Federal Court of Australia Fourteen Consulting Services Pty Ltd (in liq) v Boon Business Consultants Pty Ltd [2023] FCA 376 File number: NSD 331 of 2023 Judgment of: YATES J Date of judgment: 18 April 2023 Catchwords: CORPORATIONS – application to appoint a provisional liquidator – application for non-publication order made under s 37AF of the Federal Court of Australia Act 1976 (Cth) – applications granted Legislation: Corporations Act 2001 (Cth) ss 436A(1), 461(1)(k), 472(2) Federal Court of Australia Act 1976 (Cth) ss 37AF, 37AG(1)(a) Cases cited: Australian Securities and Investments Commission v AGM Markets Limited [2018] FCA 1119; 129 ACSR 335 Australian Securities Commission v Solomon and Others (1996) 19 ACSR 73 R v Burns [2019] NSWDC 832 Re New Cap Reinsurance Corporation Holdings Ltd; Re New Cap Reinsurance Corporation (Bermuda) Ltd [1999] NSWSC 536; 32 ACSR 234 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 29 Date of hearing: 18 April 2023 Counsel for the Plaintiff: Mr M Pesman SC Solicitor for the Plaintiff: ERA Legal Counsel for the First and Second Defendants: The defendants did not appear ORDERS NSD 331 of 2023 BETWEEN: FOURTEEN CONSULTING SERVICES PTY LTD (IN LIQUIDATION) (ACN 626 923 297) Plaintiff AND: BOON BUSINESS CONSULTANTS PTY LTD (ACN 634 124 315) First Defendant A.O.B HOLDING PTY LTD (ACN 632 922 046) Second Defendant order made by: YATES J DATE OF ORDER: 18 APRIL 2023 THE COURT NOTES: 1. The usual undertaking as to damages given by the plaintiff. THE COURT ORDERS THAT: 2. Orders 1 to 9 of the Originating Process filed on 17 April 2023 be returnable instanter. 3. Pursuant to s 472(2) of the Corporations Act 2001 (Cth), Darren John Vardy (Mr Vardy) of Insolvency Options Pty Ltd, Suite 38, 3 Box Road, Caringbah NSW 2229, be appointed liquidator of the first defendant, Boon Business Consultants Pty Ltd (ACN 634 124 315) (Boon), provisionally, until the making of a winding up order or otherwise until further order. 4. The duties to be performed by Mr Vardy in his capacity as provisional liquidator of Boon are as follows: (a) to take possession of, collect and protect the assets of Boon; (b) to receive and collect the debts due to Boon; (c) to discharge rents, wages, salaries and other expenses but so far only as may be necessary for the purpose of preserving the assets of Boon or for the purpose of sub-order (d); (d) to carry on the businesses of Boon until further order but so far only as is necessary for the beneficial disposal or winding up of that business; and (e) generally to exercise such of the powers conferred on a liquidator pursuant to section 477(2)(a) – (k) of the Corporations Act 2001 (Cth) as may be necessary for the foregoing purposes. 5. The nature and description of the property of which Mr Vardy in his capacity as provisional liquidator of Boon is to take possession is all the assets and property of Boon. 6. Within 28 days of his appointment in accordance with 2 above, Mr Vardy provide to the Court a report as to the provisional liquidation of Boon, including: (a) the identification of assets and liabilities of Boon; (b) an opinion as to the solvency of Boon; (c) an opinion as to the assets and liabilities of Boon; (d) an opinion as to whether Boon has proper financial records; and (e) any other information that might be necessary to enable the financial position of Boon to be assessed. 7. Pursuant to ss 37AF and 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth), upon the ground that the order is necessary to prevent prejudice to the proper administration of justice, the following documents be marked confidential on the Court file, not be published, disclosed or accessed except pursuant to an orders of the Court, and their contents supressed until 5.00 pm on Friday 21 April 2023: (a) the affidavit of Darren John Vardy affirmed 17 April 2023 and marked "Confidential affidavit"; (b) exhibit DJV-2; (c) any transcript of the hearing conducted on 18 April 2023. 8. The matter be listed for case management before Yates J as Commercial and Corporations Duty Judge at 9.15 am on 21 April 2023. 9. These orders be entered forthwith. 10. The provisional liquidator or any other person establishing a sufficient interest in the subject matter of these orders has liberty to apply to vary, amend or discharge these orders. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT YATES J: 1 On 18 April 2023, I made an order appointing a provisional liquidator to the first defendant, Boon Business Consultants Pty Ltd (Boon). These are my reasons for making that order, and granting other relief. 2 The plaintiff, Fourteen Consulting Services Pty Ltd (in liquidation) (the company), has commenced this proceeding seeking, amongst other final relief, an order that Boon be wound up in insolvency or, alternatively, on the just and equitable ground under s 461(1)(k) of the Corporations Act 2001 (Cth) (the Corporations Act). It sought, amongst other interim relief, an order that its liquidator, Darren John Vardy, be appointed as the provisional liquidator of Boon, with certain powers, pending the making of a winding up order against Boon or until further order. 3 The application was supported by two affidavits by Mr Vardy, each made on 17 April 2023. One of these affidavits is now subject to an order under s 37AF of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act). 