Federal Court of Australia Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 3) [2020] FCA 1109 File number: NSD 754 of 2020 Judgment of: STEWART J Date of judgment: 4 August 2020 Catchwords: CORPORATIONS – application by administrators for directions under s 90-15 of the Insolvency Practice Schedule – where director failed to comply with court orders to provide administrators with access to servers –administrators permitted to arrange for the company servers to be shut down or for the physical collection of hard drives Legislation: Corporations Act 2001 (Cth) Sch 2, Insolvency Practice Schedule (Corporations) s 90-15 Cases cited: Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 1) [2020] FCA 1110 Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1111 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 22 Date of hearing: 4 August 2020 Counsel for the Applicants: C Ernst Solicitor for the Applicants: Colin Biggers & Paisley Counsel for the First Respondent: The first respondent did not appear Counsel for the Second Respondent: S Burchett Solicitor for the Second Respondent: Juris Cor Legal ORDERS NSD 754 of 2020 IN THE MATTER OF UNION STANDARD INTERNATIONAL GROUP PTY LTD (ADMINISTRATORS APPOINTED) BETWEEN: PETER PAUL KREJCI AND ANDREW JOHN CUMMINS AS VOLUNTARY ADMINISTRATORS OF UNION STANDARD INTERNATIONAL GROUP PTY LTD First Applicant UNION STANDARD INTERNATIONAL GROUP PTY LTD (ADMINISTRATORS APPOINTED) Second Applicant AND: SOE HEIN MINN First Respondent UNION STANDARD GROUP INTERNATIONAL HOLDINGS LTD (REGISTERED IN SAMOA) Second Respondent order made by: STEWART J DATE OF ORDER: 4 AUGUST 2020 THE COURT ORDERS THAT: 1. The first applicant would be justified in directing Beeks Financial Cloud Limited to physically turn off the servers licensed to the second applicant and/or to collect the physical hard drive of the servers licensed to the second applicant from the location of each server. 2. Orders 5, 6 and 7 of 31 July 2020 are vacated. 3. The first applicant is to file and serve short written submissions in support of any application for costs within seven days, and the first and second respondents (jointly or severally) are to file and serve any short written responses within a further seven days (with the submission in each case not to exceed three pages). Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Revised from the transcript) STEWART J: 1 Previous reasons for judgment of mine in this matter document the relevant history: Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 1) [2020] FCA 1110 and Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1111 (Reasons 2). These reasons assume familiarity with those reasons and adopt the same abbreviations. For present purposes the following can be noted. 2 The orders of 30 July 2020, as explained in Reasons 2, required Mr Soe to furnish administrator access to the servers and platforms. The orders were served in the manner they provided for. The evidence is that an email attaching the orders and other documents was sent to Mr Soe himself at the identified email address at 6:38 pm on 30 July 2020. The documents attached to that email were accessed at 10:22 am on 31 July 2020. 3 In the meanwhile, the documents were also emailed to Ms Zhang of Juris Cor Legal, the solicitors for USG Holdings, as provided for in the orders. Ms Zhang has deposed an affidavit saying that she received that email at 6:33 pm on 30 July 2020. Immediately after receiving the email she tried to get in contact with Mr Soe, but she was unable to speak to him directly. 4 Ms Zhang confirmed that at that time she was still instructed by Mr Soe, but that she did not have authority to receive service on his behalf. Ms Zhang says that at about 11:00 pm on 30 July 2020 she was informed by an employee of USG Holdings that Mr Soe withdrew his instructions to Juris Cor Legal for it to act on his behalf. 5 From the above I am satisfied that Mr Soe received notice of the orders. It is quite apparent, and I draw the inference, that he withdrew his instructions to Juris Cor Legal in order to try to avoid the implications of service on him of the orders. 6 Resuming the facts of what occurred following my orders of 30 July 2020, Mr Soe did not furnish the required administrator access, nor did he give notice that he wished to have the Court reconsider the orders that he furnish such access, nor did he appear at the resumed hearing at 2:00 pm on 31 July 2020 for that purpose. 7 When the matter was called at 2:00 pm on 31 July 2020, USG Holdings appeared by counsel to oppose the direction under s 90-15 of the Insolvency Practice Schedule (as set out in Reasons 2 at [3]) being made. As my orders on that day record, USG Holdings was, by consent, joined as the second respondent and it was ordered to furnish administrator access to the servers and platforms by 2:00 pm on 1 August 2020. The interlocutory process, notably the relief in the form of the direction under s 90-15, was otherwise adjourned. The parties were given leave to apply on notice so short as may be justified in the circumstances. That was in recognition of how quickly matters were moving. 8 Today at about 10:30 am I received a request from the administrators that the matter be listed at 2:00 pm or so soon thereafter as possible. I had the matter listed for 2:00 pm and the parties were informed. 9 When the matter was called, Ms Ernst, for the administrators, indicated that the administrators now sought the direction under s 90-15 foreshadowed in the interlocutory process, but limited that as being applicable to the servers only, not to the platforms. The reason for that limitation will become apparent shortly. 10 It will be recalled that the s 90-15 direction was in essence that the administrators would be justified in directing Beeks Financial Cloud to physically turn off the servers licensed to the company and/or to collect the physical hard-drive of the servers licensed to the company from the location of each server. 11 Mr Burchett appeared for USG Holdings. He said that he and his client had been taken by surprise by the administrators seeking the s 90-15 direction and sought the opportunity to take instructions and, if possible, put on evidence in opposition to the direction. I stood the matter down until 4:00 pm to accommodate Mr Burchett's request, noting that he doubtless would have preferred far more time. However, in the circumstances I was satisfied that there is substantial urgency in the matter. The company is potentially facing very serious losses with each passing day. If that is to be stopped, it should be done as soon as possible. 12 The evidence before me is that USG Holdings does not have administrator access to the servers. It only has that access to the platforms. After some initial difficulties, access to the platforms was ultimately provided by USG Holdings at about 1:30 pm on 1 August 2020. 13 According to an affidavit of Mr Moe Tun, a director of USG Holdings, Mr Soe is in control of administrator access to the servers and he has not granted that to anyone else. On that basis, USG Holdings has furnished what access it is able to furnish. 14 Expert evidence on behalf of the administrators is that administrator access to the platforms is insufficient because certain critical financial and trading data appears to have been moved on the servers so as to not be accessible through the platforms, even with administrator access to the latter. 15 USG Holdings opposes the direction being made because if Beeks responds favourably to instructions from the administrators and closes down the servers it and, potentially, other third parties, in particular other companies within the group, will face losses. That is because they also trade on the servers. 16 There are several considerations weighing against USG Holdings' contention. First, the person who has the requisite administrator access, which could be provided to the administrators and, thereby, avoid the need to close down the servers, is connected with USG Holdings. That is Mr Soe. On Ms Zhang's evidence, Mr Soe is one of the three directors of USG Holdings. Each director is also a shareholder. They are the only shareholders. Mr Soe holds 650,000 of 1 million issued shares. He is, thus, the major shareholder and, I infer, has control of USG Holdings. It is, therefore, sophistry to say that USG Holdings cannot acquire the requisite administrator access in order to furnish it to the administrators. The truth is that Mr Soe will not allow USG Holdings to furnish that access. 17 Second, Mr Soe is playing fast and loose with the administrators and, it would appear, with the Court. I have already mentioned that late on 30 July 2020 he terminated his instructions to Juris Cor Legal through an unidentified employee of USG Holdings, yet Mr Moe Tun says in his affidavit that he has not been able to contact Mr Soe since 29 July 2020. There is something here that is not explained. 18 Further, on the evidence before me, the company has the relevant contractual rights with Beeks. Ms Zhang has also produced a contract ostensibly between USG Holdings and Beeks. The administrators were not previously aware of that contract and questioned its authenticity. That is not something that I am able to decide on the evidence before me. In any event, as I have previously observed, Beeks has acknowledged that it will act on the instructions of the administrators in respect of the servers, notwithstanding the protestations of USG Holdings. That is a strong indication that it considers itself contractually bound to do so, which supports the administrators' questioning of the authenticity of the contract. 19 It has been submitted on behalf of USG Holdings that Beeks should merely reboot the servers and, thereby, enable new administrator access to be provided to the servers and cause a limited disruption in the servers that would limit the disruption that would be caused to USG Holdings and the others that trade on the servers. However, the evidence is that on 28 July 2020 Beeks had indicated that that was a possibility. They said in an email at that time that they believed that the only way for them to access the servers without, in effect, the administrator access was to reboot them and modify the passwords before the operating system fully restarted. 20 However, Beeks subsequently advised through a discussion with Mr Bent, the expert appointed by the administrators, and in an email to him that the rebooting option was no longer available because Beeks itself had been shut out of the servers by the person with administrator access and that the only party with the ability to get access is whoever locked them out. On current evidence that would appear to be Mr Soe. Of course, it is important that the administrators give instructions to Beeks to take care to ensure that the disruption to the servers is for as short a period as possible. 21 I am satisfied that the administrators have exhausted all other options and have not been able to acquire the administrator access to the servers. As previously explained, I am satisfied that the administrators require such access. 22 In the circumstances I will give the administrators the direction they seek. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart. Associate: Dated: 26 August 2020