FEDERAL COURT OF AUSTRALIA In the matter of Bernsteen Pty Ltd & Anor (No 2) [2007] FCA 48 CORPORATIONS – Corporations Act 2001 (Cth), s 596A, s 596D – appointment of liquidators – content of summons – whether liquidators can act severally – whether liquidators must act jointly – whether summons under s 596A oppressive – whether examinable affairs include personal financial position Corporations Act 2001 (Cth), s 596A, s 596D Gerah Imports Pty Ltd v Duke Group Ltd (In Liq) (1993) 61 SASR 557 cited Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 applied Harvey v Burfield (2002) 84 SASR 11 distinguished Re BPTC Ltd (In Liq) (1994) 14 ACSR 460 discussed Re Parker (1997) 80 FCR 1 cited PETER IVAN MACKS AS LIQUIDATOR OF BERNSTEEN PTY LTD (IN LIQUIDATION) AND NEWMORE PTY LTD (IN LIQUIDATION) SAD 132 OF 2006 MANSFIELD J 2 FEBRUARY 2007 ADELAIDE IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD 132 OF 2006 BETWEEN: IN THE MATTER OF BERNSTEEN PTY LTD (IN LIQUIDATION) AND NEWMORE PTY LTD (IN LIQUIDATION) PETER IVAN MACKS AS LIQUIDATOR OF BERNSTEEN PTY LTD (IN LIQUIDATION) AND NEWMORE PTY LTD (IN LIQUIDATION) Plaintiff JUDGE: MANSFIELD J DATE OF ORDER: 17 JANUARY 2007 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: On the Notice of Motion of John Viscariello of 14 December 2006: 1. The Order made on 17 November 2006 be varied by striking out from the summons annexed to it by Order 1 paragraphs 2 to 4 of the schedule to the summons. 2. The said summons issued pursuant to the said Order be varied by striking out therefrom paragraphs 2 to 4 of the schedule to the said summons. 3. Ian Lock do pay the counsel fees of John Viscariello of the hearing of the said motion on 17 January 2007. 4. There should be no other order for costs of the said motion. 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 SAD 132 OF 2006 BETWEEN: IN THE MATTER OF BERNSTEEN PTY LTD (IN LIQUIDATION) AND NEWMORE PTY LTD (IN LIQUIDATION) PETER IVAN MACKS AS LIQUIDATOR OF BERNSTEEN PTY LTD (IN LIQUIDATION) AND NEWMORE PTY LTD (IN LIQUIDATION) Plaintiff JUDGE: MANSFIELD J DATE: 17 JANUARY 2007 PLACE: ADELAIDE REASONS FOR DECISION 1 Ian Lock is one of the joint and several liquidators of Bernsteen Pty Ltd (In Liquidation) ACN 008 178 863 and Newmore Pty Ltd (In Liquidation) ACN 056 650 929 (together, the companies). On 17 November 2006 on Mr Lock's application an order was made for the examination of Mr John Viscariello under s 596A of the Corporations Act 2001 (Cth), and that, pursuant to s 596D of the Act, he produce certain books and records concerning the examinable affairs of the companies in terms of the summons annexed to the order (the November Order). The examination and production summons (the summons) was returnable on 15 December 2006. Pursuant to the November Order, Mr Viscariello was given three days after service to apply to set aside or vary the order. He did not do so within that time. 2 Belatedly, by motion of 14 December 2006, Mr Viscariello applied for the discharge or permanent stay of the November Order, and that he be permitted to inspect the affidavit of Mr Lock filed in support of the application for that order. 3 His motion, despite being out of time, did not seek an extension of time within which it could be brought. Nor did he adduce any evidence to explain why he had delayed in making the application. I heard that motion urgently on 14 December 2006. In the absence of an explanation for the delay, I did not then extend the time within which it could have been brought. On Mr Viscariello's application, I adjourned the motion to 17 January 2007 to give him an opportunity to adduce such evidence. In the meantime, his examination partly proceeded on 14 December 2006, although he did not then produce any of the documents which he was required to produce by the summons. 4 On the further hearing of his motion, Mr Viscariello has produced evidence to explain his delay in applying to set aside the November Order. His evidence is not challenged. In the circumstances, it provides a satisfactory explanation for the belated application. I do not need to refer further to it. Mr Lock did not suggest in submissions or in evidence any injustice which he might suffer if an extension of time to bring the application were granted nunc pro tunc to 14 December 2004. I will permit the amendment of the motion to seek such an extension of time, and I will then grant the extension of time sought. 5 On the resumed hearing of the motion, Mr Viscariello, through counsel, contended: (1) the November Order should be discharged because Mr Lock was not entitled to have sought it only in his own name; (2) that part of the summons requiring production of documents should be varied by excluding from the documents to be produced any documents seeking to ascertain his personal assets and liabilities; (3) alternatively to (2), that variation should be made because, in their terms, those parts of the summons requiring such production are oppressive; and (4) as a complementary order to (2) and (3), that the affidavit of Mr Lock in support of the application for the November Order should be made available to him because it was necessary to enable him to fairly challenge the validity of the November Order and its terms. 6 At the hearing on 14 December 2006, the previous counsel for Mr Viscariello had argued that the November Order should be set aside because it was brought for an improper purpose, namely for the purpose of damaging Mr Viscariello personally, rather than for the purpose of investigating the examinable affairs of the companies. An extensive, and somewhat rambling, affidavit of Mr Viscariello had been filed apparently to support that claim. That contention was not pursued at the hearing on 17 January 2007. It is not therefore necessary to refer to that extensive affidavit. However, I point out that the allegations made by Mr Viscariello concern Peter Macks. Mr Macks was the initial liquidator of the companies, having been appointed by resolution of the creditors to wind up the companies on 12 December 2001. They were not allegations made directly against Mr Lock. Nothing was contained within the affidavit to suggest in any way that Mr Macks played any part in the decision to seek the November Order, or that Mr Lock himself was not acting conscientiously in pursuing the order. It is therefore not surprising that the contention was not maintained. I am not to be taken, by pointing that out as indicating that I regard the allegations of improper conduct on the part of Mr Macks as having any foundation. I have no view on that matter. 7 The explanation for my observation in the preceding paragraph also provides the background to the first argument advanced by Mr Viscariello. The functions of Mr Lock and Mr Macks are quite distinct. By the first order made on 16 August 2006 (the August Order), on the application of Mr Macks, Mr Lock and John Sheahan of Sheahan Lock Partners were appointed as joint and several additional liquidators to the companies solely for a specified purpose. That purpose was expressed in par 5 of the August Order in the following terms: "5. Pursuant to sections 511 and 473(8) of the Act, the following matters may be done only by Ian Russell Lock and John Sheahan, as additional liquidators of the Companies, on behalf of the Companies: 5.1 Investigating any breaches of section 588G of the Act in relation to the affairs of the Company; and 5.2 If Ian Russell Lock and John Sheahan deem it appropriate, taking all necessary steps to recover compensation for losses incurred by the Companies by reason of such breach or breaches of section 588G of the Act." 8 The first contention was based upon s 506(4) of the Act. It provides: "(4) [Several liquidators] When several liquidators are appointed, any power given by this Act may be exercised by such one or more of them as is determined at the time of the appointment, or in default of such determination, by any number not less than 2." It was argued that Mr Lock and Mr Sheahan were joint liquidators of the company for the purposes of investigating any breaches of s 588G of the Act in relation to the affairs of the companies, and that by the August Order they were required to act together. Consequently, so the argument ran, as Mr Lock had applied alone to seek the November Order, his application was incompetent and the Order itself should be set aside. 9 There is no reason to think that Mr Sheahan was not aware of, and did not support, Mr Lock's application. Mr Lock and Mr Sheahan are partners. Nor is there any reason to think that, if the contention is correct, there would be any real benefit to be gained by Mr Viscariello except by delay. If the contention is correct, Mr Lock and Mr Sheahan could apply jointly for an order on the same grounds as it was made in the first place. 10 However, it is necessary to deal with the contention. It was put that, following the appointment of Mr Lock and Mr Sheahan, there were three liquidators of the companies and that, because there was no determination that they may exercise their respective powers severally, s 506(4) requires not less than two of them to have to make the application for the November Order. Alternatively it was put that, by that Order, Mr Lock and Mr Sheahan were obliged to act jointly. 11 A similar contention succeeded in Harvey v Burfield (2002) 84 SASR 11. In that case, there had been no order that the liquidators were appointed severally, so Perry J concluded after a review of the authorities that they should be regarded as having been appointed jointly. Consequently, his Honour said at 16, [37]: " … where two or more liquidators are appointed, the appointment should be regarded as joint and not several, so that absent any statutory provision to the contrary, liquidators must act together and are unable to authorise any one or more of them to act on behalf of all of them." The position, as his Honour noted at 17, [42] may be different if the liquidators are appointed jointly and severally: cf Re Parker (1997) 80 FCR 1. Where liquidators are not appointed severally, s 506(4) would permit two of several (in the sense of "more than two or three, but not many" per Perry J at [53]) liquidators to exercise the powers of the liquidators under the Act. Perry J explained the operation of s 506(4) at 18, [55] in the following terms: "If it is accepted that where more than one liquidator is appointed the liquidators should be regarded as joint liquidators, with the consequence that they must act jointly and not severally in the exercise of any powers which may be conferred upon them, the reason why s 506(4) deals only with the situation where 'several liquidators' are appointed becomes clear. Absent any determination to the contrary made at the time of their appointment, where three or more liquidators are appointed, any power given by the Act may be exercised by any number not less than two." 12 In this matter, resolution of Mr Viscariello's first contention depends upon the proper construction of the August Order. It is clear that by the first order Mr Lock and Mr Sheahan were appointed as joint and several liquidators of the companies with Mr Macks. The issue, as identified in contentions, was whether Order 5 operated only as identifying the sole purpose for which Mr Lock and Mr Sheahan were appointed, and so limiting what they may do as joint or several liquidators, or also operated as a determination by the Court (as contended by Mr Viscariello) as to how they should perform their restricted function. 13 In my judgment, the August Order, as well as appointing Mr Lock and Mr Sheahan as joint and several additional liquidators, operated only to limit the functions which they may perform in that capacity. I do not consider that the order determined that they must perform those functions in all respects jointly. Otherwise, proper regard is not given to the word "severally". In my view, upon its proper construction, it determined that, in performing their restricted function, they may act severally. Order 1 refers to them as being "joint and several additional liquidators" of the company "solely for the purpose specified in paragraph 5." It therefore refers to, and identifies, the purpose of Order 5. I also consider that the use of the words "joint and several" in conjunction with the words "additional liquidators" means that Mr Lock and Mr Sheahan as additional liquidators were appointed jointly and severally solely for the limited purpose specified. The wording of order 5 follows naturally from order 1 in identifying the purpose for which they were appointed jointly and severally. The introductory words of Order 5, and at least Order 5.1, do not have any content which suggests that the Registrar who made the August Order intended to direct them how to exercise that limited function, and in particular that they could do so only jointly. Indeed, it would be inconsistent with Order 1 that they be appointed as joint and several liquidators if Order 5, and especially Order 5.1, then determined that they must act jointly. There would be no circumstances in which they could act severally, despite the use of that word. I observe the application for the November Order was clearly a step in investigating possible breaches of s 588G in relation to the operations of the companies. 14 I note that Order 5.2 of the August Order may suggest that, at least in deciding whether it is appropriate to take steps to recover compensation for losses by breach of s 588G, presumably by the institution of proceedings, Mr Lock and Mr Sheahan must act together. It may therefore be that any proceedings should be in their joint names. If that be so, Order 5.1 operates clearly by way of contrast to such a determination. On the other hand, it is hard to contemplate that the Registrar intended that such steps as, for example, a letter of demand or correspondence incidental to a letter of demand be signed by both of them. Order 5.2 may simply require that any decision to institute proceedings be made jointly, but that the steps to implement that decision may be taken by them severally. I do not need to resolve that issue. 15 I accordingly reject Mr Viscariello's first contention. I am fortified in the conclusion by the fact that the Registrar who made the August Order also made the November Order. If the August Order were intended to have required an application for examination and production under ss 596A and 596D to have been made jointly by Mr Lock and Mr Sheahan, the Registrar would not have made the November Order only on the application of Mr Lock. 16 The remaining three contentions of Mr Viscariello can be dealt with together. They do not seek to set aside the November Order, but to vary it. The scope of the November Order is conveyed by the summons annexed it. The variation sought is to the terms of the summons in so far as it specifies the categories of documents to be produced. The contention seeks to vary the summons by deleting pars 2-4 of the schedule which (it is common ground) seek the production of documents relating to the personal financial position of Mr Viscariello. 17 The order for the examination of Mr Viscariello was made under s 596A of the Act as he was a director of the companies. There was no discretion to decline to make that order. It was duly made that he be examined "by summons in terms of Annexure A" to the order. The complementary order under s 596D that he produce documents as specified in the schedule to the summons was however discretionary. 18 The schedule to the summons contained four paragraphs. The first specified in some detail documents between 1 January 1998 and 21 December 2001 (the date of the creditors' resolution to wind up the companies held by Mr Viscariello) and relating to the affairs of the companies. It is accepted that those documents may relate to whether there has been any breach of s 588G of the Act, and may inform Mr Lock and Mr Sheahan as to whether steps to recover losses incurred by the companies by reason of any such breach should be pursued. No complaint is made about that paragraph of the schedule to the summons. 19 Paragraphs 2-4 of the schedule to the summons were justified by counsel for Mr Lock as relating to the examinable affairs of the companies by exposing the personal financial position of Mr Viscariello, and hence his capacity to meet any judgment against him in the event that proceedings for contravention of s 588G were successful. 20 It is plain that the examinable affairs of a company (as defined in s 53 of the Act) may include information as to the capacity of a person who is or may be liable to the company in the event of successful proceedings against that person: see Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 at 311-312; Gerah Imports Pty Ltd v Duke Group Ltd (In Liq) (1993) 61 SASR 557; Re BPTC Ltd (In Liq)(1994) 14 ACSR 460. A liquidator may seek to be in a position to determine, in a commercial sense as well as a legal sense, how the liquidator is best able to discharge duties to the company in liquidation. 21 Mr Viscariello contended that pars 2-4 of the schedule should not have been included because it was premature to do so. It was put that, at this point in the administration of the affairs of the companies by Mr Lock and Mr Sheahan limited to possible breaches of s 588G and any action following from such suspected breaches, the liquidators should only be focusing upon learning whether there had been such breaches and whether any claim by reason of such breaches might be made against Mr Viscariello. Counsel for Mr Lock did not gainsay that the November Order was a step at an early stage in the process of investigating the existence of any such claims, although there was no evidence directly dealing with that topic. It was then submitted that it is only at a point when proceedings are about to be, or have been issued, or at least when a view is formed that there is a real prospect of proceedings being instituted and maintained, that the capacity of a potential or actual respondent to such proposed or actual proceedings to meet any judgment may be explored. Hence, pars 2-4 of the summons should be deleted. It would also follow that submission, if it is correct, that examination should also not permit any questions on that topic at this point. 