4 On 10 February 2023, Mr Vardy was appointed as the administrator of the company, pursuant to a resolution of the company's director, in accordance with the provisions of s 436A(1) of the Corporations Act. On 15 March 2023, he was appointed as liquidator of the company pursuant to an order made by the Supreme Court of New South Wales. 5 The plaintiff was registered in New South Wales on 19 June 2018. A search conducted on 13 March 2023, shows that its sole director from that date, until 10 March 2022, was James Alexander Burns. On 19 June 2018, Mr Burns was also appointed as the company's secretary. The search shows that Nektarios Kalathas was appointed as a director and secretary of the company on 12 March 2021. The search records that Mr Burns' appointment as a director ceased on 10 March 2022, and that his appointment as company secretary ceased on 12 March 2021. 6 The material before me indicated that, on 29 November 2019, Mr Burns was sentenced to a term of imprisonment of three years and three months, to date from 1 March 2019 to 31 May 2022. Mr Burns was eligible for release on parole on 28 February 2021. The evidence does not indicate whether, and if so when, Mr Burns was released on parole. The evidence suggests that Mr Burns acted as the sole director of the company over a substantial period of his incarceration. 7 I note for later reference that the remarks made on Mr Burns' sentencing recorded, at [50], that Mr Sam Henderson of NPC Advisory Pty Ltd (NPC Advisory) had confirmed to the sentencing judge that Mr Burns would have a role in NPC Advisory's accounting department when he was deemed ready for release: R v Burns [2019] NSWDC 832. 8 In carrying out his work as administrator of the company, Mr Vardy had meetings with Mr Burns and Mr Kalathas. Mr Vardy's impression from those meetings was that all the information given to him was provided by Mr Burns, with Mr Kalathas providing very little information. Further, according to Mr Vardy, Mr Burns coordinated the Report on Corporate Affairs and Property that was completed by Mr Burns and Mr Kalathas. Mr Vardy sensed that Mr Burns had to go to NPC Advisory to get the information. 9 According to Mr Vardy's investigations, no transactions have been recorded in the company's electronic accounting system since 1 July 2022. Further, the majority of the transactions recorded in that system occurred when Mr Burns was a director. The company ceased trading in around August 2021. 10 On 17 February 2023, Mr Burns was able to obtain, from NPC Advisory, Boon's balance sheet as at 31 August 2021, its profit and loss statement for the period 1 July 2020 to 31 August 2021, and statements of its aged payables as at May 2023 and aged receivables as at August 2021. Mr Burns provided these documents to Mr Vardy. I infer that these records were provided to Mr Vardy because they were considered (by someone) to be indicative of Boon's financial position in February 2023. 11 An important question arises as to the authority by which Mr Burns was able to obtain these records. A company search of Boon conducted on 11 April 2023 does not record Mr Burns as having been one of Boon's officers. The company search shows that Boon was registered in New South Wales on 14 June 2019 and that its sole director and secretary, at that time, was Christopher John Traill. Mr Traill was also Boon's sole shareholder. On 3 April 2023, a Form 484 was lodged with the Australian Securities and Investments Commission recording that Nicolas Kalathas had been appointed as a director and secretary of Boon from 14 February 2023. The form also records that Mr Traill transferred all his shareholding in Boon to Mr Nicolas Kalathas on that day. It is not known whether Nicolas Kalathas is the same person as Nektarios Kalathas, but the coincidence in names is noteworthy. 12 Another question is why Mr Burns, and not one of the company's current officers, provided these records to Mr Vardy. At the time the records were provided to Mr Vardy, by email from Mr Burns sent on 17 February 2023, Mr Burns had not been an officer of the company since 12 March 2022. The fact that Mr Burns obtained and provided these records to Mr Vardy is consistent with Mr Vardy's impression that Mr Nektarios Kalathas had very little information to provide and that even Mr Burns had to go to NPC Advisory to obtain information relevant to the company's financial position. 13 Boon's balance sheet, as provided by Mr Burns, records that, as at 31 August 2021, Boon had receivables of $3,606,342. This amount comprised, substantially, the sum of $2,000,000 (recorded as owing by Henpark Holdings Pty Ltd) and the sum of $1,500,000 (recorded as owing by NPC Advisory (SD) Pty Ltd). The balance sheet also records the amount of $33,374,812 (described as "A.O.B Holding Loan") as a non-current asset. It is understood that the reference to "A.O.B Holding" is to A.O.B Holding Pty Ltd. 14 The balance sheet also records that Boon had current liabilities which include an item described as "Accounts Payable" of $50,037,587. The statement of aged payables shows this amount as owing to the company. 