (the Depot). The directors of the company were the father and the mother. The company was trustee of the Shinji Unit Trust, of which the father, the mother and Masaaki Enterprises Pty Ltd were unitholders. Masaaki Enterprises Pty Ltd held units in the trust as trustee for the Masaaki Superannuation Fund. The father and the mother were the only beneficiaries of the Masaaki Superannuation Fund.
2. In the early morning of 2 July 2014, a fire broke out at the Depot, which spread and damaged a building adjacent to the Depot at 92A Burrows Road. The Minister for Public Works was the registered proprietor of the adjacent premises, which was used by the then-Department of Public Works. On around 2 July 2014, the then-Office of Finance and Services lodged a miscellaneous Claim/Notification with TMF regarding damage to the Premises. The estimate of damage notified in that form was $1,154,439.
3. Following the fire, the company sold the Depot for some $4.246 million. The company also sold an apartment it owned in Pitt Street for $990,000. Mr Carswell-Doherty, solicitor, acted for the company on the sale of the properties. The trustee of the Shinji Unit Trust was changed from the company to Moumoku Pty Ltd on 5 December 2014. The son is the shareholder and director of Moumoku. In February 2015, the father filed an application with the Australian Securities and Investments Commission to deregister the company (The lodgement details on the deregistration application identify Ark Accounting Pty Ltd as an ASIC registered agent and contact in the event that ASIC had a query about the form.) The company was deregistered.
4. In 2017, the solicitor for the State (now also the solicitor for the company), Ms Haski, tried to locate the father for the purposes of bringing a claim in respect of the fire and the damage caused to the State's adjoining property. Ms Haski had no luck and, in June 2020, the State applied to reinstate the company and, on reinstatement, to place the company in liquidation and to appoint Simon Cathro as the liquidator. These orders were made by Black J on 29 June 2020, who also gave leave to proceed against the company.
5. On 30 June 2020, the State filed a statement of claim in the Common Law Division against the company and the father. The pleading is extremely detailed: it is said that the father had control of the premises and permitted the site to be occupied in an unauthorised manner, including to permit 13 occupants to live in one or more of various caravans, bus or office on the site and to permit various power boards and electrical extension cords to be used in such a way as to create a nuisance on the site. The father's actions are said to have amounted to negligence and to have been causative of loss.
6. Mr Cathro explains that since being appointed as liquidator, he has investigated the company's affairs, including endeavouring to identify the whereabouts and assets of the parents, the reasons why the company sold the two properties prior to its deregistration, the reason why the company was replaced as trustee of the Shinji Unit Trust, how the proceeds of sale of the company's property were disbursed and the nature of any advice received by the company from its accountant and solicitor. It was for these purposes that the liquidator commenced two proceedings in this Court in order to conduct examinations. As a consequence of the examinations, the liquidator has obtained documents and information from Mr Carswell-Doherty, Mr Chan and Ark Accounting, Westpac and St George Bank, which may assist the State to obtain substituted service against the father and take steps to preserve the father's assets. Mr Cathro has not yet determined whether any causes of action are available against the former directors of the company or any third party.
7. The solicitor for the company, Ms Haski, has identified a number of important pieces of evidence obtained in the examination summons, including the trust account records of Foulsham & Geddes, which indicate that of the proceeds of sale of the property, some $5 million was paid from Foulsham & Geddes' trust account to the Masaaki Superannuation Fund, Moumoku Pty Ltd or the Shinji Family Trust. In addition, on 5 March 2021, Mr Carswell-Doherty provided the last known contact details of the father, being an address in Ingleburn, a mobile number and an email address. Mr Chan has also provided information in respect of the some $1.6 million now held in the father's superannuation and pension accounts.
8. The State is the only creditor of the company of which Mr Cathro is aware, having made the necessary advertisements of his appointment and reviewing the limited books and records of the company which he has recovered. He has not received a proof of debt from the State but anticipates receiving one in due course. In Mr Cathro's opinion, if the State is successful in its claim against the father, that may reduce the pool of assets available to the company in the event that he does commence proceedings against the father, although he has not made a decision to commence such proceedings. However, as the State is the only creditor of the company of which he is aware, he believes it is in the interests of the liquidation generally to assist the State to prosecute the Common Law proceedings against the father. He consents to the information which he has obtained as liquidator being made available to the State.
9. The State continued to have no luck in serving the statement of claim on the father, and the Court extended the time by which the statement of claim must be served until 31 December 2021, which is not far hence. As a consequence, the liquidator has brought an urgent application before the Duty Judge on the last day of court term, to seek leave to permit the State to examine the documents found during the process of examinations, in an effort to, firstly, locate the whereabouts of the father for the purposes of serving the statement of claim upon him or, alternatively, obtaining an order for substituted service; and, secondly, potentially obtaining a freezing order against the father's assets, in circumstances where the evidence obtained in the examinations indicates that some $1.6 million of the proceeds of sale of the company's property may well be held in the father's superannuation and pension accounts.

