Morton v Joynson [1999] FCA 530 | Case summary

REASONS FOR JUDGMENT 1 The respondent to this application, Robert William Morton, is the liquidator of Kennington Laundry and Drycleaners Pty Ltd ("Kennington"). On 16 October 1998 he commenced proceedings number VG 3350 of 1998. There are four respondents to those proceedings. They are the first and second respondents, George Henry Joynson and his sister, Mary Mosely, who were each directors of Kennington, and the third and fourth respondents, Mary Ann Vernon Joynson and William George Mosely, who are the spouses of the first and second respondents respectively. 2 In those proceedings the liquidator alleges that each of the four respondents named above contravened ss 232(2) and 232(4) and s 588G of the Corporations Law. Those provisions relate to the duties of officers of a corporation, and to the duties of directors to prevent insolvent trading. 3 In the course of carrying out the winding up of Kennington, the liquidator has, in proceedings number VG 3430 of 1998, summonsed each of the four respondents to be examined about the examinable affairs of Kennington. The summonses directed to the first and second respondents were issued pursuant to s 596A of the Corporations Law. There is no challenge by those respondents to those summonses. The summonses directed to the third and fourth respondents were issued pursuant to s 596B of the Corporations Law. The third and fourth respondents seek to have those summonses set aside. 4 Section 596B of the Corporations Law provides as follows: "(1) The Court may summon a person for examination about a corporation's examinable affairs if: (a) an eligible applicant applies for the summons; and (b) the Court is satisfied that the person: (i) has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation ; or (ii) may be able to give information about examinable affairs of the corporation. (2) This section has effect subject to section 596A." 5 Section 596B provides for what is described in the heading to that section as "Discretionary Examination". It may be contrasted with s 596A which provides for what is described as "Mandatory Examination". Section 596A may only be invoked if the Court is satisfied that the person to be summonsed is, or was, "an examinable officer" of the corporation whereas s 596B applies to the wider class of persons who have taken part or been concerned in the examinable affairs of the corporation and have been, or may have been, guilty of misconduct in relation to it, or who may be able to give information about its examinable affairs. 6 The summonses directed to the third and fourth respondents are relevantly indistinguishable. They require those respondents to attend before the Court to be examined: "… on any matters relating to the promotion, formation, management, administration or winding up of Kennington Laundry and Drycleaners Pty Ltd … and to produce any books in your possession or under your control relevant to those matters." 7 A schedule is attached to each of the summonses. In that schedule there are set out the various documents which the respondents are required to produce at the examination. Each schedule takes the same form: "SCHEDULE The Books in your Possession or Under Your Control That You Are Required to Produce: 1 Correspondence between you and any of the other respondents during the period 1 January 1992 to August 1998 relating to the promotion, formation, management, administration or winding‑up of Kennington Laundry and Drycleaners Pty Ltd ACN 005 391 417. 2 Correspondence between you and any bank, financial advisor or accountant, or any of you, during the period 1 January 1992 to August 1998, relating to the promotion, formation, management, administration or winding‑up of Kennington Laundry and Drycleaners Pty Ltd ACN 005 391 417. 3 Any board papers provided to you as a director of Kennington Laundry and Drycleaners Pty Ltd ACN 005 391 417 during the period 1 January 1992 to August 1998. 4 The income tax returns and assessments of Kennington Laundry and Drycleaners Pty Ltd ACN 005 391 417 for the years 1994/5, 1995/6, 1996/7 and 1997/8. 5 Your income tax returns and assessments for the years 1994/5, 1995/6, 1996/7 and 1997/8. 6 Correspondence between you and any bank or financial institution during the period 1 January 1992 to August 1998 relating to any loan sought by you on behalf of or granted to Kennington Laundry and Drycleaners Pty Ltd ACN 005 391 417. 7 All statements of your assets and liabilities and your income and expenditure prepared during the period 1 January 1992 to December 1998. 8 All documents showing title to assets which you consider have a market value of at least $3,000. 9 All documents stating the amount owing under any mortgage or other encumbrance of assets owned by you from 1 January 1992 to December 1998. 10 Any directors and officers liability insurance or professional indemnity insurance policies held by you in relation to Kennington Laundry and Drycleaners Pty Ltd. 11 All documents pertaining to the transfer or assignment of any asset (whether held by you prior to the transfer alone or jointly with any other person or persons) out of your name in the period 1 January 1997 to the present." 8 The third and fourth respondents have, in proceedings number VG 3430 of 1998, brought before the Court a notice of motion seeking orders that: "1. The summons to attend examination under s.596B of the Corporations Law addressed to the [third and fourth] respondent be discharged. 