Worrell, in the matter of regulation 5.6.06 of the Corporations Regulations 2001 (No. 2) [2010] FCA 1257

REASONS FOR JUDGMENT 1 The aspect of the proceeding currently before the Court concerns the orders to be made arising out of the publication on 30 August 2010 of the reasons for judgment in the principal application. On that day, orders were made adjourning the principal application to a date to be fixed for the making of formal orders. The parties were directed to file and serve submissions as to the form of final orders within 28 days. Final submissions were filed on 6 October 2010. 2 There are differences between the parties as to the scope of the final orders. Accordingly, these reasons address the principles informing the approach to be adopted in framing the orders and the content of the orders. 3 These reasons should be read with the reasons for judgment in Worrell, in the matter of regulation 5.6.06 of the Corporations Regulations 2001 (2010) 117 ALD 110; (2010) 79 ACSR 437;[2010] FCA 934. 4 In the application as originally filed, the applicants sought a declaration that upon the proper construction of Regulation 5.6.06(1) of the Corporations Regulations 2001 (Cth) ("the Regulations") the applicants are not required to open a separate bank account for each company to which they are, have been or will be appointed as liquidators, administrators or receivers. In the alternative to such a declaration, the applicants sought an order pursuant to Regulation 5.6.09 of the Regulations authorising the liquidator (of the relevant company) to make payments into and out of a "special bank account" on such terms as the Court might think fit. 5 At the conclusion of the proceedings, the applicants sought relief framed in terms of a declaration concerning the construction of Regulation 5.6.06 to the effect that the conduct of the applicants in operating a single compound account for and in respect of those matters "to which the regulation applies does not contravene the Regulation". 6 The applicants also sought an order under s 1322(4) of the Corporations Act 2001 (Cth) ("the Act") declaring that their conduct is not invalid by reason of any contravention of Regulation 5.6.06. More particularly, the applicants sought to be relieved from any liability under the Act arising out of any failure to comply with Regulation 5.6.06. 7 In the result, the Court found that the conduct of the applicants, as liquidators, in operating a single compound account failed to comply with Regulation 5.6.06. At [106] of the principal reasons, the Court found that special circumstances had not been made out warranting the exercise of discretion under Regulation 5.6.06. At [107] and [108] of the principal reasons, the Court said this: 107 Regulation 5.6.09, however, contemplates that the Court may authorise the liquidator of a particular company to make payments into and out of a special bank account. Having regard to all of the evidence and the practical position that the applicants in good faith have embarked upon establishing a compound account for the conduct of these liquidations which failed at the outset to take account of the specific requirements of the Corporations Act, it seems to me that steps ought to be taken to provide proper authority for the conduct of the compound account in each office, in each liquidation, to enable the administration of each liquidation to be progressed to a conclusion, within the law rather than in contravention of it. 108 Accordingly, an order ought to be made authorising each of the applicants in their capacity as liquidators of a schedule of identified companies (to be attached to the order) to make payments into and out of a special bank account established for the purpose of completing the winding‑up of each entity presently under insolvent administration by any one of the applicants as liquidators. That order ought to be made upon the undertakings proposed. The "special bank account" might properly be styled according to the present description adopted in each office for the compound account. The authority to make the payments is to be limited to the completion of the winding‑up of each company in liquidation. The declarations sought by the applicants will not be made. [original emphasis] 8 Those paragraphs make these things clear. 9 First, the Court accepted, having regard to all of the evidence, that the applicants had acted in good faith in adopting a practical position of establishing a compound account for the conduct of liquidations and those arrangements failed at the outset to take account of the specific requirements of the Corporations Act (and Regulations). It followed that steps ought to be taken to provide proper authority for the conduct of the separate compound account in each office, in respect of each liquidation, to enable the administration of each liquidation to be progressed to a conclusion in compliance with the law rather than in contravention of it. 10 Secondly, in order to give effect to that principle, an order ought to be made authorising each of the applicants in their capacity as liquidators to make payments into and out of a special bank account, for the purposes of Regulation 5.6.09, established for the purpose of completing the winding up of each corporation then under insolvent administration by any one of the applicants as liquidators of the relevant corporation. 11 Thirdly, the order providing such authority ought to identify by a schedule each corporation then under administration by one or more of the applicants in their capacity as liquidator. 12 Fourthly, the order conferring such authority ought to be made on the basis of the undertakings the applicants said they would give to the Court. 13 Fifthly, the "special bank account" to be used for the purposes contemplated by Regulation 5.6.09(1) could, consistent with the order, be styled according to the present description adopted by the applicants in each office for the single compound account then being utilised. 14 Sixthly, the authority to operate a separate compound account as a special bank account was to be limited to the completion of the winding up of each company in liquidation. The scope of the orders and the temporal limitation contained within them is emphasised by the use of the italics in [108] of the principal reasons. 15 Seventhly, the declarations sought by the applicants would not be made. 16 Regulations 5.6.06 and 5.6.09 fall within Part 5.6 of the Regulations dealing with "Winding Up Generally". Those Regulations address at 5.6.06 the things, in relation to a general account, that the liquidator "must" do and, at 5.6.09, the directions a Court may give concerning the subject matter of that Regulation. These Regulations are not concerned with "arrangements and reconstructions" (Part 5.1) or "receivers and other controllers of corporations" (Part 5.2) or "administration of a company's affairs with a view to executing a deed of company arrangement" (Part 5.3A). Any authorisation conferred upon the liquidator in respect of payments "for the time and on the terms [the Court] thinks fit" in relation to a special bank account under Regulation 5.6.09 is to be confined to an authority concerning the conduct of the liquidator of the relevant corporation. 