JUDGMENT No. Bein, Jf GENERAL DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA _) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 47 of 1996 ) GENERAL DIVISION ) BETWEEN: GOLDEN EDITIONS PTY LIMITED Applicant AND: JOHN ROBERT HOITINK First Respondent S BROWN Second Respondent SUSAN ANDREWS Third Respondent K DOVER Fourth Respondent MICHAEL SPECK Fifth Respondent SHARON McTAVISH Sixth Respondent JUDGE(s):_ LOCKHART PLACE: SYDNEY DATED: 4 JUNE 1997 REASONS FOR JUDGMENT This proceeding has been specially fixed for final hearing commencing today; and the Court acted on the basis of the information furnished to it by the legal advisers to the parties that it would take two days. So the Court is in a position to deal with the matter for a reasonable portion of today and all tomorrow. However, a motion has been filed by leave of the Court this morning by the applicant, Golden Editions Pty Limited, seeking an order that the hearing dates of today and tomorrow be vacated and the proceeding be stayed until further order. The evidence in support of the motion consists of the evidence of the solicitor for the applicant, Mr Banki, who has sworn an affidavit in support of the motion and has given oral evidence. There are, as I understand it, two bases on which the applicant seeks to have the proceedings either stayed or, in effect, indefinitely adjourned. The first is that outlined in Mr Banki's affidavit, the nub of which is contained in paragraphs 20 and 21, namely, that it is said that the applicant is in poor financial condition. Based on the information given to him by Mr Hoghton Hughes, who is obviously the controller of the company, Mr Banki believes that the applicant's present intention is to trade out of its current financial difficulties and this would require time. Other proceedings which have been before the Court in the last two days involving the applicant, and which I have heard, and reserved my decision, have a critical bearing on the applicant's financial future, so it is said it would be unjust if the applicant did not have the opportunity to continue the proceedings when its financial circumstances permit. Mr Banki has made a rough assessment of the time required for the applicant to put its finances in order, namely, something in the order of three months; but that is, of course, simply a figure which is his opinion and he has no direct knowledge of the financial position of the applicant. -3- I turn then to the question of what is the financial position of the applicant. The evidence is primarily to be found in one of the annexures to Mr Banki's affidavit and that is a draft balance sheet of accounts of the applicant as at 31 March 1997. The draft purports to have been signed by the applicant's accountants; but it appears from the opening page of the documents that it was prepared on the basis of information provided to the accountants by the directors of the applicant. It is plain that they have been prepared without reference to the applicant's own financial records, whether primary or secondary. So we all have to do the best we can with the documents, bearing in mind that they are drafts, that they have been prepared on the basis of information provided by the directors which would mean, in the main, Mr Hoghton Hughes, and that he has not given evidence in this proceeding to support the motion. So the material is truly information and belief material. What the documents show I need not dwell on for any length of time; they speak for themselves clearly enough. The documents show the financial position as at 31 March 1997, which represents a nine month period since 1 July 1996, and they show comparataive figures for the year ended 30 June 1996 in most instances. They reflect a position where the current liabilities of the applicant exceed current assets by a little under $2,000,000 and they also show a net loss to the applicant for the nine months period of a little over $250,000 dollars and a negative shareholders equity of approximately $43,000. But that figure must be increased because of certain of the evidence that emerged orally this morning, namely, that an extra $200,000 is a current liability to the applicant's bankers and the figure of goodwill which is shown as approximately $245,000 is one which should in my view in the light of the whole evidence be excluded, so that shareholders equity is a negative approximately half a million dollars. -5- to a degree be a panacea here. That is assuming any orders for costs that are awarded against the applicant in favour of the respondents can be in fact recovered from the applicant. I have already dealt with the applicant's financial position. I note there that provision has been made for costs of certain litigation in a substantial sum and that has to be included in the current liabilities of the applicant and I have taken that into account. I do not think that costs would be a means of adjusting any prejudice that might be sustained by the respondents. The point has been made by counsel for the respondents that, since this case is one that challenges the validity of certain documents including search warrants, documents have been seized pursuant to the execution of those warrants and are being held pending the resolution of this case. It is true that the undertakings which have been furnished by certain police officers who are parties to the litigation do not prevent prosecuting authorities from examining documents and deciding whether to prosecute individuals or corporations or not; nor do they present any bar in that respect to the Director of Public Prosecutions; but the fact is that the litigation depends upon the warrants under challenge. If the challenge succeeds at the instance of the applicant, and I have no idea whether it will or will not, then it may be that the documents would have to be returned to the sources from which they were taken, and such a step could have a very serious bearing on the launching or prosecution of any proceedings that might be brought by the law enforcement authorities in whichever court they are brought. As a practical matter one knows that, in cases like this, prosecutions tend to grind, if not to a halt, to a rather slow pace and I would see no reason why that is not the position in this case. In addition, some arrangement was made, it appears, last year between the applicant and a company, Music World Pty Ltd, whereby Music World distributes the applicant's existing stock and manufactures other stock in respect of which licences appear to be held by the applicant. What the precise nature of the arrangement is between the two companies is not at all clear but it does seem that Music World is conducting the substance of the applicant's business. Music World, we have been informed from the evidence, is a company which has an administrator appointed of its affairs. Indeed thought has been given, though not implemented by action, to appointing an administrator of the applicant. The evidence indicates plainly enough that the financial position of the applicant is very bad indeed, in fact extreme; and the evidence of Mr Banki, adopting the phraseology of counsel for one of the respondents, is that it is 'parlous'. Mr Banki said that the applicant intends to trade out of its current financial difficulties. That may be its intention; but there is nothing in the evidence to support that hope. Indeed, the evidence points plainly to the contrary; the prospects of this company trading itself out of its difficulties seems to me on the evidence that I have, scant though it may be, to be rather far fetched. That branch of the argument therefore goes. 1 would add that I have no doubt that Mr Banki's evidence was given in complete good faith. The next matter is whether or not prejudice will be sustained to the respondents if the motion succeeds. Costs are often a panacea for many problems in litigation and they would, -6- That is not to my mind, however, a particularly important matter. The particularly materia) matter is the financial position of the applicant which is the primary basis on which the adjournment is sought. In all the circumstances, I am of the opinion that the motion should be dismissed. Accordingly, the notice of motion is dismissed. The applicant must pay the costs of the first, second and eighth respondents and the costs of the fifth respondent of the motion. It is a case in my view where separate representation by solicitors and counsel of the first, second and eighth respondents on the one hand and the fifth respondent on the other is proper and to be taken into account by the Taxing Officer. The solicitor for the applicant seeks leave to discontinue the proceeding pursuant to Order 22 Rule 2 and relies in essence upon the arguments advanced by him to support the motion which has been dismissed. I am not persuaded that this is an appropriate case in which to grant leave to discontinue, so the Court declines to do so. The applicant is ordered to pay the costs of the first, second and eighth respondents and the costs of the fifth respondent of the proceeding. I make the same observation with respect to separate representation of the respondents which I made earlier. I certify that this and the preceding six (6) pages are a true copy of the reasons for judgment herein of the Honourable Justice Lockhart Associate: S , BateJol\ Dated: 4 June 1997 Solicitor for the Applicant: Banki, Palombi, Haddock & Fiora Counsel for the First, Second and Eighth Mr P Hastings QC Respondents: Mr R Wilson Solicitor for the First, Second and Eighth Australian Government Solicitor Respondents: Counsel for the Fifth Respondent: Mr B C Oslington QC Solicitors for the Fifth Respondent: Allen Allen & Hemsley Dates of Hearing: 4 June 1997