FEDERAL COURT OF AUSTRALIA RAB's Plumbing Services Pty Limited, in the matter of Elite Civil Group Pty Ltd [2014] FCA 849 Citation: RAB's Plumbing Services Pty Limited, in the matter of Elite Civil Group Pty Ltd [2014] FCA 849 Parties: RAB'S PLUMBING SERVICES PTY LIMITED and others v ELITE CIVIL GROUP PTY LTD and SSI RECRUITMENT PTY LTD SYDNEY TRUCKS & MACHINERY CENTRE PTY LIMITED v ELITE PLANT HIRE PTY LIMITED File number(s): NSD 247 of 2014 NSD 257 of 2014 Judge(s): JAGOT J Date of judgment: 11 August 2014 Legislation: Corporations Act 2001 (Cth) ss 461(1)(k), 459P(1), 471A(1A)(d) Federal Court Rules 2011 (Cth) rule 39.05 Cases cited: Deputy Commissioner of Taxation v Marro (SA) Pty Ltd [2011] FCA 1024 Deputy Commissioner of Taxation v Revolve Ltd [2012] FCA 555 Deputy Commissioner of Taxation v Soiland Pty Ltd (in liq) [2010] FCA 168 Double Bay Newspapers v The Fitness Lounge Pty Ltd [2006] NSWSC 226 George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464 Lane Cove Council v Geebung Polo Club Pty Ltd [2002] NSWSC 118 Re Joe's European Auto Specialists Pty Ltd [2014] NSWSC 195 Re Teca Pty Ltd [2011] NSWSC 686 Date of hearing: 11 August 2014 Place: Sydney Division: GENERAL DIVISION Category: No Catchwords Number of paragraphs: 28 Counsel for the Plaintiffs: M J Dawson Solicitor for the Plaintiffs: ERA Legal Solicitor for the Santoros: Name Suppressed IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 247 of 2014 IN THE MATTER OF ELITE CIVIL GROUP PTY LTD BETWEEN: RAB'S PLUMBING SERVICES PTY LIMITED First Plaintiff DEICORP CONSTRUCTIONS (NSW) PTY LIMITED Second Plaintiff CHARBEL KAIROUZ Third Plaintiff AND: ELITE CIVIL GROUP PTY LTD Second Defendant SSI RECRUITMENT PTY LTD Third Defendant JUDGE: JAGOT J DATE OF ORDER: 11 AUGUST 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The interlocutory application dated 10 July 2014 in proceeding NSD247 of 2014 be dismissed. 2. The plaintiffs' costs as agreed or taxed be paid by Vincenzo Santoro and Adrian Santoro who are jointly and severally liable for those costs. 3. The operation of the orders made by Flick J on 20 March 2014 be extended until and including 4.30 pm on 12 September 2014. 4. The matter be listed for further directions at 9.30 am on 12 September 2014. 5. Order 7 of the orders of Jagot J made on 30 May 2014 be varied to read as follows: 7. These orders have effect until the earlier of: a. 4.00 pm on 12 September 2014; and b. any further or other order to the contrary. 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 257 of 2014 IN THE MATTER OF ELITE PLANT HIRE PTY LTD BETWEEN: SYDNEY TRUCKS & MACHINERY CENTRE PTY LIMITED Plaintiff AND: ELITE PLANT HIRE PTY LIMITED Defendant JUDGE: JAGOT J DATE OF ORDER: 11 AUGUST 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The interlocutory application dated 10 July 2014 in proceeding NSD 257 of 2014 be dismissed. 2. The plaintiff's costs as agreed or taxed be paid by Rene Santoro. 3. The operation of the orders made by Flick J on 20 March 2014 be extended until and including 4.30 pm on 12 September 2014. 4. The matter be listed for further directions at 9.30 am on 12 September 2014. 5. Order 7 of the orders of Jagot J made on 30 May 2014 be varied to read as follows: 7. These orders have effect until the earlier of: a. 4.00 pm on 12 September 2014; and b. any further or other order to the contrary. 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 247 of 2014 IN THE MATTER OF ELITE CIVIL GROUP PTY LTD BETWEEN: RAB'S PLUMBING SERVICES PTY LIMITED First Plaintiff DEICORP CONSTRUCTIONS (NSW) PTY LIMITED Second Plaintiff CHARBEL KAIROUZ Third Plaintiff AND: ELITE CIVIL GROUP PTY LTD Second Defendant SSI RECRUITMENT PTY LTD Third Defendant GENERAL DIVISION NSD 257 of 2014 IN THE MATTER OF ELITE PLANT HIRE PTY LIMITED BETWEEN: SYDNEY TRUCKS & MACHINERY CENTRE PTY LIMITED Plaintiff AND: ELITE PLANT HIRE PTY LIMITED Defendant JUDGE: JAGOT J DATE: 11 AUGUST 2014 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Before the Court are two interlocutory applications in proceedings NSD 247 of 2014 and NSD 257 of 2014 (together the proceedings) seeking to set aside orders made by me on 1 May 2014 winding up Elite Civil Group Pty Ltd, SSI Recruitment Pty Ltd and Elite Plant Hire Pty Ltd which are members of a group of companies (referred to in these reasons as the Elite group companies) pursuant to ss 459P(1) and 461(1)(k) of the Corporations Act 2001 (Cth) (Corporations Act), appointing joint and several liquidators to the Elite group companies, and providing for the payment of the plaintiffs' costs (the 1 May orders). The applicants on the interlocutory applications are Vincenzo, Rene and Adrian Santoro, each a director of one or more of the Elite group companies and together the principal controlling minds of the Elite group companies (together, the applicants on the interlocutory application are referred to in these reasons as the Santoros). 