Whitemore Holdings Ltd (in liquidation) [2004] FCA 806

FEDERAL COURT OF AUSTRALIA

Whitemore Holdings Ltd (in liquidation) [2004] FCA 806 CORPORATIONS – warrant for search and seizure – refusal to produce company records – destruction of company records Corporations Act 2001 (Cth) s 530C Morton v Robins (1996) 14 ACLR 1197 cited Critanovic v Kenna & Brown Pty Ltd (1995) 18 ACSR 387 cited Australian Securities Commission v Samson (1997) 24 ACSR 555 applied IN THE MATTER OF WHITEMORE HOLDINGS PTY LTD (IN LIQUIDATION) (ACN 050 942 857); BRUCE JAMES CARTER No S137 of 2004 FINN J ADELAIDE 23 JUNE 2004

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY S 137 OF 2004

IN THE MATTER OF WHITEMORE HOLDINGS PTY LTD (IN LIQUIDATION) (ACN 050 942 857)

BRUCE JAMES CARTER

PLAINTIFF

JUDGE: FINN J

DATE OF ORDER: 23 JUNE 2004

WHERE MADE: ADELAIDE

THE COURT ORDERS THAT: 1. Orders be in terms of the short minutes of order provided. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY S 137 OF 2004

IN THE MATTER OF WHITEMORE HOLDINGS PTY LTD (IN LIQUIDATION) (ACN 050 942 857)