Principles

1. The principles governing the circumstances in which a court may grant the leave sought were helpfully explained by Santow J in In the matter of New Cap Reinsurance Corporation Holdings Ltd [2001] NSWSC 835 at [17]: If access to the documentation produced in examinations already held is not precluded by statute, then granting access to a third party creditor may be justified on either one of two bases of justification and certainly by both in combination: (a) it offers sufficient prospect of assisting the beneficial winding-up by increasing or protecting or conserving the assets available in the winding-up; or (b) it facilitates the prosecution of civil or criminal proceedings, whether contemplated or already commenced, including civil proceedings by individual creditors, where these civil or criminal proceedings bear upon the circumstances that have led to, or are associated with, that corporate collapse, or where the company being wound up is a defendant or co-defendant in actual or contemplated legal proceedings, whether civil or criminal, that may have a bearing on the winding-up.
2. The liquidator submitted that the application before the Court falls squarely within the considerations identified by Santow J in New Cap at [17]. The Common Law proceedings, so far as it comprises a claim against the company, have been stayed. The proceedings against the father have been frustrated by an inability to locate and serve him. The time for serving the father has been extended until 31 December 2021. The claims against the father in negligence and nuisance are not available to the liquidator. During the course of the public examinations conducted, the liquidator acquired information about the father's email address and his whereabouts; according to Mr Chan, it is likely that the father no longer resides in Australia. The liquidator submitted that granting access to this information would facilitate an application for substituted service by the State against the father and enable those proceedings to proceed notwithstanding that he cannot be located.
3. Further, the liquidator submitted that information acquired by the liquidator concerning the father's assets, including his two superannuation accounts, would enable the State to take steps to preserve those assets against the risk of dissipation pending the resolution of the Common Law proceedings. As those assets likely include the traceable proceeds of the company's property, any steps taken to preserve those assets would benefit the company's creditors. Consistently with the first justification for third-party access identified in New Cap, such assistance, if permitted, would offer a reasonable prospect of protecting the assets available in the winding up.
4. In relation to the second ground for the making of access orders identified in New Cap, the liquidator submitted that the wider statutory purpose of examinations extends to the bringing of claims by third parties which will not necessarily benefit the administration: In the matter of ACN 004 410 833 (formerly Arrium Ltd) (No 2) [2018] NSWSC 1536 at [18]. Providing access to the State of the examination documents will facilitate the progress of its claim to recover its loss caused by the negligence of the company and the father, notwithstanding that such recovery would result in compensation flowing to a third party rather than into the liquidation. The reason for permitting the State to access the documents available to the liquidator is to enable the State to pursue its claim against the father and recover its losses. No improper purpose was involved.
5. The liquidator submitted that, if the State is successful in recovering losses that it has suffered through the proceedings commenced by it, that would reduce the extent to which it needs to prove in the liquidation. It would also reduce funds that might otherwise be available should the liquidator determine to bring a claim against the father. The liquidator has not yet determined whether any causes of action are available against the former directors of the company or any third person who was involved in the deregistration of the company. Recovery by the State against the father however was said to have no impact upon potential recovery from the mother or any third party who may be the target of claims by the liquidator. There was said to be a potential, to a limited extent, for competition between the liquidator and the State in relation to claims against the father. Unlike in ACN 004 410 833 (formerly Arrium Ltd) (No 2) at [13], this competition would not disadvantage other creditors of the company as no other creditors have been identified.
6. The liquidator submitted that an appropriate criterion as to the use of the documents was that the use be limited to proceedings connected with the collapse of the company: ACN 004 410 833 (formerly Arrium Ltd) at [21]. Although the fire occurred on 2 July 2014, nine months before the company's deregistration, the damage caused by the fire was causally connected with the steps taken by the company to divest itself of assets and to the deregistration. The liquidator submitted it was appropriate that the use of the materials be limited to the Common Law proceedings including any related interlocutory proceedings such as an application for substituted service or an application for freezing orders.
7. Counsel for the mother, son and Masaaki Enterprises Pty Ltd submitted that it was incumbent on the liquidator to prove that the State had reasonable prospects of obtaining a freezing order. There was said to be insufficient evidence to suggest that a court may grant a freezing order in respect of the father's assets, including because the funds held in the superannuation and pension funds had not been dissipated in the years since the fire and it was said that there was no evidence of a risk of dissipation. Nor was there sufficient evidence that the substantive claim had realistic prospects: In the matter of Eurostar Pty Ltd (in liq) [2003] NSWSC 633 at [26] per Campbell J.
8. In addition, in respect of the second ground identified in New Cap, it was submitted that the Common Law proceedings were not sufficiently associated with the collapse of the company to warrant an order being made. The debt arose for events unconnected with the finances of the company and arose nine months before a liquidator was appointed. There was said to be no evidence to connect the fire with the subsequent sale of assets, deregistration and subsequent liquidation. Finally, it was submitted that the access order proposed was too broad; specific documents should be identified.
9. To the last submission, the liquidator submitted that the mother, son and Masaaki Enterprises had no standing to oppose such an order, where they were not the subject of an examination summons. Indeed the liquidator was unable, despite his efforts, to serve the mother. No claim was made for legal professional privilege in respect of any of the documents and nor were they the subject of the Common Law proceedings. Gaps in evidence were referable to the liquidator's inability to obtain information in respect of the company's activities from its former directors. The limited time available precluded selecting specific documents only.

