Work Done in Connection with the Debt and Equity Issues
316 Before examining the objections by ASIC to this work stream, it is necessary to outline the facts in more detail.
317 The starting point is the alleged "Spin Off" transaction in 2006. This transaction was said to have involved the transfer of the Australian assets of SK Foods, LP to the Salyer interests. Those assets were the shares in SKFA, intercompany debts and a trade receivable.
318 It appears that a question arose at some stage as to whether BMO had a lien over the shares in SKFA and other trade receivables.
319 Soon after their appointment as administrators on 6 May 2010, the plaintiffs became aware of a dispute as to loans made to SKFA and the parties entitled to the surplus funds after creditors had been paid.
320 On 30 November 2010 and 1 December 2010, the plaintiffs met with representatives of SK Foods, LP and the Salyer interests and advised them of their intention to apply to have the liquidations of the Companies and the New Zealand Companies in the United States courts recognised. The plaintiffs' evidence was to the effect that both parties supported the proposal. In December 2010, the plaintiffs applied for the recognition of the winding up of the Companies as foreign main proceedings in the United States.
321 On 10 December 2010, the plaintiffs received advice from DMAW to the effect that the debt allegedly owed by SKFA to SK Foods, LP may have been transferred from SK Foods, LP to a trust controlled by the Salyer interests; the shares in SKFA may have been distributed to the partners of SK Foods, LP in 2006 in order to overcome accounting issues; and further information in relation to the Debt and Equity Issues in SKFA is "obviously required" and an indication of what those further investigations should involve is given. That indication includes a suggestion of examinations and production of documents in both the United States and in Australia.
322 On 7 February 2011, the United States Bankruptcy Court granted recognition of the liquidations of the Companies as foreign main proceedings under Chapter 15 of the United States Bankruptcy Code. The application for the recognition of the liquidations was supported by Mr Sharp.
323 Mr Sharp had filed proceedings in the United States Bankruptcy Court seeking the determination of the Debt and Equity Issues, but those proceedings were stayed by the United States District Court pending the completion of Mr Salyer's criminal trial. The stay remained in place until 24 June 2012. The stay was lifted on that day. On 10 August 2012, Mr Sharp applied for summary judgment in the proceedings, and summary judgment was granted in his favour on 29 November 2012.
324 On 26 May 2011, DMAW sought advice from Messrs Whitington QC and Doyle. The DMAW letter provides as follows:
Introduction
1. We refer to the observations for counsel forwarded with the brief in this matter. In those observations, we refer to a number of issues for opinion including:
1.1 who owns the $16m debt owed by SKFA; and
1.2 who is entitled to what will be a substantial surplus in SKFA after payment of all creditors and the costs of the liquidation?
2. A final considered opinion on these questions is not yet possible on the current state of the evidence. What is possible, and requested, is for counsel to consider whether the approach and investigations being adopted by the liquidators are correct. The opinion can be given in conference.
325 With respect to the debt, the letter provides:
8. The liquidators take a contrary view. Against the background of the current state of the evidence and the possibility of an equitable assignment being made out they are seeking documents and conducting depositions in the United States of America to further investigate the competing claims. Those investigations may of course reveal a perfected legal assignment or facts and matters relevant to the maintenance of an equitable assignment.
9. Counsel are asked whether they agree with this approach or, if not, what alternative approach should be adopted.
326 With respect to the equity, the letter provides:
17. The liquidators are adopting a course of seeking discovery and undertaking depositions in the United States of America to consider the competing claims to the surplus and whether any facts give rise to an equity which warrants protection in terms of rectification of the register.
18. Again, counsel's view is sought as to whether this is the appropriate course or, if not, what alternative course ought to be adopted.
327 On 30 June 2011, the solicitors for BMO wrote to the solicitors for the plaintiffs stating that in their view the plaintiffs did not have a duty to settle the list of contributories under the Act, that Mr Sharp was likely to bring proceedings in the United States or in Australia to recover the shares in SKFA and, in the circumstances, "it would be unreasonable for your clients to duplicate the same work and expense by undertaking their own inquiries to resolve the dispute that will be brought before a United States' court". On 4 July 2011, Mr Davis of DMAW spoke to Mr Sheahan and Mr Davis advised Mr Sheahan that counsel (Messrs Whitington QC and Doyle) had given advice in conference, the effect of which included that directions be sought under s 511 in relation to the matters which were the subject of DMAW's letter dated 26 May 2011.
328 The plaintiffs had "significant" reservations about making an application for directions under s 511 of the Act in relation to their investigations concerning the intercompany debt and disputed shares. The plaintiffs' reservations were based on a previous experience they had had with an application under s 511 of the Act in the case of "Duke administration". Mr Sheahan agreed in cross-examination that in the case of the administration there were some 18,000 shareholders. They gave consideration to whether it was appropriate to seek directions under s 511. In August 2011, preliminary work was commenced by members of their staff on such an application. However, they did not ultimately proceed with that application, having regard to the reservations which they held and later developments in the liquidations in December 2011.
329 In August and September 2011, the plaintiffs continued to pursue their investigations, including depositions in the United States, examinations in Australia, and the review of a "significant" volume of documents produced under subpoena by BMO.
330 On 31 August 2011, the plaintiffs received a further letter from the solicitors acting for BMO expressing concern about the cost of the investigations being carried out by the plaintiffs.
331 On 8 September 2011, the plaintiffs were advised by DMAW that it would be appropriate to seek advice from counsel on the Debt and Equity Issues and to await counsel's advice before proceedings with further investigations.
