Federal Court of Australia Commissioner of the NDIS Quality and Safeguards Commission v Irabina Autism Services (in liq) [2024] FCA 1468 File number(s): VID 932 of 2024 Judgment of: HORAN J Date of judgment: 18 October 2024 Date of publication of reasons 17 December 2024 Catchwords: CORPORATIONS – application for leave to proceed against company in liquidation under s 500(2) of the Corporations Act 2001 (Cth) – where proceeding alleges contraventions of the National Disability Insurance Scheme Act 2013 (Cth) (NDIS Act) – where relief sought includes declarations and pecuniary penalties – where proceedings promote public interest in compliance with the NDIS Act and the protection of people with disability receiving supports by other registered NDIS providers – where Commissioner provided undertaking not to enforce any order for costs or penalty imposed against the company in the proceeding unless a surplus of assets in excess of creditor liabilities is declared – leave granted to proceed against company Legislation: Corporations Act 2001 (Cth) s 500(2) National Disability Insurance Scheme Act 2013 (Cth) ss 77J, 77V and Ch 6, Pt 2A National Disability Insurance Scheme (Code of Conduct) Rules 2018 (Cth) National Disability Insurance Scheme (Provider Registration and Practice Standards) Rules 2018 (Cth) National Disability Insurance Scheme (Restrictive Practices and Behaviour Support) Rules 2018 (Cth) Cases cited: Australian Competition and Consumer Commission v Artorios Ink Co Pty Ltd [2013] FCA 753 Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (in liq) [2017] FCA 521 Australian Competition and Consumer Commission v Birubi Art Pty Ltd (No 2) [2018] FCA 1785 Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 794 Australian Competition and Consumer Commission v Link Solutions Pty Ltd [2008] FCA 1790; 68 ACSR 561 Commissioner of the NDIS Quality and Safeguards Commission v Aurora Community Care Pty Ltd (in liq) [2024] FCA 679 Eopply New Energy Technology Co Ltd v EP Solar Pty Ltd [2013] FCA 356 Fair Work Ombudsman v Foot & Thai Massage Pty Ltd (in liq) [2019] FCA 1601 In the Matter of DSHE Holdings Limited (recs and mgrs appointed) (in liq) [2018] NSWSC 82 Re Gordon Grant & Grant Pty Ltd [1983] 2 Qd R 314 Rushleigh Services Pty Ltd v Forge Group Ltd (In Liq) (Receivers and Managers Appointed); In the Matter of Forge Group Ltd (In Liq) (Receivers and Managers Appointed) [2016] FCA 1471 Vagrand Pty Ltd (In Liq) v Fielding (1993) 41 FCR 550 ZOLL Medical Australia, in the matter of Cardiac Defibrillators Australia Pty Ltd (in liq) v Cardiac Defibrillators Australia Pty Ltd (in liq) [2022] FCA 167 Division: General Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Number of paragraphs: 32 Date of hearing: 18 October 2024 Counsel for the Applicant: Mr L Hogan Solicitor for the Applicant: NDIS Quality and Safeguards Commission Solicitor for the First Respondent: The First Respondent did not appear Counsel for the Second and Third Respondents: Ms K O'Gorman SC with Ms R Walsh Solicitor for the Second and Third Respondents: K&L Gates ORDERS VID 932 of 2024 BETWEEN: COMMISSIONER OF THE NDIS QUALITY AND SAFEGUARDS COMMISSION Applicant AND: IRABINA AUTISM SERVICES (IN LIQUIDATION) (ACN 006 245 996) First Respondent DEBRA GOLDFINCH Second Respondent REBECCA GOLDFINCH Third Respondent order made by: HORAN J DATE OF ORDER: 18 October 2024 THE COURT NOTES THAT: A. The applicant undertakes not to enforce any order made in this proceeding against the first respondent for payment of a pecuniary penalty or for costs unless the liquidator of the first respondent declares a surplus of assets in excess of creditor liabilities. THE COURT ORDERS THAT: Application for leave to proceed against first respondent 1. Pursuant to s 500(2) of the Corporations Act 2001 (Cth) the applicant is granted leave nunc pro tunc to commence and proceed with this proceeding against the first respondent. Concise Statements 2. By 4.00 pm on 1 November 2024, each respondent serve on the applicant any request for particulars of allegations made in the concise statement dated 13 September 2024 (applicant's concise statement). 3. By 4.00 pm on 15 November 2024, the applicant serve on the respondents a written response to any request for particulars made pursuant to paragraph 2 of these Orders. 4. By 4.00 pm on 22 November 2024, the respondents file any application for an order that the proceeding proceed by way of statement of claim or that the applicant file an amended concise statement. 