FEDERAL COURT OF AUSTRALIA Velissaris v Fitzgerald [2011] FCA 197 Citation: Velissaris v Fitzgerald [2011] FCA 197 Parties: GEORGE VELISSARIS v LAURENCE A FITZGERALD and AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION File number(s): VID 26 of 2011 Judge: MIDDLETON J Date of judgment: 2 March 2011 Legislation: Corporations Act 2001 (Cth) Cases cited: Gematech Pty Ltd v Bardi Investments Pty Ltd (2008) NSWSC 196 Pine Forest of Australia (Canberra) Pty Ltd (2010) NSWSC 1127 Re United Medical Protection Limited (2003) 47 ASCR 705 Re Warbler Pty Ltd (1982) 1 ACLC 323 Date of hearing: 2 March 2011 Place: Melbourne Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 21 Counsel for the Applicant: The Applicant appeared in person Counsel for the First Respondent: The First Respondent did not appear Counsel for the Second Respondent: Mr A Muller Solicitor for the Second Respondent: Australian Securities and Investments Commission IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 26 of 2011 BETWEEN: GEORGE VELISSARIS Applicant AND: LAURENCE A FITZGERALD First Respondent AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Second Respondent JUDGE: MIDDLETON J DATE OF ORDER: 2 MARCH 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The application be dismissed. 2. No order as to costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 26 of 2011 BETWEEN: GEORGE VELISSARIS Applicant AND: LAURENCE A FITZGERALD First Respondent AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Second Respondent JUDGE: MIDDLETON J DATE: 2 MARCH 2011 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 Application is made to the Court by Mr Velissaris pursuant to ss 482(1) and 482(1A) of the Corporations Act 2001 (Cth) ('the Act') seeking an order, during the winding up of a company, terminating the winding up on a day to be specified. I observe at the outset, although in the course of oral submissions it proved to have no relevance, that the Court may make such an order, or even an order staying indefinitely, or for a limited time, a winding up subject to conditions or directions: see s 482(3) of the Act. 2 The grant of an application for the termination of a winding up is a discretionary matter and undoubtedly there is a clear onus on the applicant to make out a positive case in support of the application: see Re Warbler Pty Ltd (1982) 1 ACLC 323. 3 Justice Hammerschlag in Gematech Pty Ltd v Bardi Investments Pty Ltd (2008) NSWSC 196 conveniently set out the relevant principles to apply in determining an application such as the one presently before the Court. His honour set out the relevant considerations which, in deciding this application, I adopt. 4 In [23] to [32] of his reasons for judgment, His Honour said: [23] Sections 482(1) and (1A) of the Act provide as follows: (1) At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order. (1A) An application may be made by: (a) in any case — the liquidator, or a creditor or contributory, of the company; (b) .. … [24] The approach to be taken by the Court to applications such as the present, and the factors to which the Court may and should have regard, have been the subject of consideration in the authorities: see Re Telescriptor Syndicate Ltd [1903] 2 Ch 174; Re Mascot Home Furnishers Pty Ltd [1970] VR 593; Re Data Homes Pty Ltd [1972] 2 NSWLR 22; Re Warbler Pty Ltd (1982) 6 ACLR 526; Dubolo Pty Ltd v Codrington Investment Corporation Pty (1998) 26 ACSR 723; Re Intag International Ltd (in Liq); Westpac Banking Corp v Intag International Ltd [1999] NSWSC 645; Mercy & Sons Pty Ltd v Wanari Pty Ltd (2000) 35 ACSR 70; Anderson v Palmer [2002] NSWSC 192; Re Nardell Coal Corporation Pty Ltd (2004) 49 ACSR 110; Deputy Commissioner of Taxation v Biosolids Management Pty Ltd [2004] NSWSC 272; Metledge v Bambakit Pty Ltd (in liq) [2005] NSWSC 160; McConnochie v Lopez [2006] WASC 206; Deputy Commissioner of Taxation v Giumar Pty Ltd (in liq) [2006] FCA 101; Re The King & I Pty Ltd [2007] FCA 2085. [25] Relevantly, for present purposes, two things are clear. [26] Firstly, the solvency of the Company is to be demonstrated by the applicants who bear the onus to do so by leading the "fullest and best" evidence of the company's financial position: Commonwealth Bank of Australia v Begonia (1993) 11 ACSR 609. Proper verification of assets and liabilities is critical to rebut the presumption of insolvency. Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of insolvency: Expile Pty Ltd v Jabb's Excavations Pty Ltd (2003) 45 ACSR 711. [27] In QBE Workers' Compensation Pty Ltd v P Russell Enterprises Pty Ltd [2005] NSWSC 1128 at [26] White J restated the correct approach as follows: … the Court is unlikely to be persuaded to act on the evidence of a single director/shareholder without external confirmation. That confirmation is typically obtained either from the liquidator of the company, if he has carried out sufficient investigations so as to put himself in a position to express an informed opinion, or from the evidence of an external accountant. [28] Secondly, in considering the application, the Court is to have regard not merely to the interests of creditors but to the public interest, including whether granting the order would be detrimental to commercial morality: Re Telescriptor Syndicate Ltd; Re Mascot Home Furnishers Pty Ltd; Re Data Homes Pty Ltd; Re Warbler Pty Ltd. [29] In the context of public interest and commercial morality Buckley J Re Telescriptor Syndicate Ltd required to be satisfied that the trading operations of the company had been "fair and above board" and that there was not "an ugly side to the picture", see also Krextile Holdings Pty Ltd v Widdows [1974] VR 689 at 694. [30] However, the concepts of commercial morality and public interest are not narrow. [31] In Re Data Homes Pty Ltd (which concerned the equivalent section in the Companies Act 1961 to s 482) at 26–27 Mason JA said: But it should not be assumed that there is any sharp dividing line between considerations which are detrimental to commercial morality and those which are opposed to the public interest. They clearly overlap. Nor should it be assumed, as the appellant would have it, that each is a narrow concept for in truth they are designed to give expression to the very broad discretion which s 243 confers upon the court. There is as little reason for confining considerations of commercial morality to the investigation of misconduct in the affairs of the company as there is for restricting the public interest to the pecuniary interests of existing and future creditors … [32] In Chan v Austgrove Enterprises Pty Ltd (in liq) (1993) 12 ACSR 427 Seaman J said at 430: There is one indication of want of commercial morality in the conduct of the business of the company, namely the acceptance by the plaintiffs of their former solicitor's advice that the company should go into liquidation leaving [the creditor] with great difficulty of recovering from the company any sum to which it might be entitled. However, in the end I accept the submission of counsel for the plaintiffs that that conduct should not be seen as an impediment to relief because the plaintiffs remained personally liable to [the creditor] on their guarantees. 5 Before me, Mr Velissaris, relying on affidavits and oral submissions, and by providing various documentation, sought to persuade the Court that the termination of the winding up should occur because Maryvell Investments Pty Ltd ('the Company') has a number of causes of action which it wishes to pursue against a number of entities. Those entities include the Australian Securities and Investments Commission ('ASIC'), the liquidator of the Company, former solicitors, Sigma Constructions (Vic) Pty Ltd ('Sigma') and persons associated with Sigma. 6 The Court can, in an application such as this, make no conclusive observations about the merits or otherwise of any of those purported causes of action. This is particularly so where there is a litigant in person who does not have the benefit of advice from legal practitioners as to the merits of a case or the ability to formulate, based upon legal analysis, the causes of action by reference to the facts and the law. However, it is apparent in relation to some or all of the claims, putting aside the claim against Sigma, that the courts have already considered in one way or another the allegations that have been made before this Court against those entities. I say "in one way or another" because some of the points raised by Mr Velissaris may not have been directly decided by those courts. It is apparent, however, that the issues that are now raised by Mr Velissaris could well have been raised in that litigation and should have been raised. 7 Mr Velissaris, mindful of this criticism, said that he was either badly advised at the time of the earlier litigation, or he himself was unable to present the case in a way which could bring all the issues before the court. Whether or not this is true is not a matter that I can put too much weight upon, where various courts have already made determinations after hearing argument before them. 8 In relation to Sigma, it appears that there is still an application before the Victorian Civil and Administrative Tribunal ('VCAT') where the Company is the applicant and Sigma is one of the respondents. It also appears that pursuant to an order of Judge Bowman made on 3 February 2006, the Company was granted leave to amend its Points of Claim in that application before VCAT. 9 Whilst the file of the proceedings before VCAT are not before me, I will assume that the application is still on foot, that nothing of substance has occurred since the order of Judge Bowman made on 3 February 2006, and that the reason that nothing has occurred is because of the liquidation of the Company. 