332 On 16 September 2011, the plaintiffs were advised of a ruling of the United States Bankruptcy Court whereby the Court granted a preliminary injunction against the Salyer interests prohibiting any further transfer of interests in the assets of the Companies. The plaintiffs were not parties to those proceedings and they were not served with the proceedings. Before receiving notice of the preliminary injunction, they were not aware that an injunction had been sought. The plaintiffs were unsure of the basis or effect of the injunction and took what they considered to be appropriate steps to inform themselves and to understand how the preliminary injunction might affect their conduct as liquidators. The plaintiffs considered that the injunction appeared to restrain them from making any distribution in respect of the debt and equity. The plaintiffs obtained the documents lodged in support of the application for the injunction. There were statements in those documents which the plaintiffs considered were inadequate and warranted the provision of further relevant material to the Court. The plaintiffs took legal advice on the effect of the injunction.
333 On 28 September 2011, DMAW on behalf of the plaintiffs, wrote to Mr Sharp's Australian solicitors, Duncan Cotterill, regarding the preliminary injunction. The letter detailed the plaintiffs' concerns with respect to statements made in material filed in support of the injunction and confirmed that the plaintiffs had already given an undertaking to Mr Sharp that they would not make a distribution in relation to the debt and equity without first providing Mr Sharp with notice.
334 On 29 September 2011, Duncan Cotterill responded to DMAW's letter, and on 4 October 2011, DMAW responded to Duncan Cotterill's response.
335 Mr Sheahan described the course of events summarised above in his first affidavit as follows:
16 SEPTEMBER 2011 - US PRELIMINARY INJUNCTION ORDER
177. On 16 September 2011, we received notification of a ruling of Judge Bardwil in which he ordered a preliminary injunction against a number of Salyer Interests prohibiting further transfer of interests in the assets of the Companies. …
178. Mr Lock deposes at paragraphs 38 and 39 of the Second Lock Affidavit to having been notified on 28 September 2011 of this Preliminary Injunction granted by Justice Bardwil. On further review of our files, we have ascertained the injunction was first sent to my solicitors on 16 September 2011 by Ms Milburn, solicitor for Mr Sharp, as discussed above.
179. Prior to receiving notice of the temporary restraining order referred to in paragraph 168 above, Mr Lock and I had not understood that an injunction had been sought that could affect us in our position as liquidators, nor were we served with or joined to those proceedings.
180. We were unsure of the basis or effect of the injunction, and thus took what we considered were appropriate steps in order to inform ourselves and to understand how the preliminary injunction might affect our conduct as liquidators. For that purpose it was necessary to review the materials relied upon by Judge Bardwil in granting the preliminary injunction and we sought advice …, on the effect of the injunction in respect of our further investigations in the US and the progress of the administrations in Australia.
181. In the documents filed in support of the application for the injunction referred to in paragraph 177 above, Mr Sharp and attorneys acting on his behalf, in submissions and declarations put before the Court, made various statements and assertions to the effect that:
181.1 Mr Lock and I had been appointed liquidators to the Companies by Mr Salyer;
181.2 due to the nature of our appointment it was to be inferred that we were acting in the interests of Mr Salyer and the Salyer Interests;
181.3 there was an imminent risk of Mr Lock and me paying a dividend to the Salyer Interests in respect of the lntercompany Debt and surplus funds to be paid to the owner of the Disputed Shares.
182. The above statements were incorrect as:
182.1 whilst Cary Collins, a close associate of Mr Salyer, executed the requisite resolution appointing Mr Lock and me as administrators of the Companies, it was the creditors of each Company (including Mr Sharp) who voted at the relevant meetings to appoint Mr Lock and me as liquidators;
182.2 in accordance with our role as liquidators and the quasi-judicial nature of our functions in relation to adjudicating creditor claims and ascertaining the persons to whom surplus funds should be distributed, Mr Lock and I were acting impartially;
182.3 there was at the time no risk of any payment to the Salyer Interests as:
182.3.1 Mr Lock and I had informed Mr Sharp and representatives of the Salyer Interests in 2010 that we would give each of them notice of our intentions with respect to any adjudication on the lntercompany Debt and Disputed Shares;
182.3.2 on 15 July 2011, in correspondence from our solicitors to Norton Rose, who at that time acted for BMO, we confirmed that we had already informed Mr Sharp that we would give him notice before making any payment by way of dividend or surplus; and
182.3.3 on 5 August 2011, correspondence from our solicitors to Ms Milburn referred to us having informed Mr Sharp that "payments will not be made in relation to the debt or to the owner of the shares of SKFA without notice to your client and other interested parties."
183. On and after 16 September 2011, Mr Christmas provided Mr Lock and I with copies of various documents relating to the preliminary injunction, including a copy of the transcript of the hearing before Judge Bardwil.
…
CORRESPONDENCE RE MR SHARP'S ASSERTIONS IN US PROCEEDINGS
186. On 28 September 2011, our Australian solicitors DMAW Lawyers wrote to Mr Sharp's Australian solicitors Duncan Cotterill regarding the preliminary injunction referred to in paragraph 177 above. That letter detailed our concerns with respect to statements made in the material filed in support of that injunction and confirmed that Mr Lock and I had already given an undertaking to Mr Sharp that we would not make a distribution in relation to the lntercompany Debt or Disputed Shares without first providing Mr Sharp with notice.
187. On 29 September 2011, Duncan Cotterill responded to DMAW Lawyers' letter of 28 September 2011, and on 4 October 2011, DMAW Lawyers responded by further letter to Duncan Cotterill ….
The important paragraph for present purposes is paragraph 180.
336 In November 2011, and in light of correspondence received from Mr Sharp, BMO and the Salyer interests with respect to adjudicating on the Debt and Equity Issues, and the opposition to the plaintiffs' investigations with respect to the potential claims against ANZ, the plaintiffs sought advice from their solicitors as to their duties and responsibilities in pursuing their investigations and, based on the information they had gathered to that point, what steps they should now take.
337 On 1 December 2011, the plaintiffs received advice from DMAW. The advice sought is described in the opening paragraphs of DMAW's letter as follows:
1. You have sought advice as to:
1.1 whether you have acted in accordance with your duties under Australian law in pursuing your investigations to date in these administrations;
1.2 having regard to the information gathered to date from those investigations, what steps you should now take.