22 Mr Viscariello placed reliance upon BPTC 14 ACSR at 463 where McLelland CJ in Eq said: "The power to require an examinee to produce 'books' either by the terms of the examination summons (s 596D(2) and (3)), or by separate direction (s 97(9)), is similarly discretionary. Numerous recent cases have emphasised the importance of the difference between the legal ambit of these powers, and the appropriateness of their exercise in particular cases. The court must ensure that a proper balance is maintained between the legitimate interests of the person seeking the exercise of the court's power on the one hand, and those of the persons to be affected by any such exercise of power, on the other hand." It was argued that the legitimate requirements of the examination at present do not extend to investigating the capacity of Mr Viscariello to meet any judgment. 23 An examination under s 596A, as noted, was an entitlement of the liquidators. There was no discretion to decline to permit it. That, of course, does not preclude the Registrar presiding at the examination from deciding that certain questions are oppressive in all the circumstances and so not allowing them to be put. Most, if not all, the cases in which summonses such as the present have been contentious have involved discretionary examination orders under s 596B. Nevertheless, I think similar considerations arise where there is an examination ordered under s 596A and production ordered under s 596D. There may well be circumstances where examination on a particular topic is oppressive because the balance referred to in BPTC 14 ACSR 460 is not maintained at one stage of an examination and is at an adjourned stage of the examination, or is oppressive at one examination but not at any subsequent examination. Counsel for Mr Viscariello acknowledged that Mr Lock and Mr Sheahan might secure a further order for the examination of Mr Viscariello under s 596A at a later date and for the production of documents relating to his personal financial position to assess his capacity to meet any judgment. 24 I do not accept that the November Order could not, in the exercise of the Court's discretion under s 596D, require the production of documents relating to Mr Viscariello's capacity to meet any judgment. The authorities are plain that that topic falls within the examinable affairs of a corporation. In Grosvenor 48 FCR, the Full Court (Beaumont, Spender and Cooper JJ) at 311 distinguished between the power of the Court to have made such an order on the one hand, and the control of the examining officer in the course of an examination on the other. Consequently, I do not accept the contention that seeking information about Mr Viscariello's capacity to meet any judgment, even at an early stage of the investigation process, was necessarily inappropriate or that the Court did not have power to order production of documents for that purpose. However, I do not regard the scope of the documents required to be produced by the summons as limited to seeking practical information as to the actual worth of any claim that might be made against Mr Viscariello. 25 The width of pars 2-4 of the schedule to the summons is self-evident. They are in the following terms: "2. All documents, which are in your possession or control, including but not limited to letters, memoranda, notes, invoices, statements or schedules, whether in electronic or hardcopy format, relating to or otherwise concerning your personal financial position from December 2001 to the present, including but not limited to: 2.1 taxation returns; 2.2 contracts of employment; 2.3 share certificates; 2.4 bank account statements; 2.5 title deeds; 2.6 mortgages; 2.7 certificates of registration; and 2.8 superannuation returns of you personally, any trust of which you are a beneficiary, trustee or settlor, or of any private company of which you are a shareholder or member. 3. For the purpose of paragraph 2 above, 'personal financial position' includes, but is not limited to, details of: 3.1 income received; 3.2 legal or equitable interests in chattels, including motor vehicles, boats, furniture, jewellery, whitegoods and the like; 3.3 legal or equitable interests in real property; 3.4 cash in bank accounts; 3.5 investment portfolios (including but not limited to share portfolios, managed investment funds, property trusts) in which any interest is held whatsoever; 3.6 liabilities or debts, including but not limited to credit cards, mortgages and loan facilities, including any such facility relating to either real property or chattels. 4. All documents which are in your possession or control, including but not limited to letters, memoranda, notes, invoices or schedules, whether in electronic or hardcopy format, relating to all transfers of any interests in real property or chattels, whether legal or equitable, taking place in the period from December 2001 to the present." 