Re New Tel Ltd (in liq); Evans v Wainter Pty Ltd

Supreme Court of NSW|2006-02-10|Before: Barrett J, Mr J

56 ACSR 579 Reported Decision : 65 NSWLR 381 (2006) 24 ACLC 336

CITATION : Shepherds Producers Co-operative Ltd [2006] NSWSC 43

JURISDICTION : Equity Division Corporations List

CATCHWORDS : ASSOCIATIONS AND CLUBS - co-operative societies - application of Corporations Act provisions - CORPORATIONS - winding up - examination of officers - examination summonses previously issued but no longer extant - whether liquidator entitled to obtain issue of further examination summonses directed to same persons - whether also entitled to order that some of such persons file affidavit of assets and liabilities - concept of "examinable affairs" - whether persons concerned should have opportunity to be heard

Co-operatives Act 1992, ss.29, 229, 332 LEGISLATION CITED : Corporations Act 2001 (Cth), ss.596A, 597A Corporations (Ancillary Provisions) Act 2001, s.10, Part 3 Supreme Court (Corporations) Rules 1999, rules 11.3(2), 11(5)

Re New Tel Ltd (in liq); Evans v Wainter Pty Ltd (2005) 54 ACSR 284 Re Quick Plumbing Australia Pty Ltd [2005] FCA 1850 CASES CITED : Re Stoliar; Australian Securities and Investments Commission v Karl Suleman Enterprises Pty Ltd (in liq) (2003) 44 ACSR 694 Re The Duke Group Ltd; Gerah Imports Pty Ltd v The Duke Group Ltd (1994) 68 ALJR 196 Singleton re Original Displays (Australia) Pty Ltd [2003] NSWSC 459

PARTIES : Shepherds Producers Co-operative Limited (Receivers and Managers Appointed) (in liquidation) - First Plaintiff Peter William Marsden and David John Kerr - Second Plaintiffs

COUNSEL : Mr J.R.J. Lockhart - Plaintiffs

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

2524/04 SHEPHERDS PRODUCERS CO-OPERATIVE LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) JUDGMENT 1 Shepherds Producers Co-operative Limited (which I shall call "SPC") is, by virtue of s.29 of the Co-operatives Act 1992, a body corporate with perpetual succession, a common seal and other incidents of incorporation. Mr Kerr and Mr Marsden became administrators of SPC pursuant to the provisions of Part 5.3A of the Corporations Act 2001 (Cth) as made applicable to co-operatives by s.332 of the Co-operatives Act. That happened on 14 May 2003. SPC subsequently became subject to the form of creditors voluntary winding up that follows on from such administration. Again, this occurred under the statutory regime by which provisions of Commonwealth law governing corporations are made applicable by State law to co-operatives. 2 The present application by Mr Kerr and Mr Marsden was referred by a registrar to a judge because, although on its face within the province of a registrar, it raises a particular issue of principle. It concerns the conduct of examinations under s.596A of the Corporations Act. 3 The Parliament of New South Wales has caused the provisions in Divisions 1 and 2 of Part 5.9 of the Corporations Act (which include s.596A) to apply to co-operatives with certain modifications. This is the effect of s.229 of the Co-operatives Act: " Application of Corporations Act provisions concerning officers of co-operatives (cf Vic Act s 228) A co-operative is declared to be an applied Corporations legislation matter for the purposes of Part 3 of the Corporations (Ancillary Provisions) Act 2001 in relation to sections 589-598 and 1307 of the Corporations Act, subject to the following modifications: (a) a reference in those sections to a company is to be read as a reference to a co-operative, (b) a reference in those sections to ASIC is to be read as a reference to the Registrar,

