Solicitors:
Baker & McKenzie (Plaintiff/Applicant)
Roser Lawyers (First and Second Defendants/Respondents)
O'Neill Partners (Third Defendant/Respondent)
File Number(s): SC 2017/218847
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Judgment
Earlier today, I ordered that the third defendant, TLC Marketing Worldwide Pty Limited (subject to a deed of company arrangement) make disclosure to the plaintiff, Optus Administration Pty Ltd, of nine categories of documents notwithstanding the fact that evidence in the proceedings is not yet closed. I also made an order, nunc pro tunc, granting Optus leave to call on subpoenas it had issued to three individuals.
Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 1089 | Case summary | Zoe
These are my reasons for coming to those conclusions.
During the course of argument, Mr Golledge, counsel appearing for the first and second defendants (the administrators of TLC), stated that the administrators were prepared to make available to Optus, on an informal basis, all of the books and records of TLC in their possession. Agreement was reached as to a regime whereby that would happen (with TLC to have first access to such documents).
Argument then proceeded as to the extent to which TLC should make disclosure.
The categories of documents that Optus sought are as follows. I have added, in emphasis, the amendments I made in respect of category 3 and the amendment that Mr Sulan (who appeared for Optus) proposed in the case of category 9:
"1. A copy of the loan account referred to on page 24 of the s 439A report dated 26 June 2017 prepared by the first and second defendants (the Report).
2. A copy of the trade creditor/debtor accounts referred to on page 24 of the Report.
3. Copies of all documents recording communications between:
(a) TLC, or any director, officer, employee, agent, representative or attorney of TLC; and
(b) any TLC Related Entity (including any director, officer, employee, agent, representative or attorney of TLC),
during the period 29 May 2017 to 14 August 2017 concerning the impact on the quantum of the deed fund referred to in the deed of company arrangement proposal referred to on page 28 of the Report of any financial benefit, payment or other incentive paid or proposed to be paid to a Creditor.
4. Copies of all documents recording any communications between Andrew Healy, Samantha Barnfield or Mira Strahinjic regarding:
(a) any offer of a financial benefit, payment or other incentive to a Creditor;
(b) without limiting (a), the manner in which a Creditor would exercise his, her or its vote at the second meeting of creditors of TLC; or
(c) any proxy for voting at the second meeting of creditors of TLC,
during the period from 29 May 2017 to 14 August 2017.
5. Copies of all documents recording any communications between TLC, or any director, officer, employee, agent, representative or attorney of TLC, on the one hand, and any Creditor regarding:
(a) any offer of a financial benefit, payment or other incentive to a Creditor;
(b) without limiting (a), the manner in which a Creditor would exercise his, her or its vote at the second meeting of creditors of TLC; or
(c) any proxy for voting at the second meeting of creditors of TLC,
during the period from 29 May 2017 to 14 August 2017.
6. Without limiting categories 4 and 5, copies of all documents recording any communications between TLC, or any director, officer, employee, agent, representative or attorney of TLC, on the one hand, and Adrianne Pecotic regarding:
(a) any offer of a financial benefit, payment or other incentive to a Creditor;
(b) without limiting (a), the manner in which a Creditor would exercise his, her or its vote at the second meeting of creditors of TLC; or
(c) any proxy for voting at the second meeting of creditors of TLC,
during the period from 29 May 2017 to 14 August 2017.
7. [Not pressed]
8. Copies of all documents recording any communications, during the period from 29 May 2017 to 14 August 2017, between TLC and:
(a) any of the TLC Related Entities; or
(b) any director, officer, secretary, servant, agent or attorney of any of the TLC Related Entities,
regarding the terms of any offer of a financial benefit, payment or other incentive to a Creditor.
9. Copies of all documents recording communications between:
(a) TLC, or any director, officer, employee, agent, representative or attorney of TLC; and
(b) any TLC Related Entity (including any director, officer, employee, agent, representative or attorney of TLC),
during the period 29 May 2017 to 14 August 2017 concerning the claims made by Optus Administration Pty Ltd in its proof of debt.