2. You have undertaken inquiries by way of, inter alia, the compulsory production of documents, examinations and depositions of various persons, in Australia, the United States and New Zealand in connection with three principal issues, namely:
2.1 potential claims available to the companies against ANZ, ANZ NZ and the directors of the companies in connection with the granting of the June 2009 guarantee to the banks and the appointment of receivers (Claims Issues);
2.2 competing claims against the companies the subject of proofs of debt lodged by the trustee in bankruptcy of SKFLP and Fast Falcon LLC alleging liability for intercompany debt and associated rights of set off available to the companies (Debt Issues);
2.3 identifying the true owners of the shares in SKFA having regard to the disputed November 2006 transfer and thus the person or persons to whom the surplus remaining after payment of all valid creditor claims should be paid (Equity Issues).
338 DMAW advised as follows:
5. Before embarking on further investigations in relation to the Debt Issues and Equity Issues we recommend you:
5.1 review in detail the evidence now available in respect of those matters;
5.2 assess the prospects of obtaining additional material information through further inquiries;
5.3 form a view about the merits of undertaking further inquiries having regard to the relative associated costs and benefits;
5.4 consider whether it is now appropriate to adjudicate upon the Debt Issues.
6. We also recommend, as previously discussed, you give consideration to seeking the Court's directions pursuant to section 511 of the Corporations Act.
7. Acting in accordance with paragraphs 5 and 6 is in continued fulfilment of your duties and affords you protection in the further conduct of the liquidations.
339 The plaintiffs decided that an application to the Court for directions was not necessary in the circumstances.
340 On 2 December 2011, the plaintiffs adjudicated on the proofs of debt lodged with respect to the intercompany debt by: admitting in part the proof of debt lodged by Mr Sharp in the amount of $8,861,540 and rejecting the balance on the basis of a set-off pursuant to s 553C of the Act; and rejecting, in full, the proofs of debt lodged by Fast Falcon LLC (i.e., the Salyer interests).
341 On 15 December 2011, the Salyer interests lodged an appeal in this Court with respect to the rejection of their proof of debt.
342 On 22 December 2011, Mr Sharp lodged an appeal in this Court with respect to the partial rejection of his claim on the basis of a set-off.
343 In early 2012, the plaintiffs continued their investigations into the Debt and Equity Issues by reviewing documents produced by BMO and Wells Fargo, and contacting Mr Richard Lawrence, who was a director of the Cedenco Group of Companies and chief executive officer of the Cedenco Group, with respect to further queries they had regarding his knowledge of the Spin Off transaction.
344 By reason of their further inquiries, the plaintiffs considered that their adjudication with respect to the debt issue may have been incorrect. The plaintiffs obtained legal advice and in January 2012, Mr Sheahan conveyed to Mr Sharp that the plaintiffs then present view was, to use the words of Mr Sheahan, "having regard to our legal advice and our review of the evidence … the Spin Off was a bona fide transaction, not a fabrication designed to defeat the interests of Mr Sharp as Bankruptcy Trustee of SKFLP and that accordingly the Salyer interests to whom the disputed shares were assigned were entitled to any surplus funds in SKFA".
345 On 20 February 2012, Mr Sharp commenced proceedings in the New South Wales District Registry of this Court (i.e., the Equity Proceedings) wherein he sought against the Companies, the plaintiffs and the Salyer interests, a declaration that SK Foods, LP was the legal and beneficial owner of 100 shares in SKFA and orders for payment of the surplus referable to those shares to SK Foods, LP; orders that the surplus funds in SSFA were held by the plaintiffs on constructive trust for SKFA and CJVA; directions that the liquidations be finalised; a review of the plaintiffs' remuneration under s 504 of the Act; and injunctions restraining the plaintiffs from investigating various matters, including the shares, the debt, the existence or prospect of any cause of action against ANZ or any receiver appointed and the existence of any other cause of action against a third party.
346 The plaintiffs decided that it was necessary and reasonable for them to defend the Equity Proceedings insofar as allegations were made by Mr Sharp which impugned their conduct in the liquidations. They decided that they were otherwise "content" for the Court to decide the dispute about shares. The plaintiffs state that they only took such steps that were reasonably necessary to defend their conduct or as otherwise directed by the Court.
347 On 2 March 2012, the plaintiffs applied to transfer the Equity Proceedings to the South Australia District Registry of this Court. In Mr Lock's affidavit in support of the application, he said that the basis for the application was that South Australia was the proper place for the Equity Proceedings, having regard to the following: the subject matter of the Equity Proceedings; the cost, expense and inconvenience to the parties and witnesses to the Equity Proceedings; and the most efficient administration of the Court.
348 On 7 May 2012, the solicitors acting for the Salyer interests in the Equity Proceedings and in the appeal by the Salyer interests against the debt adjudication filed notices of ceasing to act in each of those proceedings. On 9 May 2012, Mr Sharp filed and served an interlocutory application in the Equity Proceedings seeking a direction that the plaintiffs admit Mr Sharp's proof of debt lodged in respect of the disputed shares. Mr Sheahan said in evidence that he understood that such a direction would, in effect, operate as a summary judgment in favour of Mr Sharp with respect to the shares owing to the withdrawal of the representation of the Salyer interests. Mr Sheahan said that by this stage, the plaintiffs had formed the view based on their investigations to that point that the disputed shares were owned by the Salyer interests and not SK Foods, LP. Mr Sheahan said that despite that, as the Court was to determine the issue in the Equity Proceedings, the plaintiffs had not and did not propose to adjudicate on that issue.
349 On 29 May 2012, Mr Sheahan filed an affidavit in the Equity Proceedings in which he set out the reasons why the plaintiffs did not consider that it was appropriate for the Debt and Equity Issues to be determined summarily and set out the conclusions they had reached in respect of their investigations into the Debt and Equity Issues and indicated a willingness to play such future role in the proceedings as the Court considered appropriate in light of the withdrawal of the representatives of the Salyer interests.