2. Alternatively the summons to attend examination under s.596B of the Corporations Law addressed to the [third and fourth] respondent be discharged or varied as to the requirement that the [third and fourth] respondent produce any book of the descriptions referred to in paragraphs 5, 7, 8, 9 and 11 of the schedule to the said summons." 9 Mr Randall, who appeared for the third and fourth respondents (the applicants on the notice of motion), raised a number of matters which, he contended, made it oppressive and unfair for those respondents to be required to attend for examination and, in particular, to produce the books identified in paragraphs 5, 7, 8, 9 and 11 of the schedule. 10 In substance, his contentions were as follows: · The proceedings brought by the liquidator against the third and fourth respondents are civil in nature, but involve allegations which, if proved, might expose those respondents to prosecution for offences under the Corporations Law. In the ordinary course, the Court would not be likely to require those respondents to provide statements in advance of the final hearing of the proceedings, and would not require them to answer interrogatories if leave to administer interrogatories were granted. Nor would the Court require these respondents to produce on discovery any documents which might tend to incriminate them. The liquidator ought not, by causing these respondents to be examined pursuant to s 596B of the Corporations Law, be permitted to obtain in the civil proceedings brought by him a forensic advantage to which he would not ordinarily be entitled. · It would be oppressive and unfair to the third and fourth respondents to require them to be examined because the privilege against self-incrimination is abrogated in relation to any such examination - see s 597(12) of the Corporations Law. Moreover, the compensating "use immunity" granted by the legislature pursuant to s 597(12A) which is available in criminal proceedings or proceedings for the imposition of a penalty, is of no avail to these respondents in relation to the civil proceedings brought against them. Any answers given by them during their course of the examination would be admissible against them in those civil proceedings. Equally, any answers given by them during the course of that examination could be used on behalf of the liquidator in cross-examination during the course of those civil proceedings. The liquidator should not be entitled to conduct a trial run of their cross-examination prior to the hearing of those civil proceedings. · The liquidator had caused the summonses to issue against the third and fourth respondents for an ulterior purpose - namely to gain a forensic advantage to which he was not entitled. · In the alternative, the documents sought pursuant to paras 5, 7, 8, 9 and 11 of the schedule to the summonses should not be required to be produced because those documents were not relevant to the examinable affairs of Kennington. They related solely to the ability of the third and fourth respondents to meet any amount of damages which they might be required to pay arising out of the civil proceedings brought against them. 11 Mr Randall relied primarily upon certain observations of Nicholson J in Re Rothwells Ltd (No 2) (1989) 7 ACLC 576. There provisional liquidators appointed to Rothwells Ltd had obtained orders ex parte from the Supreme Court of Western Australia directing an examination under s 541 of the Companies (Western Australia) Code of "the Secretary or other Proper Officer" of the National Australia Bank. The Bank had received a payment of $150 million two weeks before the appointment of the provisional liquidators. It appeared to the provisional liquidators that the payment might be void on the ground that it constituted a preference. 12 The Bank's position was that it had received the payment in the ordinary course of business. The Bank and its officers sought to set aside the orders directing the examination. They contended that those orders were oppressive and unfair, and that they involved an abuse of process. Nicholson J stated at 587: "It is not contended on behalf of the applicants that merely because an action is on foot or contemplated, orders should not be made under sec. 541. Rather it is contended that the authorities establish that the power of examination in that section must be exercised in aid of a just and beneficial winding up of a company and not so as to submit the examinee to the risk of being harassed by a rehearsal of cross-examination which might be directed against him in proceedings: Re Hugh J. Roberts Pty. Ltd. (in liq.) (1970) 2 N.S.W.R. 582 at p. 583. In particular it is said the courts will refuse to allow the section to be used, not as a means of assisting the liquidator in his general duties as liquidator, but merely as a means of improving his position as a litigant in subsisting litigation against the examinee or a company of which the examinee is an officer …Were it to be so used it is submitted it would be oppressive, unfair or an abuse of process. On behalf of the applicants it is submitted that what this Court must primarily consider in order to ascertain whether the section is being used in the proscribed manner is the question of purpose, as described by Megarry J. in Spiraflite (supra) [Re Spiraflite Ltd [1979] 1 WLR 1096] at p.1100 as follows: "However, in any case, I think the real question is one of purpose rather than degree of imminence. What primarily must be considered is why the liquidator is seeking the order. The essence of the matter is that the powers conferred by the section are given to the court in order to enable the liquidator the better to discharge his functions as such: they are not given in order to enable a litigant to improve his prospects of litigious success by giving him rights which other litigants lack, even if he is a liquidator. In all normal circumstances, to give such rights to a litigant as such is to misuse the section. What may properly be given to a liquidator qua liquidator will not be given to a liquidator-litigant qua litigant."" 