2717/02 - NATIONAL AUSTRALIA BANK LTD v ANDREW HUGH JENNER WILY, THE CRESCENT MEDICAL CENTRE PTY LTD (IN LIQ), FAIRFIELD MEDICAL ARCADE PTY LTD (IN LIQ), COASTLINE MEDICAL PTY LTD (IN LIQ), FAIRFIELD ALTERNATIVE MEDICINE PTY LTD (IN LIQ) and RAPID DETOX CENTRE AUSTRALASIA PTY LTD (IN LIQ)
JUDGMENT
1 BURCHETT AJ: By its amended originating process, National Australia Bank Limited applies under s 503 of the Corporations Act 2001 (which provides: "The Court may, on cause shown, remove a liquidator and appoint another liquidator") for an order removing the liquidator of each of the abovementioned companies in liquidation "for cause being lack of independence (actual and perceived), misconduct (actual and perceived), partiality in performance of duties and failure to act in the best interests of all creditors". Orders are also sought setting aside proceedings initiated by the liquidator for the examination of certain persons who acted for the Bank in relation to the companies, or in receiverships put in place by the Bank in respect of them.
2 Apart from a number of defaults, or alleged defaults, none of which in itself would lead me to make an order of the kind sought, the Bank's case rests on the real and perceived consequences of the liquidator's retainer of the firm of solicitors Morgan Lewis Alter, and in particular a member of that firm Mr P M Fordyce, to advise and act in relation to the proposed examinations and summonses for the production of documents. The engagement of Mr Fordyce is claimed to have tainted the liquidator and compromised his independence irremediably because Mr Fordyce had acted, and continued to act, for Mr Jack Roberts and Miss Karan Roberts, the directors of the companies prior to their liquidation, in proceedings brought by the Bank against them.
3 Over the period from late 1997 to early 1999, three of the companies had given registered deeds of charge to secure indebtedness to the Bank. Two of the companies also encumbered land in favour of the Bank, and on a number of occasions lease finance transactions were entered into involving the Bank and companies in what might be called "the Roberts Group". On 1 June 2000, receivers and managers (Messrs Lombe and Campbell, members of the accountancy firm Deloitte Touche Tohmatsu) were appointed by the Bank in respect of the businesses of three of the companies in the Roberts Group and in respect of the land. On 6 February 2001, the Bank commenced proceedings in the Supreme Court in the Commercial List against (inter alios) Mr and Miss Roberts, in which some millions of dollars were claimed under guarantees relating to the companies and in which various claims were made against them and others alleging fraud and other causes of action in respect of leasing transactions related to the companies. An appearance for Mr and Miss Roberts was filed by Mr Fordyce. On 12 February 2001, the companies went into voluntary administration, Mr M Holzman being the administrator, and on 9 March 2001 they went into voluntary liquidation, Mr Holzman being the liquidator.
4 It is not suggested that any further crucial event occurred in the liquidations during the year 2001, except that an attempt was made, and later abandoned, by Mr and Miss Roberts to bring proceedings in the names of the companies against the Bank, they having previously filed a cross-claim in their own names which had been struck out. Mr Fordyce was acting for them in these proceedings, which were both of an interlocutory nature. Mr Holzman did not give evidence before me, but it is clear from the material that was in evidence that the carrying out of any vigorous investigations in respect of these companies was hampered by lack of funds and, at least for some period, by the continuance of the receiverships.
5 By January 2002, it appears, a majority of unsecured creditors of the companies desired to see funding arranged to enable examinations to be conducted, but litigation funding was not available to Mr Holzman. Meetings were called for 16 January 2002, at which Mr Holzman resigned. Shortly prior to these meetings, the first defendant, Mr Wily, who is an experienced liquidator, was approached by Morgan Lewis Alter to ascertain whether he would be willing to accept appointment as liquidator in the place of Mr Holzman. There was no conflict of interest or other impediment, and accordingly Mr Wily accepted. He was actually in attendance at the meetings, together with his assistant Mr Blythe, who is a chartered accountant. The minutes of the meetings, signed by Mr Holzman as chairman, record that he was asked by Mr Hatter representing the Bank why he intended to resign and replied, in respect of each company, that it "did not have any funds to facilitate further enquiries and possible litigation, and that the director of the company had procured litigation funding, and had advised that a condition of the provision of litigation funding was that Mr Holzman resign as liquidator and that Mr Andrew Wily be appointed in his place". Each of the minutes records the acceptance of Mr Holzman's resignation and the appointment of Mr Wily in his place, and that a resolution was carried that the liquidator may "enter into a funding facility to undertake examinations and actions arising directly or indirectly from the administration/liquidation, whether arising in contract, tort, statute, under the common law or howsoever". There was also carried a resolution which had not been notified before the meeting or included in the agenda. This was that the "creditors support the liquidator of this company undertaking examinations of officers of the National Australia Bank, Deloitte Touche Tohmatsu and other relevant parties to determine if there are causes of action available to the company against those parties". It is recorded that Mr Hatter "strongly objected to this motion", advising that the Bank had "substantial claims against the company and it's [sic] director, and that action had already commenced against guarantors, including the director, for payment of the bank's debt", and further that the Bank "would challenge any action undertaken by Andrew Wily to seek examinations of the bank". In passing, I draw attention to the fact that Mr Hatter's protest, as recorded by Mr Holzman, characterised the Bank's action as one "against guarantors … for payment of the Bank's debt". This is consistent with a reference to the same action, made in a facsimile sent on the day of the meeting by the Bank's solicitors to Mr Wily, noting that "the bank has Supreme Court proceedings on foot against Jack and Karan Roberts for possession of their Seaforth residence as well as judgment for monies claimed under various banking facilities, guarantees and indemnities given for the Roberts Companies and in respect of loss suffered by the bank under various leasing facilities it provided to the Roberts Companies". No alarm bells were rung at that stage to warn the incoming liquidator of criminal activities alleged against Mr and Miss Roberts. Each of the motions to which I have referred was moved by Mr Fordyce, and was carried on the voices. The minutes record that Mr Hatter abstained from the vote on the resolution concerning entry into a funding facility to undertake examinations. As the Bank seeks to make something of Mr Fordyce's role as mover of the motions, it should be pointed out it was not in dispute that the majority in number and value of the creditors are unrelated to the directors.