2 The background to the 1 May orders and the present interlocutory applications is as follows. 3 On 11 March 2014, I made orders for the appointment of provisional liquidators to the Elite group companies and another company, Elite Civil Management Pty Ltd. As part of those orders, the provisional liquidators appointed to each company were required to provide a report to the Court in respect of the progress of the provisional liquidation within a period of 14 days. 4 When the matter came before the Court again on 1 May 2014, I granted leave to Vincenzo Santoro to appear, by telephone, in his capacity as a director and principal controlling mind of one or more of the companies in the group. On that occasion, the plaintiffs pressed for orders winding-up the Elite group companies (excluding Elite Civil Management Pty Ltd, which by this time had been wound up pursuant to orders made by the Supreme Court of Victoria). I made it clear to Mr Santoro that, although he was in fact appearing at the application, in circumstances where he was unrepresented and had not filed any evidence in admissible form, I would treat the application as one made on an ex parte basis. The reason for Mr Santoro appearing by telephone was, according to the Santoros, that the Santoro family has been placed into a witness protection program to protect them from threats of violence in connection with an ongoing police investigation. 5 Following the 1 May 2014 hearing, I made the 1 May orders on grounds of both insolvency and that it was just and equitable for the Elite group companies to be wound up. 6 The present interlocutory applications seek to set aside the 1 May orders pursuant to rule 39.05 of the Federal Court Rules 2011 (Cth). Rule 39.05 provides: The Court may vary or set aside a judgment or order after it has been entered if: (a) it was made in the absence of a party; or (b) it was obtained by fraud; or (c) it is interlocutory; or (d) it is an injunction or for the appointment of a receiver; or (e) it does not reflect the intention of the Court; or (f) the party in whose favour it was made consents; or (g) there is a clerical mistake in a judgment or order; or (h) there is an error arising in a judgment or order from an accidental slip or omission. 7 As the 1 May orders were made on an ex parte basis and were also interlocutory orders, rule 39.05 is enlivened pursuant to sub-paragraphs (a) and (c). 8 In support of the interlocutory applications, the Santoros rely upon the affidavit evidence of each of Vincenzo Santoro, Rene Santoro and Adrian Santoro. Their affidavits traverse a wide range of issues and make numerous allegations. In summary, the present interlocutory applications are put on the following bases: (1) The Santoros entered into a witness protection program on or about 19 February 2014. By reason of the originating applications in each of the proceedings filed in early March 2014, the Santoros were denied any real opportunity to put in place their own managers of the Elite group companies so as to secure the assets of the group. (2) Some of the circumstances upon which the appointment of the provisional liquidators on 11 March 2014 was based – namely, that the companies were left without a controlling mind and assets of the group were being stolen – in fact resulted from the illegal actions of a person or persons whom it is unnecessary to name in these reasons for judgment (referred to in these reasons as the impugned person or impugned persons) and who is or are, say the Santoros, the person or persons behind, in control of or otherwise influencing the winding-up applications. (3) The evidence which was tendered in support of the making of the 1 May orders asserted various debts which were said not to be the subject of genuine dispute. On the evidence of Vincenzo Santoro, each alleged debt is in fact the subject of a significant dispute. The Santoros contend that there has not been full and frank disclosure of significant matters relevant to the making of winding up orders, as was required of the plaintiffs given the ex parte nature of the 1 May 2014 hearing. In this respect, the Santoros also contend that there has not been full and frank disclosure of the circumstances which led to them entering into a witness protection program or the connections between the impugned persons and the asserted debts and winding up applications as referred to in point (2) above. 