Woolfe v Australian Securities & Investments Commission

Federal Court of Australia|2004-08-06|Before: Nicholson J

REASONS FOR JUDGMENT 1 These reasons should be read with the reasons in proceeding W35 of 2004 (Wainter Pty Ltd, in the matter of New Tel Limited (in liq) [2004] FCA 1021) which were delivered contemporaneously. 2 The applicants seek review of a decision of the first respondent ('ASIC') and the second respondent (as the first respondent's delegate) ('the decision-maker') to authorise the third respondent ('Wainter') to make an application or applications under Pt 5.9 Div 1 of the Corporations Act 2001 (Cth) to examine, inter alia, the applicants in relation to New Tel Limited (in liq) ('New Tel'). Such decision was recorded in or authorised by an instrument of authorisation dated 21 January 2004. 3 This application is brought in reliance upon the Administrative Decisions (Judicial Review) Act 1977 (Cth) ('the ADJR Act') and s 39B of the Judiciary Act 1903 (Cth). The basis of the aggrievance which occasions the applicants to seek review of the decisions is that Wainter exercised its eligible applicant status to obtain the issue of summonses against, inter alia, the applicants pursuant to s 596A and s 596B of the Corporations Act. The summonses presently stand adjourned and will fall to be considered in reasons to be delivered contemporaneously with these reasons. 4 The foundation of the aggrievance of the applicants in this proceeding is that the proposed examinations by Wainter as an eligible applicant would provide for Wainter the opportunity to take pre-trial depositions from, and to 'fish' for evidence generally against, Freehills (of which the firstnamed applicant was, and the secondnamed applicant is, a partner) in relation to the litigation which Wainter proposes to commence. It is said that such examinations would occur in a manner which would not be available to Wainter in that litigation. Accordingly it is said the authorisation should be set aside because the decision to grant Wainter status as an eligible applicant was vitiated. 5 The grounds of the application are, first, that the making of the decision was an improper exercise of the power conferred under the Australian Securities and Investments Act 2001 (Cth) ('ASIC Act'), s 11 and the Corporations Act, Pt 5.9Div 1. Additionally it is claimed that the decision involved one or more errors of law. These two grounds are particularised in a way which seeks to invoke s 5(1)(e) and s 5(1)(f) of the ADJR Act. The former provides that a ground of review may be 'that the making of the decision was an improper exercise of the power conferred by the enactment in pursuance of which it was purported to be made'. The latter provides that a ground may be 'that the decision involved an error of law, whether or not the error appears on the record of the decision'. In the case of the first ground and its reliance on s 5(1)(e) of the ADJR Act, additional reliance is placed on s 5(2)(a) and s 5(2)(b) of that Act. These provide that a reference to an improper exercise shall be construed as including reference to the taking of an irrelevant consideration into account in the exercise of a power and the failing to take a relevant consideration into account in such exercise.

background circumstances 6 The background circumstances to the application were set out in a letter dated 6 January 2004 from the solicitors for Wainter to the Complaints Management of ASIC seeking authority of ASIC to make applications for examination as eligible applicants ('the request letter') under the heading 'Wainter's Relationship with New Tel'. The letter stated: '… 2. The relationship arises out of an agreement reached between Wainter on the one hand via its director Mr Barry Waller, and on the other hand New Tel, via its director Peter Francis Malone and New Tel's agent/solicitor Mr David Woolfe of Freehills, in November 2001. 3. In essence, the arrangement was for, and concerned, the following: 3.1 Wainter owned shares in Cable & Telecoms Ltd ("C&T"). Wainter had sold its shares in a subsidiary of C&T, namely UDC Group Pty Ltd (later named E. Communications & Networks Ltd (now in liquidation)) to C&T under a sale agreement made in April 2000 as subsequently varied. 3.2 The consideration payable to Wainter was $5,000,000 cash payable by way of $1,500,000 at settlement and $3,500,000 within 12 months of settlement. In addition, Wainter acquired 35,000,000 shares in C&T. The $3,500,000 was not paid to Wainter at any time. 3.3 On 24 September 2001 New Tel announced a conditional script takeover of C&T subject to various conditions, the relevant one being that there must be no person exercising any rights pursuant to any agreement as against C&T. 3.4 Prior to New Tel issuing its formal bidder's statement, Mr Waller was spoken to, on 27 November 2001, by Messrs Malone and Woolfe. Mr Woolfe was then (but no longer is) a partner of Freehills, solicitors to New Tel. In the discussions Mr Waller had with Messrs Malone and Woolfe, they represented to Mr Waller that if Wainter was to assign to New Tel the debt due to Wainter by C&T, and transfer its shares in C&T to New Tel, Wainter would in consideration receive 2,000,000 options in New Tel, which, Messrs Malone and Woolfe represented, would result in Wainter being much better off financially because of the worth and potential greater worth of New Tel. 3.5 Accordingly, the bidder's statement issued by New Tel dated 14 December 2001 (copy enclosed) represented on page 26 that the agreement was made with Wainter on 27 November 2001 for the acquisition by New Tel of, inter alia, the $3,500,000 debt (which together with interest, amounted to $3,600,000)….' 7 The Bidder's Statement issued on 14 December 2001 contained within it the following statement (at p 26): '…In September 2000, C&T purchased UDC Group from Wainter. In consideration for this acquisition C&T issued to Wainter 35 million fully paid ordinary shares (post capital reconstruction) in C&T and paid $1.5 million. A further amount of approximately $3.6 million is due and payable to Wainter on 24 December 2002 (or earlier at the election of C&T). An additional cash payment of $11 million is payable and 72.5 million shares may be issued to Wainter if certain targets are met. These targets require certain C&T market capitalisation targets to be achieved. On 27 November 2001, New Tell offered, and Wainter accepted, a proposal whereby, once the Offer is declared or becomes unconditional in all respects, New Tel will purchase all of Wainter's rights under the UDC sale agreement (including the debt of approximately $3.6 million and an additional cash payment or share issue to which Wainter may become entitled) in consideration of the issue to Wainter of 2,000,000 New Tel Options….' 8 On 28 April 2003 the solicitors for Wainter wrote to Freehills (of which both applicants were then partners) in relation to the sale agreement made in April 2000 between Wainter and C&T for the sale of Wainter's shares in the subsidiary company UDC. The letter ('the letter of demand') referred to an announcement by New Tel on 24 September 2001 of the conditional script takeover of C&T. It continued by referring to certain alleged representations said to have been made by the applicants: '… 5. Prior to NewTel issuing a formal bidder's statement, Mr Barry Waller, director of Wainter Pty Ltd, was spoken to by telephone on 27 November 2001 by Mr Peter Malone of NewTel and Mr David Wolfe (sic), partner of Freehills, solicitors to NewTel (both of whom were speaking on a speaker phone to Mr Waller). During the telephone call, both Messrs Malone and Wolfe (sic) spoke at times. They told Mr Waller that NewTel required Wainter to forgo the debt of $3.6M owing by CaT under the Sale Agreement, otherwise NewTel would not proceed with the takeover of CaT. Mr Waller asked Messrs Malone and Wolfe (sic) why Wainter should consider this a viable option. Their response was that Wainter would receive more than the $3.6M debt by the extra value that NewTel shares would be worth because, without this agreement by Wainter, the takeover would not proceed at all and Wainter would have no NewTel shares. Messrs Malone and Wolfe (sic) also explained to Mr Waller that, with the loan being removed, the shares in Newtel (sic) would increase in value. As an incentive, Messrs Malone and Wolfe (sic) said to Mr Waller that NewTel would issue 2,000,000 options in NewTel to Wainter, which meant Wainter would be much better off financially because of the greater value of the package resulting from the NewTel takeover proceeding. Messrs Malone and Wolfe (sic) concluded the call by saying they required an answer to the proposal as a matter of urgency. Mr Waller said he would think about it and call them back. 6. Later that day, Mr Waller called Mr David Wolfe (sic) at Freehills and told him that, based on what had been said during the earlier phone call, Wainter would agree to the request. Mr Wolfe (sic) told Mr Waller during that call that Mr Malone was not then with him….' The letter of demand then described the alleged consequences of the representations as follows: '… 9. But for the representations made by Messrs Malone and Wolfe (sic) (and by each of them, with the other being knowingly concerned in and party to representations by the other during the joint telephone call to Mr Barry Waller), Wainter would not have agreed to forgo the debt, and the takeover of CaT by NewTel would therefore not have proceeded. Had that occurred, Wainter would have retained its substantial shareholding of CaT (35,000,000 shares and 20,000,000 options) and its entitlement to the debt due under the Sale Agreement. We accept that determination of the hypothetical value of those assets, and hence Wainter's damages, has the capacity to be very involved. In that regard, we are assuming that Wainter's shares and options in NewTel will prove to be worthless or near worthless at the conclusion of the liquidation of NewTel. Wainter anticipates that its damages will be in the order of $A60,000,000 (sixty million dollars)….' 9 On 17 June 2003 the solicitors for Wainter wrote to the liquidators of New Tel, referring to the letter of demand and stating: '… Wainter seeks to establish in respect of its pending claim for damages against Freehills, its partner Mr David Wolfe (sic) and possibly others that at the time the agreement was made between Wainter (by Mr Waller) on the one hand and NewTel (by Mr Peter Malone of NewTel and Mr Wolfe (sic)) on the other, 27 November 2001, NewTel was insolvent or, at least, in serious financial difficulties….' The letter inquired whether the liquidators' firm could provide an expert report on the issue of New Tel's insolvency as at 27 November 2001. It stated that in the event that report was forthcoming Wainter would agree not to lodge a proof of debt in the liquidation of New Tel and not to pursue New Tel or Mr Malone in respect of Wainter's claims said to arise out of the 27 November 2001 agreement. 10 On 2 September 2003 the solicitors for Wainter put to the liquidators a revised proposal reflecting a suggestion from the liquidators that an examination under s 596A and s 596B of Corporations Act should be considered. The revised proposal was that the liquidators would examine the applicants, requiring production of relevant documents by them. Additionally the liquidators would waive any legal professional privilege in relation to Wainter in respect of communications between Freehills and either of the applicants or New Tel. Further it was proposed that the liquidators would engage Wainter's solicitors to conduct the examination and would allow them to retain the transcript. Next, the liquidators were to provide a report to Wainter as to New Tel's solvency and financial prospects as at 27 November 2001. 11 By letter dated 14 October 2003, one of the liquidators replied 'after giving the matter considerable thought, I advise that unfortunately I am unable to assist you'. Although the solicitors for Wainter by letter of the same date requested reasons for this response, there is no evidence such were forthcoming. 12 On 24 December 2003 Wainter lodged a formal proof of debt for the sum of $60 000 000. It described the nature of the claim as follows: '… The claim is for damages for misleading or deceptive conduct in relation to a financial product pursuant to ss 1041H and 1041I Corporations Act 2001, further or alternatively ss 12DA and 12GM Australian Securities and Investments Commission Act 2001 arising from the conduct of the company by its director Mr Peter Francis Malone and its agent/solicitor Mr David Woolfe on or about 27 November 2001 in respect of the acquisition of 2,000,000 options in the company by the creditor in consideration of the creditor assigning to the company the debt owed to the creditor by, and transferring shares in, Cable & Telecoms Ltd prior to the takeover of Cable & Telecoms Ltd by the company….'

request and supporting documents 13 In the request letter the solicitor's for Wainter sought the authority of ASIC to be an 'eligible applicant' under s 9 of the Corporations Act. In par 6 it was stated that 'the focus of the inquiry by examination that Wainter seeks to make is as to New Tel's financial position and prospects as at 27 November 2001 and the knowledge of Messrs Woolfe and Evans regarding such position and prospects'. In par 7 it was stated that as a result of recent inquiry of the liquidators, Wainter had been informed that it would be conducting public examinations 'in the future' but no date had been determined. The letter recited in pars 8-10 that in September 2003 the solicitors for Wainter had forwarded a written proposal to the liquidators for the conduct of examination of Messrs Evans and Woolfe, and for the provision by the liquidators to Wainter of an expert report as to New Tel's financial position as at 27 November 2001. The request letter stated that this proposal had been declined by the liquidators. 14 The request letter listed the following benefits of examination to contributories and creditors generally: '11. It is our view that the proposed examinations would be of benefit to the contributories to, and the creditors of, New Tel, generally. 12. If, as is expected, the examinations assist in demonstrating that New Tel was in an insolvent or near insolvent position at 27 November 2001, then that would assist the liquidators of New Tel in regard to potential recourse against directors of the company for insolvent trading in breach of s 588G Corporations Act. 13. As indicated by the proposal dated 2 September 2003, in the event that Wainter succeeded in proceedings against Freehills, then Wainter would no longer pursue New Tel, nor Mr Malone. (As a result of that proposal not being taken up, Wainter has now forwarded a proof of debt to the liquidators of New Tel in the amount of $60 million, and has made formal demand of Mr Malone in the same sum.) This would be of benefit to all the remaining creditors of New Tel because of the reduction in the amount of claims against the company and the effect of increasing the available pool of funds for remaining creditors. We note in this regard that the liquidators' information as to Mr Malone's limited insurance would also have a relevant impact i.e. success by Wainter against Freehills would remove Wainter's claim for $60 million against Mr Malone insurance, therefore again improving the position of other creditors.' 15 The request letter then set out the following circumstances as making the grant of authorisation desirable: '14.1 the focus of the examinations upon the particular directors and solicitors of New Tel will be demonstration of the company's true financial position (and possible insolvency) at a period significantly before the company went into administration; 14.2 the liquidators of the company from the outset indicated the likelihood of insolvent trading and the intent to pursue inquiries in that regard for the benefit of creditors, but have not yet conducted any relevant examinations. Notwithstanding the significant passage of time, the liquidators appear still not to have specific plans to conduct examinations in the near future; 14.3 Wainter, a creditor of the company, proposed funding examinations of the directors and solicitors specified above, which examinations will benefit contributories and creditors of the company generally; 14.4 if the examinations proceed and in due course Wainter succeeds against Freehills, Wainter's claims against the company and Mr Malone will fall away thereby effectively increasing the available pool of funds for remaining creditors.' 16 Attached to the request letter were the following documents, the effect of which has previously been set out in referring to the background circumstances: (a) New Tel Bidder's Statement dated 14 December 2001; (b) Letter from the solicitors for Wainter to the liquidators dated 17 June 2003; (c) Letter from the solicitors for Wainter to the liquidators dated 2 September 2003; (d) Facsimile from the Liquidators dated 14 October 2003 to the solicitors for Wainter; (e) Letter from the solicitors for Wainter to the liquidators dated 14 October 2003.

decision under review 17 On 15 April 2004 a delegate of ASIC provided reasons for his decision granting the status of 'eligible applicant' to Wainter and the signing of the authorisation on 21 January 2004. He did so on the basis that he was not obliged to give such reasons under s 13 of the ADJR Act in view of the provisions in Sch 2 item (f) of the ADJR Act. 18 The reasons identified the request for such authorisation as having come from Wainter's solicitors. They described the request as being one that ASIC should provide Wainter with a written authorisation to enable Wainter to make an application to the Supreme Court pursuant to s 596A of the Corporations Act to examine Mr Peter Frances Malone and Mr Evans, the secondnamed applicant, as directors of New Tel and under s 596B of that Act to examine the firstnamed applicant, Mr Woolfe. 19 The reasons identified five documents which were enclosed with the request letter (set out at [16] above). The decision-maker said that in reaching his decision he had relied on those documents together with an historical company extract of New Tel. 20 The reasons then made reference to certain provisions of the Corporations Act, namely, ss 9, 596A and 596B, and s 11(4) of the ASIC Act. 21 The decision-maker then made findings of fact in the following terms: '15. Phillip Patrick Carter and Gregory Winfield Hall ("Hall") of PriceWaterhouseCoopers were appointed Liquidators of New Tel pursuant to a Creditors voluntary winding up on 13 January 2003. Subsequently, Hall was appointed Official Liquidator pursuant to a Supreme Court winding up on 4 March 2003. 16. As at 21 January 2004 the Liquidator(s) of New Tel had not conducted any examinations pursuant to CA ss596A or 596B. I am satisfied that although Solomon Brothers were advised by the Liquidator that public examinations would be conducted "in the future" no date had been determined to such examinations. In addition, the Liquidator's reply dated 14 October 2003 appears to decline the request, in the Solomon Brothers letter dated 2 September 2003, that the Liquidator proceed to examine Woolfe and Evans. 17. Malone is a director of New Tel and Evans was a director of New Tel from 27 September 1996 to 16 August 2001. 18. Wainter has forwarded a proof of debt to the Liquidator(s) of New Tel in the amount of $60 million and also made a formal demand to Malone for the same amount. 19. I am satisfied, after consideration of the Request Letter and enclosed documents, that Wainter is an unsecured creditor of New Tel based on the submission of the above proof of debt and/or the fact that Wainter may have a pecuniary claim against New Tel arising from the circumstances giving rise to the assignment on 27 November 2001 by Wainter to New Tel of the debt due to Wainter by Cable & Telecoms Ltd more fully described in paragraphs 2 and 3 of the Request Letter and paragraph 4.3(b) of the New Tel Bidders' Statement. 20. In determining whether Wainter is a creditor of New Tel, I have noted that there is no definition of "creditor" in the CA but that it has been considered by the courts in the context of sections 411 and 553 of the CA. I have concluded that the term "creditor" should be given a wide meaning as embracing all persons with claims which would be entitled to be admitted to proof if a company were wound up, including contingent creditors and holders of options issued by a company [Re Glendale Land Development Ltd (in liq) (1982) 7 ACLR 171, Re Australian Co-Operative Foods Ltd 162 FLR 360, and Re Sonic Healthcare ltd (2002) FCA 1409, (2002) 43 ACSR 353] (sic). 21. I am further satisfied that the intended focus of the Wainter inquiry is to ascertain New Tel's financial position prior to its going into administration and in particular as at 27 November 2001.' 22 Turning to the question of whether Wainter was an appropriate person to be authorised, the decision-maker said that Wainter, as an unsecured creditor of New Tel, came within the persons who may be granted approval: Re Excel Finance Corporation Limited (Receiver and Manager Appointed); Worthley v England (1994) 52 FCR 69 at 86 and Douglas-Brown v Furzer (1994) 11 WAR 400 at 406 - 408. Consequently he was satisfied that Wainter was an eligible applicant for the purposes of Pt 5.9 Div 1 of the Corporations Act. 23 The decision-maker then turned to the question whether the discretion to grant the requested authority should be exercised in favour of Wainter. His reasoning was as follows: '25. The Courts have set out certain criteria in relation to the exercise of ASIC's discretionary power, now contained in Division 1 Part 5.9 of the CA, to grant an authorisation and in making the Decision I have had regard to those criteria. 26. ASIC's role is to give persons not specifically authorised to apply for examination the standing to do so. It is the role of the Court, in deciding whether to make an examination order, to prevent any abuse of process and consider the position of the examinees (Re Excel Finance at p82): "The court in deciding whether to grant the examination order, may take into account different matters, specifically matters concerning the relationship between the examinee and the corporation as well, in an appropriate case, as the relationship between the applicant for the proposed order and proposed examinee and the purpose of the applicant in seeking the examination order." 27. The Federal Court also held that persons may be given authorisations by ASIC with minimal enquiries [Re Excel Finance at 83/84]: "The commission, in determining whether to grant authorisation, will consider the relationship which the person seeking authorisation has to the relevant corporation and the external management of that corporation which is in progress. Contributories and creditors would normally have the appropriate connection with the corporation.". 28. More recently, in the Judicial Review of the then ASC's decision not to grant an authorisation in Queensland Building Services Authority v ASC (1997) 23 ACSR 254, the Federal Court commented on the exercise of the ASC's power to authorise as follows: "There was no statutory justification in terms of CL 596A or 596B to restrict access to examination orders to persons in a position similar to that of a liquidator. (p 262) It was overstating the position to require an applicant seeking written authorisation to show that it was the most suitable person in the circumstances to conduct the proposed examination. (p 263) CL ss 596A and 596B conferred a discretion on the ASC, the exercise of which could legitimately have regard to the duplication, expense, the purpose of the persons seeking authorisation and the possible oppression of those sought to be the subject of the examination. (p 265)"' 24 He then concluded that Wainter came within the criteria thus set out and that it was appropriate to issue the requested authorisation.

Liquidators' intention 25 The first focus of the applicants' case is upon the findings of fact made by the decision-maker in par 16 of his reasons. It is said that those findings make apparent that the decision-maker ignored the relevant consideration that the liquidators were intending to conduct an examination, from which the applicants had not been excluded. In support, the applicant relies on Soper v Australian Securities & Investments Commission [2004] FCA 854. There the Court was called upon to consider an application for review of a decision by ASIC authorising a creditor of a company in liquidation to be an eligible applicant for the purpose of an application under s 596A of the Corporations Act. The examination was sought of officers or employees of a bank concerning the examinable affairs of the company, to which the bank had given financial accommodation. One factor taken into account by the decision-maker there was the reluctance of the liquidator to institute proceedings. Here it is said the position was that the liquidators was prepared to undertake an examination in the future and that was a relevant consideration which the decision-maker failed to take into account. 26 Additionally, the applicants rely upon the circumstances which arose in Queensland Building Services Authority v Australian Securities Commission (1997) 73 FCR 29. That proceeding involved an application for review of a decision by the Australian Securities Commission ('ASC') to refuse an application by a statutory authority of Queensland for authorisation to make an application under Pt 5.9 of the Corporations Law (as it then was) for examination of persons about a corporation in liquidation. The statutory authority was subrogated to the insurer and therefore was a creditor. In his reasons Spender J said (at 40): '…a fair reading of the reasons by the decision-maker leads to the conclusion that, in the view of the decision-maker, authorisation should be denied to the QBSA because in the circumstances, the liquidator…was the person most suitable to conduct the proposed examinations, not the QBSA. Clearly the holding of public examinations is desirable. As the history of the matters shows, it was and is the intention of the liquidator to conduct public examinations and I infer that it was the view of the decision-maker that duplicate examinations were neither efficient nor fair.' Later in his reasons (at 41) his Honour said that s 596A and s 596B of the Corporations Law conferred 'a discretion on the ASC, the exercise of which can legitimately have regard to the duplication, expense, the purpose or purposes of persons seeking authorisation and the possible oppression to those sought to be the subject of examination'. 27 The applicants also submit that the decision-maker took into account the irrelevant consideration that the liquidators' reply dated 14 October 2003, in response to the letter from Wainter's solicitors dated 2 September 2003, meant that the liquidators had decided not to examine the applicants. As to this alleged irrelevant consideration, the evidence before the decision-maker showed that the liquidators' letter dated 14 October 2003 declined the request in the solicitor's letter of 2 September 2003 that the liquidators proceed to examine the applicants. The liquidators' letter, although expressed in an indirect way, is unequivocal in declining to assist and in declining the request in the solicitor's letter. The finding reflects that evidence. The decision-maker's finding, however, cannot be read as a finding that the liquidators had generally declined to examine the applicants. In stating what the liquidators did on this matter, the decision-maker was not therefore drawing a wider conclusion and taking into account an irrelevant consideration. Further, there was no evidence one way or the other as to who the liquidators may examine in the future. 28 As to the alleged relevant consideration, it is clear from the terms of the findings of fact that the decision-maker did take that consideration (that the liquidators were intending to conduct an examination in the future) into account. No authority has been relied upon to support a proposition that a liquidator should be the preferred source of examination. Indeed, the reasoning of Spender J in Queensland Building Services Authority makes apparent that it is one thing to have a decision-maker considering an application for authorisation take that factor into account, it is another to say that the law requires that consideration to be determinative. 29 I therefore do not consider that the applicants can establish a right to review based upon the manner in which the decision-maker addressed the intention of the liquidators. Accordingly I will refuse the following grounds of the application: ground 1 as particularised in pars 1.5, 1.6 and 1.11 and ground 2 as particularised in par 2.4(b).

unsecured creditor status 30 The second focus of the applicants' case is on the findings of fact made by the decision-maker in par 19 of his reasons. There he concluded that Wainter was an unsecured creditor of New Tel. The applicants contend that the decision-maker thereby made an error of law because he arrived at a legal characterisation of creditor status based only upon an assertion of a right to recovery. The applicants also contend that the decision-maker ignored other relevant considerations as a consequence of focussing on that issue alone. 31 In supporting these contentions the applicants accept that the word 'creditor' is not a defined term in the Corporations Act. The applicants contend that it is necessary to establish the status of creditor by the adducing of evidence that will put the issue beyond assertion by the claimant. 32 In National Australia Bank Ltd v Market Holdings Pty Ltd (2000) 50 NSWLR 465 at 468-472 Young J set out contentions of the parties before him on who was a creditor for the purposes of the provisions of s 497 of the Corporations Law addressing meetings of creditors. He concluded by accepting the plaintiffs' submission to the effect that any person who has a debt payable by, or a claim against, a company which is admissible to proof in the winding up of the company under s 553 of the Corporations Law is a creditor of the company. His Honour said that company directors must not completely dismiss claims against the company because they are disputed, are unliquidated or are the subject of pending contested litigation. More recently, in Selim v McGrath (2004) 22 ACLC 112 at 128-129 Barrett J examined the issue of who was a creditor for the purposes of a s 439A meeting of creditors in a voluntary administration. His Honour concluded that in that context creditors were all persons who have, as against the company concerned, 'debts' or 'claims' provable in a winding up. He said the boundaries were those set by s 553. 33 Section 553 appears in Pt 5.6 Div 6 and addresses proof and ranking of claims. The section is the first section to appear in subdivision A dealing with admission to proof of debts and claims. It provides that, subject to the Division, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company. Therefore I accept that the decision-maker was correct in the general conclusion which he reached on the factors relevant to the characterisation of a creditor in the circumstances, as he found in par 20 of his reasons. 34 Nevertheless the applicants argue that for the requirements of the status of creditor to be met it is necessary for there to be placed before a decision-maker evidence of the character produced in the circumstances considered in Soper. There, in a letter to ASIC, the applicant in that proceeding stated that before undertaking such serious litigation, his lawyers had advised him that he should have the examinations undertaken of the key officers of the bank. He provided ASIC with an opinion from senior counsel, an opinion from junior counsel on damages and a draft affidavit in support of the application for examination setting out the reasons for the examinations. Counsel for the applicants accepted, however, that in Soper the status of the applicant as a creditor was not in issue. 35 The applicants also referred to Queensland Building Services Authority on this issue. There Spender J (at 40) expressed the view that the decision-maker in the ASC had overstated the position when he said that the then applicable statutory provisions required an applicant seeking written authorisation to show that it is 'the most suitable person in the circumstances to conduct the proposed examinations'. He accepted that the decision-maker there had determined that the liquidator was in those circumstances the most suitable person to so act. It was not there in dispute that the applicant statutory authority was a subrogated creditor. However the effect of the reasoning in that proceeding was to uphold the exercise of the discretion by the ASC in granting authorisation when it had taken into account factors additional to the status of that applicant as a creditor. 36 The applicants also contend that the evidence of creditor status was inadequate because there was no proper proof of debt before the decision-maker. However, s 553D makes it clear that a debt or claim must be proved formally if the liquidator, in accordance with the regulations, requires it to be proved formally. If not so required a debt may be proved informally subject to compliance with the requirements of the regulations (if any). Regulation 5.6.47 provides that a liquidator must not reject a debt or claim without notifying the creditor of the grounds of the liquidator's rejection and requiring that a formal proof of debt or claim be submitted for that debt or claim. Here there was no formal proof of debt before the decision-maker; nor was there any evidence one had been called for. It was therefore for the decision-maker to examine what was before him. There was no legal requirement for him to insist on proof in a particular way. 37 In his reasoning here the decision-maker relied upon the information concerning the nature of the claim referred to in the request letter and in the documents accompanying it. He referred to the 'proof of debt' and the description of the claim in the Bidder's Statement. In my view that evidence disclosed to him the existence of a claim of such a nature that fell within the characterisation of creditor which he had correctly made for the purposes of the application before him. He was entitled to conclude on that information that the party claiming that debt was a creditor for the purpose of proving the debt. There was no express or implied requirement necessitating him to act only upon affidavit evidence. The information before him contained particularity and was sufficient in the circumstances for him to act upon. His reasons establish that he had regard to the spectrum of facts at issue before him. 38 Soper is not an authority, quite aside from the fact that it was not a decision on the status of the applicant in that proceeding as a creditor, that the decision-maker was obliged at law to make further inquiries when not satisfied with the information before him or in the absence of a formal proof of debt. There Hely J said that the ground of failure to take into account a relevant consideration can only be made out 'if it is shown that the decision-maker has failed to take into account a consideration which, in the circumstances, he was bound to take into account in order to validly exercise the power (ie a mandatory relevant consideration': at [33]. Such considerations, as his Honour stated, are determined by construction of the applicable statute: Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24. No contention was made here for the applicants in terms of analysis of the applicable provisions to establish the proposition that such provisions mandate the course of inquiry which, the applicants contend, should have been taken. 39 The applicants add a further nuance to their argument. They contend that it is an error of law for the decision-maker to have concluded that a person is an appropriate person to be authorised as an eligible applicant 'solely' because the person may have a pecuniary claim against the company in liquidation. I do not consider that a proper reading of the reasons of the decision-maker leads to the conclusion that the 'mere' assertion of a pecuniary claim was the basis of his decision. Rather he had regard to all the circumstances previously referred to as being before him to reach his view that not only was Wainter a creditor but that, in all the circumstances, it was appropriate for Wainter to be authorised as an eligible applicant. I do not consider that conclusion involves the error of law alleged by the applicants. 40 The acceptance by the decision-maker of the status of the applicant as a creditor cannot therefore support any ground of review. Accordingly I will refuse the following grounds of the application: ground 1 as particularised in par 1.2 and ground 2 as particularised in par 2.1 and par 2.2