17 It follows that the orders to be made as contemplated by [107] and [108] are confined in that way. 18 It also follows that the orders contemplated by the principal reasons were concerned with conferring an authorisation upon one or more of the applicants in their capacity as liquidator to facilitate the completion of the winding up of each insolvent company to which any one (or more) of them were appointed at the date of the determination of the construction question concerning Regulation 5.6.06 in the principal proceeding. In the principal proceeding, the Court construed Regulation 5.6.06(1) as requiring a liquidator to open a separate bank account to be known as the liquidator's general account for each liquidation. The Court found that special circumstances did not arise warranting the exercise of the discretion to "otherwise direct" conferred by Regulation 5.6.06(1) and that the limitation upon the authorisation to be conferred pursuant to Regulation 5.6.09 was directed to the completion of liquidations under administration, that is, then under administration. 19 In that sense, it is disappointing that the applicants have apparently since 30 August 2010 adopted the use of the separate compound account in acting as liquidators in the case of appointments made after 30 August 2010 notwithstanding the determination of the construction question by that date. 20 The question of relief from liability under the Act in respect of a failure to comply with Regulation 5.6.06 is to be confined to conduct in acting as a liquidator when appointed on or prior to 30 August 2010. For the reasons indicated earlier and as discussed in the principal reasons, the authorisation to be conferred by the orders has no operation in relation to any conduct on the part of the applicants other than in their capacity as liquidators. 21 The principal reasons contemplate that the existing separate compound account styled in the way indicated in the evidence will be used by the applicants as a separate compound account in order to complete the existing liquidations. No question of any authorisation under Regulations 5.6.06 or 5.6.09 arises in relation to any other matter. Accordingly, the schedule to the orders should be confined to a list of those companies in respect of which one or more of the applicants are acting as liquidators having been appointed on or prior to 30 August 2010. 22 A question has arisen as to the definition of the term "Compound Account" for the purposes of the orders. It seems to me that the appropriate way to define the account is by reference to the seven accounts operated by the applicants in the various locations having regard to the location, the bank and the complete description of the account number (BSB and account number). A further question has arisen in relation to a proposed undertaking on the part of the applicants to maintain the compound account in such a way as to ensure that all of the features of that account (thus conferring the various advantages) described by Mr Ivor Worrell in his affidavit sworn 11 August 2009 (and filed 14 August 2009) and his affidavit sworn 6 November 2009 (and filed 10 November 2009), are preserved. The intervener, ASIC, expresses criticism of the content of the undertaking on that issue on the footing that the current form of the proposed undertaking recites an undertaking to "maintain the Compound Account Module of the computerised system called 'Workbench' insofar as it applies to the Compound Account[s] in relation to the Current Companies in accordance with the systems set out in the affidavits …". 23 ASIC contends that limiting the commitment to one of maintaining the "Compound Account Module" of the Workbench system rather than an undertaking as originally formulated to maintain "Workbench" and thus maintain all of the relevant modules which integrate one with the other to ensure that all of the advantages of the accounting system are retained, reduces the level of protection said by Mr Worrell to be part of the attractive force of the Workbench system. Those integrated advantages arise because the compound accounts are said to be fully integrated within Workbench more broadly thus providing reconciliations of the compound accounts system. 24 It seems appropriate to ensure that the advantages of the integrated system are maintained pending the completion of the liquidations to be enabled through the use of a compound account. 25 By para 1 of the application, the applicants sought a declaration in these terms: A declaration that upon the proper interpretation of regulation 5.6.06(1) of the Corporations Regulations 2001 the Applicants are not required to open a separate bank account for each company to which they are, have been or will be appointed as liquidators, administrators or receivers. 26 That declaration will not be made. 27 For the purposes of clarification of the position, a declaration will be made that upon a proper construction of Regulation 5.6.06 of the Corporations Regulations 2001 (Cth), Regulation 5.6.06 does not, unless otherwise directed by the Court or the committee of inspection, provide for the payment into an account of all money received by a liquidator of a corporation (not later than seven days after it has been received) operated by the liquidator of that corporation as a single or compound liquidator's general account into which monies are paid by any one or more of the applicants as the liquidator of more than one company in liquidation. Further, Regulation 5.6.06 does not provide for the payment into a single or compound account of monies payable to any one or more of the applicants in their capacity as administrators, deed administrators or managing controllers of a corporation. 28 Subject to further information being provided by the solicitors for the applicants so as to enable the orders to be drafted in final form, orders in the following terms will be made upon the undertakings recited in the orders. The orders (together with the undertakings) are described as draft orders pending the submission of further information necessary to complete the orders. That material must necessarily be provided by the applicants. The information ought to be provided to my Associate within seven days with a copy of the material being provided to the Intervener. Once that information is provided and subject to the question of whether there is any further issue in relation to it, the orders will be put in final form and issued. The orders operate upon the footing that they record the undertakings given to the Court by the applicants. The advisers to the applicants are asked to confirm that the undertakings will be given in the form reflected in the draft annexed to these reasons. The matter will then be listed for pronouncement of the final form of the orders and the giving of the undertakings. 29 A further matter concerns the question of possible changes to the Workbench system. The applicants have foreshadowed in affidavits that they may wish to make further changes to the Workbench accounting system which, in their view, will not prejudice the inherent protective features of that system which give accuracy and security to the conduct of a single compound account (as reflected in the evidence of Mr Worrell) in completing each liquidation to which one or more of the applicants were appointed on or before 30 August 2010. The draft orders provide for liberty to apply on the footing that the applicants may wish to make an application supported by an appropriate affidavit should changes be sought to the Workbench system prior to the completion of the liquidations reflected in the list of companies at Schedule 1. The Court will entertain such an application. Any such application should also be served upon the Intervener. I certify that the preceding twenty‑nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.