350 On 4 June 2012 at a hearing in the Equity Proceedings, the Court made an order that the plaintiffs file a notice of contentions of facts and law in response to contentions to be filed by Mr Sharp on the Debt and Equity Issues.
351 Mr Sheahan describes the relevant events in the Equity Proceedings as follows:
BMO COMPLAINTS RE 29 MAY 2012 AFFIDAVIT
330. On 1 June 2012, Mr Lock and my solicitors received a letter from Norton Rose as solicitors for BMO … By that letter, inter alia, BMO took issue with the content of my affidavit of 29 May 2012 in the Equity Proceedings (NSD262,) ...
331. Given BMO was not a party to the proceedings, and in our view was misinformed about the effect of the orders previously made by Justice Emmett, we did not consider it necessary to incur the expense of responding and therefore did not instruct our solicitors to respond to that correspondence.
4 JUNE 2012 DIRECTIONS HEARING AND ORDERS RE LIQUIDATORS' INVOLVEMENT
332. On 4 June 2012, there was a directions hearing before the Honourable Justice Emmett that traversed the four sets of related proceedings; the Equity Proceedings, the Salyer and Sharp Debt Appeals and the Receiver Recognition Proceedings …
333. As can be seen from the transcript of the 4 June 2012 hearing …:
333.1 counsel for Mr Sharp handed up to Justice Emmett proposed orders that required Mr Lock and me to file a notice of contentions of facts and law;
333.2 notwithstanding that proceedings were on foot in the USA, Mr Sharp's counsel submitted that the proceedings before the Federal Court should proceed to be heard and determined first;
333.3 his Honour indicated that he would be assisted by the liquidators acting as contradictors (in the absence of Salyer Interests) to put before the Court any material contradictory to that advanced by Mr Sharp, effectively putting the contrary arguments in the form of the contentions;
333.4 Justice Emmett made orders that Mr Lock and I:
333.4.1 file a notice of contentions of facts and law in response to contentions to the field by Mr Sharp on the lntercompany Debt and Disputed Shares issues;
333.4.2 either pay a dividend on, or give notice of reversal of our adjudication on the lntercompany Debt, (and if the latter file an affidavit under Regulation 14.1(15) of the Corporations Regulations setting out the basis for the reversal and exhibiting relevant material).
352 On 13 August 2012, the plaintiffs were advised by solicitors acting for Mr Sharp that Mr Sharp was seeking summary judgment in the proceedings before the United States Bankruptcy Court and that as a result there was no need for the plaintiffs to act as contradictors in the Equity Proceedings. On 16 August 2012, the plaintiffs responded to this letter and they proposed that no further steps be taken in the Equity Proceedings prior to the determination of the proceedings in the United States Bankruptcy Court. However, in August and September 2012, Mr Sharp pressed the plaintiffs to file their notice of contentions and that was done on 10 September 2012.
353 As I have previously said, Mr Sharp obtained judgment in the United States Bankruptcy Court on 29 November 2012. On 6 December 2012, Mr Sharp applied for orders in the Equity Proceedings that the judgment of the United States Bankruptcy Court be recognised by the Federal Court of Australia.
354 In his first affidavit, Mr Sheahan adequately summarises events thereafter to the time of judgment as follows:
7 DECEMBER 2012 EQUITY PROCEEDINGS DIRECTIONS HEARING CONTRADICTOR DIRECTIONS
369. On 7 December 2012, there was a further directions hearing in the Equity Proceedings. In this regard, as summarised at paragraph 5.39 of the DMAW letter of 7 March 2013 …:
369.1 the Salyer Interests agitated for determination of their application for funding so that the Recognition Application could be defended;
369.2 in response to a question from Justice Emmett as to the liquidators' position on the Recognition Application, our counsel stated:
"Your Honour, we were rather hoping that issue would be joined between the Salyer interests and the trustee, Mr Sharp, in which case we wouldn't have a defined position. If in fact the Salyer interests are not funded to oppose recognition, then the liquidator would wish to put for your Honour some further short evidence to correct some matters that have been put or said before Bardwell (sic) J and otherwise we would only seek to assist the court as far as your Honour thought appropriate."
369.3 Justice Emmett suggested that Mr Lock and I act as contradictors and queried if that was a possibility, to which our counsel responded, inter alia:
"Your Honour, the liquidators are quite prepared to do that provided your Honour so directs."
369.4 Justice Emmett asked Mr Sharp's counsel if that course was opposed, to which Mr Sharp's counsel responded:
"If your Honour decides that your Honour wants a contradictor, in my submission, it ought to be the liquidator. If I'm to choose, properly the liquidator."
369.5 Justice Emmett ordered that Mr Lock and I act as contradictors on the Recognition Application …
370. Mr Sharp filed an application on 10 December in the Equity Proceedings seeking recognition of Judge Bardwil's summary judgment order.
371. I affirmed an affidavit on 16 December 2012 in the Equity Proceedings in accordance with Justice Emmett's order that we act as contradictors. In that affidavit, in addition to other matters, I deposed to the investigation being undertaken by the AFP.
372. I understand from communications sent to me that on around 18 December 2012, Judge Bardwil refused the request by the Salyer Interests for a stay of the summary judgment order pending the hearing of an appeal to be filed by the Salyer Interests.