creditor's purpose of examination 41 The next circumstance upon which the applicants rely is that it is apparent that the predominant purpose of the proposed examinations by Wainter is to further its cause in the proposed action against Freehills rather than to obtain information for the general benefit of New Tel's contributories and creditors, or to enable it to recover assets for the benefit of those contributories and creditors. Further the applicant contends that if Wainter proceeds with the examinations its interests will be in conflict with the interests of New Tel and with the proper purposes of such examinations. It is submitted that those factors give rise to an improper purpose or an abuse of power in the making of the decision here under review. It is argued that this improper purpose constitutes a ground on which the exercise of the decision-maker's discretion resulting in the grant of authorisation should be reviewed. 42 The application relies on these factors expressed in ground 1 in pars 1.1, 1.3-1.4, 1.7-1.10, and 1.12-1.14, and in ground 2 in par 2.3 and par 2.4(a). The particularisation in par 1.13 seeks to invoke the ground of unreasonableness on the basis that no reasonable person could have exercised the power to make the decision in issue as it lacked a legally defensible foundation because of the purpose for which it was being exercised. The particularisation in par 1.14 seeks to invoke the ground of abuse of power on the basis that it was apparent that the predominant purpose of Wainter was to further its interest in pursuing a claim against Freehills. The other particularisations allege either that the purpose sought to be impugned was irrelevantly taken into account or that its true purpose was a relevant consideration, which was not taken into account. 43 In Re Excel Finance at 82 the Full Court (Gummow, Hill and Cooper JJ) accepted the authorities establishing that the source of the power of ASIC to authorise person to make applications to the Court is to be found in s 11(4) of the ASIC Act. That view has not been contested in this proceeding. Section 11 provides that ASIC has such functions and powers as are conferred on it by or under the corporations legislation (other than the excluded provisions). Section 11(4) provides that it has power to do whatever is necessary for or in connection with, or reasonably incidental to, the performance of its functions. One of its functions is that provided for in s 596A and s 596B of the Corporations Act to summon a person for examination where, among other things, the application for such is made by an eligible applicant. Section 9 of the same act provides that an 'eligible applicant' means certain entities or persons designated in pars (a)-(d) and: '(e) a person authorised in writing by ASIC to make: (i) applications under the Division of Part 5.9 in which the expression occurs; or (ii) such an application in relation to the corporation.' There are no other sections of either the ASIC Act or the Corporations Act said by the applicants to be relevant to the power of ASIC to grant authorisation within the terms of par (e) of the definition of 'eligible applicant'. It was in purported exercise of that power that the decision was made. 44 It is necessary, for reasons which will become apparent, to have regard to the sections providing for the summoning of a person for examination upon the application of an eligible applicant. The sections read: '596A 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 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. 596B(1) The Court may summon a person for examination about corporation's examinable affairs if: (a) an eligible applicant applies for the summons; and (b) the Court is satisfied that the person: (i) has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or (ii) may be able to give information about examinable affairs of the corporation. 596B(2) This section has effect subject to section 596A.' 45 In Re Excel Finance the Full Court characterised s 597 of the Corporations Law and s 11(4) of the ASIC Act as setting up a two stage process. The first stage, where the prospective applicant for authorisation is not one of the designated entities or persons, is for ASIC to authorise the person to make an application to theCourt. The second stage is the application by the authorised person to the Court for an order for examination. The Court said that 'different matters will arise for consideration at each stage of this two stage process.' It continued (at 82): 'The question at issue in the first stage would be whether the prospective application seeking authorisation is an appropriate person for the Commission to authorise to make the application to the Court. That question will require consideration of the relationship which that person has to the corporation in relation to which the application to the Court will be made, although it may also encompass matters personal to that applicant, such as the applicant's relationship to the persons to be examined. The Court, in deciding whether to grant the examination order, may take into account different matters, specifically matters concerning the relationship between the examinee and the corporation as well, in an appropriate case, as the relationship between the applicant for the examination order and proposed examinee and the purpose of the applicant in seeking the examination order.' (emphasis added) 46 At 81, after reviewing the history of s 597, the Court said: 'It may thus be inferred that the power (first contained in the 1981 Code and now replicated in s 597) conferred upon the Commission as an administrative matter to authorise a person to make an application reflected a legislative decision to move to the Commission the power to grant standing to apply to the Court, although without derogating from the discretion which was retained in the Court to grant or refuse an order on proper grounds.' At 83 the Full Court said: '… it becomes apparent that if a person seeks to challenge the validity of the Commission's authorisation, that question will appropriately be decided in proceedings for judicial review of the authorisation. A challenge going to the appropriateness of an examination order being issued in respect of a particular examinee, which may encompass a question of the purpose of the applicant for examination will, of course, be appropriately raised before the Court in the review of a decision to grant an examination order. It will ordinarily not arise for consideration in relation to the validity of the authorisation.' 47 At 83-84 the Full Court said that in determining whether to grant authorisation, the Commission will consider the relationship which the person seeking authorisation has to the relevant corporation and to the external management of that corporation which is in progress. It accepted that contributories and creditors would normally have the appropriate connection with the corporation 'although other factors relevant to a particular case may make the authorisation of such person inappropriate.' At 86 the Court stated: 'As we have already noted, the grant of authorisation under subs (1) does no more than confer standing upon the person authorised to make an application. That being the case, reference to the subject matter, scope and purpose of subs (1) leads to the conclusion that the decision-maker, in determining whether to authorise a particular person to make applications in relation to a particular corporation, will be required only to consider the relationship which that person has to the external administration and in a particular case the appropriateness of that person being given standing to apply to the Court under subs (2).' At 87 the Court said: 'In an appropriate case the material before the decision-maker on behalf of the Commission may indicate that a person seeking authorisation is in a difficult conflict situation. For example, a creditor, perhaps related to officers of the company to the knowledge of the decision-maker, may seek authorisation to conduct an examination to forestall some other examination which may be in contemplation. If facts such as those were known to the decision-maker, it might be necessary to take them into account….' 48 The above reasoning in Re Excel Finance was referred to and relied upon by Hely J in Soper. 49 In Re Excel Finance the Court set out the provisions of the section then applicable, s 597 of the Corporations Law. The authority of the Commission there required was 'to make applications under this section or to make an application under this section in relation to that corporation'. Structurally the new provisions closely follow this form. 50 In my view the statutory approach has not changed in principle in respect of establishing a two stage process. I do not see that the enlargement of the scope of the class of persons who may become eligible applicants has the consequence that the reasoning of the Full Court on the prior provisions in respect of the existence of a two stage process should not still be followed. There is still a two stage process. The issue of standing still remains with the present Commission. 51 That being the case the issue of purpose will ordinarily not arise for consideration in relation to the validity of the authorisation. Given that the Court may control improper purpose or abuse of power in exercise of its powers arising in relation to the issue of summonses for examination and is required to do just that in the related proceeding W35 of 2004, I do not consider this is an occasion to depart from the approach referred to by the Full Court in Re Excel Finance and supported by the two stage structure contained in the present relevant statutory provisions. I therefore do not consider that the grounds of improper purpose or abuse of power or unreasonableness properly arise here and accordingly the grounds of review which rely on those matters cannot succeed. Nor has it been made apparent why it was thought necessary for those grounds based on purpose to be pursued in relation to the stage 1 proceeding (ie W63 of 2004) when they are before the Court in relation to the stage 2 proceeding (ie W35 of 2004). 52 In any event, if it is said the issue of propriety of purpose should be considered here, I would resolve the grounds based on improper purpose with regard to the same reasoning I have applied in proceeding W35 of 2004.

CONCLUSION 53 For these reasons I consider that the application to review the decision to authorise Wainter to be an eligible applicant should be dismissed. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson.

Counsel for the Applicants: Mr GR Donaldson

Solicitor for the Applicants: Freehills

Counsel for the First and Second Respondents: Mrs WF Buckley

Solicitor for the First and Second Respondents: Australian Securities & Investments Commission

Counsel for the Third Respondent: Mr DH Solomon and Mr Blundell

Solicitor for the Third Respondent: Solomon Brothers

Date of Hearing: 20 July 2004

Date of Judgment: 6 August 2004

Australian Securities and Investments Act 2001(Cth)

Administrative Decisions (Judicial Review) Act 1977(Cth)ss 5(1)(e), 5(1)(f), 5(2)(a), 5(2)(b), 13, Sch

Corporations Act 2001(Cth)ss 9, 497, 553, 553D, 596A, 596B, 597, Pt

At a glance

Court

Decision date

Before

Source

Judgment (16 paragraphs)

Parties

Legislation Cited (5)

Cases Cited (7)

Cited By (4)