5. If an application is filed in accordance with paragraph 4 of these Orders: (a) by 4.00 pm on 29 November 2024, the parties are to each file and serve brief written submissions in relation to the application; and (b) the application be listed for hearing on 6 December 2024 at 9.30 am. 6. If no application is filed in accordance with paragraph 4 of these Orders, by 4.00 pm on 29 November 2024, the respondents or each of them file and serve a concise statement in response to the applicant's concise statement. 7. The proceedings be listed for a case management hearing on 6 December 2024 at 9.30 am. 8. There be liberty to apply. 9. Costs be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT HORAN J: 1 By an interlocutory application dated 13 September 2024, the Commissioner of the NDIS Quality and Safeguards Commission sought leave nunc pro tunc under s 500(2) of the Corporations Act 2001 (Cth) to commence and proceed with this proceeding against the first respondent, Irabina Autism Services (in liquidation) (ACN 006 245 996), which is subject to a creditors' voluntary winding up. 2 The Commissioner gave an undertaking not to enforce any order for costs or penalty imposed on Irabina in the proceeding, unless the liquidator declares a surplus of assets in excess of creditor liabilities. In the light of that undertaking, the liquidator did not object to the commencement of this proceeding, or the orders sought by the Commissioner. The liquidator has advised that Irabina currently has insufficient funds to defend or participate in the proceeding, and that he will notify the Commissioner if he recovers funds which would yield a return to creditors. 3 On 18 October 2024, I made an order granting leave nunc pro tunc to the Commissioner to commence and proceed with this proceeding against the first respondent under s 500(2) of the Act, together with other timetabling orders. These are my reasons for making the order under s 500(2) of the Act. Background 4 In the substantive proceeding, which was commenced by an originating application filed on 13 September 2024 together with a concise statement, the Commissioner seeks declarations of contravention and pecuniary penalty orders against each of Irabina, its former Chief Executive Officer (Debra Goldfinch), and its former General Manager Specialist Services and Authorised Program Officer (Rebecca Goldfinch), in relation to alleged contraventions of civil penalty provisions under the National Disability Insurance Scheme Act 2013 (Cth) (NDIS Act). Rebecca Goldfinch is Debra Goldfinch's daughter. 5 The Commissioner alleges that Irabina, as a registered National Disability Insurance Scheme (NDIS) provider providing support services to persons with disability, used and trained staff on the use of prohibited restrictive practices (including physical restraints) on children on the autism spectrum, as part of its "Severe Behaviour Program". It is alleged that, in so doing, Irabina failed to comply with the National Disability Insurance Scheme (Code of Conduct) Rules 2018 (Cth) (NDIS Code of Conduct), the National Disability Insurance Scheme (Provider Registration and Practice Standards) Rules 2018 (Cth) and the National Disability Insurance Scheme (Restrictive Practices and Behaviour Support) Rules 2018 (Cth), in contravention of ss 73J and 73V of the NDIS Act. 6 The Commissioner also alleges that each of Debra Goldfinch and Rebecca Goldfinch contravened the NDIS Code of Conduct and s 73V of the NDIS Act in connection with Irabina's use of prohibited restrictive practices. Among other things, the Commissioner alleges that Debra Goldfinch employed Rebecca Goldfinch in positions and roles with responsibilities that she was neither qualified nor experienced to perform, in contravention of the NDIS Code of Conduct. 7 On or about 26 April 2024, the members of Irabina resolved to wind up the company and appointed a liquidator. 8 On 5 July 2024, after becoming aware of the liquidator's appointment, the Commissioner's principal lawyer informed the liquidator that the company was the subject of an ongoing investigation by the Commission and that it was likely that the Commissioner would bring civil penalty proceedings against the company, and that the Commissioner was therefore a potential creditor of the company. 9 Having formed the view that the company was likely to be insolvent or would become insolvent at some point in the future, the liquidator convened a meeting of creditors on 31 July 2024, following which the liquidation proceeded as if it were a creditors' voluntary winding up pursuant to s 496 of the Act. 10 On 5 September 2024, the Commissioner's principal lawyer sought the liquidator's consent to orders granting leave under s 500(2) of the Act to commence and proceed with this proceeding against the company, and provided the liquidator with final draft versions of the originating application, the concise statement and the interlocutory application. The letter stated: Given the lack of funds in the liquidation of Irabina, the Commissioner is willing to undertake not to enforce any order for costs or penalty imposed on Irabina in the proposed proceedings, unless of course, in the unlikely event you declare a surplus of assets in excess of creditor liabilities (including liability for your fees and outlays as liquidator). 11 On 13 September 2024, the liquidator informed the Commissioner that he did not object to the grant of leave to proceed against the company. The liquidator stated: Please note that Irabina currently has insufficient funds in the liquidation to defend the proposed proceedings and as such I do not anticipate participating in same. Should I recover funds in the future which would yield a return to the creditors, you will be duly notified. 12 On the same day, the Commissioner filed the originating application, concise statement and interlocutory application in this Court. 13 In support of the interlocutory application, the Commissioner relied on an affidavit of Hugh Copley sworn 16 September 2024 (Copley affidavit), and written submissions dated 11 October 2024. Consideration 14 Section 500(2) of the Act provides: After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes. 15 A decision granting or refusing leave to proceed against a corporation in liquidation involves the exercise of a judicial discretion: Re Gordon Grant & Grant Pty Ltd [1983] 2 Qd R 314 at 315 (McPherson J, with whom W B Campbell CJ and Sheahan J agreed); Rushleigh Services Pty Ltd v Forge Group Ltd (In Liq) (Receivers and Managers Appointed); In the Matter of Forge Group Ltd (In Liq) (Receivers and Managers Appointed) [2016] FCA 1471 at [15(a)] (Foster J). 16 In broad terms, the purpose of s 500(2) is to prevent a company's assets being dissipated by unnecessary litigation: In the Matter of DSHE Holdings Limited (recs and mgrs appointed) (in liq) [2018] NSWSC 82 at [18] (Black J); ZOLL Medical Australia, in the matter of Cardiac Defibrillators Australia Pty Ltd (in liq) v Cardiac Defibrillators Australia Pty Ltd (in liq) [2022] FCA 167 at [25(a)] (Halley J). As McPherson J stated in Gordon Grant (at 316), "without the relevant restriction, a company in liquidation would be subjected to a multiplicity of actions which would be both expensive and time-consuming, as well as in some cases as unnecessary". 17 In order to obtain leave under s 500(2), the applicant must demonstrate that it is more appropriate for the particular claim to proceed by way of action rather than by submitting a proof of debt with the liquidator: Gordon Grant at 317; Eopply New Energy Technology Co Ltd v EP Solar Pty Ltd [2013] FCA 356 at [22(b)] (Foster J). The factors relevant to that question include (without limitation) whether the claim has a solid foundation and gives rise to a serious question to be tried, the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved, and the stage to which the proceedings may have progressed: Gordon Grant at 317; Vagrand Pty Ltd (In Liq) v Fielding (1993) 41 FCR 550 at 554-556 (Wilcox, Burchett and Beazley JJ); DSHE Holdings at [18]. 18 The circumstance that the relief sought could not have been obtained in the winding up proceedings, and is therefore not available otherwise than by the commencement of the action, may be a significant factor in favour of the grant of leave: Vagrand at 553; Australian Competition and Consumer Commission v Link Solutions Pty Ltd [2008] FCA 1790; 68 ACSR 561 at [11] (Bennett J); Australian Competition and Consumer Commission v Birubi Art Pty Ltd (No 2) [2018] FCA 1785 at [15] (Perry J). Certain kinds of claims may be such that they cannot be accommodated within the proof of debt regime and can only be resolved by court proceedings, such as claims by plaintiffs to recover their own property, or claims for rectification, specific performance, injunction and rescission of a contract: see ZOLL Medical at [25(h)]. This is usually the case in respect of proceedings brought by a regulator to enforce civil penalty provisions, which "do not represent a choice as is often available in a liquidation, between an action and a proof of debt": Link Solutions at [11]; Birubi Art at [15]. 19 In addition, where leave is sought by a regulator to commence or proceed with civil penalty proceedings, weight may be given to public interest or public policy considerations, including the purpose of general deterrence: Fair Work Ombudsman v Foot & Thai Massage Pty Ltd (in liq) [2019] FCA 1601 at [15] (Katzmann J); Australian Competition and Consumer Commission v Artorios Ink Co Pty Ltd [2013] FCA 753 at [9]-[11] (Mortimer J). The "public interest factors" favouring the grant of leave in such proceedings were summarised by Bromwich J in Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (in liq) [2017] FCA 521 at [26]: (1) the purpose of a civil penalty, and thus of such proceedings, is primarily if not wholly protective in promoting the public interest in compliance, by putting a price on contravention that is sufficiently high to deter repetition by the contravener [not a factor in this case] and by others tempted to contravene: Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 326 ALR 476 (the CFMEU civil penalty case) at 490 [55], quoting Trade Practices Commission v CSR Ltd (1991) ATPR 41–076 at 52,152; (2) capacity to pay any penalties imposed was not a proper or relevant consideration: Australian Competition and Consumer Commission v Leahy (No. 2) [2005] FCA 254; (2005) 215 ALR 281 at 285 [11]; (3) even if a company is in liquidation, it may still be appropriate to order that it pay penalties as a measure of the Court's disapproval of the contraventions and as a measure of the seriousness in which they are regarded, including for the purposes of general deterrence: Australian Competition and Consumer Commission v SIP Australia Pty Limited [2003] FCA 336; (2003) ATPR 41-937 at 47,077-8 [59] – it was not suggested that this principle was diminished in a material way by such penalties not ultimately being recoverable by reason of the respondent being in liquidation; (4) the ACCC as the body enforcing the civil penalty provisions in question has a real interest in seeking declaratory relief to vindicate a public right that the ACL has been breached: Australian Competition and Consumer Commission v Goldy Motors Pty Ltd [2000] FCA 1885; (2001) ATPR 41-801 at 42,630 [30]; Australian Competition and Consumer Commission v Pacific Dunlop Limited [2001] FCA 740; (2001) ATPR 41-823 at 43,098-9 [63]-[69] – a point that may be seen to apply equally in respect of the other relief sought; and (5) there is a significant public interest in declarations of contravening conduct and imposition of penalties being on the public record in aid of deterrence, which is not defeated by the fact that the company is in liquidation and unable to pay the penalties: Secretary, Department of Health and Ageing v Prime Nature Prize Pty Ltd (in liq) [2010] FCA 597 at [22]-[23]. 20 The Court has power to grant leave under s 500(2) of the Act nunc pro tunc: see Rushleigh Services at [21]. 21 Having weighed the facts and circumstances of the particular case, I concluded that the Commissioner should be granted leave nunc pro tunc under s 500(2) of the Act to commence and proceed with this proceeding against Irabina, for the following reasons. 22 First, the proceedings are brought by the Commissioner in its capacity as regulator under the NDIS Act: see Pt 2 of Ch 6A. As such, the proceedings attract the "public interest" considerations referred to by Bromwich J in Australian Institute of Professional Education set out above. 23 The core functions of the Commissioner include upholding the rights of, and promoting the health, safety and wellbeing of, people with disability receiving supports or services under the NDIS (s 181E(a)); developing a nationally consistent approach to managing quality and safeguards for people with disability receiving supports or services under the NDIS (s 181E(b)); and securing compliance with the Act through effective compliance and enforcement arrangements (s 181E(d)). Under s 181H of the NDIS Act, the Commissioner has a "behaviour support function" to provide leadership in relation to behaviour support, and in the reduction and elimination of the use of restrictive practices by NDIS providers. 24 As set out in the Copley affidavit (at [20]), the decision by the Commissioner to commence proceedings against Irabina followed an investigation into the conduct of the respondents focusing on Irabina's implementation of an applied behaviour analysis program called the "Marcus Program" or the "Severe Behaviour Program" that Irabina purchased from a company in the United States of America that that was intended to manage or address severe behaviours of concern in persons with autism (predominantly children). Based on such matters (among other things), the Commissioner has issued permanent banning orders against each of the second and third respondents under ss 73ZN and 73ZO of the NDIS Act. The banning order against the second respondent is currently subject to pending review proceedings in the Administrative Review Tribunal. 25 The Commissioner seeks leave to bring these proceedings for the following purposes (see Copley affidavit at [23]): (a) furthering the public interest in compliance with the NDIS Act by enforcing contraventions and putting a price on contraventions of the NDIS Act that is sufficiently high to deter repetition by the contravener and others tempted to contravene; (b) protecting and promoting the interests of NDIS participants generally; (c) promoting the deterrence of conduct which contravenes the NDIS Act; (d) vindicating a public right that has been breached; and (e) addressing particular conduct that may have contravened the NDIS Act. 26 The Commissioner seeks to ensure that the objects in s 181E(a) and (d) and s 181F(c) of the NDIS Act are fulfilled by seeking declarations and penalties for conduct that contravenes the NDIS Act: Copley affidavit at [22]. 27 Secondly, I am satisfied that there is a solid or substantial foundation to the claims made by the Commissioner against Irabina giving rise to a serious question to be tried as to the alleged contraventions of the NDIS Act by Irabina. 28 Thirdly, the subject matter of the proceeding is serious and raises matters of general public importance involving the alleged use of prohibited restrictive practices on children with a disability over an extended period. The enforcement of civil penalties against Irabina in respect of these alleged practices will promote the public interest in compliance with the NDIS Act, and the protection of people with disability receiving supports under the NDIS from other registered NDIS providers. A pecuniary penalty order is a measure of the Court's disapproval of any contraventions and a measure of the seriousness in which they are regarded, including for the purpose of general deterrence: Australian Institute of Professional Education at [26(3)] (Bromwich J). This purpose is not defeated by the fact that the company is in liquidation and may be unable to pay the penalties: Australian Institute of Professional Education at [26(5)] (Bromwich J). 29 Fourthly, the declarations and pecuniary penalties sought by the Commissioner in the present proceeding cannot be the subject of lodgement of a proof of debt. The relief sought is therefore not available to the Commissioner otherwise than by the commencement of civil proceedings. This is a factor weighing in favour of leave being granted in the circumstances: compare Commissioner of the NDIS Quality and Safeguards Commission v Aurora Community Care Pty Ltd (in liq) [2024] FCA 679 at [20] (Abraham J). 30 Fifthly, the Commissioner submitted that it would be "incongruous" not to proceed against Irabina, as the principal entity towards whom the relevant prohibitions are intended to operate, in circumstances where Debra Goldfinch and Rebecca Goldfinch are individual respondents, referring to Artorios Ink at [10] (Mortimer J). There might be circumstances in which there is limited utility in pursuing penalty proceedings against a company in liquidation, particularly where relief is also sought against individual respondents: see e.g. Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 794 at [58] (Gray J). However, where the liability of others is linked to or dependent on contravening conduct of a corporation, there may be utility in obtaining declarations or pecuniary penalty orders against the corporation as the "formal recognition by the Court of the unlawfulness of the corporation's conduct" may be significant, if not essential: Artorios Ink at [10] (Mortimer J). 31 Finally, the grant of the relief sought by the Commissioner will not significantly impact on the creditors of Irabina. The Commissioner has undertaken not to enforce any order made in this proceeding against Irabina either for payment of a pecuniary penalty or for costs unless Irabina has surplus assets in excess of creditor liabilities. I note that an undertaking in similar terms was accepted by Abraham J in Aurora Community Care at [21], when granting leave for the Commissioner to proceed against a company in liquidation. The grant of leave to the applicant in Australian Institute of Professional Education was also subject to such a condition (see at [32]). As the liquidator has indicated that he does not intend to defend or participate in the proceeding, there will be no prejudice to creditors in the incurring of costs in defending the proceeding. In the light of the undertaking given by the Commissioner, I am satisfied that neither the conduct nor the outcome of this proceeding will adversely impact Irabina's creditors. 32 Accordingly, I granted leave nunc pro tunc to the Commissioner to commence and to proceed with this proceeding against Irabina under s 500(2) of the Act. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Horan. Associate: Dated: 17 December 2024