10 In relation to the particular claim against Sigma, Mr Velissaris said it is a good claim, he has legal advice that it will be successful and that he wishes to amend the claim to add further particulars of loss and damage in the region of four to five million dollars. 11 As I stated earlier, I am not in a position to be able to determine whether the claim against Sigma is a good claim or not. However, I do observe that the proceedings have been before VCAT since 2003, and that the latest time in which interlocutory matters came before VCAT was in February 2006, some many years ago. Presumably, the liquidator was aware of this proceeding and acted accordingly knowing it was in existence and made his own decision whether or not it was to be prosecuted to its end. 12 In the course of the hearing in this Court, Mr Velissaris made a number of allegations and assertions. I have to be careful to make sure that I am satisfied that the legal onus on Mr Velissaris, even though a litigant in person, has been satisfied. 13 The essential matter in this application is to determine whether or not the Company has demonstrated the capacity to operate in a financially sound and responsible way and the capacity to service foreseen indebtedness: see, eg., Pine Forest of Australia (Canberra) Pty Ltd (2010) NSWSC 1127 at [3]. 14 The second matter that is of central importance is not only the interests of creditors but the public interest, including whether the granting of the order will be detrimental to commercial morality. 15 The liquidator has filed a report to creditors in the presentation of accounts and statement. It fairly can be said that that report discloses (in the liquidator's view) that the Company's financial situation is hopeless. 16 Mr Velissaris says that with the course of litigation this problem will be overcome, because the Company will be successful in each and every case against the entities that he names. Significantly, Mr Velissaris puts a great deal of store in success against Sigma. 17 However, I do not consider the Court can operate on the basis of anticipated victory in that litigation, where the material before the court clearly indicates the financial situation of the Company as disclosed by the liquidator and where the liquidator's own report (submitted as a supplementary report pursuant to s 533 of the Act) indicates various matters that, in the liquidator's opinion, involve failure on the part of the director (Mr Velissaris) and possible misconduct and contravention of certain offences. 18 Effectively what is being sought is to terminate the winding up so as to commence legal proceedings against others. There is no material before the Court to show that those proceedings could be properly funded other than Mr Velissaris informing the Court that he may have access to funds through relatives. I am not satisfied that the Company would have the capacity to pay its own lawyers or, perhaps more importantly, the capacity to pay for the costs of potential defendants or respondents to litigation and to the claim against Sigma. It is probably inevitable that a security for costs application would be made in each case, having regard to the history of the Company. 19 ASIC submitted that I should take into account the likelihood that such an application for security for costs could not be met by the Company. I do not think I should necessarily assume that is the case, but I need not enter that debate. On the material before me, I cannot be satisfied at any level that there would be any funds to prosecute the litigation to the extent to which the Mr Velissaris tells me the Company wants to undertake - namely against ASIC, the liquidator, former solicitors and Sigma. 20 The liquidator has made no submission before the Court as to this application. However, ASIC opposes the application and that is a factor to take into account where there is an exercise of discretion and the balancing up of what is in the public interest for the purposes of determining whether the winding up should be terminated: see, eg., Re United Medical Protection Limited (2003) 47 ASCR 705. 21 It is for these reasons that I will not terminate the winding up. I will order that the application be dismissed. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton. Associate: Dated: 8 March 2011