ROBERT MICHAEL KIRMAN as liquidator of ACN 142 745 337 (IN LIQ) [2020] WASC 129 (23 April 2020)

(3) An application under subsection (1) may only be made:

(a) during the period beginning on the relation-back day and ending:

(i) 3 years after the relation-back day; or

(ii) 2 months after the first appointment of a liquidator in relation to the winding up of the company;

whichever is the later; or

(b) within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period.

1. What is striking about s 588FF(3)(b) is that the power of the court is unqualified. The subsection embodies a discretion and no doubt that discretion is to be exercised judicially. There is nothing in the subsection which indicates in any way what factors are to be taken into account in the exercise of discretion. Nonetheless in various cases principles have been laid down which, while not necessarily binding, provide a guide as to the thinking of various judges. For instance, in Onefone Australia Pty Ltd v One.Tel Limited [2007] NSWSC 69; (2007) 61 ACSR 246 the court determined that an indeterminate extension could not be granted but instead there must be a fixed definite period for making the substantive applications. In Greig v Stramit Corporation Pty Ltd [2003] QCA 298; [2004] 2 Qd R 17 the court determined that although applications are generally made on an ex parte basis notice should be given to persons affected by the application as they have a right to be heard on the application.
2. In the course of hearing counsel for the interested parties did not challenge any of these principles. But it must be accepted the two decisions to which I have referred and the principles drawn from those decisions put a gloss on the statute. By way of contrast it is clear the only party that has standing to bring an application under s 588FF(3)(b) is the liquidator. That is clear from the text of the legislation. So, in this case while I made orders requiring interested parties to be served in conformity with the approach adopted by the liquidators I am by no means satisfied that approach is required by the legislation. Equally, I can see no reason why a fixed period within which to bring proceedings is required. However, so far as this case is concerned both issues can be put to one side.
3. The fact that the legislature has mandated a three year period within which a liquidator is to commence proceedings, points to the fact there is not to be 'in ordinate delay' on the part of a liquidator: see Green v Chiswell Furniture Pty Limited (in liq) [1999] NSWSC 608 [14]. But the power to grant an extension recognises there may be some cases where through no fault of the liquidator bringing an action within three years is not possible. Barrett JA in Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2014] NSWCA 148 put the position as follows:

Liquidators are told, in effect, that it is their duty, generally speaking, to initiate any voidable transaction proceedings within the specified three year period; and that, if there is good reason to think that further time is needed, they must, before the expiration of the three years, make an application to the court with a view to persuading it that an extension should be granted. The clear expectation is that liquidators will, within the three years, do two relevant things: commence all such recovery actions as available evidence and resources make it feasible and sensible to pursue; and consider whether there are genuine prospects that pursuit of other recovery actions might prove to be feasible and sensible if further time is made available [129].

1. The cases make it clear that there are at least four matters to be taken into account in considering whether to exercise the discretion. These are:

(a) the complexity of the affairs of the companies and the gross deficiencies in the records;

(b) the lack of assets in the companies and any lack of financial resources to fund an investigation;

(c) the impact of other proceedings that may have commenced; and

(d) the conduct of the s 596A examination for the purpose of obtaining further evidence.

1. Whilst an extension order under s 588FF(3)(b) will generally specify the transactions and persons in respect of which it is made, it is now clear that where a liquidator cannot by the end of the three year period identify all transactions and parties to be pursued under s 588FF, the court can grant 'an extension in general terms without notice or reference to any particular or identified defendant or any particular section 588FF(1) transaction'. These are so called 'shelf' orders. There was some doubt as to the availability of such orders but that has now been put to rest by the High Court in Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2015] HCA 10 [26] ‑ [27]. It may well be that such orders are 'exceptional' as Barrett J observed in Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq) [2004] NSWSC 1244; (2004) 52 ACSR 103.
2. Turning then to the facts of this case, the plaintiffs maintained there were a number of different grounds which meant it was fair and just for the relevant limitation periods to be extended. In par 29 of his written submissions counsel for the plaintiffs listed the matters as follows:

(a) the complexity of the corporate group of which the Liquidation Entities form part;

(b) the number and scale of the transactions that the Liquidation Entities into prior to the appointment of the Plaintiffs as administrators and liquidators;

(c) the significant delays encountered in relation to the proposed section 596A public examinations of Mr Alan Caratti and Ms Tina Bazzo by reason of their respective appeals (most recently to the Supreme Court of Western Australia Court of Appeal) of orders obtained by the Plaintiffs that such examinations should, as is typically the case, proceed as public examinations;

(d) the extensive document production endeavours and investigations that the Plaintiffs have undertaken demonstrate that the need for extension is not a product of delay or inaction by the Plaintiffs;

(e) the limited books and records that have been made available to the Plaintiffs by the directors and officers (and former directors and officers) of the Liquidation Entities;

(f) the lengths to which certain of the directors and officers (and former directors and officers) of the Liquidation Entities have gone to deny the Plaintiffs unfettered access to the books and records of the Liquidation Entities and documents relating to those entities;

(g) the various Court proceedings that the Plaintiffs have been required to participate in over a number of years with a view to facilitating access to the books and records of the Liquidation Entities and documents relating to those entities; and

(h) the Plaintiffs' confidence that they may be able to identify, investigate and make decisions on whether to prosecute claims for relief under section 588FF(1) of the Act once they have obtained access to the books and records of the Liquidation Entities and documents relating to those entities (and had an opportunity to consider and take advice on those materials).

1. The plaintiffs say and I accept they have had difficulty in investigating the pre‑liquidation conduct and affairs of the liquidation entities. This is in part due to the complexity and scale of the broader group of which the liquidation entities form part. The liquidation entities form part of a much larger group of corporate entities and trusts of which Mr Caratti and Ms Bazzo are either the director, former director, shareholder, beneficiary or otherwise related.[4] The broader Caratti/Bazzo group consists of an aggregation of proprietary companies, family trusts and bare trusts involved in real estate in Western Australia. Primarily in the business of the development of lots for residential, commercial and industrial purposes in addition to investment in commercial and farming properties leased to third parties.[5]
2. As a consequence of their investigations the plaintiffs have reached a number of conclusions. First, GH1 and MNWA were the main trading entities for the various businesses. Second, GH1 held the majority of real personal property for the purposes of development and a substantial amount of that property was and remains subject to mortgages and other finance arrangements. Third, MNWA owned the material plant and equipment and conducted much of the day to day development work of the businesses. Four, ACN managed the day to day construction of the development projects and entered into various development projects within the broader business group. Five, Stockholm was a discreet entity holding real property for a single development in Wanneroo. Finally, 293 Nicholson was incorporated for the purpose of replacing WLC as trustee of the Whitby trust with that replacement taking place sometime in 2017.[6]
3. The fact is the plaintiffs are dealing with a very complex business or businesses. They have been appointed only over eight entities of a potential of one hundred or more entities involved in the business. For reasons which I will come to below. The liquidators have so far had access in the course of their employment to a very limited range of books and records. It is clear from the affidavit evidence the liquidators have not as yet been able to identify, investigate and assess potential voidable transactions arising from the dealings of the liquidation entities.
4. As matters stand at present, the liquidators calculate the liabilities of the liquidation entities at over $310 million. Of that amount just under $150 million is claimed by the Australian Tax Office.[7] The extent of the insolvency gives some indication of the size and complexity of the business. Without going through the extensive evidence contained in Mr Kirman's affidavit it is clear that items (a) and (b) referred to above have been made out.
5. It is the plaintiffs' position that to date they have conducted extensive information collection activities with a view to better informing themselves in relation to the business, property and affairs of the liquidation entities. In par 43 of this written submissions counsel for the plaintiffs summarises, accurately in my view, the evidence as to what investigations have been undertaken by the plaintiffs. They are:

(a) conducted investigations in relation to the nature, extent, condition and location of the asset holdings of the Liquidation Entities;

(b) commenced and participated in various legal proceedings (described further below) with a view to obtaining access to books and records that the Plaintiffs have been unable to access, including applying for an injunction for access to electronic books and records of the liquidated entities;