9 Accordingly, the Santoros contend that the use of the winding up procedure was inappropriate, that there is sufficient material in support of the present interlocutory applications to satisfy the Court that the orders were obtained irregularly, and that the matters alleged by the Santoros are such as to warrant a full hearing, rather than the ex parte hearing which led to the 1 May orders being made winding up the Elite group companies. 10 The Santoros' contentions are most effectively summarised in Vincenzo Santoro's 7 July 2014 affidavit in which he deposes to believing that the Elite group companies were put into liquidation with the assistance of one of the liquidators so that the impugned persons could (i) find Mr Santoro (his current whereabouts being the subject a witness protection program), and (ii) misappropriate from his family whatever they could. I have no reason to doubt that the Santoro family has in fact been placed in witness protection or that it is appropriate that they be in that witness protection (and I have made various suppression and confidentiality orders in these proceedings reflecting their status as protected witnesses). Nevertheless, the evidence relied upon by the Santoros consists of statements of belief about the connections between various people rather than proof of those facts. An example of this is Vincenzo Santoro's contention that, based on an alleged conversation between Mr Santoro and the impugned person in which Mr Santoro is said to have been directed to contact a third person as a potential liquidator of another company, together with the circumstance that the same person has been appointed the liquidator of Elite Civil Management Pty Ltd by the Supreme Court of Victoria (and was a provisional liquidator of that company pursuant to this Court's orders of 11 March 2014), I should infer that this person, who is one of the liquidators of one of the Elite group companies appointed pursuant to the 1 May orders, is not independent. This not a matter of inference but, rather, of pure speculation. 11 In the circumstances, I accept the submission put by the plaintiffs (the respondents to the current interlocutory applications) that the absence of any affidavit evidence from them formally answering the wide ranging allegations against many people contained in the Santoros' evidence should not be seen as any admission as to the accuracy of those allegations but, rather, reflects a forensic decision not to lead evidence in circumstances where those allegations amount to no more than mere assertion and are of limited relevance in light of other inferences which should clearly be drawn on the admissible evidence already before the Court. 12 As the plaintiffs pointed out, leave is required pursuant to s 471A(1A)(d) of the Corporations Act in order for the Santoros, as directors of companies being wound up, to bring this application. Although leave was granted to the Santoros on 27 June 2014 to file and serve interlocutory applications seeking to set aside the 1 May orders, that was not a grant of leave under section 471A of the Corporations Act. In any event, for the reasons set out below, the orders should not be set aside, assuming leave were granted. 13 While I accept that I have the power to grant leave and may grant such leave nunc pro tunc, I also accept the plaintiffs' submission that the question of leave raises a number of discretionary considerations which are relevant to the applications to set aside the orders. Relying upon the decisions in Lane Cove Council v Geebung Polo Club Pty Ltd [2002] NSWSC 118; Deputy Commissioner of Taxation v Soiland Pty Ltd (in liq) [2010] FCA 168 and Deputy Commissioner of Taxation v Revolve Ltd [2012] FCA 555, the plaintiffs identified the following highly relevant considerations: (1) the existence or absence of a prima facie case for the solvency of the defendant company and the extinguishment of the just and equitable and public policy considerations which led to the making of the original winding up orders; (2) whether the defendant company is protected from the costs of the application; and (3) the utility of the application. 