13 Nicholson J then summarised the relevant principles, noting: "1. The discretion to grant the order for examination is one to be exercised in favour of the grant where the circumstances render it just and beneficial for the purposes of the winding up to make available this opportunity for compulsory examination … 2. The essence of the test as to whether the grant will be so just and beneficial: "is whether the examination is genuinely for the information of the liquidator to aid him in considering whether there is a cause of action upon which he will proceed; and the Court will be alive to the possibility of oppression where the application is merely to advance the action, whether actual or proposed." … 3. The discretion may be exercised whether the liquidator seeks information in connection with proceedings he believes he might be able to bring, proceedings he contemplates bringing, proceedings he has decided to bring and proceedings he has already brought … Australian authorities have recognised that they do not follow those present English authorities ... which hold that if the evidence shows the liquidator has already commenced litigation or has definitely decided to commence it, the predisposition of the court will be to refuse an immediate order for examination unless the liquidator can show special grounds to the contrary; so that the general rule is that a liquidator may not examine if he has made a firm decision to commence proceedings … On the Australian authorities the relevance of the commencement of litigation or a decision to embark upon it is that it requires the court to approach the assessment of the liquidator's purpose with greater caution. 4. The court will give weight to the liquidator's opinion expressing the purpose which he sees being served by the examination … 5. Relevant to the exercise of the discretion is the relationship between the examinees or proposed examinees and the company the liquidation of which is in issue. … 6. The section will be misused where examination is sought: (a) to surmount a failure by the liquidator as litigant; for example, as a means to overcome refusal to answer interrogatories or refusal of leave to administer interrogatories …. (b) to examine prospective or existing defendants' probable witnesses simply for the purpose of destroying their credibility, although very often the gathering of information may quite properly involve testing the reliability or credit of the examinee from whom the information is being obtained …The basic rule is that the liquidator is not entitled to have a dress rehearsal of the cross-examination in the action … 7. The section will not be misused where examination leads to: (a) questions of a fishing nature … (b) a liquidator obtaining admissions or material that are available for him to use in evidence in current proceedings … The section gives to a liquidator in the interest of creditors an advantage denied to the ordinary litigant; the activities of the liquidator qua litigant are naturally and unavoidably the proper activities of the liquidator qua liquidator … 8. The oppression or unfairness may appear at the time the application is first made for the exercise of the discretion or at any subsequent point of time … It follows that even if the discretion is exercised in favour of an examination taking place the examining judge or master may hear objections to any particular questions (and if an examinee is unrepresented may intervene) where the examination departs into a field which is abusive of the process of the court …." 14 Mr Randall submits that the tenor of this reasoning should lead to the summonses brought against the third and fourth respondents being set aside. He submits that the liquidator seeks to use the examination as a means to overcome what would plainly be a justifiable refusal to answer interrogatories if, hypothetically, leave were given for such interrogatories to be administered. He also submits that the liquidator seeks to have a "dress rehearsal" of the cross-examination of the third and fourth respondents in the principal action. 15 Mr Randall also referred to Re GPI Leisure Corporation Ltd (1994) 12 ACLC 815 per McLelland CJ in Eq. There the liquidator of a company claimed that members of a firm of solicitors were liable to the company in respect of alleged breaches of duty. On the application of the liquidator, the Court ordered a partner in the firm to be examined about the affairs of the company under ss 596A and 596B of the Corporations Law, and also ordered the partner to produce certain documents. Those documents related to the professional indemnity insurance held by the firm. The partner sought to have set aside those parts of the order for production on the grounds that the documents required to be produced went beyond matters relating to the examinable affairs of the company. 