FEDERAL COURT OF AUSTRALIA Application by Solomons [2013] FCA 1273 Citation: Application by Solomons [2013] FCA 1273 Parties: DAVID SOLOMONS and ANTONY DE VRIES File number: NSD 2234 of 2013 Judge: JAGOT J Date of judgment: 15 November 2013 Catchwords: CORPORATIONS – dual appointments – conflict of interest - directions Legislation: Bankruptcy Act 1966 (Cth) Corporations Act 2001 (Cth) Federal Court (Bankruptcy) Rules 2005 Date of hearing: 15 November 2013 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 12 Counsel for the Plaintiffs: S Golledge Solicitor for the Plaintiffs: Addisons IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2234 of 2013 BETWEEN: DAVID SOLOMONS First Plaintiff ANTONY DE VRIES Second Plaintiff JUDGE: JAGOT J DATE OF ORDER: 15 NOVEMBER 2013 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. On the Plaintiff's undertaking, that in the event that any conflict arises that may impede or inhibit the Plaintiffs from acting impartially in the interest of all creditors in the liquidations of Sydney Financial Advisers Pty Ltd and SydFA Pty Ltd and in the bankrupt estate of Gabriel Nakhl or give rise to a reasonable apprehension that the Plaintiffs may be so impeded or inhibited, the Plaintiffs will approach the Court forthwith, the Court gives the following Directions pursuant to Corporations Act 2001 (Cth) s 511 and Bankruptcy Act 1966 (Cth) s 30: that the Plaintiffs are justified in remaining as liquidators of SydFA Pty Ltd and Sydney Financial Advisers Pty Ltd (the companies) and as trustees in bankruptcy of Gabriel Nakhl (aka Gabriel Al-Nakhl). 2. The Court further orders: i. Pursuant to Federal Court (Bankruptcy) Rules 2005 Rule 1.03 that compliance strictly with Rules 1.06 and 2.01 pertaining to forms applicable in applications under the Bankruptcy Act not apply to these proceedings. ii. The costs of this application be paid from such funds as are available in either the liquidations of the companies or the bankruptcy of Gabriel Nakhl. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2234 of 2013 BETWEEN: DAVID SOLOMONS First Plaintiff ANTONY DE VRIES Second Plaintiff JUDGE: JAGOT J DATE: 15 NOVEMBER 2013 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This is an application by the liquidators of SydFA Pty Ltd and Sydney Financial Advisers Pty Ltd who are also the trustees in bankruptcy of the director of those companies, Gabriel Nakhil, also known as Gabriel Al-Nakhil. The application is made primarily pursuant to s 511 of the Corporations Act 2001 (Cth) which permits, amongst others, the liquidator to apply to the Court to determine any question arising in the winding up of a company, and otherwise pursuant to s 30 of the Bankruptcy Act 1966 (Cth) and associated provisions of the Federal Court (Bankruptcy) Rules 2005. 2 In substance what the applicants seek is a determination by the Court that it is appropriate for them to retain their positions as both liquidators of the companies and as trustees in bankruptcy of the bankrupt. This application is necessary because, as the applicants correctly perceived, there is the potential for a risk to arise of a conflict of interest in their roles. 3 In respect of the application I have been very well assisted by the submissions of Mr Golledge of counsel, as well as the affidavits of Mr Stern, the solicitor for the liquidators and the affidavit of Antony De Vries, who is one of the joint liquidators and a co-trustee of the relevant bankrupt estate. Having read the affidavit, in particular of Mr De Vries, it is apparent why the application is brought. 4 In short, as set out in Mr Golledge's written submissions: Each of the administrations are at any early stage. There are very limited funds available to whoever is to conduct the insolvent administrations. There appears to be substantial overlap in the matters which will need to be investigated in each administration, the books and records which will be relevant to the investigations in each administration and claims which will need to be reviewed and adjudicated upon. There are substantial reasons why, in the interests of efficiency and the effective conduct of the administrations in the interests of creditors as a whole, that the same practitioners take control of the windings up and the bankruptcy. 5 As I have said, Mr De Vries' affidavit provides ample support for this submission. It appears, as Mr De Vries has said, that: The factual and legal matrix pertaining to Mr Nakhil, the companies and his associated entities is very complex. 6 It seems too that there has been considerable intermingling of funds from various sources. There are numerous claims involved involving various properties and aspects of different businesses in which Mr Nakhil appears to have been involved. 7 I accept that the work involved by Mr De Vries and Mr Solomons as both liquidators of the companies and as trustees of the bankrupt estate has been significant and is very much ongoing. It is the submission of Mr De Vries that it is in the interests of the creditors that they be allowed to continue these tasks in both capacities as liquidators and trustees, particularly due to the commonality of involvement of Mr Nakhil, creditors, potential insurance and solicitors for parties who had dealings with Mr Nakhil. 8 Of particular relevance to my decision to make the directions and orders sought is that Mr De Vries has pointed out in his affidavit that both he and his co-liquidator/trustee, Mr Solomons, are aware of the substantial need to monitor, on an ongoing basis, issues to be addressed or considered in both types of insolvency administrations for the purpose of determining if any conflict of interest arises. They also have the assistance of their solicitor, Mr Stern, who has approximately 35 years insolvency experience. 9 In the affidavit, there is set out an undertaking to the Court to continue monitoring potential conflicts and if any such conflict arise having a likely detriment to creditors or others, to apply to the Court. I indicated to Mr Golledge that this undertaking seemed to me to be extremely important and it is now reflected in the preamble to the proposed order which is sought. I have also taken into account the fact that there is correspondence from the Australian Financial Security Authority to the effect that the Inspector-General in Bankruptcy does not oppose or object to the application and does not wish to be heard, leaving it essentially to the Court to make the necessary directions. This is in a context where it is also stated that, as previously advised: It is preferred that the trustees of Mr Nakhil's bankruptcy and the liquidators of the companies be completely separate to avoid a conflict of interest or at least the perception of a conflict of interest. … However, given the undertakings contained in Mr De Vries' affidavit, the Inspector-General will not oppose or object to the application nor will she seek to be heard on the application. 10 By a letter of 13 November 2013, the Australian Securities and Investment Commission (ASIC) confirmed receipt of the originating process, Mr De Vries' affidavit and other documents, and has confirmed that this is a matter properly left for the determination of the Court and that ASIC did not propose to intervene in the proceeding or seek leave to appear and, indeed, ASIC has not done so. 11 What is now proposed is that there be reflected in the orders an undertaking as follows: In the event that any conflict arises that may impede or inhibit the applicants from acting impartially in the interests of all creditors in the liquidation of Sydney Financial Adviser Pty Ltd and SydFA Pty Ltd, and in the bankrupt estate of Gabriel Nakhil, or give rise to a reasonable apprehension that the applicants may be so impeded or inhibited, the applicants will approach the Court forthwith. 12 It seems to me that this undertaking is in appropriate terms and it is appropriate that I should make orders as requested. Accordingly, on this basis, I accept the undertaking and I make orders that the plaintiffs are justified in remaining liquidators of the SydFA Pty Ltd and Sydney Financial Advisers Pty Ltd (the companies) and as trustees in bankruptcy of Gabriel Nakhil (aka Gabriel Al-Nakhil). I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot. Associate: Dated: 15 November 2013