10. Copies of all policies of directors and officers insurance (including policy wordings, schedules and any endorsements) maintained by TLC during the period 1 July 2016 to 14 August 2017." [Emphasis added]
TLC is the Australian subsidiary of TLC Marketing Group Limited ("TLC UK"), an entity based in the United Kingdom.
TLC was (and is) in the business of marketing, primarily by providing on-brand rewards (such as movie gift vouchers) on behalf of clients, such as Optus, to consumers.
The directors of TLC are Mr Andrew Healy, Mr Alec Johnson and Mr Nicholas True.
On 29 May 2017, the directors resolved to appoint the first and second defendants, Mr Bruce Gleeson and Mr Daniel Soire as voluntary administrators pursuant to s 436A of the Corporations Act 2001 (Cth).
Although my attention has not been drawn to the terms of the 29 May 2017 resolution, I assume that the directors resolved that TLC was then insolvent, or likely to become insolvent.
On 4 July 2017, the creditors of TLC passed a resolution that TLC execute a deed of company arrangement ("DoCA").
The vote was close. Thirty-two creditors voted in favour of TLC entering into the DoCA; twenty-seven voted against it.
The creditors voting in favour of the DoCA had admitted proofs in the order of $4.03 million (including TLC UK at $3.04 million).
The creditors voting against the DoCA had admitted proofs some $3.54 million (including Optus at some $2.1 million).
The DoCA was executed on 26 July 2017.
The effect of the DoCA is that control of TLC is returned to its directors and that unsecured creditors such as Optus will receive a dividend in the order of 8.2 to 8.6 cents in the dollar.
Thus, although the directors of TLC resolved, on 29 May 2017, that TLC was insolvent or likely to become insolvent, it has now resumed trading as it had prior to 29 May 2017.
By originating process filed on 18 July 2017, Optus seeks an order under s 600A of the Act that the resolution of 4 July 2017 be set aside and an order under s 445D of the Act terminating the DoCA on the basis that:
1. effect cannot be given to it without injustice or undue delay;
2. the DoCA is oppressive of unfairly prejudicial to creditors, including Optus; and
3. the DoCA should be terminated for some other reason (see ss 449D(e), (f) and (g)).
By interlocutory process filed on 7 August 2017, Optus sought an order that the administrators and TLC give discovery of various categories of documents and sought leave, nunc pro tunc, to issue subpoenas to produce documents addressed to three employees of TLC, Mr Andrew Healy, Ms Samantha Barnfield, and Ms Mira Strahinjic.
Those subpoenas have been stood over before the Registrar pending the outcome of this application.
Directions have been made for the service of evidence.
As evidence has not closed, Optus accepted it must demonstrate "exceptional circumstances" for the purposes of Practice Note SC Eq 11.
The matter was referred to me from the Corporations List on 14 August 2017.
After hearing argument on that day, I concluded that in order to understand how Optus contended that the documents which are the subject of the subpoenas are relevant to the manner in which it proposed to prosecute this case, the matter should proceed by way of pleadings and that Optus should file a statement of claim.
That has happened. Optus filed a statement of claim yesterday, 16 August 2017.
Looking at the matter generally, I was satisfied that, if Optus could demonstrate the relevance of the documents sought to the issues it proposes to raise in the proceedings, "exceptional circumstances" would be made out.
That is because Optus seeks to set aside a DoCA which has the effect of restoring control of TLC to its directors.
It seems likely that if the DoCA is set aside, TLC will be placed into liquidation.
In their report to creditors, the administrators stated that they had formed a preliminary view that:
1. TLC has been insolvent since 30 June 2016;
2. TLC has been trading while insolvent since then and that an insolvent trading claim in the order of $1.3 million will or may be available to a liquidator (not including the debts that TLC incurred to Optus during that period); and
3. unfair preference payments and voidable transactions may have occurred during that period.
In those circumstances, it is in the public interest that the questions of whether the 4 July 2017 resolution be set aside and the DoCA survives or, rather, whether TLC go into liquidation, be resolved as quickly as possible.
If the documents are relevant to the case that Optus seeks to advance, the just, quick and cheap resolution of this important issue points to their production sooner rather than later. Production of the documents after the end of the evidentiary timetable may well lead to multiple rounds of evidence if the documents produced lead to further lines of enquiry that Optus wishes to pursue: see for example In the matter of Mempoll Pty Ltd [2012] NSWSC 1057 at [20]-[21], Simson v Wotif.com Holdings Limited [2013] NSWSC 1809, RSA (Moorvale Station) Pty Ltd v VDM CCE Pty Ltd [2013] NSWSC 534 [33]ff.
Further, the documents Optus seeks are solely within the possession or control of TLC and its employees: Naiman Clarke Pty Ltd v Tuccia [2012] NSWSC 314 at [26] (Ball J), In the matter of Colorado Products Pty Ltd [2013] NSWSC 392 at [7], Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (No 2) [2013] NSWSC 89 at [26].
Having now seen the way that Optus pleads its case, I was satisfied that, for the most part, the documents it seeks are relevant to the case it proposes to make out.
I was satisfied that categories 1, 2 and 9 were relevant to the statement made by the administrators in their report under s 439A of the Act that TLC transferred to TLC UK the payments made by Optus to TLC in circumstances where, Optus alleges, TLC did not perform some or all of the services contracted to perform. In their report, the administrators identified that TLC UK charged TLC $300,000 per quarter for management and administrative services and that there was what Optus describes in the statement of claim as an "optimistic scenario" for "voidable transaction recoveries" in the order of $1 million.
Although these categories were expressed widely, the documents are likely to be relevant to this matter and thus relevant to what Mr Sulan described as the "liquidation counter factual"; that is, whether transactions occurred which, were TLC to be placed into liquidation, would be voidable on one or other of the bases provided for in the Act.
Categories 4 to 8 are relevant to Optus's contention that the directors of TLC offered incentives to some (but not all) creditors to vote in favour of the DoCA; and that had two creditors (who voted by proxy in favour of the DoCA) known of this, they would have voted against the DoCA and thereby caused the 4 July 2017 resolution to be lost.
These categories seek documents from 29 May 2017 (the date of the directors' resolution) to date; that is, beyond 4 July 2017. Mr Sulan submitted that this was justified as there may be "post event chatter" in the documents called for, which may be relevant. I accept that submission.
Mr Glasson, who appeared for TLC, submitted that I should not make orders in accordance with sub-pars (b) and (c) of pars 4, 5 and 6 because they had no relevance to the question of whether TLC offered any financial incentive to creditors who voted at the 4 July 2017 meeting.
However, as Mr Sulan submitted, communications soliciting or suggesting that representatives of TLC act as proxies for creditors at the 4 July 2017 meeting are likely to be relevant to the issue concerning the offering of incentives. There are two possibilities. Either an incentive was mentioned in such communications; or it was not. Either circumstance may be relevant to the question of whether or not the 4 July 2017 resolutions should stand.
Category 3, in its original form, was very wide and appeared not to relate to any issue raised in the statement of claim. However, as refined by Mr Sulan in the course of submissions (as reflected in the words emphasised above), it complemented the documents called for concerning incentive payments in categories 4 to 8.
Category 10 concerned the issue of TLC maintaining D&O policies for its directors and officers. In correspondence, TLC's solicitors have informed Optus's solicitors that, on their instructions, there were no such policies in place for the period 1 July 2016 to 29 May 2017. I invited the parties to reach agreement as to what the position was in relation to the period after 29 May 2017. I informed the parties that I proposed to make an order in terms of Category 10, unless such an agreement could be reached.
The subpoenas addressed to Mr Healy, Ms Barnfield and Ms Strahinjic seek documents from before 29 May 2017. I do not see the justification for production of documents before that date. I made the order sought by Optus, but only in respect of documents from that date.
I invited the parties to confer and agree on the precise orders needed to give effect to my reasons and to prepare short minutes dealing with the future conduct of the proceedings.
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Decision last updated: 18 August 2017