Consideration

1. For the reasons advanced by the liquidator, this is a classic case in which an access order should be made. It is apparent from the evidence that the company's creditor has a bona fide claim against both the company and the father. If the State succeeds in its claim against the father, it may reduce the assets otherwise available to the liquidator for any recovery action he may wish to take against the father. In that sense, granting leave may give rise to some competition between the claims of the State and any claims which the liquidator may have on behalf of the company. On the other hand, if the State is able to serve the father and preserve his assets - should a judge in the Common Law division of this Court consider that a freezing order is appropriate - that may also reduce the monies which the State may have look to the company to pay in damages to the State.
2. It does appear - and of course it remains a matter for another judge to decide - that this is a classic case of 'asset stripping'. The fact that the father has been unable to be located despite significant effort itself points to a need for such orders to be made. I am satisfied that there are sufficient prospects that such an order will assist a creditor to recover its claim. I do not accept that the application for access is unconnected with the corporate collapse of the company. The only reason why the company is in liquidation is because, on the face of it, the father deregistered the company, after having stripped it of assets, in order to avoid an obligation to pay those affected by the fire at the Depot.

Orders

1. For these reasons, I make the following orders: 1. Leave granted to the plaintiff to file in Court the affidavit of service of Jacqueline Haski dated 17 December 2021, initialled by her Honour, dated today and placed with the papers. 2. Subject to order 3, pursuant to section 596F(1)(e) of the Corporations Act 2001 (Cth), the State of New South Wales be permitted to access, uplift and make a copy of: 1. all documents produced to the liquidator by the following persons in proceeding number 2020/00307578 and 2021/00142465 pursuant to orders for production: 1. Jacob Carswell-Doherty; 2. Dylan Chan; 3. Ark Accounting Pty Ltd; 4. Westpac Banking Corporation; and 5. St George Bank. 1. any document or bundle of documents marked for identification and/or produced to an examinee during the course of his or her examination; and 2. the transcript of the examination of any examinee in proceeding number 2020/00307578 and 2021/00142465. 1. Until further order of the Court, the State of New South Wales be permitted to use the documents falling within orders 2(a)-(c), for the purposes of proceeding no. 2020/193437, including all related interlocutory proceedings. 2. Order that the plaintiff's costs of the Interlocutory Process filed on 15 December 2021 are his costs in the liquidation.

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: 30 December 2021