16 It should be noted that the documents required to be produced included all policies of insurance indemnifying the partners of the firm, and all documents including, but not limited to, correspondence, filenotes, internal memoranda, memoranda and agreements relating to, arising from, or made pursuant to any such policies of insurance. It should also be noted that no objection was taken to production of the policies of insurance indemnifying the partners of the firm. The challenge was, rather, to the wider class of documents relating to those policies. 17 McLelland CJ in Eq concluded that the description of the documents in this wider class would include a number having not the slightest connection with the existence or enforceability of any claim by the company against the members of the firm, or with the availability of insurance indemnity in respect thereof. His Honour stated at 817: "It is one thing to permit the liquidator to use the process of the Court to compel persons alleged to be liable to GPIL to answer questions about the existence of insurance policies which may be available to indemnify such persons in respect of any such liability, and to compel the production of such policies and ancillary documents such as renewal certificates … It is quite another, to permit the liquidator to use such process to compel answers to questions, and to compel the production of documents, in order to conduct an investigation into other matters such as, for example, (a) the merits of any dispute between the insured and the insurer as to whether a policy has been avoided for non-disclosure, or whether conditions of indemnity in the policy have been fulfilled … or (b) confidential disclosures by the insured to the insurer made in order to protect the insured's right to indemnity under a policy (which may not be protected by legal professional privilege …). In this context it is important to bear in mind the distinction made by the members of the Full Court of the Federal Court in Grosvenor Hill [Grosvenor Hill (Queensland) Pty Ltd v Barber & Anor (1994) 48 FCR 301] between the extent of the power of the Court to compel submission to examination and production of documents on the one hand, and the way in which in particular circumstances that power should properly be exercised, on the other. Their Honours said (at ACLC 184; ACSR 656): "We stress that it is important to bear clearly in mind the difference between the ambit of the power and the circumstances in which the power will be exercised. The Court retains a discretion in appropriate cases to refuse to exercise the power or to make its exercise subject to stringent conditions. It is impossible in advance to lay down all of the relevant circumstances which will affect the exercise of a discretion to exercise the power or to subject it to limitations or conditions. Some of the relevant circumstances are set forth in the judgment of Nicholson J. in Re Rothwells Ltd. (No 2) (1989) 7 ACLC 576 at 587-589. However, in the final analysis, it must be left to the Court in any particular instance, guided by the evident statutory purpose of the section, to determine whether or not the information is relevant to the liquidator for the purpose of performing his statutory duty and whether and in what manner any proposed examinee needs to be safeguarded beyond the ordinary safeguards of court control of the examination process from any oppressive exercise of the power."" 18 McLelland CJ in Eq went on to find that, in the circumstances, the use of the Court's process in aid of investigations of the kind described above would be oppressive even if those examinations were held in private. 19 Mr Randall submitted that the requirement that the third and fourth respondents produce the documents identified in paras 5, 7, 8, 9 and 11 of the schedule to the summonses was similarly oppressive and, particularly in the context of a discretionary examination conducted pursuant to s 596B, should be set aside. 20 Mr McLean, for the liquidator, relied upon the decision of the Full Court of the Federal Court in Grosvenor Hill (Queensland) Pty Ltd v Barber & Anor (1994) 48 FCR 301. In that case the appellant appealed against an order that it produce documents at an examination relating to the affairs of a company in liquidation and, particularly, that it produce specified insurance policies and related documents. The appellant contended that the Corporations Law should not be construed as overriding the ordinary forensic rule disentitling a litigant to inspect an opponent's insurance policies. 21 The Full Court, in dismissing the appeal, and upholding the order for production, held that the primary judge's conclusion that the existence and terms of insurance cover were "relevant" to the affairs of the company had been open to him. The Court noted that the definition of "examinable affairs" in s 9 of the Corporations Law included any affairs of the corporation which might be included in the corporation's affairs because of the operation of s 53. This included the property of the corporation (s 53(a)). This property would, in turn, include any cause of action vested in the corporation by reason of any breach of duty which it might be owed. 22 The Full Court observed at 305-306: "In accordance with the settled course of authority …information with respect to the probability or otherwise of success in litigation contemplated by the corporation would be information with respect to the "examinable affairs" of the corporation in question. This information would be "relevant", that is to say, it would bear upon or be connected with, the question whether the corporation possessed a cause of