//
[2021] VSC 161
General information, not legal advice.
Supreme Court of Victoria
2021-04-01
Connock J
Original judgment source is linked above.
The Applicant makes application to ASIC to be approved as an eligible applicant under s 596A
Letter from liquidators to Noble Lawyers re rights of action identified
Email from Noble Lawyers to Harrick Lawyers re seeking instructions re funding
Liquidators advised that the Applicant's debt had been admitted
The Applicant makes further application to ASIC to also conduct an examination of Ada Khait
Harrick Lawyers email to Noble Lawyers following up response on funding
Liquidator instructs solicitors to commence recovery of claims
Email from Noble Lawyers advising that had made application to ASIC to be approved as an eligible applicant
Noble Lawyers letter to Liquidator re made application to ASIC to be approved as an eligible applicant
ASIC acceded to the Applicant's request to be granted 'eligible applicant' status for the purposes of Div 1 of Pt 5.9
Harrick Lawyers letter to Noble Lawyers re instructions to commence recovery of claims
Harrick Lawyers issues letters of demand to related entities of GVE Hampton
Email from Noble Lawyers to Harrick Lawyers requesting proceedings against related entities not be issued until examinations concluded
The Applicant applied to the Federal Court of Australia requesting that summonses be issued pursuant to ss 596A and 596B of the Act for Vladislav Hyatt, Eugene Krok, Greg Krok, and Ada Khait
Email from Noble Lawyers to Liquidator re application filed
Liquidator's solicitors advise Applicant that they 'were about to issue proceedings'
Liquidator approaches four third party litigation funders
Summonses for public examination, pursuant to ss 596A and 596B of the Act, were issued to Vladislav Hyatt, Eugene Krok, Greg Krok, and Ada Khait
Emails from Harrick Lawyers to Noble Lawyers re provision of material in relation to examinations
Email from Noble Lawyers to Harrick Lawyers re provision of material in relation to examinations
Email from Harrick Lawyers to Noble Lawyers re statutory limitation period
$5,200,000.00 unsecured loan to GVE Small fell due for repayment
The Federal Court made orders for substituted service for summonses for public examination
Interlocutory process filed in VID785/2019 by V Hyatt, E Krok, G Krok, A Khait to discharge summonses
CFA indicated that they were considering funding but remained undecided
Case management hearing before Beach J in VID785/2019 re application by V Hyatt, E Krok, G Krok, A Khait to discharge summonses
Letter from Noble Lawyers to Liquidator re appointing SPL
Letter from Harrick Lawyers to Noble Lawyers re SPL
CFA offer short term funding, with terms of long term funding proposal subject to counsel's advice on strategy
Orders - VID 785/2019 - Hearing of examinations adjourned to a date to be fixed, hearing of interlocutory application set down for 26 October 2020
Letter from Noble Lawyers to Harrick Lawyers re appointing SPL
CFA advises that it was not able to offer a funding solution at this time due to uncertainties including the threatened application to appoint an SPL
Counsel agrees to act for the liquidator on a speculative basis to pursue claims
CFA confirms in writing that it was not able to offer a funding solution at this time due to uncertainties including the threatened application to appoint an SPL
Counsel briefed by liquidator's solicitors to draw proceedings in respect of claims
Letter from Harrick Lawyers to Noble Lawyers re appointment of SPL
Counsel for the Liquidator instructed to stop working on drawing claims pending outcome of SPL application
Beach J dismisses applications to dismiss summonses for examination: Shangri-La Construction Pty Ltd v Hyatt, in the matter of GVE Hampton Pty Ltd (in liquidation) [2020] FCA 1577
Counsel for the liquidator instructed to continue drawing claims
Proceedings issued in proceeding number S ECI 2020 04437
[1] The Liquidator was initially appointed jointly and severally with the other named second defendant, Michael Carrafa, who resigned in late May 2018 leaving Mr Gountzos as the Company's sole liquidator.
[2] The grant of leave to bring this proceeding pursuant to s 500 of the Corporations Act 2001 (Cth) was not opposed and will be addressed in the final orders.
[3] Pursuant to the orders made on 12 February 2021 and leave granted during the hearing to make limited oral submissions.
[4] In addition to the documents tendered during the hearing and to which I have had regard.