(c) section 592 (1) (a) is to be read as if the reference to 23 June 1993 were a reference to 15 December 1995, (d) such other modifications (within the meaning of Part 3 of the Corporations (Ancillary Provisions) Act 2001 ) as may be prescribed by the regulations." 4 As a result and having regard to Part 3 of the Corporations (Ancillary Provisions) Act 2001 of New South Wales (including s.18 which causes references to "the Court" to be read as references to the Supreme Court of New South Wales), the court must proceed on the footing that, by force of State law, the rights, duties, powers and other matters provided for in the identified provisions of the Commonwealth Act apply to SPC on the modified basis referred to in State law. The provision of the Corporations Act of immediate relevance is s.596A: " Mandatory examination The Court is to 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 is an officer or provisional liquidator of the corporation or was such an officer or provisional liquidator during or after the 2 years ending: (i) if the corporation is under administration - on the section 513C day in relation to the administration; or (ii) if the corporation has executed a deed of company arrangement that has not yet terminated - on the section 513C day in relation to the administration that ended when the deed was executed; or (iii) if the corporation is being, or has been, wound up - when the winding up began; or (iv) otherwise - when the application is made." 5 Relying on the applied provisions of the Corporations Act, the liquidators applied under s.596A for the issue of summonses summoning twelve "officers" of SPC for examination about its examinable affairs. Summonses were issued on 22 April 2004. Related orders for the production of documents were made. 6 Between 21 and 23 June 2004, seven of the twelve persons were examined. At the conclusion of questions and answers at each such examination, the presiding registrar said words to the following effect, addressed to the examinee: "Your examination is stood over generally with liberty for the liquidators to restore it on giving you 14 days notice. If your examination is not restored in the next six months it is deemed to be concluded." 7 The purport and effect of that order or direction are clear enough. The examinee was not discharged immediately. The ability of the liquidators to rely upon the extant examination summons as a basis for further examination of the person concerned was preserved, although on the basis that it would be necessary for the liquidators to give fourteen days notice in order to re-activate the examination and that re-activation was permitted only if the notice was given in time to ensure that the examination resumed not later than six months after the making of the order or direction. Once that period of six months had expired, the summons would no longer form the basis for compulsion for the examinee to attend and submit to examination. This is a course often adopted in relation to such examinations: see Re Stoliar; Australian Securities and Investments Commission v Karl Suleman Enterprises Pty Ltd (in liq) (2003) 44 ACSR 694. 8 The remaining persons on whom examination summonses were served have not been examined at all. The registrar made on 23 June 2004 a corresponding order or direction in relation to them: "… those examinations are stood over generally with liberty to restore on giving two weeks notice. If they are not restored in the next six months, they will be deemed to be concluded." 9 Because of the orders or directions made in all twelve cases on 21 and 23 June 2004, none of the persons summoned can any longer be required to attend for examination in obedience to the original summons. 10 The first matter the registrar has now referred to a judge is an application by the liquidators of SPC for the issue of further examination summonses directed to certain of the persons to whom I have referred. This is item 1 in the liquidators' amended interlocutory process filed on 6 February 2006. 11 The central question is straightforward: is it open to a liquidator upon whose application a particular person within the purview of s.596A has already been summoned for examination to make a renewed application for a summons under that section in respect of the same person, where the compulsion arising from the first summons was kept alive for a period of six months (in order to accommodate the possibility that the liquidator might wish to examine during that period) but was not utilised by the liquidator? 12 Mr J.R.J. Lockhart of counsel, who appeared for the liquidators, submitted that this question must be answered in the affirmative. Mr Lockhart pointed out that s.596A is a provision positively requiring the court to act by issuing a summons if two conditions are satisfied: first, the person seeking the issue of the summons is an "eligible applicant"; and, second, the court is satisfied that the person in respect of whom the application is made is (or was within a defined period of two years) an "officer". Once those conditions are satisfied, Mr Lockhart submitted, the court is compelled to act. In addition, it is made clear by rule 11.3(2) of the Supreme Court (Corporations) Rules 1999 that the application may be made without notice to any person. 13 Mr Lockhart accepted that an examination summons could not stand if found to be an abuse of the process of the court: see, for example, Re New Tel Ltd (in liq); Evans v Wainter Pty Ltd (2005) 54 ACSR 284. But, as he pointed out, that issue, if raised at all, will, as in the New Tel case, normally be raised by the prospective examinee upon an application for an order discharging the examination summons. Provision for a person served with an examination summons to seek to have it discharged is made by rule 11.5 of the Supreme Court (Corporations) Rules. The court will therefore not normally consider the abuse of process possibility when an ex parte application is made by a liquidator under s.596A. 14 Mr Lockhart submitted that, in light of the provisions of s.596A and the rules to which I have referred, a liquidator is entitled to have the court issue a second or subsequent examination summons in circumstances of the present kind, at the same time running the risk (including as to costs) that the person summoned will make a successful application to have the summons discharged or, perhaps, to have the scope of the further examination curtailed by appropriate directions under s.596F(1) or s.597(5B). 15 I accept these submissions. The court is not given any discretion by s.596A. It must cause an examination summons to issue in every case where the statutory pre-conditions are satisfied. It makes no difference that an earlier summons directed to the same person has issued. That matter, if it is to become relevant at all, will be relevant if and when the person on whom the summons is served later moves to have it set aside. 16 The liquidators make a second and related application. They seek an order that nine of the twelve officers to whom I have already referred should each file and serve an affidavit setting out his or her assets and liabilities. In making this application, the liquidators rely on s.597A of the Corporations Act as imported by the Co-operatives Act provisions to which I have referred: " When Court is to require affidavit about corporation's examinable affairs