373. On 18 December 2012, Mr Lock's and my solicitors filed written submissions in respect of the Recognition Application in the Equity Proceedings …
19 DECEMBER 2012 EQUITY PROCEEDINGS HEARING
374. On 19 December 2012, the Recognition Application came on before Justice Emmett for hearing. In that regard:
374.1 our counsel Messrs Whitington QC and Mr Doyle prepared detailed written submissions for the assistance of the Court which were filed in advance of the hearing ...;
37 4.2 I refer to paragraph 5.36 of the DMAW Lawyers letter of 7 March 2013 …
374.3 during the course of the hearing, Justice Emmett identified that the orders sought by Mr Sharp could not be made by him as they pre-empted proceedings raising an estoppel argument …;
374.4 Justice Emmett went on to identify the absence of relevant parties to the proceedings as a basis not to grant the relief sought;
374.5 His Honour directed Mr Sharp to file an amended application and a statement of claim and to join SSC&L 2007 Trust to the Equity Proceedings;
374.6 Justice Emmett said that:
374.6.1 the purpose of his order that we act as contradictors on this application had now been effectuated;
374.6.2 "I have had the assistance I hoped for from the liquidators";
374.6.3 if he required further assistance he would raise it at the appropriate time;
374.6.4 Mr Lock and I understood therefore that we were relieved of our obligation to act as contradictors in the Equity Proceedings.
…
375. The nature and extent of the participation of Mr Lock and me as contradictors in the in the (sic) Equity Proceedings pursuant to Justice Emmett's 7 December order is summarised in paragraphs 369 to 374 above.
MR SHARP FILES AMENDED STATEMENT OF CLAIM IN THE EQUITY PROCEEDINGS REQUIRING OUR CONTINUED INVOLVEMENT DUE TO APPEAL AGAINST ADJUDICATION ON VOTING ENTITLEMENTS
376. On 8 January 2013, Mr Sharp and SKFLP filed a third further amended originating process and a statement of claim in the Equity Proceedings … The document included the prayer for relief referred to in paragraph 305 above, namely an appeal against Mr Lock's and my adjudication for voting purposes of proofs of debt lodged in advance of the meeting of creditors held on 9 March 2012.
377. Mr Lock and I considered that this may involve determination of matters affecting our interests and thus require our continued involvement in the Equity Proceedings. DMAW Lawyers wrote to Mr Sharp's solicitors on 6 February 2013 querying the inclusion of that relief and indicating that if it was pressed, our continuing involvement in the proceedings would likely be required …
378. On 8 February 2013, Mr Sharp's solicitors responded to our solicitor's letter of 6 February 2013 stating that Mr Sharp would not press prayer for relief 16 until the matters pleaded in the statement of claim had been determined by the Court (i.e., the ownership of the lntercompany Debt and Disputed Shares) ...
379. On 8 February 2013, there was a further directions hearing in the Equity Proceedings ... At this hearing our counsel Mr Doyle explained the continuing concern that if findings were made with respect to the ownership of the Disputed Shares and lntercompany Debt prior to consideration of the validity of our actions in adjudicating proofs of debt for voting purposes, then we could not avoid the need to participate, albeit in a limited way, in the resolution of the substantive controversies in the Equity Proceedings.
380. Having regard to the above, on 12 February 2013 DMAW Lawyers wrote to Norton Rose advising that as long as prayer for relief 16 remained on foot it would be necessary for Mr Lock and me to file a defence and participate in the proceedings because the Court's findings on the substantive issues would be material to the relief sought against us ...
ABANDONMENT OF RELIEF RE ADJUDICATION ON VOTING RIGHTS
381. Following further correspondence from DMAW Lawyers to Norton Rose on 14 February 2013, Mr Sharp agreed to abandon prayer for relief 16 and gave an undertaking not to seek default judgment against the liquidators in the Equity Proceedings should we not file a defence, by correspondence from his solicitors dated 15 February 2013 ...
382. On 20 February 2013, at a directions hearing before Justice Jacobson in the Equity Proceedings, orders were made, inter alia, dismissing prayer for relief 16 in Mr Sharp's third amended originating process …
383. Following the 20 February 2013 hearing, and the dismissal of prayer for relief 16, it was no longer necessary for Mr Lock and me to take any further active steps in relation to the Equity Proceedings.
FURTHER NORTON ROSE CORRESPONDENCE
…
HEARING AND 30 MAY 2013 JUDGMENT IN EQUITY PROCEEDINGS
385. Between 18 and 21 March 2013, Mr Sharp's summary judgment application was heard before Justice Flick. … Mr Lock and I were not represented at that hearing. His Honour delivered judgment on 30 May 2013 (as referred to further in paragraph 398 below), finding that Mr Sharp and SKFLP were entitled to summary judgment on the basis that the questions as to the legal or beneficial ownership of the Disputed Shares and lntercompany Debt had been finally resolved as between Mr Sharp and the Salyer Interests by Judge Bardwil in the US Proceedings.
355 In essence, ASIC's objections in relation to this work stream are based on Mr Gothard's evidence.
356 As can be seen from Mr Gothard's table (Annexure B), he divides the Debt and Equity Issues into three subtopics as follows: (1) investigations into the Debt and Equity Issues; (2) United States Bankruptcy Court proceedings; and (3) Equity Proceedings.
357 With respect to the first subtopic, Mr Gothard expresses the view that a CPIP would complete the preliminary work necessary to become familiar with the claims by SK Foods, LP and the Salyer interests in relation to the Debt and Equity Issues. He accepts that the claims are complex and that a CPIP would be justified in spending a reasonable amount of time in gaining a good understanding of the nature of the claims and the circumstances in which they arise. Once the CPIP had done that, then he or she would have considered and, if necessary, sought legal advice as to his or her duties as liquidator to determine the competing claims to the surplus funds, and consider the practical requirement to determine the parties entitled to the surplus funds so that the liquidation may be completed.
358 Mr Gothard is of the view that the preliminary work would have included work completed up to and including the receipt of advice from DMAW dated 10 December 2010. Mr Gothard expresses the view that such work was directly connected with the administration and one in furtherance of the exercise of powers and performance of the liquidator's duties required by the legislation and the professional standards of the relevant professional bodies.