[5] A confidential affidavit filed on 9 December 2021 was expressly not relied upon and leave to withdraw it from the court file was granted by order made 12 February 2021.
[6] To which I have had regard, and aspects of which were addressed in cross-examination.
[7] Including the $95,000 recorded against the plaintiff, which was not ultimately pursued.
[8] Subject to the proposed funding of the Recovery Proceeding by the Liquidator through the assistance of solicitors, counsel and the Liquidator's firm, more detail of which is addressed later in these reasons.
[9] Which had been ordered against the Company.
[10] Shangri-La Construction Pty Ltd v Hyatt, in the matter of GVE Hampton Pty Ltd (in liquidation) [2020] FCA 1577.
[11] Supported by an affidavit of the Liquidator filed that day that also said that a statement of claim would be filed.
[12] As mentioned, the Liquidator has not yet finally adjudicated on the proofs of debt of Mr Hyatt or GVE Corporation Pty Ltd.
[13] Discussed further later in these reasons in connection with the plaintiff's submissions regarding property searches and related matters.
[14] Further detail of which is apparent from the Annexed Chronology.
[15] Some features of which are addressed later in these reasons.
[18] The order required Ms Khait and others to pay 80% of the plaintiff's costs of a failed interlocutory application to set aside the examination summonses.
[23] [2020] FCA 937, [52]-[55].
[24] [2008] NSWSC 407, [26]-[28].
[25] (1984) 8 ACLR 967, 971.
[26] See, eg, Lo v Nielsen & Moller (Autoglass) (NSW) Pty Ltd [2008] NSWSC 407, [26]-[30]; Re Spedley Securities Ltd (in liq) (1991) 4 ACSR 555 (Young J); Advance Housing Pty Ltd v Newcastle Classic Development Pty Ltd (1994) 14 ACSR 230 (Santow J); McGrath Re HIH Insurance Ltd [2006] NSWSC 385 (Barrett J); Honest Remark Pty Ltd v Allstate Explorations NL and Others [2006] NSWSC 735; (2006) 234 ALR 765, [50]-[63] (Brereton J); Victoria v Goulburn Administration Services Ltd (in liquidation) and Others [2016] VSC 654, [18]-[25] (Sifris J); Deputy Commissioner of Taxation, in the mater of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) [2017] FCA 444, [60]-[85] (Gleeson J); State of Victoria v CTM Training Solutions Pty Ltd (In liq) [2017] VSC 47, [32]-[37] (Sifris J); Commonwealth of Australia, in the matter of ACN 093 117 232 Pty Ltd (in liquidation) [2018] FCA 1922 (Derrington J); In the matter of ACN 152 546 453 Pty Ltd (formerly Hemisphere Technologies Pty Ltd) (in liq) [2018] NSWSC 1002, [15]-[20] (Gleeson JA); Melhelm Pty Ltd v Boka Beverages Pty Ltd (in liq) [2019] FCA 1184, [43]-[58] (Gleeson J); Williams & Kersten Pty Ltd v Walton Construction (Qld) Pty Ltd (in liq) [2019] FCA 1201, [14]-[20] (Reeves J); Glenfyne International Holding Limited v Glenfyne Farms International Au Pty Ltd (in liq) [2019] NSWCA 304, [59]-[61] (Bathurst CJ, Bell P and Macfarlan JA); Reidy as Trustee for the PR Mining superannuation Fund v Contained Gold Pty Ltd (in liq) [2020] FCA 268, [28]-[33] (Jackson J).
[29] [2018] FCA 541, [33].
[30] (2019) 135 ACSR 95, 104-5 [57]-[59] (footnotes omitted).
[32] See also, for example, Manband Pty Ltd (In Liq) (subject to Deed of Company Arrangement) [54]-[56]; and In the matter of ACN 152 546 453 Pty Ltd (formerly Hemisphere Technologies Pty Ltd) (in liq) [2018] NSWSC 1002, [20].
[33] [2018] NSWSC 1002, [15]-[20] (Gleeson JA).
[34] As have others. See, eg, Williams & Kersten Pty Ltd v Walton Construction (Qld) Pty Ltd (in liq) [2019] FCA 1201, [14]-[20] (Reeves J); Melhelm (2019) 135 ACSR 95, 104 [52] (Gleeson J); Weston (Liquidator), in the matter of Leetong Pty Limited (in liquidation) [2020] FCA 372, [62] (Gleeson J).