6 Although Mr Wily gave evidence of being contacted by Mr Fordyce prior to the meeting, when mention was made of possible actions to be investigated and the availability of funding for them, he did not recall actually meeting Mr Fordyce in person prior to the meeting. He suggested their conversation might have been on the telephone. Mr Blythe, on the other hand, recalled a meeting on 14 or 15 January 2002 when background information was provided by Mr Fordyce, his recollection being that Mr Wily was present. Documents available at or before that meeting indicated to Mr Blythe "that there may be grounds for pursuing examination of various persons". While the difference of recollection may appear odd, I do not think it matters very much. There is nothing to suggest that the conversation was other than preliminary, and Mr Blythe did not say the documents were actually handed over at the meeting he recalls: rather, he thought they were e-mailed to him immediately prior to it. As Mr Blythe was the man with day to day carriage of the matter, certainly once Mr Wily was appointed liquidator, and Mr Wily's memory does appear somewhat hazy on the point, it is at least possible that it was only Mr Blythe who actually examined the documents at that stage. This is perhaps a convenient point at which to note that I found Mr Blythe to be a scrupulously careful and patently honest witness, although that is not to say he may not have been mistaken in his recollection on occasion. Mr Wily was also, in my opinion, formed after he had been subjected to a searching and lengthy cross-examination, an honest witness who, however, did appear at times to have some difficulty over details, quite possibly because it was Mr Blythe, and not he, who had the hands-on conduct of the matter, as distinct from supervision of that conduct and the making of ultimate decisions.
7 Having regard to the proposal of litigation funding which had preceded his appointment; the resolution of creditors specifically authorizing him to "enter into a funding facility to undertake examinations …"; and the resolution (though not included in the notice of meeting) affirming creditors' support for examination of officers of the Bank and the receivers, one of the first tasks of the new liquidator was plainly to consider the question whether he should examine bank officers and persons involved in the receivership. Counsel for the Bank appeared to suggest that the lack of notice of the resolution supporting examinations relating to the bank should have negated its influence upon Mr Wily (cf Ephstathis v Greek Orthodox Community of St George (1988) 13 ACLR 691); but the decision was his, whether or not strictly authorized by the resolution, and it is noteworthy that Millett J (as Lord Millett then was) considered a resolution passed in just such circumstances to be useful in Re Keypak Homecare Ltd [1987] BCLC 409 at 417. In any case, the evidence of Mr Wily and Mr Blythe makes it very clear the liquidator determined for himself whether the examinations should be undertaken. It is true that Mr Blythe relied on the solicitor for the description of the documents production of which was to be required by the summonses to produce documents, but that is a drafting task of some nicety, best performed by a lawyer. I am satisfied the substance of what was required was decided by the liquidator, and only by him.
8 At an early stage, Mr Wily retained Mr Fordyce's firm as his solicitors in relation to the winding up, although the only specific matters on which they appear to have been instructed to act were concerned with the obtaining of examination orders and the issue of summonses for the production of documents. The evidence of both Mr Wily and Mr Blythe, which I accept, is that they understood Mr Fordyce to have acted as solicitor for the original liquidator, Mr Holzman. Indeed, Mr Wily saw a draft affidavit which appeared to have been prepared by Mr Fordyce for Mr Holzman in support of and with a view to the seeking of an examination order. That Mr Holzman had in fact retained Mr Fordyce was not shown to be wrong. True it is Mr Fordyce had acted and was still acting, as Messrs Wily and Blythe knew, for Mr and Miss Roberts. What they did not know, for some time, was that the proceeding in which Mr Fordyce was acting was not just a routine proceeding upon guarantees and other securities relating to the companies' borrowings from the Bank, but also involved claims of fraud made by the Bank against Mr and Miss Roberts and those who had allegedly colluded with them.
9 There is, of course, no objection, in itself, to the engagement by a liquidator of a solicitor who is also acting for one of the parties interested in the liquidation. It depends on the circumstances. Sometimes such a solicitor may have special knowledge which is very advantageous in the winding up. The authority for these propositions is one of the frequently cited authorities in this area of the law: Re Allebart Pty Ltd (in Liq) and the Companies Act [1971] 1 NSWLR 24. That case can only be understood in the light of an understanding of the extreme hostility between Mr Barton, who controlled Allebart Pty Ltd prior to the winding up order, and Mr Armstrong, who controlled the petitioning creditor. The nature of this hostility can be gauged from the fact that in the proceeding between them personally, which is referred to in Re Allebart Pty Ltd at 26, 29, Mr Barton proved, as the basis of a claim of duress, that Mr Armstrong had actually threatened to murder him: see Barton v Armstrong [1973] 2 NSWLR 598; and on appeal, Barton v Armstrong [1976] AC 104. It was in this situation that Street J said in Re Allebart Pty Ltd at 29:
"The liquidator instructed as his solicitors the solicitors who had acted for the petitioning creditor. This of itself is innocuous and, indeed, commonplace. It did, however, set a stage which, again, necessitated particular care being taken by the liquidator to ensure that it was on his instructions that each step was taken in the windings up. The solicitors acted concurrently for the petitioning creditor and for the official liquidator in the course of the windings up until the point of time when the present summonses were taken out and the matter first came before the Court in September of last year. They had been solicitors for Mr Armstrong throughout the course of the Barton v Armstrong litigations. And when in September of last year objection was taken by counsel on behalf of the applicants to the liquidator retaining them as his solicitors in the windings up, they quite understandably preferred to avoid any possibility of an accusation of irregularity being pressed against the liquidator by reason of their acting for him as well as for the petitioning creditor. Being unwilling to be involved even indirectly in accusations of this nature, they ceased to act for the liquidator , and he instructed an independent firm of solicitors to act for him. The liquidator's newly-instructed solicitors have thereafter appeared in connection with the present applications."
10 Street J went on to underline (at 30) that "[i]t is essential that the independence and impartiality of a liquidator should at all times exist in substance, and be manifestly seen to exist." In the extraordinary circumstances, he concluded (at 30-31) that the liquidator appeared "to have been to some extent and in some respects insensitive of the extreme personal animosity lying behind the matters and the consequential need to take particular care to avoid allowing the windings up to become or to appear to have become an instrument of pursuing these personal conflicts"; and he held there were aspects of the case which tended to "suggest that the liquidator [had] yielded up some degree of initiative to the petitioning creditor and which present some appearance of mere automatic acquiescence by the liquidator in the wishes of the petitioning creditor". (As appears at 29-30, the liquidator had at one stage written, in a letter to the solicitors acting for him and for the petitioning creditor, "if I am to carry out any investigation work on behalf of the petitioning creditor [emphasis added] I will need to be put in funds to do so.") Street J (at 31) invited the liquidator to consider resigning "in this somewhat invidious position", but he also made it clear he expected that the examinations the liquidator had sought would proceed. In the event, the liquidator resigned, and a new liquidator was appointed.
11 The primary point to emerge from Re Allebart Pty Ltd is that Street J held the liquidator's appointment of solicitors concurrently also acting for a party interested in the liquidation to be both "innocuous" and "commonplace". So long as the liquidator ensured "it was on his instructions that each step was taken in the windings up", it was only the extraordinary circumstances which created a problem. If that is right, a fortiori a newly appointed liquidator, who replaces a former liquidator after the winding up has been in progress for a number of months, cannot be criticized for continuing to retain such a solicitor, being a solicitor previously engaged by his predecessor. In the present case, there was nothing wrong, at the time the liquidator appointed Mr Fordyce, in his choosing to do so.
12 Does it make any difference that the liquidator was being assured on behalf of Mr Fordyce's other clients, Mr and Miss Roberts, that funds would be procured to enable the examinations in question to proceed? Again, the answer is suggested by Re Allebart Pty Ltd. At 27-28, Street J said:
"Not only did the petitioning creditor seek to urge on the liquidator in the process of the windings up, but it agreed to indemnify him against the expenses of carrying out examinations of Mr and Mrs Barton. It has already provided him with a cash sum of over $1,800 to cover the costs of, and related to, the bringing of these examinations. Here again there is no basis for levelling any criticism whatever against the petitioning creditor. Where a company is being wound up and it has no assets, or insufficient assets, to enable the due processes of the liquidation to be carried through, a creditor is to be encouraged, rather than criticized, in making funds available to the liquidator. Nor need a liquidator be diffident in accepting funds or indemnities from creditors so as to enable a winding up to proceed. Moreover, I see no reason to criticize on the grounds of propriety the arrangement under which a creditor provides money or indemnity to cover the expenses of a specific step in the winding up, such as the bringing of named proceedings or the carrying out of named examinations. Arrangements such as these are commonplace, and, if anything, they are to be encouraged, as very frequently some such arrangement enables the liquidator to carry out his duties more thoroughly or comprehensively than would otherwise be the case (cf Companies Act, 1961, s 292 (10)) ."