359 Mr Gothard expresses the view that the CPIP would have applied his or her professional and commercial judgment to determine the Debt and Equity Issues in the most efficient and effective manner and in the best interests of the stakeholders concerned. The CPIP would consider the following: (1) to what extent the parties could be encouraged to reach an agreement between themselves; (2) to what extent could the US Bankruptcy proceedings already commenced by Mr Sharp serve to resolve the issues; (3) whether the parties could be encouraged to approach the Court to determine the issues between them; and (4) to what extent could a liquidator determine the issues independently and the level of information required to do so.
360 Mr Gothard addresses these courses of action in turn.
361 Mr Gothard expresses the opinion that a CPIP would initially take steps to encourage the resolution or determination of the dispute over the Debt and Equity Issues as between the parties themselves. Such an approach could result in a final determination of the Debt and Equity Issues without the need for court proceedings. In his principal report, Mr Gothard expresses the opinion that, based on the documents available to him, the plaintiffs did not undertake such action. He amends his opinion in his report in response, having regard to statements made by Mr Sheahan in his second affidavit. He expresses the opinion that the plaintiffs undertook two of the three steps he considered that a CPIP would undertake, namely, the plaintiffs encouraged the parties to discuss a compromise or arrangement and encouraged the parties to enter into an alternative dispute resolution process. The third step was not taken by the plaintiffs, that is to say, they did not ascertain whether the parties would be prepared to abide by the liquidators' determination of the dispute as an independent arbiter.
362 Mr Gothard then turns to consider the second course of action, namely, to await the outcome of the existing United States proceedings. Mr Gothard said that such an approach would avoid, or at least minimise, further costs to stakeholders of the liquidators attempting to independently determine the Debt and Equity Issues. He expresses the opinion that a CPIP would regard such an approach as efficient and effective and that it would result in minimal costs in the liquidation and result in a final and binding determination of the Debt and Equity Issues. In his principal report, Mr Gothard states that it does not appear that the plaintiffs took this course of action. In his report in response, Mr Gothard amends his opinion to the extent that he states that the plaintiffs appear to have given some consideration to whether awaiting the outcome of the United States proceedings would be likely to bring about a resolution of the dispute.
363 Mr Gothard then turns to consider the third course of action, namely, to encourage the parties to approach the Court for a determination of the issues between them. Mr Gothard expresses the opinion that, in the event no consensual agreement could be reached between the parties, a CPIP would discuss with the parties other ways of bringing the Debt and Equity Issues before a court of competent jurisdiction for a decision. A CPIP would regard such an approach as moderately efficient and effective in that while it may result in costs in the liquidation, it would result in a final and binding determination of the Debt and Equity Issues. In his principal report, Mr Gothard said that it did not appear that the plaintiffs undertook such action. In his report in response, Mr Gothard did not change his opinions. In fact, he expands on them in the following respect. He expresses the opinion that a CPIP would encourage the parties to bring their own fresh proceedings bearing their own costs, with respect to the Debt and Equity Issues. A CPIP would seek to avoid commencing proceedings himself or herself as such proceedings would not increase the return to the parties and funding the proceedings out of the liquidation would effectively result in the successful party bearing the costs of the unsuccessful party. In light of those matters, a CPIP, after taking legal advice, would consider approaching the Court for directions prior to commencing action himself or herself.
364 Mr Gothard then turns to consider the fourth course of action, namely, to consider the extent to which a liquidator could determine the issues independently and the level of information required to do so. Mr Gothard noted that under the Act, a liquidator has the power to adjudicate on the proofs of debt submitted by persons claiming to be creditors and to determine the parties entitled to share in the surplus available to shareholders. It is a matter for the liquidator's professional and commercial judgment to determine the extent of the investigation he or she would carry out prior to an adjudication. Mr Gothard noted that in the course of an adjudication, a liquidator may require advice from counsel and directions or a declaration from the Court. Mr Gothard expressed the opinion that a CPIP would consider whether the proofs of debt were determined before determining equity ownership as there exists "a more defined process" for adjudicating proofs of debt under the Act. Mr Gothard expressed the opinion that a CPIP would not consider such an approach as particularly efficient or effective in that it would involve substantial costs and the possibility of court proceedings.
365 In response to Mr Sheahan's statement that an application under s 511 of the Act may have been of little utility in terms of benefit to creditors or members insofar as it resulted in a direction of approving the plaintiffs' investigations, Mr Gothard said that the reason why a CPIP may require directions from the Court prior to commencing investigations to determine the Debt and Equity Issues is because such investigations were not necessarily in the best interests of both parties. That is the case because such investigations would not increase the return to the parties, it would effectively result in the successful party bearing the costs of the unsuccessful party, would involve substantial costs and time delay to the liquidation, would not be regarded as particularly efficient or effective, as far as a method of resolving the dispute is concerned, would be unlikely to result in the final determination of the Debt and Equity Issues, and would be likely to be the subject of an appeal to the Court by the parties and relates to disputes that are already the subject of stay proceedings in the United States. Mr Gothard expresses the opinion that with this in mind, a CPIP would attach significant utility to an application for directions under s 511 of the Act because directions would assist in determining whether the proposed course of action was warranted prior to substantial costs being incurred. Mr Gothard expresses the opinion that a CPIP would seek advice from his or her legal advisers as to whether court directions should be sought. The act of seeking directions from the Court was justified because such work would be directly connected with the administration; would be done in furtherance of the exercise of powers and performance of a liquidator's duties as recognised by the legislation and by the standards of the professional bodies.
366 Mr Gothard expresses the opinion that whatever course was adopted, a CPIP would keep the parties informed of the steps being taken and would seek to obtain their agreement to the course of action proposed. He expresses the view that the plaintiffs did obtain the agreement of the parties to the course of action they had chosen at the meetings in late 2010.