[35] [2018] FCA 541, [33].
[36] Commonwealth of Australia, in the matter of ACN 093 117 232 Pty Ltd (in liq) v ACN 093 117 232 (in liq) [2018] FCA 1922, [3] (Derrington J) (Commonwealth of Australia); Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 234 ALR 765, 779 [58] (Brereton J).
[37] [2020] FCA 937, [62].
[38] Commonwealth of Australia [2018] FCA 1922, [4] (Derrington J).
[41] See, eg, Commonwealth of Australia [2018] FCA 1922, [27] (Derrington J); Onefone Australia Pty Ltd v One.Tel Ltd (in liq) [2003] NSWSC 1228; (2003) 48 ACSR 562, 566 [13] (Windeyer J).
[46] [2019] NSWCA 304, (Bathurst CJ and Macfarlan JA agreeing). This aspect is elaborated on later in these reasons when addressing one aspect of the plaintiff's submissions.
[47] See Melhelm (2019) 135 ACSR 95, 112 [105]-[106] (Gleeson J).
[48] See, eg, Re Obie Pty Ltd (in liq) (no 4) (1984) 8 ACLR 967 (Thomas J); Re Spedley Securities Ltd (in liq) (1991) 4 ACSR 555 (Young J); State of Victoria v CTM Training Solutions Pty Ltd (in liq) [2017] VSC 47 [43] (Sifris J).
[49] See Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 234 ALR 765, 777-81 [53]-[68] (Brereton J). See also Commonwealth of Australia, in the matter of ACN 093 117 232 Pty Ltd (in liquidation) [2018] FCA 1922, [33] (Derrington J).
[50] [2006] NSWSC 735; (2006) 234 ALR 765, 779-781, [59]-[63].
[51] Other than the $20,000 creditors' voluntary liquidation indemnity from Mr Hyatt.
[52] [2018] FCA 541, [54]-[56] (Farrell J).
[53] The defendants and the plaintiff were the only parties to the proceeding. The Opposing Creditors were given a limited opportunity to be heard but were not joined as parties to the proceeding.
[54] Counsel for the Liquidator referred in this regard to the observations of Derrington J in Commonwealth of Australia, in the matter of ACN 093 117 232 Pty Ltd (in liquidation) v ACN 093 117 232 Pty Ltd (in liquidation) [2018] FCA 1922 [3].
[55] At the conclusion of the hearing the Liquidator sought to tender searches undertaken by the Liquidator which was opposed by the plaintiff due in part to the inability to further cross-examine the Liquidator given his absence. Leave was not granted. It was also noted that the Liquidator had given evidence during cross-examination that he had undertaken searches in any event and that this was not relevantly challenged.
[56] Liquidator's affidavit of 7 December 2020, [53].
[57] [2018] FCA 541, [54].
[60] [2020] VSCA 198 (Cant).
[65] And in order to address a limitation issue.
[66] And the other detail of the chronology of events as revealed by the evidence including the cross-examination.
[68] Which was not objected to, but to which I give little weight.
[69] Which the plaintiff described as the 'Possible maiden name of Sally Louise Hyatt'.
[70] See paragraph 8(d) of the orders made on 4 November 2020.
[71] Assuming such an agreement was ultimately entered into.
[74] See, for example, the recent observations of the Court of Appeal in Verraty Pty Ltd v Richmond Football Club Ltd [2020] VSCA 267 (Kyrou, Kaye and Sifris JJA) regarding the repeated statement of the High Court regarding applicable principles of statutory construction at [57]-[63] and the cases there cited.
[79] But recognising that additional considerations arise when considering the language of different provisions as was addressed in those cases.
Shangri-La Construction Pty Ltd
GVE Hampton Pty Ltd
It has long been held that the court has jurisdiction to give the conduct of any particular matter arising in the course of the liquidation to one of several liquidators: Re Midland Land and Investment Corporation [1887] WN 58. In my own experience courts have made such orders when there is a matter to be dealt with in a liquidation which it would be embarrassing for the liquidators to handle. In such circumstances an additional liquidator is appointed to handle that matter, and the great expense and loss of efficiency involved in resignation and replacement in a partially completed administration is avoided.