14 These are not dissimilar from the considerations identified as relevant to the setting aside of winding up orders as set out in Double Bay Newspapers v The Fitness Lounge Pty Ltd [2006] NSWSC 226 (Double Bay Newspapers); Re Teca Pty Ltd [2011] NSWSC 686 (Re Teca) and Deputy Commissioner of Taxation v Marro (SA) Pty Ltd [2011] FCA 1024 (Marro). 15 In Double Bay Newspapers (at [20]-[37]), White J explained that, in the absence of some fundamental irregularity in the obtaining of an order, the position was as set out in George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464 at 465, where Hodgson J said: In my view, if an order winding up a company is made in the absence of the defendant company, and an application is brought promptly by the company, with notice being given to the liquidator, to the plaintiff and to any creditor who appeared at the hearing; and if the evidence shows an explanation for the non-appearance at the hearing and indicates solvency of the company; and if there is consent to setting aside, or at least non-opposition; and if the liquidator indicates that nothing in his investigations to date shows a reason for the company to be stopped from trading, then the court will normally set aside the order. 16 In Double Bay Newspapers, the fundamental irregularity which was found was that the orders obtained were in breach of an agreement which had been reached between the parties. In these circumstances, White J was satisfied (at [37]) that the defendant was entitled, as of right and not merely as a matter of discretion, to have the judgment set aside. In Marro, Finn J made the same point (at [4]). Citing Double Bay Newspapers, Finn J said: "even if there was an irregularity in obtaining a winding-up order, it is unlikely that an order would be made under the section given that the Court could not be satisfied of the company's solvency". 17 In Re Teca, a matter characterised by the Court as one not involving a winding up obtained irregularly but in which the order was obtained in the absence of the defendant, White J said (at [4]) that it was: well settled that where a winding-up is sought to be set aside under that rule and where there has been no irregularity in the obtaining of the order, it is incumbent on the company seeking to set the winding-up order aside to adduce evidence showing that the company is solvent (see Labraga v Pomfret [2005] NSWSC 654 at [44]; and Double Bay Newspapers v The Fitness Lounge [2006] NSWSC 226). 18 Finally, in Re Joe's European Auto Specialists Pty Ltd [2014] NSWSC 195, Black J made the same point in these terms (at [9]): The Company was not present when the winding up order was made, and that may authorise, in an appropriate case, the setting aside of that order to protect the Company's right to be heard and the integrity of the Court's processes: Double Bay Newspapers Ltd v Fitness Lounge Pty Ltd [2006] NSWSC 226; (2006) 57 ACSR 131 at [36]. That jurisdiction is available, on proof of the Company's solvency, notwithstanding there was nothing irregular about the process by which that winding up order was made: Workers' Compensation Nominal Insurer v Teca Pty Ltd [2011] NSWSC 686 at [4]. … 19 In the present case, I do not accept that the orders were obtained irregularly. Each of the matters which is said to involve substantial non-disclosure by the plaintiffs is based on pure assertion on behalf of the Santoros. While some documentary evidence has been adduced, and I accept the Santoros' submission that they do not have access to all of the documentary material, I am not satisfied on the evidence before me that the ex parte orders were obtained on the basis of any non-disclosure of any substantial matter. As I have said, Vincenzo Santoro's allegations are nothing more than statements of belief and speculation. In the absence of any evidence from which I could reasonably draw any inference as to the wide ranging matters agitated by the Santoros, I cannot conclude otherwise than that the orders of 1 May 2014 were regularly obtained. 