26 Counsel for Mr Lock first sought to justify those paragraphs of the schedule in their terms, but subsequently on instructions proposed that they be somewhat varied so that pars 2.2-2.7 be struck out, and that the documents to be produced be confined to those "referring to or relating to assets or transactions with a value of at least $5000". It was also proposed that par 4 be varied, but not in a way which, in my view, limited its scope. It was proposed to remove the words "whether legal or equitable' and substitute the words "any trust of which [Mr Viscariello] is a beneficiary, trustee or settlor, or of any private company of which [Mr Viscariello] is a shareholder or member." 27 In my judgment, those paragraphs of the schedule, even if so amended, are far too wide and are clearly oppressive. I do not think they could be reasonably justified as seeking to ascertain the capacity of Mr Viscariello to satisfy any judgment, in the event of proceedings against him for contravention of s 588G. 28 In the first place, they cover far too great a time period. There is no reason identified at present why documents relating to his financial affairs at December 2001 could inform his present capacity to meet any judgment, or indeed that any documents other than relatively contemporaneous or current documents are necessary for such an assessment to be made. The issue is whether he is presently, or will be, capable of meeting any significant judgment. The range of documents is also far too wide. It covers both primary records such as notes or invoices, as well as secondary records such as financial statements. It would cover, for example, the written accounts received in respect of a house (if he owns or rents one) such as water or electricity bills. Paragraph 1 is expressly not limited to the subsequent categories of documents in pars 2.1-2.8 (excluding pars 2.2 and 2.7, by the proposed amendment). The restriction proposed to assets of more than $5000 or transactions to the value of more than $5000 does not alleviate that criticism. There are other observations which might be made about the scope of those paragraphs but I do not need to go further. 29 I think those paragraphs of the schedule to the summons (as amended as proposed by counsel for Mr Lock) are oppressive. They go far beyond the legitimate interests of Mr Lock. I do not think he was entitled to an order in those terms. I propose to strike out pars 2-4 of the summons, and to vary the November Order to the extent to which the summons as annexed is part of that order, by striking out those paragraphs of the annexure. 30 Mr Viscariello will nevertheless have to attend to further examination. The examination will no doubt, in the light of the documents now to be produced (albeit belatedly) to comply with par 1 of the schedule to the summons, further explore the question of any possible contravention of s 588G of the Act. As the examinable affairs of the companies includes his capacity to meet any judgment, it is a matter for the Registrar before whom the examination takes place as to the extent to which, at this point, such questions on that topic should be permitted. 31 I have therefore accepted the third contention of Mr Viscariello. 32 In the circumstances, it is not necessary to grant access to the affidavit of Mr Lock in support of the examination. The making of the examination order was an entitlement of Mr Lock under s 596A, and there is no complaint about the terms of par 1 of the schedule to the summons. The previous allegation of improper purpose was not pursued. It is not necessary to explore whether the affidavit in support of the examination order provided some further basis for seeking such broad production of documents relating to Mr Viscariello's capacity to meet any judgment. Counsel for Mr Lock indicated in submissions that that topic was not addressed in the affidavit in support of the application for the November Order. 33 I order that the costs of Mr Viscariello's motion be as follows: Mr Lock should pay the counsel fees of Mr Viscariello of the hearing on 17 January 2007. There should be no other order for costs of the motion. I have taken into account the orders made on the motion, the hearing on 14 December 2006, the abandoned contention of improper purpose on the part of Mr Lock, and the extent to which Mr Viscariello succeeded on the contentions ultimately made on the hearing of his motion. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice MANSFIELD. Associate: Dated: 2 February 2007 Counsel for the John Viscariello: G Dart on 17 January 2007 and G Stevens on 14 December 2006 Solicitors for John Viscariello: McNamara Business & Property Law Counsel for Ian Lock: T Kerr Date of Hearing: 14 December 2006, 17 January 2007 Date of Orders: 17 January 2007 Date of Judgment: 2 February 2007