(1) The Court is to require a person to file an affidavit about a corporation's examinable affairs if: (a) an eligible applicant applies for the requirement to be made; and (b) the Court is satisfied that the person is an examinable officer of the corporation or was such an officer during or after the 2 years ending: (i) if the corporation is under administration - on the section 513C day in relation to the administration; or (ii) if the corporation has executed a deed of company arrangement that has not yet terminated - on the section 513C day in relation to the administration that ended when the deed was executed; or (iii) if the corporation is being, or has been, wound up - when the winding up began; or (iv) otherwise - when the application is made; even if the person has been summoned under section 596A or 596B for examination about those affairs.

(2) The requirement is to: (a) specify such of the information requested in the application as relates to examinable affairs of the corporation; and (b) require the affidavit to set out the specified information; and (c) require the affidavit to be filed on or before a specified day that is reasonable in the circumstances.

(3) A person must not refuse, or intentionally or recklessly fail, to comply with a requirement made of the person under subsection (1).

(3A) Subsection (3) does not apply to the extent that the person has a reasonable excuse. Note: A defendant bears an evidential burden in relation to the matter in subsection (3A), see subsection 13.3(3) of the Criminal Code .

(4) The Court may excuse a person from answering a question at an examination about a corporation's examinable affairs if the person has already filed an affidavit under this section about that corporation's examinable affairs that sets out information that answers the question." 17 Mr Kerr, one of the liquidators, deposes to a belief that causes of action may exist against the relevant officers of SPC in respect of insolvent trading or breach of duty. The viability of any such claims falls within the "examinable affairs" of a corporation according to the definition of that expression in s.9 of the Corporations Act. An aspect of viability is the capacity of potential defendants to meet any judgment that may be obtained. In Re The Duke Group Ltd; Gerah Imports Pty Ltd v The Duke Group Ltd (1994) 68 ALJR 196, Dawson J, sitting as a single judge of the High Court, confirmed that the "extent and value" of causes of action available to a liquidator are within the corporation's "examinable affairs". The relevant authorities were referred to and discussed by Young J in his recent decision in Re Quick Plumbing Australia Pty Ltd [2005] FCA 1850 (16 December 2005): "The statutory definition of 'examinable affairs' in s 9 of the Act, read with s 53, casts a very broad net. Because of s 53, s 9 catches anything that is included in the corporation's affairs. The examinable affairs of a company include an inquiry into the value of property or other interests held by the company. Such property includes the company's choses in action, including any right of action that the company may have against the persons summoned. In HAJ Ford, RP Austin and IM Ramsay, Ford's Principles of Corporations Law ('Ford'), at 27.170.1, the learned authors point out that, in the context of rights to take legal action, the examination is not confined to the question of the existence of the right of action; it extends to the nature, scope and value of the right of action so that the liquidator or administrator may assess prospects of success before committing property of the company to the expense of litigation: see Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 (' Grosvenor Hill' ); Morton v Joynson (1999) 31 ACSR 76; and Re Clutha Ltd (2000) 