Onefone Australia v One.Tel Ltd

DECISION : See para 32 of judgment.

CATCHWORDS : CORPORATIONS - Winding up - Special purpose liquidator appointed to investigate cancellation of renounceable rights issue - Application to vary terms of special purpose liquidator's appointment - Whether special purpose liquidator should enquire into matters expected to be determined in other proceedings - Where delay in other proceedings raises the prospect that proceedings which may emanate from special purpose liquidator's investigation may be statute-barred - Where other proceedings may not in fact determine all relevant issues - Costs likely to attend variation of terms of special purpose liquidator's appointment - Application granted.

Corporations Act 2001 (Cth) LEGISLATION CITED : Fair Trading Act 1987 (NSW) Limitation Act 1969 (NSW)

CASES CITED : Onefone Australia Pty Ltd v One.Tel Limited (In Liquidation) [2003] NSWSC 1228 ASIC v Rich [2005] NSWSC 706; [2006] NSWSC 266

Onefone Australia Pty Limited & Anor PARTIES : v One.Tel Limited (in liq) & Ors

COUNSEL : Plaintiff: N Cotman SC, R Glasson Defendant: A Linden (solr)

SOLICITORS : Plaintiff: NOT Lawyers Defendant: Kemp Strang

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

5291/03 Onefone Australia Pty Ltd & 3 Ors v One.Tel Limited (in liq) & 2 Ors

1 WHITE J: This is an application by Mr Paul Gerard Weston to vary the terms of his appointment as a special purpose liquidator of One.Tel Limited (In Liquidation), amongst other things.

2 Mr Weston was appointed as a special purpose liquidator of the company on 23 December 2003. The circumstances leading to his appointment are explained in the judgment of Windeyer J in Onefone Australia Pty Ltd v One.Tel Limited (In Liquidation) [2003] NSWSC 1228.

3 Mr Weston was appointed to investigate the cancellation of a renounceable rights issue announced by One.Tel, under which capital of $132 million was to be sought from shareholders through the issue of new shares. His Honour proceeded on the assumption that there was a binding agreement from companies associated with Publishing & Broadcasting Ltd ("PBL") and News Limited ("News") to underwrite the issue. It seems that the rights issue was announced to the Australian Stock Exchange and the media on 17 May 2001.

4 Mr Weston was appointed as special purpose liquidator to investigate whether any rights of action existed in relation to the cancellation of the issue. It appears that the reason for his appointment was that the liquidators of One.Tel, or one of them, may have a conflict if any claim is made in relation to that matter.

5 In appointing Mr Weston as special purpose liquidator to investigate that matter, Windeyer J required that he proceed on the assumption that the company became insolvent as a result of the cancellation of the issue. The reason for requiring him to act on that assumption, rather than to investigate whether that was the fact, was that it was accepted that the question of solvency of One.Tel at that time would be made clear in proceedings brought by the Australian Securities and Investments Commission against a Mr Rich and others, and that that determination would be made at no expense to the creditors of One.Tel.

6 His Honour said that the question of solvency was a vital one because, if at 29 May 2001, when the rights issue, or proposed issue, was cancelled, One.Tel was insolvent, and would have remained so even with a capital injection of $132 million, then the rights issue could not have proceeded, and there could be no claim against the directors of One.Tel, who were associated with PBL or News, arising from the cancellation of the issue. Nor in those circumstances could there be such a claim against the underwriters.

7 Hence Mr Weston was appointed as special purpose liquidator for the following purposes: "2. On the assumption that the Company became insolvent as a result of the cancellation of the Renouncable Rights Issue, the Special Purpose Liquidator consider and make recommendations to the creditors as to whether: (a) any rights of action exist in respect of which there is a limitation period for the commencement of any such action of less than six years; and if necessary (b) any action should be commenced against any person in relation to any such rights of action referred to in subparagraph (a) above; and (c) the Special Purpose Liquidator should apply to extend the limitation period of any such action. "

8 Subsequently, the view was taken by Mr Weston that One.Tel might have claims arising under s 588 FB of the Corporations Act 2001 (Cth) that the cancellation of the rights issue was an uncommercial transaction, or that One.Tel suffered a loss as a result of misleading and deceptive conduct engaged in in breach of the Fair Trading Act 1987 (NSW), in respect of which there was a three year limitation period. Mr Weston caused examination summonses to be issued in March 2004 to many persons, some of whom it seems were employees of PBL, Consolidated Press Holdings Ltd ("CPH"), or News.