(c) lodged caveats over real property to protect the legal and beneficial interests that the Liquidation Entities have, or may have, in such properties;

(d) applied to Court to extend the operation of several caveats following applications made to Landgate to lapse some of those caveats;

(e) issued various statutory notices to the directors and other persons related to the Liquidation Entities (including financiers, employees, agents, accountants, solicitors and other service providers) requiring the production of books and records. The liquidators have issued the following number of notices for each entity:

(i) 40 in respect of GH1;

(ii) 45 in respect of MNWA;

(iii) 43 in respect of ACN;

(iv) 38 in respect of Stockholm; and

(v) 37 in respect of 293 Nicholson;

(f) issued a considerable volume of correspondence to other persons related to, or having had dealings with, the Liquidation Entities (including employees, agents, financiers, statutory authorities, accountants, solicitors and other service providers) seeking information to assist them with their investigations;

(g) applied to Court for the issuance of examination summonses and orders for production of documents relating to the Liquidation Entities. The Plaintiffs have caused:

(i) 42 production orders to be issued in respect of GH1;

(ii) 1 production order to be issued in respect of MNWA;

(iii) 4 production orders to be issued in respect of ACN;

(iv) 7 production orders to be issued in respect of Stockholm;

(v) an examination summons to be issued to Ms Bazzo in respect of GH1;

(vi) an examination summons to be issued to Mr Caratti in respect of ACN and Stockholm;

(vii) an examination summons to be issued to Mr Darryl Kipping in respect of MNWA and Stockholm;

(viii) an examination summons to be issued to Mr David Ward in respect of GH1, MNWA, ACN and Stockholm; and

(ix) an examination summons to be issued to Mr Vincenzo Nobile in respect of Stockholm;

(h) successfully defended an application (and subsequent appeal heard de novo) by Mr Caratti and Ms Bazzo to have their public examinations heard in private. As noted above at paragraphs 40 and 41, Mr Caratti and Ms Bazzo are continuing with a further appeal to the Supreme Court of WA (Court of Appeal);

(i) conducted 3 examinations, 2 of which were heard in public and 1 in private;

(j) made demands for payment of various inter-related party loans;

(k) issued a statutory demand to an entity associated with Ms Bazzo, being 220 St Georges Terrace Pty Ltd, and resolved a subsequent application to set aside that demand;

(l) corresponded with a number of persons and entities to seek information and documentation as to the status of assets and liabilities of each of the liquidated entities;

(m) issued various Freedom of Information requests, attended a meeting with (and inspected numerous documents held by) the Office of State Revenue in relation to real properties in which the liquidated entities may have a beneficial interest;

(n) reviewed numerous files held by at least 4 firms of former solicitors for the Liquidation Entities; and

(o) reviewed various lists of documents and instructed solicitors and counsel to physical review 250 archive boxes of documents seized by the AFP and ATO and which documents were, until very recently, the subject of claims for legal professional privilege (which claims have substantially delayed the Plaintiffs' access to documents relevant to the Liquidation Entities and the investigations that the Plaintiffs are required to conduct, including in relation to potential voidable transaction claims).