34 ACSR 685. In Re Bosun Pty Ltd (in liq) (2000) 34 ACSR 597 at 599 the Court held that examining the value of a right of action can involve examining a former director about his capacity to satisfy any judgment that might be obtained against him." 18 Having regard in particular to the last part of this extract, I am satisfied that the affidavits the liquidators wish to obtain from the officers concerned are affidavits "about a corporation's examinable affairs". That being so and since the pre-conditions in paragraphs (a) and (b) of s.597A(1) (which correspond with those in paragraphs (a) and (b) of s.596A) are satisfied, the case is one in which the court "is to require" each of those persons to file the affidavit. In saying this, I take the view that the reference to "examinable officer" in s.597A(1)(b) should be regarded as a reference merely to an "officer" who is susceptible to examination under s.596A. The definition of "examinable officer" was repealed in 2004 and the expression is not used elsewhere in the Act. 19 There does not exist, in the s.597A context, any equivalent of rule 11.3(2) of the Supreme Court (Corporations) Rules 1999 (see paragraph [12] above). There is accordingly no explicit displacement of the general expectation that an order affecting a person should not be made unless the court can see that the person has had adequate notice of the application. But the situation is so analogous with that arising under s.596A that I consider the same principles to be applicable, so that the court may make the order upon an ex parte application and will then entertain any later application by the affected person for an order setting it aside. The analogy is, as a practical matter, particularly strong where, as here, the s.597A requirement is to be imposed at the same time as the compelling effect of s.596A is invoked. I note that an order under s.597A was made by Hamilton J upon an ex parte application in Singleton re Original Displays (Australia) Pty Ltd [2003] NSWSC 459. 20 I should add that I have assumed in the discussion above that provisions of the Supreme Court (Corporations) Rules 1999 apply to this matter even though the proceedings are in respect of a co-operative to which the relevant provisions of the Corporations Act are applied by State legislation. The correctness of that assumption is, I think, borne out by s.10 of the Corporations (Ancillary Provisions) Act 2001 of New South Wales, at least insofar as concerns such provisions of the Supreme Court (Corporations) Rules as were in force on 15 July 2001 as rules of court made under s.51 of the Corporations (New South Wales) Act 1990 of New South Wales. The Supreme Court (Corporations) Rules 1999 (which then had the short title Corporations Law Rules and were rules made under s.51 of the Act of 1990) were adopted with effect from 1 March 2000 and, as regards the particular provisions to which I have referred, there has been no change since 15 July 2001. In particular, rule 11.3(2) in its present form dates from 30 June 2001, having been adopted by Corporations Law Amendment (No 2) Rules 2001. 21 I make the following direction and order: 1. Direct that the registrar cause to be issued summonses for examination as sought in paragraph 1 of the amended interlocutory process filed on 6 February 2006. 2. Order that, within 21 days after being served with a sealed copy of this order, each of Douglas Bell, Rel Llewellyn Heckendorf, Peter Gain, Paul Burkinshaw, Barbara Douglas, Anthony J. Lehman, John Begg, John Lamont and John McCormack file and serve on Piper Alderman, the solicitors for the liquidators of Shepherds Producers Co-Operative Limited, an affidavit setting out his or her assets and liabilities. **********

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