15 The balance sheet shows, further, that Boon had a total negative equity of $11,503,842. The profit and loss statement shows that, in the period 1 July 2020 to 31 August 2021, Boon suffered a net loss of $11,611,990. 16 Mr Vardy's evidence was that, as at 20 February 2023, Boon was, in fact, indebted to the company in the amount of $66,843,274. On that day, Mr Vardy sent a letter of demand to Boon, seeking payment within 14 days. There has been no response to this demand. 17 On 9 March 2023, 12 business days after sending the letter of demand, Mr Vardy was contacted by NPC Advisory to arrange a meeting between himself and Mr Henderson, to whom I have referred earlier. The meeting was held in Mr Vardy's office on 10 March 2023. Mr Vardy's evidence of that meeting was that Mr Henderson informed him that Boon would be receiving $5 to 6 million from a loan it had made "predominantly" to a firm called Titan Cranes. When Mr Vardy enquired about "the other $60 million" owing to the company, Mr Henderson said: I don't know about that and will need to look into it further. Anyway, Boon will be placed in liquidation in the not too distant future. 18 This evidence suggests that, at the time of his meeting with Mr Vardy, Mr Henderson had an involvement in Boon's affairs sufficient to instigate a meeting with Mr Vardy after Mr Vardy had sent the letter of demand to Boon, and that Mr Henderson was able to speak, it seems with some familiarity and authority, about Boon's finances and its future. The company search of Boon to which I have referred does not record Mr Henderson as having been an officer of Boon. The evidence is consistent with Mr Henderson exercising a degree of control over Boon's affairs. In that connection, I infer that Mr Burns, in his dealings with Mr Vardy, was acting on instructions from Mr Henderson, given the confirmation by Mr Henderson, at Mr Burns' sentencing hearing, that Mr Burns would have a role, after his release from prison, in NPC Advisory. 19 Mr Vardy gave evidence that it has recently come to his notice that Mr Henderson died on about 4 April 2023. At the present time, Mr Vardy has been unable to confirm that fact by formal means, but the information he received seems to be reliable. 20 At the hearing, I was taken to the principles on which the courts proceed when considering the appointment of a provisional liquidator. 21 Section 472(2) of the Corporations Act provides that the Court may appoint a registered liquidator provisionally at any time after the filing of a winding up application and before the winding up order is made. This jurisdictional requirement has been satisfied in the present case. 22 In Australian Securities and Investments Commission v AGM Markets Limited [2018] FCA 1119; 129 ACSR 335, Beach J noted (at [80] – [81]) that, in order to make an appointment, two things must be established. First, that the applicant must show that it has reasonable prospects of obtaining a winding up order. Secondly, the applicant must show that there is good reason for such intervention prior to the final hearing of the winding up application. At [82] – [86], his Honour said: 82 … it has often been said that the appointment of a provisional liquidator pending the determination of a winding up application is a drastic intrusion into the affairs of a company and should not be ordered if other measures would be adequate to preserve the status quo. Now such considerations are important, but they do not of themselves necessarily limit my jurisdiction or exercise of power to appoint a provisional liquidator. 83 Factors relevant to the exercise of my discretion to appoint a provisional liquidator include: (a) whether the affairs of the company have been conducted casually without due regard being given to the applicable legal requirements so as to cause me to have no or little confidence that the affairs of the company are being carried out properly; (b) whether the assets of the company will be dissipated in the interim period between the filing of the application to wind up and the winding up order being made; (c) whether in the public interest there is a need for an examination of the state of the accounts of the company; and (d) whether, if the appointment was not made, there was a strong possibility that there would be further acts, omissions or events which would be detrimental to creditors or shareholders. 84 But unless an applicant can demonstrate that there is a need for interim control of the company pending the winding up of the company, no appointment will be made. It is not by itself enough, for example, that the company has not traded for some time. It is also not enough by itself that a provisional liquidator might be able to undertake investigations which might be fruitful (Allstate Explorations NL v Batepro Australia Pty Ltd [2004] NSWSC 261 at [37] per Austin J). 85 But it may be appropriate to appoint a provisional liquidator where the affairs of the company have been carried on casually and without due regard to legal requirements so as to leave me with no confidence that the company's affairs would be properly conducted with due regard for the interests of creditors and shareholders. 86 Further and generally speaking, it is also necessary to consider the degree of urgency and the balance of convenience. 