367 Mr Gothard was asked about the work done by the liquidators in investigating the lien claimed by BMO. He expresses the opinion that the work completed by the plaintiffs was part of their efforts to independently determine the Debt and Equity Issues. The investigation work was "specifically focused" on whether the Spin Off transaction was a genuine transaction known to BMO and others at the relevant time and, therefore, relevant to the Debt and Equity Issues. Mr Gothard expresses the opinion that such work would only be relevant in the event that a liquidator sought to independently determine the Debt and Equity Issues and, to a lesser degree, if a matter was brought before a court of competent jurisdiction. The work would not be required if the liquidator sought to determine the Debt and Equity Issues by consensual agreement between the parties, or by awaiting the outcome of the United States proceedings.
368 Mr Gothard expresses the following conclusions with respect to the first of the three subtopics, namely, investigations into the Debt and Equity Issues:
5.3.76 A CPIP in the position of the Practitioners would have acted in the best interests of the Parties by seeking to determine the debt and equity issues in a manner which was likely to most efficiently and effectively resolve the issues as follows:
(a) by consensual agreement between the Parties or; if that was not possible,
(b) by awaiting the outcome of the current US Proceedings or; if that was not possible,
(c) by seeking agreement of the Parties to bring the matter before a Court of competent jurisdiction.
5.3.77 A CPIP would only seek to independently determine the ownership of the shares if the above options had failed or were not practically available as this method is not particularly efficient or effective in that it is likely to involve:
(a) high costs to the liquidation; and
(b) court proceedings in the form of appeals against a liquidator's adjudications and determinations.
5.3.78 Before pursuing investigations in an attempt to independently determine the ownership of the shares, a CPIP would obtain the stakeholders' agreement to such a course of action.
5.3.79 A CPIP would re-consider his or her approach to the issue should stakeholders object to the course being taken or should a preferred approach become available.
369 With respect to the second subtopic, namely, participation in the United States Bankruptcy Court proceedings, Mr Gothard expresses the view that a CPIP would not seek to review the material filed in support of the injunction application unless this was required for the purposes of understanding the effect of the orders. Mr Gothard said that based on his assessment of the material, that did not appear to be the case. He expresses the view that a CPIP would not have completed this work as it was not directly connected with the administration (the plaintiffs were not a party to the order), was not in furtherance of the exercise of powers and performance of his or her duties as required by the Act, other applicable legislation, or the standards of professional duties, and was not in the best interests of the parties to incur the costs of such work.
370 Mr Gothard does agree that if it had been necessary and proper to review the material supporting the injunction, then a CPIP would take steps to correct inaccurate information which he or she felt had been provided to the United States Bankruptcy Court. A CPIP would have done this by having his or her solicitors write to Mr Sharp to raise concerns about the information presented to the Court and requesting that any errors or omissions be corrected. A CPIP would have completed this work as it would have done in furtherance of the exercise of powers and performance of duties as required by the Act, other applicable legislation, or professional standards, and "in the general interests of avoiding any misleading information being put to the Court". This work was completed by the plaintiffs. Mr Gothard expands on his reasons in his report in response. It is unnecessary to refer to that report.
371 With respect to the plaintiffs' participation in the Equity Proceedings, Mr Gothard expresses the opinion that a CPIP acting in the best interests of the stakeholders would have sought to remain independent and minimise any role in the Equity Proceedings. He expresses the opinion that a CPIP would defend the proceedings insofar as allegations were made that he or she believed falsely impugned their conduct. Otherwise, a CPIP would take no part in the proceedings. A CPIP who did not believe that the allegations raised in relation to their conduct were false would appear at their own cost or not at all. A CPIP would only have sought to have the proceedings transferred to South Australia if there was a net benefit to the liquidation because of minimising costs was in the best interests of the stakeholders. A CPIP would not have filed affidavits in the proceedings opposing Mr Sharp's application for summary judgment or offered to assist the Court as contradictor in the absence of legal representation from the Salyer interests. Mr Gothard expresses the opinion that such work would not be in the best interests of both possible stakeholders and in recognition that the Court would do justice to the parties in any event. A CPIP would have acted as contradictor in the Equity Proceedings if requested to do so by the Court. Such work would be done in furtherance of the exercise of powers and performance of his or her duties as required by the Act and other applicable legislation, and in accordance with his or her duty to the Court. A CPIP would have acted as a contradictor on the recognition application if so directed by the Court. Again, such work would be done in furtherance of the exercise of powers and performance of his or her duties as required by the legislation, and in accordance with his or her duty to the Court.
372 I will deal with this work stream in the same way as Mr Gothard, that is to say, by dividing it into the three categories of investigations into the Debt and Equity Issues, the United States Bankruptcy Court Proceedings and the plaintiffs' involvement in the Equity Proceedings. This means that the investigations into the BMO lien are part of the Debt and Equity Issues.
373 Of the three categories, the largest in terms of the work done and remuneration claimed by the plaintiffs is the investigations into the Debt and Equity Issues. The other two categories - the United States Bankruptcy Court Proceedings and the plaintiffs' involvement in the Equity Proceedings - are relevantly confined. With respect to each category, the argument put by ASIC is, as I understand is, that the plaintiffs did work that was not reasonably necessary. I will need to explore this further, particularly in relation to the investigations into the Debt and Equity Issues.