BRUCE JAMES CARTER

PLAINTIFF

JUDGE: FINN J

DATE: 23 JUNE 2004

PLACE: ADELAIDE

REASONS FOR JUDGMENT 1 The circumstances giving rise to this application for a warrant under s 530C of the Corporations Act 2001 (Cth) are, to say the least, unusual. The subject company, Whitemore Holdings Pty Ltd, was wound up on the basis of an unsatisfied judgment debt in the order of $20,000. The winding up was unopposed. At the time Whitemore had over $400,000 in a bank account. It would seem now to have assets in excess of $2.8 million, albeit it has at least one significant creditor, the Australian Taxation Office, which is owed in the order of $1.3 million. 2 From the date of the winding up order (6 April 2004) until mid May 2004 it was represented to the liquidator, Bruce James Carter, by Mr Edward Lawrence (the sole director of Whitemore), by Whitemore's accountants, and by Mr Wright (the contract manager of Whitemore), that the company's business had been sold to an entity called All Wright Roofing Ltd ("All Wright"). Mr Wright is the sole director of All Wright. 3 All Wright appeared to have taken over the employment contracts of Whitemore; the signage at Whitemore's premises indicated that All Wright occupied the premises; All Wright notified suppliers of Whitemore that it had acquired Whitemore's business; and it paid certain outgoings and received payments on account of Whitemore (most notably a payment of approximately $110,000 from a trade debtor). Mr Carter ascertained on 13 May 2004 that Whitemore's business had not been sold. 4 On 14 April 2004 Mr Carter wrote to Mr Lawrence requesting he produce all books and records of Whitemore and that he complete a Report as to Affairs. The following day a member of Mr Carter's office contacted Mr Lawrence seeking details of Whitemore's bank accounts and assets. He was advised that Mr Lawrence did not recall Whitemore's bank details and that Whitemore had no assets. So began the pattern of non-cooperation, contradiction, obfuscation and evasion that has been engaged in by Mr Lawrence. He has not complied with Mr Carter's demands for delivery of the Whitemore's books and records. He seemingly has made admissions that he destroyed a company computer and other company books and records. This, he said, occurred shortly after he was asked to provide details of Whitemore's bank accounts etc and he has denied having any information at his home that could assist with the reconstruction of debtors, retentions, outstanding work in progress etc. 5 Yet it is clear from the affidavits filed by Mr Carter and by a Ms Taylor, an employee of Mr Carter's firm, that Mr Lawrence has possession of a Whitemore computer and of some at least of the company's records and has been able to prepare documents in light of them. It is also clear that attempts have already been made to destroy or dispose of some of the company records. On 14 May 2004 Ms Taylor ascertained that a "miniskip" bin at Whitemore's premises contained a number of Whitemore's books and records. 6 Whatever has motivated the conduct I have noted above – and I do note that there is evidence to suggest Mr Lawrence may be unwell – it has had a clear consequence. Of the over $2.8 million in assets that Mr Carter believes Whitemore to have, he has only been able to take control of about $600,000 of assets (these being made up primarily of cash in a bank account the existence of which was ascertained as a result of inquiries his staff made of various banks as to whether Whitemore held accounts with them). Recovery of book debts of approximately $1.8 million and of retention moneys of approximately $400,000 depends on access being had to Whitemore's records and to its computers. 7 Mr Carter has deposed that: "50. I have very little information concerning the affairs of Whitemore given that: 50.1 I have not been able to access computers which record the dealings of the company; 50.2 I have been unable to obtain assistance or cooperation from any of the former employees of the company; 50.3 I have had difficulty in obtaining information from Mr Lawrence and Mr Wright; 50.4 Mr Lawrence has not complied with my demands for delivery of the company books and records of Whitemore. 51. In particular, my ability to take control of Whitemore's assets has been significantly impeded and delayed by virtue of: 51.1 Mr Lawrence's alleged destruction of Whitemore's computers; 51.2 other attempts to destroy and conceal company books and property; and 51.3 the repeated concealment by Mr Lawrence of information relating to Whitemore and Whitemore's property and books." 8 Section 530C provides: "530C(1) [Concealment of removal of property or books] The Court may issue a warrant under subsection (2) if: (a) a company is being wound up or a provisional liquidator of a company is acting; and (b) on application by the liquidator or provisional liquidator, as the case may be, or by ASIC, the Court is satisfied that a person: (i) has concealed or removed property of the company with the result that the taking of the property into the custody or control of the liquidator or provisional liquidator will be prevented or delayed; or (ii) has concealed, destroyed or removed books of the company or is about to do so. 530C(2) [Search and seizure of property or books] The warrant may authorise a specified person, with such help as is reasonably necessary: (a) to search for and seize property or books of the company in the possession of the person referred to in subsection (1); and (b) to deliver, as specified in the warrant, property or books seized under it. 530C(3) [Warrant holder may break into building etc] In order to seize property or books under the warrant, the specified person may break open a building, room or receptacle where the property is or the books are, or where the person reasonably believes the property or books to be. 530C(4) [Custodian of property or books must retain] A person who has custody of property or a book because of the execution of the warrant must retain it until the Court makes an order for its disposal." 9 It is well understood that ss 530A, 530B and 530C are designed to strengthen the powers of a liquidator to enforce the provisions of s 474 of the Corporations Act which requires that the liquidator take control of the company's property: see Morton v Robins (1996) 14 ACLR 1197. It equally is well accepted that an order under s 530C will ordinarily be "a remedy of last resort": Critanovic v Kenna & Brown Pty Ltd (1995) 18 ACSR 387. 10 In this matter the conduct of Mr Lawrence and of several other employees (either of Whitemore or of All Wright) has led Mr Carter inexorably to s 530C. There has, on the evidence, been clear non-compliance with the requirements both of s 530A and s 530B by at least Mr Lawrence. There has been, as I have indicated, a persistent pattern of non-cooperation, contradiction, obfuscation and evasion. I am satisfied that the requirements of s 530C(1) have been demonstrated. I note that the Australian Securities and Investment Commission has indicated that it does not object to the present application or to the orders sought. 11 I will make orders in terms of the minutes of order that have been provided to me. I will follow the procedure adopted in this Court as to the form of the warrant: Australian Securities Commission v Samson (1997) 24 ACSR 555 at 557. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn .