Mensink v Parbery

Introduction 1 By interlocutory process dated 26 September 2024 (and lodged for filing on 30 September 2024), the liquidators of Parwan Valley Mushrooms Pty Ltd (in liquidation) (the Company) applied pursuant to re 11.10(2) of the Federal Court (Corporations) Rules 2000 (Cth) (FCC Rules) for the issue of a warrant for the arrest of Sha Wang, also known as John Wang, to bring Mr Wang before the Court to be examined under s 596A of the Corporations Act 2001 (Cth) (Act), on oath or affirmation, about the examinable affairs of the Company. 2 The application was supported by the affidavits of Maria Kerhoulas and Alina Gibo both sworn on 10 September 2024, and the affidavit of Sofija Celebic sworn 3 October 2024. Ms Kerhoulas is a partner with the firm Frenkel Partners, the solicitors for the liquidators in this proceeding. Ms Gibo is a legal assistant employed by Frenkel Partners. Ms Celebic is a solicitor employed by Frenkel Partners. 3 In hearing and determining the application, I have also had regard to earlier affidavits filed by the liquidators in this proceeding, including: (a) the affidavits of David Raj Vasudevan (one of the liquidators) affirmed 4 July 2023 and 11 July 2024 in support of the application for the issue of summons for examination, including to Mr Wang, under s 596A of the Act; and (b) the affidavit of Ms Kerhoulas sworn 12 August 2024 in support of an application for substituted service on Mr Wang. 4 Mr Wang did not appear at the hearing of the application. 5 For the reasons that follow, I have made orders for the issue of a warrant for the arrest of Mr Wang.

Legal requirements 6 Rule 11.10 of the FCC Rules provides as follows: (1) This rule applies if a person is summoned or ordered by the Court to attend for examination, and: (a) without reasonable cause, the person: (i) fails to attend at the time and place appointed; or …; or (b) before the day fixed for the examination, the person who applied for the summons or order satisfies the Court that there is reason to believe that the person summoned or ordered to attend for examination has absconded or is about to abscond. (2) The Court may: (a) issue a warrant for the arrest of the person summoned or ordered to attend for examination; and (b) make any other orders that the Court thinks just or necessary. 7 A summons for examination is defined in r 11.1 as a summons under s 596A or s 596B of the Act for the examination of a person about a corporation's examinable affairs. 8 It can be seen that the authority to issue a warrant pursuant to r 11.10 depends on proof of three matters: first, that a person has been summoned or ordered by the Court to attend for examination; second, that the person has failed to attend at the time or place appointed or has failed to attend from day to day until the conclusion of the examination; and third, that the person has failed to attend without reasonable cause: Ian Lawrence Struthers (in his capacity as liquidator) of PACI Pty Ltd [2005] NSWSC 864 (Struthers) at [34]; Goyal, in the matter of Biotech Energy Pty Ltd (Receivers and Managers appointed) [2023] FCA 653 (Goyal) at [34]. 9 In respect of the first requirement, a question arises whether the applicant must show that the summons has been served on the examinee. In Struthers, Brereton J (as his Honour then was) proceeded on the basis that the requirement that a person is summoned by the Court to attend for examination may implicitly require that the summons be conveyed to or served on the examinee (at [40]), but his Honour did not express a concluded view to that effect. In Mensink v Parbery (2018) 264 FCR 265 (Mensink), Wigney J concluded that it was not necessary to prove that the summons had been served on the examinee, stating (at [44]): Rule 11.10 does not expressly provide that it is necessary to prove that the summons order was served before a warrant can issue. Nor is that requirement necessarily implicit in the concept of a person "summoned or ordered by the Court to attend for examination". A summons can be issued, and a person can be ordered to attend for examination, without the summons or notice being served. The better view is that proof that the summons order was brought to the attention of the proposed examinee is relevant to the element relating to reasonable cause. A person who had not been served, or who had not had the summons or order brought to their attention, would no doubt most likely have a reasonable excuse for not attending. That, however, is a different issue. 10 In Mensink, Bromwich J (with whom Besanko J agreed) found that, at the least, the examinee (Mr Mensink) had constructive notice of the summons and that was sufficient for the purposes of the first requirement (at [175]-[176]). 11 In respect of the third requirement, a question arises whether the onus lies on the applicant (to negative reasonable cause) or the examinee (to establish reasonable cause). In Struthers, Brereton J, without deciding the question, proceeded on the basis that the applicant bore an onus, stating (at [44]): … I proceed on the basis that the liquidator bears the onus of negativing reasonable cause. However, since knowledge of the cause is in the possession almost exclusively of the Examinees, relatively slight evidence would be required to discharge that onus. 12 That passage was cited with approval in Mensink by Wigney J (at [58]) and Bromwich J (at [153] and [172], Besanko J agreeing). 