Leslie, in the matter of the Aboriginal Councils and Associations Act 1976 v Hennessy

REASONS FOR JUDGMENT THE COURT: 1 These are appeals from orders of Drummond J dismissing motions by the appellant for orders concerning the liquidation of two corporations, National Aboriginal and Islanders Legal Services Secretariat Aboriginal Corporation and Queensland Aboriginal and Islanders Legal Services Secretariat Aboriginal Corporation. The appellant is a member and the respondent, the liquidator of both corporations. Both were established to facilitate the advancement of Aborigines and Torres Strait Islanders and received funds from the Aboriginal and Torres Strait Islander Commission (ATSIC). It became necessary, or perhaps expedient that they be wound up. The circumstances were complex and appear to have resulted from differences of opinion between the Registrar of Aboriginal Corporations under the Aboriginal Councils and Associations Act 1976 (Cth), ATSIC and those previously controlling the corporations rather than insolvency. 2 In the case of each corporation, the applicant sought an order "that the Court enquire into the conduct of the liquidator of the performance of his duties in the liquidation". It is common ground that the power to inquire into the conduct of a liquidator conferred upon a relevant court by s 536 of the Corporations Law is sufficient authority for such orders in these cases. Subsection 536(1) provides: Where: (a) it appears to the Court or to the Commission that a liquidator has not faithfully performed or is not faithfully performing his or her duties or has not observed or is not observing: (i) a requirement of the Court; or (ii) a requirement of this Law, of the regulations or of the rules; or (b) a complaint is made to the Court or to the Commission by any person with respect to the conduct of a liquidator in connection with the performance of his or her duties; the Court or the Commission, as the case may be, may inquire into the matter and, where the Court or the Commission so inquires, the Court may take such action as it thinks fit. 3 In considering this provision Young J said in Burns Philp Investment Pty Ltd v Dickens (No 2) (1993) 10 ACSR 626 at 633: Mr Campbell QC for the plaintiffs, put that the barrier over which the plaintiffs should be made to pass to have an inquiry mounted should not be a very high one and that all that was necessary for his clients to show was that there was a prima facie case that something needed to be investigated. In my view this is correct. The Court at this stage should not make any finding on the reasonableness or otherwise of the liquidator's conduct, but if there are sufficient matters prima facie calling for further investigation then, subject to proper safeguards as to the scope of the inquiry, an inquiry should be permitted. To deny an inquiry would mean that the people who were paying the liquidator's fees would have no way in which the quantum could be challenged. 4 In Belvista Pty Ltd v Murphy (1993) 11 ACSR 628 at 630, McClelland J said: I wish to add that where, as here, a creditor or other interested party wishes to challenge the decision of a person in the position of a scheme administrator, or a liquidator, apparently arrived at in good faith, it is generally inappropriate to utilise the "complaint" provisions of s 536 of the Corporations Law rather than the "appeal" provisions of s 1321. As I observed in Northbourne Developments v Reiby Chambers Pty Ltd (1989) 8 ACLC 39 at 43 in relation to the predecessor of s 536, that section is concerned with aspects of the conduct of liquidators and others which are liable to attract sanctions or control for what might be broadly described as disciplinary reasons. 5 Finally, in Nut Trading Co Aust Pty Ltd v KKL (Kangaroo Line) Pty Ltd (1997) 25 ACSR 580 at 619, Einstein J said: Some support for the proposition that the appellant must put forward material which justifies the court being satisfied that a report should be prepared may be gleaned from the approach taken by Young J in Burns Philp Investment Pty Ltd v Dickens … . There the applicants had sought relief under s 536 of the Corporations Law which is relevantly equivalent to s 420 of the Code. The section enables the court, if it appears that a liquidator is not faithfully performing his or her duties, to conduct an inquiry into the performance of the liquidation and to make consequential orders. 6 Drummond J found that there was no basis for ordering an inquiry or granting other relief pursuant to s 536. In so doing, his Honour adopted the approach taken by Young J in Burns Philp Investment Pty Ltd v Dickens (No 2). The appellant disputes the correctness of that approach, saying that the requirement that there be a "prima facie case" places an unjustifiable gloss upon the section. If the expression "prima facie case for investigation" used by Drummond J in par 12 of his reasons be taken to have some technical meaning, then there might be some merit in this criticism. The appellant's written submissions conceded that, on current authority, the applicants must show a "prima facie case". See eg the cases referred to in McPherson The Law of Company Liquidation 4th Edition at p 388. However, we believe that both Young J and Drummond J were describing something less formal than a prima facie case according to some evidential burden of proof. Their Honours both meant only that an applicant must show a sufficient basis for making an order, that there is something which requires inquiry. The Court then has a discretion which it must exercise. Many factors will be relevant to that exercise. They include the strength and nature of the allegations, any answers offered by the liquidator, other available remedies, the stage to which the liquidation has progressed, the likely amounts of money involved, the availability of funds to pay for any inquiry, the likely benefit to be derived from it and the legitimate "interest" of the applicant in the outcome. 7 It seems from the notices of motion that the appellant's original intention was to rely upon his affidavit filed on 24 May 2000 as justifying the application for inquiry. See par 8 of each notice. That affidavit primarily addressed the liquidator's proposal to seek oral examination of two men associated with the corporations, Robert Raymond Lloyd Robinson and Samuel William Watson. The appellant asserted that such examination was unnecessary. As a further ground, he asserted that the liquidator had entered into a settlement agreement with creditors which was said to contain a "secrecy provision". However, by the time of hearing, numerous other grounds had emerged, primarily concerning the fees paid to the liquidator, the provisional liquidators, lawyers and others. 8 Drummond J dealt with the numerous complaints made by the appellant, finding that none of them individually called for investigation. The appellant, in his written submissions, disavowed any challenge to these conclusions. (See par 1.03.) The appeal was conducted in such a way as to suggest that the appellant was asserting that notwithstanding the fact that none of these matters individually may have been sufficient to require investigation, when taken together, they might justify a general inquiry. We consider that this is most unlikely. The scope of any inquiry is within the discretion of the Court. In most cases, any inquiry would be limited to the specific subject of complaint. The section does not contemplate a detailed investigation of the whole of the liquidator's conduct simply because a specific allegation of misconduct has been made. There may be cases in which there is reason to believe that the whole of a liquidation (or, for that matter, other liquidations - Commissioner for Corporate Affairs v Harvey [1980] VR 669 at 689 (l)) has been infected by error or misconduct. In those circumstances the Court might be justified in ordering a general inquiry, but this would be a very rare occurrence. It follows that, if an applicant cannot demonstrate that any one of numerous matters of complaint requires investigation, the cumulative totality of those matters will rarely justify a general inquiry into the liquidation. In our view, this is not a case in which the cumulative effect of the appellant's complaints leads to any demonstrated need for an inquiry. 9 Some matters of complaint were expressly addressed in argument. We will deal briefly with them. The appellant relied heavily upon the levels of fees paid to the liquidator and others, suggesting that they demonstrated some appropriate matter for inquiry. Drummond J found that there were good reasons for the level of fees in this case. In doing so, his Honour concluded that certain "expert" evidence as to legal costs was not sufficiently tied to the facts of the case to be of any value. His Honour also considered criticisms of the liquidator made by Mr Hendy but was satisfied with the liquidator's responses to them. His Honour's conclusions have not been seriously challenged. 10 In the course of arguing the appeal much time was spent on the issue of double-charging. In the end counsel for the appellant was unable to point to any hard evidence of this. The liquidator denied that he had double-charged for any item, and it seems that the point was not strongly pressed before his Honour. At AB 729, counsel for the appellant said at ll 21-26: In paragraph 2 of the points of claim challenge was made to the fees charged by the liquidator and, again, the matter of concern was that on the only documents available it appears that the same work had been charged twice. Your Honour has heard Mr Hennessy's evidence and the appearance may have been dispelled; that's all I can say … . 11 In view of that invitation it is somewhat difficult to see how the appellant can now seek to pursue the matter. It is said that there is new information to hand, but counsel was generally unable to demonstrate anything other than that the appellant suspected double-charging, a suspicion which we do not share. 12 A second aspect of the costs issue involved the costs of the provisional liquidators. Those costs had been approved by the Court. His Honour considered that he could not re-visit that issue in the absence of an allegation of fraud. It is possible that a liquidator's conduct in connection with the making of such an order might be relevant to an application pursuant to subs 536(1) but nonetheless, the generalized criticisms made in this case had to be assessed in light of the fact that the costs had been approved by the Court. There is no reason to suspect that the order was other than appropriate in the circumstances. 13 Criticism was also directed at an agreement made by the liquidator with ATSIC although the basis for it was unclear. At best for the appellant, the criticism appears to have been based upon the appellant's disagreement with the liquidator concerning a matter of commercial judgment. No basis has been demonstrated for doubting the reasonableness of the liquidator's actions. 14 Finally, we point out that large parts of the funds held by both corporations were received as grants from ATSIC. It also made other funds available to the liquidator and would be the substantial beneficiary if any funds disbursed by the liquidator were recovered. ATSIC makes no complaint. Many of the payments sought to be impugned were made after express authorization by ATSIC of the payment in question (par 20). 15 The appeal in both matters will be dismissed with costs. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of The Court .