(b) Is it just to reinstate the companies?
24 I am satisfied that it is just to reinstate WSPS. First, there is a good use to be made of the reinstatement with reference to the proposed action against Mr Parker. Secondly, there are other reasons why it would be just to reinstate WSPS, including matters of public interest, where Mr Parker's alleged failures occurred as an official liquidator.
25 On the basis of the material before me, I am not satisfied that there are no prospects of recovery if WSPS is reinstated and the substantive proceedings are further prosecuted against Mr Parker. It is not appropriate at this stage to seek to resolve disputed factual matters, disputed opinions or complex legal questions. The basis for the claims against Mr Parker is sufficiently supported by the evidence filed in the proceedings to date. The existing evidence indicates the following:
(a) WSPS was the owner of the Patents.
(b) Upon WSPS being placed into liquidation, Mr Parker was told by the second plaintiff about the Patents.
(c) He also told Mr Parker that he valued the Patents at $18,848,613.
(d) Mr Parker did not take steps to realise the Patents apparently because he had received information that WSPS was in fact not the owner of those Patents, when it appears, on the basis of the existing evidence, that no such information was ever received.
(e) Mr Parker had sufficient funds in the liquidation to enable him to seek to sell the Patents or otherwise extend their expiration dates.
(f) The Patents have all expired.
(g) While again noting that it is inappropriate to seek to resolve disputed evidence, including evidence relating to the value of the Patents and the extent and timing of information provided to Mr Parker by the plaintiffs relating to the Patents, I am satisfied that Mr Haley's report indicates that the Patents have an indicative value which, if recovered, would not render the proceedings against Mr Parker futile.
26 As to Mr Haley's evidence, it is important to appreciate that he made clear that his expert opinion focussed on the "indicative valuation" of the Patents. Quite properly, Mr Haley expressly acknowledged that he was provided with limited information, had to make certain stated assumptions and also relied upon information he obtained from the plaintiffs. He frankly stated that his Report constituted a limited scope valuation. These matters all go to weight. At this stage of the proceeding, and notwithstanding the cross-examination, I consider that Mr Haley's report deserves some weight. The substantive proceeding cannot be characterised at this stage as futile or hopeless. It can also be assumed that the valuation evidence in the substantive proceeding may be different from that which is currently before the Court, given that additional relevant information is likely to come to hand, including possibly by way of discovery, other forensic processes or by inquiry.
27 I am prepared at this stage of the proceeding to act upon Mr Haley's evidence notwithstanding the force of some of Mr Kepler's criticisms of Mr Haley's report. Those criticisms include the following:
(a) Mr Haley's valuations were performed without information as to the commercial viability of the Patents and the likely revenues they would generate;
(b) Mr Haley's market-based valuation methodology inappropriately incorporated "success bias" notwithstanding that there was no evidence as to their commercial viability;
(c) if the Patents were worth $37m it is difficult to understand why the plaintiffs, as former directors, did not sell the Patents in the face of the financial difficulties which ultimately led to WSPS being liquidated; and
(d) Mr Haley relied extensively on information provided to him by the second plaintiff and also made several unsubstantiated assumptions, with the consequence that there was an increased risk that Mr Haley's valuation opinions were not reliable.
28 I respond to each of those criticisms in turn as follows:
(a) Mr Haley himself acknowledged that he did not have the information described in [27(a)] above and that is part of the reason why he gave only an "indicative valuation" of the Patents;
(b) even if this criticism is accepted, it does not affect Mr Haley's cost-based methodology;
(c) this is a matter which may well be explored in the substantive proceeding and there may be a range of possible explanations for why the directors acted as they did; and
(d) these matters were all candidly acknowledged by Mr Haley, who gave only an "indicative valuation".
29 For the following additional reasons, I do not accept Mr Parker's reasons for opposing reinstatement.
30 First, he says that WSPS would come back into existence with liabilities of $18,353,007 and would be insolvent. This is not determinative as it is not proposed that WSPS will be returned to the control of its former directors, or that it will trade. Instead, a new liquidator will be appointed. That liquidator will be an officer of the Court, and presumably would not allow any proceedings to continue in the name of WSPS without suitable assurances of the merit of the case, and funding for the litigation.
31 Secondly, Mr Parker says that any claim against him is speculative and there is little if any chance of any material financial return to the Company where the value of the Patents may not eclipse the total amount outstanding to creditors. Having regard to Mr Haley's evidence, which I generally accept, there is a prospect of a judgment in favour of WSPS of an amount in the range of $18m-$37m. Even if the amount is only $18m or less, it is still appropriate to reinstate and allow the proceedings to continue in the interests of the creditors, and in particular the ATO. It would be the primary beneficiary of the proceedings up to a judgment in the amount of $18m. The plaintiffs would also benefit personally from any reduction in WSPS's taxation liabilities to that same extent.
32 Thirdly, Mr Parker says that there is no evidence of funding of the prospective litigation against him, nor of security for his costs. Again, as noted above, if the registration of WSPS is reinstated, a new liquidator will be appointed over WSPS and that will be a relevant matter for his or her consideration. An amount of $20,020.00 has been deposited by the first plaintiff into a trust account to enable the proposed liquidator, Mr Ingram, to undertake preliminary investigations of WSPS's affairs. If it is the case that the plaintiffs maintain the proceedings on WSPS's and Serif's behalf (which would require leave), questions of security would need to take into account that they are natural persons. Finally, I consider that issues concerning security for costs are appropriately left to be raised and determined in the substantive proceeding (see Pilarinos at [109] per Gillard J).
33 The following aspects of the two expert reports relied on by Mr Parker are also relevant.
(a) Mr Hazan confirms that WSPS owned the Patents. Critically, Mr Hazan also opines at [14.3]: "… Given the unique business model of the patent owner Mr Haley identifies at [3.5] and [3.6], the information about previous achievements under that business model as a proportion of the 4,747 patents registered in the US in my opinion may be the most reliable information for comparative purposes that I would provide to a valuer". This provides another basis for the reinstatement of WSPS - once reinstated, the liquidator could access the historical tax returns of WSPS that would demonstrate the income derived from the Patents and allow a more precise valuation.
(b) The expert report of Mr Kepler, at its highest, seeks to undermine Mr Haley's conclusions, but at no point does Mr Kepler suggest that the Patents lack any value.
34 It is acknowledged that the plaintiffs have not in this proceeding to date established the precise value of the Patents for the purposes of this restatement application. I do not think that they had to. It is sufficient for the plaintiffs to demonstrate on a prima facie basis that the Patents are assets of real value that were not realised by Mr Parker. I did not understand Mr Marksell, who appeared for Mr Parker, to challenge that this is the correct test.
35 There is another important matter which points to it being just to reinstate the companies. It relates to public policy considerations which favour a liquidator being held to account for the discharge of his or her legal duties. If reinstatement is ordered and the substantive proceedings are prosecuted, there will be some prejudice to Mr Parker, who will need to defend the proceeding. It is likely that even if his defence is successful his legal costs will not be fully recovered on a party-party basis.
36 Mr Parker's opposition to the application for reinstatement places him in a difficult personal position. That is because his opposition is primarily directed to protecting himself from being sued in respect of the discharge of his duties as liquidator. That is not to say that someone in Mr Parker's position cannot oppose reinstatement on the basis that a proposed proceeding affecting them is hopeless or otherwise doomed to fail having regard to the material before the Court at this time. For reasons I have explained, however, that is not the case here.