13 In Nipps (Liquidator), in the matter of Ochre Group Holdings Limited (in liq) (No 3) [2023] FCA 1404, Jackson J observed that neither Struthers nor Mensink expressed any concluded view on the question (at [11]). His Honour concluded that the onus of establishing that there is reasonable cause lies on the prospective examinee, stating (at [14]): … The nature of the obligation for the enforcement of which the rule provides is clear enough; it is to obey the summons. If there is a reasonable cause for not obeying the summons, that is in the nature of an excuse or justification; it is not part of the total statement of the obligation. If there is a reasonable cause, it will appear from new or additional facts, and those facts are likely to be uniquely within the knowledge of the examinee and, in the circumstances for which the rule provides, difficult or impossible for the applicant for the warrant to prove. It is unlikely that the benefit of the rule is intended to be confined to cases, like Re Struthers and like Mensink v Parbery, where the examinee makes some contact with the liquidator about the warrant, whether directly or through solicitors, so that inferences about the cause of his or her non-attendance are more readily reached. 14 If the three conditions for the issue of a warrant are satisfied, the Court has a discretion whether to make the order. In Struthers, Brereton J stated (at [45]) that considerations relevant to the exercise of the discretion include: (a) the prima facie entitlement of a person who has procured the issue of a subpoena or examination summons which has not been set aside to have it complied with and, if not, enforced; (b) the importance of securing compliance with orders of the Court intended to enable to relevant evidence or information to be obtained in the interests of justice; (c) the reasonableness of steps already taken to obtain the cooperative attendance of the examinee or witness and the possibility of securing attendance by less extreme means; and (d) whether the burden imposed by the subpoena or summons is prima facie oppressive.

Relevant facts 15 The evidence establishes the following facts. 16 The Company was incorporated on 26 November 2010. It conducted a business of growing and harvesting mushrooms from a purpose-built mushroom farming facility in Parwan, Victoria. 17 Mr Wang was appointed a director of the Company on 10 August 2022, although the evidence shows that he was involved in the operations of the Company prior to that date. Mr Wang remains a director of the Company. 18 On 15 November 2022, the liquidators were appointed as the joint and several administrators of the Company pursuant to s 436A of the Act. At the second meeting of creditors held on 20 December 2022, the Company was placed into liquidation following the passing of a resolution for its voluntary winding up. 19 On 27 February 2023, the liquidators sent a letter of demand to Mr Wang's then solicitors, Scanlan Carroll, raising claims of insolvent trading and making a demand for payment of $1,789,521. 20 On 24 April 2023, Scanlan Carroll replied to the liquidators on behalf of Mr Wang. 21 On 11 July 2024, the liquidators applied by interlocutory process for the issue of a summons to Mr Wang under s 596A of the Act for examination about the examinable affairs of the Company. 22 On 22 July 2024, Luxton JR made orders for the issue of the summons to Mr Wang, returnable on 13 August 2024, with the first return to be conducted by way of a virtual hearing. 23 On 22 July 2024, the liquidators attempted to serve the summons on Mr Wang via Scanlan Carroll. On 26 July 2024, Scanlan Carroll informed the liquidators that they had ceased acting for Mr Wang in March 2024, they did not have instructions to act for him with respect to the summons, and they had had difficulty contacting him since March 2024. 24 At the return of the summons on 13 August 2024, there was no appearance by Mr Wang. The liquidators adduced evidence of their attempts to serve the summons on Mr Wang and applied for orders for deemed service under r 10.23 of the Federal Court Rules 2011 (Cth) (FC Rules) or alternatively substituted service under r 10.24. Relevantly, by an affidavit sworn 12 August 2024, Ms Kerhoulas adduced evidence that: (a) Mr Wang had previously used an email address John_1219@hotmail.com when communicating with a former director of the Company. (b) ASIC records showed that Mr Wang was a director and secretary of We Farm Tasmania Pty Ltd. That company maintained a website that disclosed an email address of accounts@wefarms.com.au. (c) Ms Kerhoulas had sent court documents by email to Mr Wang at those addresses and received a delivery confirmation through Microsoft Outlook. 25 On 13 August 2024, Luxton JR made orders adjourning the return of the summons until 2 September 2024 and made the following orders for substituted service: 6. Personal service of the summons addressed to Mr Wang is dispensed with. 7. The plaintiffs serve the summons addressed to Mr Wang, together with a sealed copy of this order, on him by: (1) sending the documents by Express Post to Mr Wang at 371 Nierinna Road, Margate, Tasmania 7054; (2) sending the documents by Express Post to Mr Wang C/- We Farm Tasmania Pty Ltd, 14 Penola Drive, Leslie Vale, Tasmania 7054; and (3) emailing the documents to John_1219@hotmail.com and to accounts@wefarms.com.au; by 14 August 2024. 8. If the plaintiffs comply with the preceding order, then the summons addressed to Mr Wang shall be taken to have been served on him on 16 August 2024. 26 On 13 August 2024, Ms Kerhoulas and Ms Gibo effected service of the summons on Mr Wang in compliance with the orders for substituted service. 