374 With respect to the investigations into the Debt and Equity Issues, ASIC's objection as developed seemed to come down to the proposition that the plaintiffs should have brought an application under s 511 of the Act for directions from the Court with respect to the first course of action, the plaintiffs seemed to have followed the course a CPIP would follow, save for Mr Gothard's residual criticism that the plaintiffs should have asked the parties whether they would be prepared to abide by the liquidators' determination of the dispute as an independent arbiter. I do not think that this is of any consequence for two reasons. First, even if they had done that and the parties had agreed, it is not apparent what costs would have been avoided as the plaintiffs would still have been required to investigate the Debt and Equity Issues. Secondly, the strong emphasis of ASIC's case before me was (not unreasonably) that the plaintiffs knew that whatever they did would not stop with them, if I may use that expression, and that the issues would ultimately be resolved by a court. It is hardly to be supposed that, in those circumstances, the interested parties would agree that the plaintiffs' determination would be final. The second and third course of action suggested by Mr Gothard merge or, at the very least, overlap. As I understand it, Mr Sharp had instituted court proceedings, albeit in the United States, seeking a determination of the Debt and Equity Issues and that proceeding was stayed. He could have instituted proceedings in Australia earlier than he did, but it is not clear what effect, if any, the stay in the United States would have had on any proceedings in Australia. Insofar as the contention is that the plaintiffs should have delayed their investigations pending court proceedings, it is to be noted that the two interested parties did not object to at least some initial investigations and, in any event, Mr Gothard expresses the opinion that some initial investigations were appropriate. Furthermore, there was the prospect of evidence being lost and the plaintiffs being criticised if they did not proceed with their investigations. For these reasons, I am of the opinion that the issue with respect to the investigations into the Debt and Equity Issues comes down to whether the plaintiffs should have made an application for directions under s 511 of the Act.
375 As the statement of events indicates, the plaintiffs certainly had advice that such an application should be considered and their explanation for not doing so, insofar as it was based on their experience in the Duke administration, was very general and somewhat unconvincing. However, the failure to make an application under s 511 of the Act will only be relevant if one can be reasonably satisfied that the making of such an application would have altered the course of events.
376 Three questions arise and they are as follows:
(1) What directions should the plaintiffs have sought?
(2) When should the application have been made?
(3) What is likely to have happened on the application?
377 There were two possibilities suggested in the submissions as to the directions which would be sought in an application under s 511 of the Act. The first was suggested by ASIC in the Aide Memoire it provided as part of its closing submissions and that was to bring "the Debt and Equity dispute before the Court for early determination". I take that to mean that the Court would be asked to determine the issue of entitlement. The difficulty with that suggestion is that that is not the purpose of an application under s 511. The interested parties would have to be served and then the proceedings converted into an ordinary civil action with the interested parties becoming the main protagonists (Australian Securities and Investments Commission v Rowena Nominees Pty Ltd [2003] WASC 112; (2003) 45 ACSR 424 at 441 per Pullen J; Editions Tom Thompson Pty Ltd v Pilley (1997) 77 FCR 141; Meadow Springs Fairway Resort Ltd (In Liq) v Balanced Securities Ltd [2007] FCA 1443; (2007) 25 ACLC 1433 at [50] per French J (as his Honour then was)). There are a number of steps in that process which, even if they were to occur, may well involve the lapse of some time. The second possibility is more in accordance with the evidence of Mr Gothard, that is, the directions sought would be as to the investigations the plaintiffs ought to carry out in the future, that is to say, from the date of the application. Directions about what the plaintiffs were or were not justified in doing would not resolve the dispute in a way which would bind the interested parties. Nevertheless, it seems to me that the Court hearing such an application would wish to have a good deal of information about the circumstances, particularly as the plaintiffs had the power (as Mr Gothard acknowledged) to resolve the Debt and Equity Issues. Furthermore, I am of the opinion that the Court is likely to have wished to hear from the interested parties as to their attitude to the directions sought. This could take some time and, in the circumstances, the plaintiffs may be permitted to continue their investigations in the meantime.
378 There is to my mind no clear indication as to when in the second half of 2011 the application under s 511 should have been brought on ASIC's case. Mr Sharp brought the Equity Proceedings on 20 February 2012. Leaving aside the matter of the preliminary injunction granted by the United States Bankruptcy Court which, like Mr Gothard, I will deal with separately, I am not satisfied that it is sufficiently clear that the plaintiffs should have brought an application under s 511 of the Act seeking the second type of directions I have identified sufficiently well before 20 February 2012 such as to conclude that they should be deprived of their remuneration for work done.
379 With respect to the preliminary injunction granted by the United States Bankruptcy Court, Mr Gothard's opinion was that a CPIP would not seek to review the material filed in support of the interlocutory application unless this was required for the purposes of understanding the effect of the orders and that, based on his assessments of the orders, that did not appear to be the case. I agree with Mr Gothard's opinion and the remuneration in relation to the review and the correspondence which followed should not be allowed as the work was not reasonably necessary.
380 With respect to the plaintiffs' involvement in the Equity Proceedings, I am not persuaded, having regard to the evidence I have identified, that the plaintiffs' involvement was such that they should be deprived of their remuneration. In my view, it was not inappropriate for the plaintiffs to act as contradictors in the Equity Proceedings to the extent necessary to address the allegations made by Mr Sharp impugning their conduct in the liquidations, particularly in light of the withdrawal of the representatives of the Salyer interests. I am satisfied based on Mr Sheahan's affidavit affirmed on 29 May 2012 filed in the Equity Proceedings that the plaintiffs otherwise sought to minimise their involvement in the Equity Proceedings by indicating to the Court their willingness to participate only to the extent considered by the Court to be appropriate.
381 With respect to the plaintiffs' application to transfer the Equity Proceedings to the South Australia District Registry of this Court, I am not persuaded, having regard to the evidence I have identified, that the plaintiffs should be deprived of their remuneration. I am satisfied based on Mr Lock's affidavit filed in support of the application to transfer the Equity Proceedings that the application to transfer was made by the plaintiffs in an attempt to minimise costs and achieve a net benefit to the liquidations. I am persuaded by the fact that no determination was made as to the merits of the application because it was ultimately dismissed by the plaintiffs on 28 March 2012 in exchange for Mr Sharp agreeing to abandon the relief sought against the plaintiffs in the Equity Proceedings regarding the review of their remuneration.
382 In conclusion, there must be reductions in relation to this work stream, having regard to my conclusions with respect to the hourly charges. Other than that, there must be what is likely to be a small reduction in relation to the area of work which I have identified. It seems to me that the parties should be able to provide the Court with assistance as to the extent of the reduction and I will hear further from the parties on that matter.