The power to make orders conferred by s 90-15(1) contains no equivalent of s 511(2) which permitted the Court to accede to an application "if satisfied that ... the exercise of power will be just and beneficial" The power is, in its terms, unconstrained. Section 90-15(4) lists some matters the Court is entitled to take into account but that list is expressed to be "[w]ithout limiting the matters which the Court may take into account when making orders". In Re Walley (as administrators of Poles & Underground Pty Ltd (admins apptd) and Icon Plant Pty Ltd (admins apptd)) [2017] FCA 486, Gleeson J observed at [41] that the question of whether to exercise the power under s 90-15 of Sch 2 can be answered by reference to principles that applied to the exercise of the discretion under the provisions previously contained in ss 479(3) and 511. I agree that those cases can be a useful guide. Despite the breadth of the power conferred by s 90-15(1), it is difficult to envisage circumstances where the power would be exercised if the Court could not be satisfied that it would be just and unless the applicant had demonstrated sufficient utility to the external administration.
It is appropriate to appoint [a special purpose liquidator ('SPL')] if:
(1) there are matters that require investigation by a liquidator with a view to possible recovery for creditors;
(2) the current liquidators have insufficient funds and insufficient prospects of obtaining funding to pursue an investigation;
(3) a creditor is prepared to fund investigations and recovery actions but only on the condition that another liquidator be appointed; and
(4) such an appointment would be beneficial to the winding up and the creditors as a whole: Deputy Commissioner of Taxation v Italian Prestige Jewellery Pty Ltd (in liq) (2018) 129 ACSR 115; [2018] FCA 983 (Italian Prestige Jewellery) at [34].
As to the first matter, it is necessary to identify with specificity the "special purposes" (or powers) for which the appointment of the special purpose liquidator is sought: Fitz v Fraser at [90] citing, inter alia, GDK Projects at [2] and Hemisphere Technologies at [22]. Examples of purposes that have been identified as matters for investigation by an SPL include whether any of the directors or officers of a company breached their statutory and or fiduciary duties to the company; whether transactions between the company and a specified third party were voidable transactions within the meaning of s 588FE of the Act; any dealing with an asset owned legally or beneficially by the company to a specified third party; and any claim that the company may have or may have had against a specified third party.
It is not necessary or appropriate to make findings on the potential claims in determining the application for the appointment of the SPLs: GDK Projects at [36]; Italian Prestige Jewellery at [37].
It is fair to say that the matters to be investigated do not yet raise any compelling case of misconduct or strong prospect of recovery. So the Court would be reluctant to authorise that expenditure if there was any prospect that the costs of the investigations and any proceedings would diminish the return to unsecured creditors.
But here, there is no realistic chance of that. Under the proposed deed of indemnity, Mr Reidy will be liable to pay the special purpose liquidators' fees and disbursements. It is true that the deed does not contain any limitation on the ability of the special purpose liquidators to claim their fees and disbursements from the company. But in circumstances where the company has no assets, that is not going to leave unsecured creditors worse off. There is no evidence of any creditor responding to [the present liquidator's] call for expressions of interest in funding him to investigate. So there will only be any recoveries at all if the special purpose liquidators are appointed. And if the investigations do not result in any recoveries, then the special purpose liquidators will recover their fees from Mr Reidy, or not at all. I have already mentioned how the deed does not disturb the statutory order of priorities or seek to give Mr Reidy any advantage.
So the reality is that there will be no dividend to creditors if the special purpose liquidators are not appointed, and at least the possibility of a dividend if they are appointed. I also take into account that the Court ordered all unsecured creditors to be notified of the application and hearing date, and that has been done. No creditor has come forward to oppose (or support) the application.
The investigation of transactions warranting investigation, and the recovery of funds for the benefit of creditors, are important aims of the statutory winding up regime: see New Cap Reinsurance Holdings Ltd (ARBN 076 137 249) [2001] NSWSC 835 at [15] (Santow J). I am satisfied that the appointment of the special purpose liquidators will help achieve the first of those aims and holds out at least some prospect of achieving the second. Neither aim will be achieved if they are not appointed. The appointment will not expose unsecured creditors to any additional risk or liability. I am satisfied that it is just, and that Mr Reidy has demonstrated sufficient utility to the winding up, so that it will be beneficial to the winding up and to the creditors as a whole.
(2006) 234 ALR 765