27 In respect of service by email, Ms Kerhoulas received a notification in respect of the address John_1219@hotmail.com that the email had been delivered, but received a notification in respect of the address accounts@wefarms.com.au that the email could not be delivered. 28 In respect of the documents sent by express post to the Leslie Vale and Margate properties (as recorded in the 13 August 2024 orders of Luxton JR), Australia Post confirmed delivery to the Leslie Vale property but the delivery to the Margate property was awaiting collection. Ms Kerhoulas subsequently had contact with a real estate agent who confirmed that Mr Wang had sold both properties and that the agent had not had contact with Mr Wang since that time. The agent had the same email address for Mr Wang (John_1219@hotmail.com). The agent informed Ms Kerhoulas that Mr Wang owed him money in connection with the sale of the properties, but the agent believed that Mr Wang had travelled overseas. 29 At the return of the summons on 2 September 2024, there was no appearance by Mr Wang and Luxton JR made an order adjourning the return of the summons until 11 September 2024. 30 Ms Kerhoulas sent a copy of the orders made on 2 September 2024 to Mr Wang by email to the address John_1219@hotmail.com and received a notification confirming that the email had been delivered. 31 At the return of the summons on 11 September 2024, there was no appearance by Mr Wang. Luxton JR again made an order adjourning the return of the summons until 9.30 am on 25 October 2024 (with the hearing to be conducted in person) and also made the following orders: 3. The liquidators' oral application for the issue of a warrant for the arrest of Sha (John) Wang pursuant to r 11.10 of the Federal Court (Corporations) Rules 2000 is referred for hearing by a Judge. 4. The liquidators send a sealed copy of this order to Mr Wang at John_1219@hotmail.com forthwith. 32 Ms Celebic sent a copy of the orders made on 11 September 2024 (together with a copy of the summons dated 22 July 2024) to Mr Wang by email to the address John_1219@hotmail.com and received a notification confirming that the email had been delivered. 33 The liquidators have not been contacted by Mr Wang. 34 As noted above, the liquidators filed an interlocutory process seeking orders for the issue of a warrant for the arrest of Mr Wang to bring him before the Court to be examined under s 596A of the Act about the examinable affairs of the Company. I heard the application on 3 October 2024.

Consideration 35 Having regard to the facts set out above, I am satisfied that the requirements in r 11.10 of the FCC Rules for the issue of a warrant for the arrest of Mr Wang are satisfied. 36 First, Mr Wang has been summoned by the Court under s 596A of the Act to attend for examination about the examinable affairs of the Company. The evidence establishes that a summons was issued by the Court. The evidence also establishes that the summons was served on Mr Wang by email to an email address he has previously used. Notifications from that address show that emails continue to be delivered to it. I infer from the evidence that the summons has come to the attention of Mr Wang. 37 Second, Mr Wang failed to attend at the time and place specified in the summons for his examination. 38 Third, there is no evidence before the Court that Mr Wang failed to attend the examination with reasonable cause. If the onus lies on Mr Wang to show reasonable cause, he has failed to do so. If the onus lies on the liquidator to show that Mr Wang failed to attend without reasonable cause, I draw that inference from the evidence. Mr Wang is aware that the liquidators have alleged that he is liable for insolvent trading by the Company. Although previously represented by solicitors with respect to the affairs of the Company, Mr Wang has ceased their retainer and is no longer contactable by the solicitors. As noted above, I infer that Mr Wang has received the summons via an active email address. However, Mr Wang has chosen not to have any communication with the liquidators about the summons. The circumstances indicate that Mr Wang is avoiding making any response to the summons. 39 There are strong discretionary factors weighing in favour of the issue of the warrant. As observed by Halley J in Goyal at [45]: … The examination regime provided by Pt 5.9 of the Corporations Act is of fundamental importance. It allows external controllers to obtain information about the company to which they have been appointed. It is essential to the performance of their duties and enables them to obtain information that would not, otherwise, be available to them: see In the matter of Brentwood Village Limited [2015] NSWSC 1342 at [8] (Brereton J, as his Honour then was). 40 Furthermore, non-compliance with the Court's orders to attend an examination undermines the effective administration of justice: Goyal at [46]; see also Polis v Zombor (No 4) [2019] FCA 2101 at [26]. 41 In my view, there are no discretionary factors that weigh against the issue of the warrant. The burden imposed by the summons is not oppressive. The steps previously taken by the liquidator to obtain the cooperative attendance of Mr Wang at the examination were reasonable. Having regard to the facts set out earlier, I am satisfied that there is no possibility of securing Mr Wang's attendance at the examination by less extreme means. 42 For those reasons, I am satisfied that this is a case which justifies the issue of a warrant for the arrest of Mr Wang. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan.