Tanning Research Laboratories Inc v O'Brien

Evidence 4 In support of the application, the liquidator relied upon two affidavits, the first affidavit sworn by him on 16 March 2020 (accompanied by exhibit AJB-1) and a second affidavit sworn 21 April 2020 which proved service of the application on the creditors of the company and Profiles. 5 On 18 March 2020, the Court made orders that it would determine the application on the papers provided it was satisfied that the creditors of both the company and Profiles had been given notice of the application and sufficient opportunity to oppose the orders sought.

Notice to creditors 6 The known creditors of the company are: (1) GIO Work Cover; (2) Deputy Commission of Taxation; and (3) Profiles. 7 The known creditors of Profiles are: (1) Kamper Chartered Accountants; and (2) Deputy Commissioner of Taxation. 8 I was satisfied by the liquidator's 21 April 2020 affidavit that each of these creditors has been given notice of the application and a sufficient opportunity to oppose the orders sought. No creditor notified the liquidator or the Court of any objection to the orders sought. 9 Accordingly, I proceeded to determine the application on the papers, on the basis of the evidence contained in the liquidator's 16 March 2020 affidavit and written submissions filed on behalf of the liquidator.

Background 10 The company was placed into liquidation on 5 September 2014. Profiles was placed into liquidation on 8 September 2014. Whilst other liquidators were appointed to the company and Profiles over the years, the liquidator is currently the sole liquidator of both entities. 11 Prior to their liquidation, the company and Profiles were engaged in the business of labour hire. 12 The windings up of the two companies are largely complete save for the subject matter of the application and payment of final dividends to their creditors. 13 The present application arises because the books and records of the company as at 30 June 2014 record a loan from Profiles in the sum of $505,942.77, whilst the records of Profiles show the loan in the sum of $536,721.87. The difference is $30,779.10. 14 The liquidator has conducted thorough investigations into the discrepancy of the loan amount. Those investigations included: (1) examining the financial records of the company and Profiles; (2) reviewing the general ledgers of each of the company and Profiles; (3) reviewing bank statements for each of the company and Profiles; and (4) identifying and reconciling mutual debits and credits between the company and Profiles from the ledgers and bank accounts. 15 There is no loan agreement or other document recording the terms of the loan from Profiles to the company. The liquidator has been able to identify reciprocal debits and credits for 51 transactions between the companies in the period 2 January 2013 to 31 August 2014. Five of these are supported by bank statements. 16 The liquidator noted that the closing balance on both of the companies' loan accounts for the period ended 30 June 2013 was $488,582.87. However, for 30 June 2014 and 31 August 2014, there is a difference between the closing balances of $30,779.10. 17 The liquidator has identified a $30,000 discrepancy between the closing balance of the loan recorded in the books of Profiles as at 30 June 2013 and the opening balance on 1 July 2013. A similar discrepancy does not appear in the books of the company. 18 The liquidator has not able to reconcile the remaining difference of $779.10. 19 Based on his investigations, the liquidator has formed the view that Profiles is a creditor of the company for the sum of $505,942.77 (which is the amount recorded in the books of the company) and not the larger amount recorded in the books of Profiles. In reaching that view, the liquidator noted that, based on the transaction listing of Profiles, the last entry for the period ended 30 June 2013 of $30,000 may have been reversed but no such reversal appears to have occurred in the records of the company. 20 The liquidator has not identified any other matter than may potentially give rise to conflict between his duties as liquidator of the company and Profiles.

Relevant law 21 The liquidator is entitled to bring this application for a direction as an officer of the company: Schedule s 90-20(1)(d). 22 It has been accepted that the power in s 90-15(1) may be used to provide advice that a liquidator is justified in accepting a proof of debt: In the matter of Daily Planet Pty Ltd (In Liquidation) [2019] VSC 265. In that case, the liquidator was also liquidator of the company that submitted the relevant proof of debt. 23 The power of the Court to give directions was summarised by Goldberg J in Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409, relevantly, at [65]: ... There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. … There must be an issue calling for the exercise of legal judgment. 24 The Court's supervisory powers under s 90-15(1) are arguably as broad, or broader than, its powers under the previous provisions, being the former ss 479(3) and 511 of the Act. 25 Section 90-15(4) provides a non-exhaustive list of the matters the Court may take into account when making orders under s 90-15(1). 26 A company is required to keep books and records that disclose an accurate view of its financial position: s 286 of the Act. Further, s 1305 provides that a book or record kept for the purposes of the Act is admissible and prima facie evidence of a matter recorded or stated in that book. Plainly, in this matter the books and records cannot be correct or cannot be admitted as evidence of fact. 27 In his capacity as liquidator of the company, the liquidator must adjudicate the proof of debt of Profiles in a quasi-judicial capacity according to the standards no less than that of a judge to determine the true liabilities of the company: Tanning Research Laboratories Inc v O'Brien [1990] HCA 8 at [7]; (1990) 169 CLR 332; 1 ACSR 510. 28 In the absence of a direction, a creditor of either of the two companies could challenge the acts of the liquidator pursuant to s 1321 of the Act (that provision applying because the liquidation of the company was commenced before 1 September 2017).

Consideration 29 I accept that the amount for which the liquidator should admit Profiles' proof of debt is an issue that calls for the exercise of judgment of the kind that may properly be the subject of judicial advice, where the relevant evidence is incomplete and conflicting. I accept that, given the material disclosed by the liquidator, his conclusion as to the amount of the debt is soundly based. 30 In concluding that the liquidator is entitled to the protection of the Court in respect of his intended conduct, I also accepted the following submissions made on the liquidator's behalf: (1) There is no evidence to suggest that the liquidator is not faithfully performing his duties. (2) There has been no relevant failure by the liquidator to comply with the Act. (3) There has been no relevant failure by the liquidator to comply with an order of the Court.

Conclusion 31 Accordingly, I will make an order under s 90-15(1) to the effect sought by the liquidator. The costs of the application should be costs in the winding up of the company.

I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.