1. On that basis I am satisfied that point (d) above is made out by the plaintiffs.
2. At par 44 of the First Kirman affidavit, Mr Kirman sets out the books and records he would ordinarily expect to receive on appointment of liquidators. In fact no such books and records exist or if they do they have not as yet been provided to the plaintiffs by the directors. The plaintiffs consider the volume of documents produced by the directors and officers to date has been minimal, particularly in light of the extent of the commercial activities and revenues that were generated by the liquidation entities. The interested parties dispute that that is the case. Taking into account the extent of the insolvency and what that indicates about the income generated by the liquidation entities business activities I am satisfied the plaintiffs have made good this point. In other words, I accept as at that date of these applications the plaintiffs are not in possession of books and records that would allow them to commence proceedings. In other words, point (e) above has been made out.
3. Points (c), (f) and (g) all deal with litigation which has taken place between the plaintiffs and the interested parties in relation to production of books and records. I do not propose to detail the evidence in relation to these matters. It is sufficient if I say that numerous court actions are, or have been, taken by both the plaintiffs and the interested parties in relation to production of books and records. The tone of the evidence filed on behalf of the plaintiffs is to the effect that the actions taken by the interested parties are designed to delay the process of the liquidation and in some way frustrate the efforts of the plaintiffs. As was submitted on behalf of the interested parties, every person who has rights, be they rights which accrue under the Corporations Act or Common Law rights, is entitled to access to the courts to protect those rights. In my view, it would be inappropriate to view the actions of the interested parties as in some way improper and designed to frustrate the plaintiffs. The fact is the litigation which has taken place and which is currently on foot has delayed the progress of the liquidation. That delay is it seems unavoidable ‑ it is a necessary concomitant of the litigation. While it would be inappropriate to blame the interested parties in any way for this delay, the fact is the delay has occurred. The fact of the delay consequent upon litigation is a reason why time ought to be extended. On that basis I am satisfied that items (d) and (g) have been made out. However, item (f) is in pejorative terms and does not I think do the interested parties justice. But, nonetheless the delay which has occurred is sufficient to warrant an extension of time.
4. Finally, the plaintiffs are of the view that given more time they can frame actions together with supporting evidence which will allow them to properly bring proceedings. In my view this is an important conclusion. I accept it is based upon the extensive evidence in the affidavit material. It also represents the professional judgment of liquidators who have undertaken extensive investigation and who are best placed to make a judgment about these matters. The opinion of the liquidators supports the application.
5. Turning then to the submissions put on behalf of the interested parties the main emphasis was on the fact there is a statutory limitation and exceptional circumstances are required to extend that limitation.[8] In particular, objection was taken to the fact the plaintiffs were seeking shelf orders.[9] Taken in the overall, it was submitted the evidence simply did not go so far as to show the plaintiffs had taken all reasonable steps to properly investigate any potential claims when with the material available they could reasonably have done so.
6. In large measure the submissions on behalf of the interested parties were to the effect that the various legal proceeding taken by the interested parties should not be seen as indicating some deep seated resistance to cooperating with the liquidators. Rather, they should be viewed as a party exercising his or her legal rights. I have dealt with this issue above. But, the approach I have adopted bears repeating. The orders I intend to make do not factor in any fault or blame on the part of the interested parties. What is important is the fact of the actions and the delay consequent upon those actions. The fact of the delay supports an extension of the limitation period; motive for the actions is irrelevant.
7. There is one further aspect of the interested parties' submissions which deserves mention. Counsel both in his written and oral submissions pointed to the fact that there is no utility in making an order extending the time limit if the plaintiffs do not have funding to bring any action. That funding would necessarily include funding to cover adverse costs orders.[10] In this case the volume of evidentiary material and the investigations still to be undertaken in my view make it impractical for any party to take a final decision as to whether or not proceedings should be issued. As counsel for the interested parties pointed out the length of the extension is unusual - affectively 18 months when the limitation period itself is only three years. But what is clear from the evidence in this case is that much further work is needed before any final decision to institute proceedings is taken. To refuse an extension of time at this stage because funding in all its aspects is not guaranteed is not appropriate.
8. For these reasons I was satisfied orders in terms of the plaintiffs' originating processes ought be made. These orders were made on 30 March 2020.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[2] Affidavit of W J Harris sworn 8 January 2020 [3].

[4] First Kirman affidavit [22]; Plaintiffs' submissions filed 5 March 2020 [30].

[5] First Kirman affidavit [23]; Plaintiffs' submissions filed 5 March 2020 [31].

[6] First Kirman affidavit [29]; Plaintiffs' submissions filed 5 March 2020 [33].

[7] First Kirman affidavit [40]; Plaintiffs' submissions filed 5 March 2020 [37].

[8] Interested parties' submissions filed 13 March 2020 [7] - [16].

[9] Interested parties' submissions filed 13 March 2020 [17] ‑ [19].

[10] Interested parties' submissions filed 13 March 2020 [40] ‑ [41].