9 On 6 April 2004, orders were made by consent between Mr Weston, PBL, CPH, News, and a number of the proposed examinees associated with them, the effect of which was that the examinations did not then proceed.

10 PBL, CPH, News, and their associated proposed examinees, agreed to extend what might be applicable three year limitation periods to six years.

11 On 16 April 2004, Mr Weston obtained a direction that he was justified in not proceeding further with his investigations at that stage. It was then still expected that the question of the cancellation of the announced renouncable rights issue, and the solvency of One.Tel as at 29 May 2001, would be litigated and decided in the proceedings known as ASIC v Rich in sufficient time to minimise the cost to creditors of Mr Weston investigating those matters himself, before the expiry of the six year limitation period on 29 May 2007.

12 Mr Weston now seeks orders varying the orders appointing him as special purpose liquidator. He seeks a direction that he is justified in performing certain work. Essentially that work would involve his seeking to review the evidence adduced in the ASIC v Rich proceedings, documents discovered in them, and submissions made in them, for the purposes of determining whether he is then in a position to express a view as to whether any rights of action exist relating to the cancellation of the renouncable rights issue and to his making appropriate recommendations about that to the creditors of One.Tel.

13 Another possibility envisaged in the orders proposed by Mr Weston is that following a review of such material he may be in a position to express a view as to whether further investigations, including liquidator's examinations, should be conducted.

14 He seeks an order that the terms of his original appointment be varied so that he no longer be required to assume that One.Tel became insolvent as a result of the cancellation of the renouncable rights issue, but that he review the materials prepared or obtained for the ASIC v Rich litigation with a view to deciding whether he can form a view himself about that matter.

15 The reasons for this application are that there have been delays in the hearing of the ASIC v Rich proceedings which were not anticipated when the earlier regime was put in place. These delays are explained in judgments of ASIC v Rich [2005] NSWSC 706 and [2006] NSWSC 266. It is not now anticipated that the hearing of those proceedings will conclude until towards the end of this year. If proceedings in relation to the cancellation of the renouncable rights issue were to be commenced before 29 May 2007 it would be necessary for Mr Weston's investigations in relation to such possible proceedings to be commenced promptly.

16 Another reason for this application is that it is not clear that the evidentiary basis upon which findings of solvency might be made in the ASIC v Rich proceedings would necessarily be the same as might be available in other proceedings. A substantial body of expert evidence which ASIC sought to adduce in those proceedings has been rejected and the defendants to those proceedings have announced that they do not propose to call expert evidence.

17 Allied to that is that it is not clear to me that the precise questions of solvency relevant to the issues raised by the cancellation of the renouncable rights issue, and the events that led up to that, would necessarily be determined in the ASIC v Rich proceedings. Nor is it clear that the parties in those proceedings would have the same interest in relation to that question as One.Tel might have.

18 The liquidators are naturally and rightly concerned that funds otherwise available to creditors not be unnecessarily expended. They submit that before there is a change to the status quo, enquiries should first be made of PBL, CPH, News, and the associated proposed examinees, as to whether they are prepared to undertake to further extend limitation periods under s 588FF of the Corporations Act, and not to plead the limitations period in respect of other causes of action.

19 Whilst this view is attractive, I think there is a number of countervailing considerations. The first is that some time will necessarily elapse before the attitude of those parties to a further extension of limitation periods is known. They would be entitled to a reasonable time to consider any such request for an extension. In the meantime any required investigation of the matter by Mr Weston would be delayed.