action, that is, a chose in action, as its property. It is not, and could not be, seriously disputed that an inquiry as to the existence, and value, of any property that the corporation may possess would be a "relevant" inquiry for the purposes of s 597(9). A liquidator, when engaged in litigation on behalf of a company which is being wound up, or when contemplating instituting such litigation, is not in the same position as an ordinary litigant. The liquidator comes to the company as an officer of the court under a duty and responsibility to get in and maximise the assets of the company for distribution for the benefit of creditors. In the discharge of his or her duty and function, the liquidator comes to the company with limited or no knowledge of the company's assets, business and affairs. The liquidator is therefore in a position of disadvantage to make informed decisions of both a legal and a commercial nature necessary to carry out the winding up. The legislature has recognised this position of disadvantage and addressed the problem by the enacting of s 596B of the Law and its predecessors. The effect of the legislation is to place a liquidator in a privileged position to obtain information relevant to and necessary for the proper discharge of his or her statutory function. … The courts have recognised since the introduction of statutory powers similar to that provided for in s 596B of the Law that the exercise of the power can involve tension between two important public interests. The first is the public interest in a liquidator obtaining necessary information to properly discharge the function of liquidator in the winding up of the company for the benefit of the creditors. The second is the right of the individual to privacy in regard to his or her affairs, documents and papers." 23 The Full Court continued at 306-307: "The necessity to obtain relevant information in relation to litigation by or against a company being wound up is but one instance of the broad general purpose identified in the decisions cited above and numerous other decisions to like effect. Clearly, one purpose of an examination in relation to pending or contemplated litigation is to determine whether or not there is evidence available to support a claim brought by the company to recover property or damages, or conversely to defend a claim brought against the company, and the strength of that evidence. That such is a purpose falling within the power contained in s 596B of the Law was not challenged by Grosvenor; the whole weight of authority is against such a challenge in any event. The question is whether the Court is limited by the section to ordering an examination the purpose of which is to go no wider than to determine whether or not there are reasonable grounds, including evidence, to litigate a case to a successful judgment, or whether, the Court has power to order an examination, the purpose of which is to ascertain the likelihood of any judgment being satisfied; that is, whether it is a permitted purpose to inquire as to the worth of a potential defendant so as to be able to make a practical assessment as to the likelihood of a return to the company of the fruits of any favourable judgment and the necessary legal costs expended in obtaining it. Is the Court empowered under the section to order an examination or the production of documents to test the likelihood of the creditors in the winding up receiving a tangible benefit from the satisfaction of any judgment obtained and to enable the liquidator to determine whether it is prudent to commence or maintain litigation with knowledge as to the real likelihood of obtaining any tangible benefit beyond a mere judgment, including a judgment for costs, at the conclusion of the litigation? In our view, the Court has such a broad power. Additionally, it is a power of long standing." 24 After turning to the authorities, and in particular to those which dealt in an historical context with the power to order an examination under s 115 of the Companies Act 1862 (UK), the Full Court continued at 308-309: "Importantly for the present appeal, the language of s 596B of the Law, having regard to the definition of "examinable affairs" in s 9 of the Law, has a broader operation than s 115 of the Companies Act 1862 and the later Australian versions of it. The fact that the examination of a person under s 596B of the Law is not a proceeding inter partes is a circumstance in favour of a broad and generous construction to the section having regard to its statutory purpose, subject to the power of the Court not to allow the provision to be used oppressively to the private interests of the examinee." 25 The Full Court concluded at 311-312: "Senior counsel on behalf of Grosvenor submitted that to adopt a construction which would permit the making of an order for production of the policy of professional indemnity insurance would open the floodgates to permit the examination of all persons against whom the company in liquidation had a personal claim as to their personal financial details, on the basis of ascertaining the proposed examinee's ability to satisfy any judgment obtained against him or her. In our view, the ambit of the power is sufficiently wide to enable information to be sought from a defendant or potential defendant as to the ability of that person to satisfy any reasonable judgment which may be obtained in litigation instituted by the liquidator. In that context it is within power to order production of relevant documents, including insurance