Shaw (Liquidator) v GO2 Recruitment Pty Ltd, in the matter of VCS Civil and Mining Pty Limited - [2021] FCA 681 - FCA 2021 case summary — Zoe

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Shaw (Liquidator) v GO2 Recruitment Pty Ltd, in the matter of VCS Civil and Mining Pty Limited

[2021] FCA 681

Federal Court of Australia|2021-06-30|Before: Cheeseman J

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At a glance

Source facts

Court

Federal Court of Australia

Decision date

2021-06-30

Before

Cheeseman J

Source

Original judgment source is linked above.

Judgment (15 paragraphs)

[1]

Background 5 The proceedings have now been resolved against 12 defendants but remain pending against six defendants. At the time the Plaintiffs' Interlocutory Application was listed for hearing, a competing Interlocutory Application, filed by the Eighth Defendant was also listed for hearing. The Eighth Defendant sought to be removed as a party pursuant to r 9.08 of the Rules, or alternatively to have the proceedings against it dismissed. That hearing of that application was adjourned on the Eighth Defendant's application. It proved to be unnecessary to determine the Eighth Defendant's application because the Plaintiffs and the Eighth Defendant settled and the proceedings against the Eighth Defendant were dismissed by consent. 6 In support of their Interlocutory Application, the Plaintiffs read two affidavits of the First Plaintiff sworn on 4 February 2021 and 18 March 2021 respectively and two affidavits of Nicholas Berry, solicitor, affirmed on 18 March 2021 and 20 May 2021 respectively. Based on that evidence the following matters are established.

[2]

The Company 7 The Company was incorporated on 23 May 2012. It previously traded under the name Viento Contracting Services Pty Ltd. The Company's sole director, Craig Matthew George Harding, was appointed on 20 May 2016. The Company's ultimate holding company is VCS Holdings (Aust) Pty Ltd (in liquidation) (VCS Holdings). 8 The Company conducted a business of contract mining, civil earthworks and the lease of mining plant and equipment, particularly in respect of the Rose Dam Gold Mine and the Kalpini Gold Mine projects in the Pilbara region of Western Australia. The business was conducted in concert with a number of related entities. 9 At the time the Company was placed into voluntary administration, it employed approximately 139 staff. The Liquidators procured payment of unpaid employee entitlements through the Fair Entitlement Guarantee scheme.

[7]

Commencement of the Substantive Proceedings 16 As noted above, the Plaintiffs commenced one day before expiration of the 3 year limitation period under s 588FF of the Corporations Act, without obtaining leave to proceed against multiple defendants in circumstances where the precondition of doing so in r 9.02(b) was not met. 17 The Originating Process included a prayer for interim relief seeking an order, purportedly pursuant to r 9.02, that the Plaintiffs be granted leave to join the Defendants to the Originating Process as defendants. At the first case management hearing, which occurred after the expiration of the limitation period, the Plaintiffs sought timetabling orders to have the present application to regularise the proceedings heard. In their evidence the Plaintiffs explained the time taken to commence the proceedings by reference to the following issues: (1) difficulties the Liquidators experienced in accessing the Company's books and records arising from their dealings with the Remagen Receivers; (2) inability to access the Company's server without IT assistance occasioning a delay of several months; (3) inadequacy of the Company's electronic accounting software; (4) the complexity of the Company's operations; (5) logistical constraints in accessing both hard copy materials and also electronic records arising because of restrictions imposed by the Federal and State governments in Western Australia during the period from March 2020 to June 2020 in response to the COVID-19 pandemic; (6) time engaged in review of voluminous documentation on the Company's computer server, comprising 2.76 terabytes of data and including approximately 90 separate email account; (7) the Liquidators' involvement in other court proceedings, including against the Company's former director for insolvent trading; (8) the issuing of demands or further demands to creditors which included the preparation of, and redaction of, draft pleadings, such redaction being necessary to avoid disclosure of the identity of proposed defendants which were publicly listed companies; (9) pre-commencement settlement of claims with the potential defendant creditors from about 14 January 2021 which gave rise to the need to amend draft court documentation to reflect those settlements and also to eliminate claims that the Liquidators ultimately elected not to pursue; and (10) attempts to properly exhaust all pre-litigation steps before commencing proceedings. 18 The Liquidators submit that in the circumstances they have acted with diligence. The Liquidators' evidence demonstrates that prior to commencement they reconciled batch payments from the Company's bank account, identified unfair preference payments in respect of 21 creditors, issued relevant demands and caused the settlement of claims against eight of the defendants.

[13]

Discretionary Factors (1) Mothership proceedings come with significant procedural advantages. There will be issues of law and fact common to the claims against each of the defendants. They will potentially include the issue of when the company became insolvent, which may give rise to a substantial dispute of fact and law: Dudley No 2 at [4(1)]. (2) Where mothership proceedings are commenced irregularly a factor in favour of the exercise of the power under r 9.08 to remove a defendant as a party will be any failure by the plaintiff to take steps to promptly regularise the proceedings: Dudley at [56]. I interpolate to add that the steps a plaintiff takes to regularise the proceedings will similarly be a significant factor in the exercise of the Court's discretion in an application under s 51 of the Federal Court Act and r 1.34. (3) In an application to regularise mothership proceedings which were commenced without leave and in circumstances where expiration of the limitation period was imminent, the plaintiffs should explain why proceedings were commenced so close to the end of the limitation period, why it was not practicable to apply for leave ex parte before joining multiple unrelated defendants, and why they did not seek an extension of time to commence proceedings under s 588FF(3)(b) of the Corporations Act: Dudley at [57]; Dudley No 2 at [4(8)]. (4) A significant factor in an application to remove a party as a defendant, and I interpolate, to regularise mothership proceedings, in the context where the relevant limitation period has expired post commencement of the proceedings, is the potential for irreversible prejudice if the liquidators are prevented from pursuing claims in the interests of unsecured creditors, who presumably have had no input into the course the liquidators have taken: Dudley at [58] - [59]; Dudley No 2 at [4(7)]. (5) The prejudice to unsecured creditors is a substantial factor which weighs in favour of exercising the discretion to regularise proceedings of this kind. The object of the Court is not to punish parties for mistakes made in the conduct of their case, but to correct errors with the result that a decision can be made on the real matters in controversy: Caason Investments Pty Ltd v Cao [2015] FCAFC 94; (2015) 236 FCR 322 at [20] (Gilmour and Foster JJ). Even less is it the object of the Court to punish third parties for the mistakes of those who represent their interests: Dudley No 2 at [14]. 29 In Jahani (liquidator) v Alfabs Mining Equipment Pty Ltd, in the matter of Delta Coal Mining Pty Limited (in liq) [2020] FCA 752 at [17] - [19], Stewart J, in the context of an urgent application for leave to join multiple defendants to mothership proceedings that had been irregularly commenced, observed that the commencement of separate proceedings would add significant costs to the pursuit of the unfair preference claims, would require allocation of significant judicial resources and would risk inconsistent findings in relation to common issues of law and fact. Justice Stewart further noted that the Court has available to it in mothership proceedings case management strategies to accommodate issues that are unique to individual defendants, including where necessary separating out from the case against a particular defendant under r 9.06 of the Rules at a stage in the proceedings when it becomes appropriate to do so. I have also taken these matters identified by Stewart J into account in considering the present application.

Parties

Applicant/Plaintiff:

Shaw (Liquidator)

Respondent/Defendant:

GO2 Recruitment Pty Ltd, in the matter of VCS Civil and Mining Pty Limited

Legislation Cited (4)

Federal Court Rules 2011(Cth)

Federal Court of Australia Act 1976(Cth)

Federal Court (Corporations) Rules 2000(Cth)

Corporations Act 2001(Cth)

Cases Cited (8)

CHEESEMAN J: 1 The First and Second Plaintiffs are the liquidators of the Third Plaintiff, VCS Civil and Mining Pty Limited (receivers and managers appointed) (in liquidation) (the Company). The Plaintiffs commenced these proceedings against 18 defendants seeking to recover as unfair preferences separate payments made by the Company to each defendant. Proceedings of this type are sometimes called 'mother' or 'mothership' proceedings: see Dudley (Liquidator) v RHG Construction Fitout & Maintenance Pty Ltd [2019] FCA 1355 at [2]. 2 The application before me is an Interlocutory Application by the Plaintiffs seeking to regularise the proceedings. The present proceedings were commenced irregularly by filing a single Originating Process under r 2.2 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules). The irregularity derived from the fact that the proceedings were against multiple defendants but did not comply with Federal Court Rules 2011 (Cth) (Rules) in that the relief claimed does not "arise out of the same transaction or event or series of transactions or events" as is required by r 9.02(b) of the Rules. 3 The proceedings were commenced on 5 February 2021, immediately before expiration of the applicable three year limitation period imposed by s 588FF(3)(a)(i) of the Corporations Act 2001 (Cth)(Corporations Act). The application is significant for procedural and substantive reasons because if the Plaintiffs are required to commence new proceedings they will be out of time to do so. There is thus a potential for irreversible prejudice to the Company's creditors if the Plaintiffs are required to recommence the proceedings: Johnston v Vintage Developments Pty Limited [2006] FCAFC 171 at [23]. 4 For the reasons which follow I make orders substantially in the form sought by the Plaintiffs.

(2015) 236 FCR 322

(2006) 225 CLR 364