23 In a similar vein, Tamberlin J in Australian Securities Commission v Solomon and Others (1996) 19 ACSR 73 said (at 80): The relevant principles relating to the appointment of a provisional liquidator which require consideration include the following: (a) The court should only appoint a provisional liquidator where it is satisfied that there is a valid and duly authorised winding up application and that there is a reasonable prospect that a winding up order will be made: see Debelle J in Re J N Taylor Holdings Ltd; Zempilas v J N Taylor Holdings Ltd (1991) 3 ACSR 516; 9 ACLC 1 at 12-3. (b) The fact that the assets of the corporation may be at risk is a relevant consideration. (c) The provisional liquidator's primary duty is to preserve the status quo to ensure the least possible harm to all concerned and to enable the court to decide, after a further examination, whether the company should be wound up: Re Carapark Industries Pty Ltd (in liq) (1966) 9 FLR 297; 86 WN (Pt 1)(NSW) 165 at 171. (d) The court should consider the degree of urgency, the need established by the applicant creditor and the balance of convenience: Re Club Mediterranean Pty Ltd (1975) 11 SASR 481 at 484 per Bright J. The power is a broad one and circumstances will vary greatly. Commercial affairs are infinitely complex and various and it is inappropriate to limit the power by restricting its exercise to fixed categories or classes of circumstances or fact. (e) It may be appropriate to appoint a provisional liquidator in the public interest where there is a need for an independent examination of the state of accounts of the corporation by someone other than the directors: Tickle v Crest Insurance Co of Australia Ltd (1984) 2 ACLC 493. (f) Where the affairs of the company have been carried on casually and without due regard to legal requirements so as to leave the court with no confidence that the company's affairs would be properly conducted with due regard for the interests of shareholders, it may be appropriate to appoint a provisional liquidator: see Montgomery Windsor (NSW) Pty Ltd v Ilopa Pty Ltd (1984) 2 ACLC 224. 24 In Re New Cap Reinsurance Corporation Holdings Ltd; Re New Cap Reinsurance Corporation (Bermuda) Ltd [1999] NSWSC 536; 32 ACSR 234, Young J observed (at [23]): 23 … the power to appoint a provisional liquidator is by no means limited, the grounds on which a provisional liquidator may be appointed are infinite, and all that really has to be shown is that there is a bona fide application constituting sufficient ground for the making of the order. 25 Taking into account these general statements of principle, I was satisfied that the company has reasonable prospects of obtaining a winding up order against Boon on the ground that the company is, by far, Boon's largest creditor and is owed a very large sum of money in circumstances where Boon appears to have been insolvent from at least 31 August 2021. Indeed, on the evidence before me, Boon has a significant deficiency of assets and no apparent means of discharging, in full, its liability to the company. This does not appear to be a case of marginal insolvency. Boon's liquidation was forecasted by Mr Henderson. The debt which Boon owes to the company is the company's largest asset, in circumstances where the company itself has apparent liabilities in excess of $60 million. 26 I was satisfied that there was good reason for intervention. Boon's affairs appear to have been under the control of persons other than its appointed company officers. The person who appeared to have had the primary control has died. I have no confidence that Boon's affairs will be properly conducted in these circumstances. 27 Further, Boon has a substantial asset in the form of the loan for $33,374,812 to A.O.B Holding Pty Ltd. It is in the interests of Boon's creditors—most particularly, the company—that Boon be placed under the control of a liquidator, albeit one appointed provisionally, to take steps to preserve that asset, and any other assets that Boon might have, for the benefit of its creditors and, more generally, to enquire into its financial affairs to enable its precise financial position to be ascertained. 28 I was also satisfied that it was appropriate to make an order, limited as to time, providing for the non-publication of Mr Vardy's confidential affidavit, the exhibit referred to in that affidavit, and the transcript of the hearing on 18 April 2023. I was satisfied that such an order was necessary to prevent prejudice to the proper administration of justice, given that the affidavit contains information as to Mr Vardy's investigations and present beliefs in respect of the company's financial relationships with a number of other companies, and individuals associated with those companies. Should circumstances require, the order made under s 37AF of the Federal Court Act can be extended. 29 Given that Mr Vardy's appointment as provisional liquidator of Boon was made ex parte, I also made an order that any person establishing a sufficient interest in the subject matter of the orders made on 18 April 2023 has liberty to apply to vary, amend or discharge those orders. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates. Associate: Dated: 26 April 2023