policies, to ascertain whether or not the person has an enforceable right to indemnity from an insurer or other person. The obtaining of such information by the liquidator in the course of the winding up is to facilitate the realisation of the chose in action to the best advantage of the company and its creditors. Realisation of the chose in action is an "examinable affair" within the meaning of ss 596B(1)(6)(ii) and 9 of the Law. … We stress that it is important to bear clearly in mind the difference between the ambit of the power and the circumstances in which the power will be exercised. The Court retains a discretion in appropriate cases to refuse to exercise the power or to make its exercise subject to stringent conditions. It is impossible in advance to lay down all of the relevant circumstances which will affect the exercise of a discretion to exercise the power or to subject it to limitations or conditions. Some of the relevant circumstances are set forth in the judgment of Nicholson J in Re Rothwells Ltd (No 2) (1989) 7 ACLC 576 at 587-589. However, in the final analysis, it must be left to the Court in any particular instance, guided by the evident statutory purpose of the section, to determine whether or not the information is relevant to the liquidator for the purpose of performing his statutory duty and whether and in what manner any proposed examinee needs to be safeguarded beyond the ordinary safeguards of court control of the examination process from any oppressive exercise of the power." 26 Mr McLean submitted that, to the extent that there was any difference in principle between the approach adopted by Nicholson J in Re Rothwells (supra) and the approach adopted by the Full Court of the Federal Court in Grosvenor Hill (supra), I was bound to follow the law as stated in Grosvenor Hill. 27 He submitted further that it was in no way oppressive to require the third and fourth respondents to attend an examination concerning their involvement in the affairs of the company. Each of these respondents had filed affidavits in which they addressed in detail their role in Kennington. They had denied, in terms, having acted as "officers" of that company within the extended definition of that term in s 232(1) of the Corporations Law, as qualified by the similarly extended definition of the term "director" found in ss 9 and 60 thereof. The third respondent had sworn an affidavit in the present proceeding in support of the notice of motion in which she deposed to having been nothing more than a cleaner employed by the company. The fourth respondent had deposed to having been merely the manager of one of the company's outlets. Having chosen to swear affidavits in that form in circumstances where no protection was afforded to them in terms of the subsequent use of those affidavits, the respondents were hardly likely to be in a position to decline to answer questions directed to these matters in their examination, even though their answers were not protected by any "use immunity". 28 More fundamentally, Mr McLean submitted that the fact the liquidator might secure a forensic advantage by examining the third and fourth respondents did not render any such examination relevantly oppressive, or an abuse of process. An advantage of that type was recognised by the Full Court in Grosvenor Hill as being within the purview of the statute. He submitted that it was of overriding importance that the liquidator be permitted to carry out his statutory responsibilities as an officer of the court. The legislature had afforded significant protection to examinees by preventing their answers from being used against them in subsequent criminal proceedings provided, of course, that they signified their intention to claim the privilege against self-incrimination before answering. The legislature had not thought it appropriate to extend this protection to encompass "use immunity" in relation to subsequent civil proceedings. This had plainly been an act of deliberate choice. The policy underlying that choice should not be undermined by the Court. 29 Mr McLean submitted that there was no evidence to support the contention that the liquidator had acted with an ulterior purpose in seeking to have the third and fourth respondents examined. 30 Moreover, the liquidator was entitled to enquire into the assets of those respondents with a view to ascertaining whether it was viable to continue the proceedings which he had brought against them. It was plainly reasonable for the liquidator to require the production of income tax returns for the relevant years, and of documents disclosing assets of significant value. 31 Mr McLean referred to an affidavit of the liquidator sworn on 29 March 1999 in which the liquidator deposed to having been present on 18 March 1999 when George Henry Joynson, the first respondent, was examined pursuant to s 596A of the Corporations Law. The liquidator deposed that during Mr Joynson's examination he had stated that William George Mosely, the fourth respondent, had been paid $40,000.00 by the company in reduction of a debt of $70,000.00 then allegedly owed by the company to Mr Mosely. The liquidator stated that he considered that repayment to be a voidable transaction pursuant to s 588FE(4) of the Corporations Law. He indicated that he wished to examine Mr Mosely about that transaction. 32 The liquidator also deposed that Mr Joynson had stated during the course of his examination that he believed that the remainder of the debt owed by the company to Mr Mosely, namely $30,000.00, had been discharged on behalf of the company by a company controlled by Mr Joynson's children. Notwithstanding that alleged payment, the report as to the company's affairs provided to the liquidator by Mr Joynson stated that, as at the date of the winding up of the company, Mr Mosely was owed $30,000.00 by it. The liquidator wished to examine Mr Mosely about that matter as well. 33 Finally, the liquidator deposed that in the course of his examination Mr Joynson had stated that his wife, Mary Ann Vernon Joynson, the third respondent, had handled the accounts of the company, that she was responsible for drawing up cheques to pay the company's creditors, and that she was present at a meeting on 28 March 1995 at which the issue of the sale of the company's business was discussed. The liquidator deposed that he wished to examine the third respondent about these and other matters relating to the financial management and operation of the company. 34 Mr Morton's affidavit was received, not as evidence of the truth of its contents, but to rebut the suggestion that he had acted with ulterior purpose. It is plainly relevant as tending to negate that suggestion. 35 In his earlier affidavit of 22 December 1998, the liquidator had referred to a transaction in which Mrs Mosely had, on 19 October 1998, transferred her interest in a particular property to her husband and their daughter, and to another transaction whereby on or about 12 August 1998 (the day Kennington was wound up) Mrs Mosely and her husband had transferred two other properties to the trustee of their family trust. 36 The liquidator stated that it appeared to him that the third and fourth respondents were attempting to reorganise their affairs so as to dispose of or deal with their assets which would otherwise be available to him and to Kennington as judgment creditors, should Kennington be successful in proceedings number VG 3350 of 1998. It was those transfers of assets which were said to justify the inclusion of paragraph 11 in the schedule to the summonses. 37 Mr McLean submitted that the liquidator was entitled to investigate whether these were bona fide transfers given for valuable consideration. If they were, they would not be subject to attack in the event that these respondents were eventually made bankrupt. If they were not, these transfers might be set aside and the properties in question would form part of the bankrupt estate of each respondent. That was a matter of relevance to the liquidator in the performance of his statutory duties.

Conclusion 38 In my opinion, the orders sought by the third and fourth respondents in the notice of motion brought by them should be refused. I see nothing oppressive or unfair in requiring Mrs Joynson and Mr Mosely to be examined about Kennington's examinable affairs having regard to the evidence before me concerning their involvement with that company. The liquidator is not obliged to accept at face value their denials of having been, in any way, involved in the management of the company. The fact that they are each married to persons who were directors of Kennington, that they were employed by that company throughout the period immediately preceding its collapse, and that there is some basis for believing that they were involved in various management activities, is sufficient to justify the liquidator in probing further into the question whether they were, relevantly (in the extended sense), its officers or directors. 39 The liquidator has formed the view that Kennington was insolvent long before it ceased trading. That may, or may not, be correct. However, provided that he has acted bona fide in arriving at that conclusion, he is entitled to explore the possibility of recouping from the third and fourth respondents monies which may improperly have been paid out, whether by way of preference, or otherwise. 40 The liquidator is also entitled to explore the asset position of each of the third and fourth respondents with a view to determining whether it is worthwhile continuing the proceedings already instituted against them. 41 I see nothing oppressive or unfair in requiring the third and fourth respondents to answer questions along the lines of those foreshadowed in the summonses. There is certainly nothing which would, at this stage, justify setting aside in their entirety those summonses. If during the course of the examinations questions are asked to which legitimate objection can be taken, on the basis that they fall outside the permissible reach of s 596B of the Corporations Law, rulings may be sought in relation to those particular questions. Any such rulings may, of course, be challenged. 42 The third and fourth respondents are given the protection of s 597(12A) of the Corporations Law. If they invoke the privilege against self-incrimination in relation to any particular question, the answer given may not be used against them in any subsequent criminal proceedings, or in any subsequent proceedings for the imposition of a penalty. That is the full measure of protection to which they are by law entitled. It is also the full measure of protection which, in my view, is warranted in the present circumstances. 43 It follows that the notice of motion brought by the third and fourth respondents should be dismissed. The third and fourth respondents should pay the liquidator's costs of and incidental to that notice of motion. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg.

Morton v Joynson

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