20 It follows that the question of solvency is of central importance to the application to set aside the orders, assuming for this purpose that leave would otherwise be granted. In this respect, I accept the plaintiffs' submissions that even on the evidence adduced on behalf of the Santoros, the proper inference to be drawn is that the companies within the group are hopelessly insolvent. 21 The Santoros contend that if assets which had been taken from the companies could be found and properly valued, then the assets and other claims of the companies would be sufficient to cover debts, and otherwise, all debts are in dispute. However, these broad assertions in the Santoros' affidavit evidence are difficult, if not impossible, to reconcile with the conclusions drawn by the liquidators in their various reports to the Court as to the financial position of the Elite group companies. Those reports support the plaintiffs' position as to the insolvency of the companies. 22 The other difficulty for the Santoros is that, as I have said, the winding up orders were also made on the just and equitable ground on the basis that, by reason of the Santoros being placed in a witness protection program on or about 19 February 2014, the companies were left without any effective controlling mind, and their assets were being depleted by the actions of third parties, including subcontractors. There is no dispute that assets were being taken from the companies, and the liquidators report their intention to refer these matters to the police. 23 The problem for the Santoros is, as the plaintiffs say, they were and remain in witness protection, and there is no basis upon which it could be inferred that if the orders were set aside, there would be any proper control or direction of these companies. The position, therefore, would be the same as it was on 11 March 2014, the circumstances on that occasion being such as to satisfy me that it was necessary that provisional liquidators be appointed to take control of the Elite group companies. 24 I also accept the plaintiffs' submission that the companies would not be protected from the costs of these applications. No one in the Santoros' camp has offered an indemnity to protect the companies from the costs of the applications. Further, substantial work has already been done by the liquidators, as reflected in their reports to the Court provided in March 2014 and their subsequent affidavits which have been read into evidence today. 25 The plaintiffs also submit that it is difficult to see any real utility in setting aside the winding up order. In this respect, I note that at least one other creditor, Reozone Pty Ltd, a creditor of Elite Civil Group Pty Ltd, has filed a notice of appearance in these proceedings and has foreshadowed that it would seek to be substituted as a creditor in the event that any such orders be made. I accept this submission. 26 The plaintiffs identify other relevant factors in their outline of submissions. In particular, there is no evidence that there is any person willing or able to assume control of the companies given that the Santoros remain in witness protection. There is also evidence that the affairs, including record keeping, of the Elite group companies has been irregular and that the review of all of those affairs by an independent third party is appropriate in all of the circumstances. I also accept that setting aside the winding up order may well affect the property available to stakeholders by reason of potential impacts on any pooling determination or order and the relation back day. It is also relevant in public interest terms that the liquidators' reports disclose extensive related party transactions warranting further investigation. 27 In these circumstances, I accept the plaintiffs' submission that the evidence adduced by the Santoros which, in essence, contends that through extortion and theft the companies have been denuded of their assets and that the companies are solvent as they are owed significant sums of money, far from supporting the setting aside of the winding up orders, in fact, support the contrary conclusion that those winding up orders were appropriate to be made and should continue. As the plaintiffs submitted, the affairs of the companies are "plainly irregular and require the intervention of a qualified third party". 28 Accordingly, the Santoros' interlocutory applications dated 10 July 2014 in proceedings NSD 247 of 2014 and NSD 257 of 2014 are dismissed with costs. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot. Associate: Dated: 8 September 2014