20 Secondly, although I have not heard any argument about this, there may be an issue as to whether causes of action which are otherwise extinguished under the Limitation Act 1969 (NSW) on the expiry of a six year limitation period can be saved by an agreement not to plead such a defence.

21 Thirdly, and more significantly, it is likely that a review of the materials adduced in or obtained for the ASIC v Rich proceedings, if such a review is possible, will have to be conducted even if the investigation is postponed until after judgment, or until after the conclusion of any appeal. That seems to me to be so for the reasons alluded to earlier, that the evidentiary basis upon which findings of solvency may be made in the ASIC v Rich proceedings might not necessarily be the same as that which might be available in other proceedings.

22 Finally, the creditors of One.Tel are entitled to have the question of whether any such causes of action are to be pursued determined as promptly as possible. There is a public interest also in such claims, if they are to be pursued, being brought on for hearing as soon as possible.

23 The liquidators also opposed a variation of the orders to remove the assumption as to solvency which Mr Weston is presently required to make. However, for the reasons advanced by him and referred to above, I do not think that the interests of creditors would be further advanced by precluding him from investigating that issue, provided that his investigation is confined at this stage to the review of the materials associated with the ASIC v Rich litigation.

24 So confining the investigation means that the objective sought to be achieved by the original limitation on the orders appointing Mr Weston will have been substantially achieved. That is to say, substantial savings will have been made, compared with what the position would have been had Mr Weston been required to embark upon an investigation of the company's solvency afresh.

25 The material as to the likely costs of conducting the review of the materials in the ASIC v Rich proceedings, obtaining advice from counsel following that review, and reporting to the committee of inspection of One.Tel was not very satisfactory. Inevitably, however, there must be a large degree of speculation as to the likely costs involved. The scope of the work cannot be known at this stage. Indeed, at this stage, it is not known to what extent Mr Weston will be entitled to obtain access to transcripts of evidence, exhibits, affidavits and witness statements or discovered documents.

26 Having regard to the material presented by the parties as to the balance of funds held by the liquidators as at today, and the value of the debts of unsecured creditors, it seems to me that the likely costs of such an exercise are not such as to warrant the further deferral of such investigation. Indeed, as I have said, I think it likely that some such review will have to be conducted at some stage. It is preferable that the review be conducted earlier, rather than later.

27 During the course of argument some amendments were made to the proposed orders. As so amended I think it appropriate to make the orders sought.

28 I will make an order in terms of para 2 of the interlocutory process but deleting in subpara 2 (a) the words "in respect of which there is a limitation period of six years" and substituting for those words "in relation to the cancellation of the RRI".

29 I will make an order in terms of para 3 of the interlocutory process deleting in subpara 3(c) the words "which have a limitation period of 6 years" where those words appear in subpara 3(c) (i) and (ii).

30 The orders made on 6 April 2004 include that it is a condition of the consent undertakings that the special purpose liquidator will not seek further to examine the proposed examinees until, inter alia, a further order of the Court, or six months prior to the end of the substituted six year limitation period. The affected parties are entitled to the opportunity to be heard before any further order is made in relation to examinations. Nothing in the orders which are sought today affects the rights of the other parties under the orders made on 6 April 2004.

31 The orders to be made include an order that Mr Weston is justified in reviewing the ASIC v Rich documents and doing incidental work thereto for the purposes of determining whether he should conduct further investigations, including public examinations. However, nothing in these reasons is to be taken as being indicative of whether any such course may be appropriate. Clearly, different considerations would apply if Mr Weston, following a review of the materials which might become available to him, determined that such further investigations, including public examinations, should occur.

32 Subject to the amendments to paras 2 and 3 of the interlocutory process referred to above, and subject to inserting the word "proper" before the phrase "costs and expenses" in para 4 of the interlocutory process, I make orders in accordance with paras 2, 3, 4 and 5 of the interlocutory process.

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