Supreme Court New South Wales Medium Neutral Citation: In the matter of Fogo Brazilia Holdings Pty Ltd (in liq) [2022] NSWSC 556 Hearing dates: 24-25 March 2021 and 25, 26 and 28 May 2021 Date of orders: 9 May 2022 Decision date: 09 May 2022 Jurisdiction: Equity Before: Williams J Decision: Proceedings dismissed. Catchwords: CORPORATIONS – winding up – liquidator's fiduciary and statutory duties – liquidator's obligation of independence and impartiality – whether liquidator breached duties or acted to favour the interests of one group of creditors to the detriment of the company and creditors as a whole by conducting examinations under Part 5.9 of the Corporations Act 2001 (Cth) and by engaging solicitors to act for the liquidator in those examination proceedings who had acted for the groups of creditors whose interests were said to be served by the examinations – whether examinations included questions about topics that were "not legitimate" or "improper" – whether conduct of liquidator biased or gave rise to reasonable apprehension of bias – application for order removing liquidator dismissed Legislation Cited: Corporations Act 2001 (Cth), ss 180-183, Part 5.9 Insolvency Practice Schedule, s 90-15 Cases Cited: Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd atf The Albans Unit Trust (1994) 14 ACSR 230 Australian Securities and Investments Commission v Edge (2007) 211 FLR 137; [2007] VSC 170 Australian Securities Commission v Franklin (2014) 223 FCR 204; [2014] FCAFC 85 Brown v Bluestone Property Services Pty Ltd [2010] NSWSC 689 Commissioner for Corporate Affairs v Harvey [1980] VR 669 Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337; [2000] HCA 63 Hearne v Street (2008) 235 CLR 125; [2008] HCA 36 In the matter of FW Projects Pty Ltd (in liq) [2019] NSWSC 892 In the matter of Kala Capital Pty Ltd (in liq) [2012] NSWSC 1073 In the matter of 77738930144 Pty Ltd (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452 In the matter of Ji Woo International Education Centre Pty Ltd [2019] NSWSC 93 In the matter of Kala Capital Pty Ltd (in liq) [2012] NSWSC 1073 In the matter of St Gregory's Armenian School (in liq) [2012] NSWSC 892 Sands Contracting Pty Ltd v Foodcorp (Vic) Pty Ltd [2020] FCA 1274 Smarter Way (Aust) Pty Ltd v D'Aloia (2000) 35 ACSR 595; [2000] VSC 408 Walton v ACN 004 410 833 Limited (formerly Arrium Limited) (in liq) [2022] HCA 3 Category: Principal judgment Parties: Fogo Brazilia Holdings Pty Ltd (First Plaintiff) Ian David Dresner (Second Plaintiff) Gavin Moss in his capacity as liquidator of Fogo Brazilia Franchise Holdings Pty Ltd (in Liquidation) (ACN 156 541 025) (First Defendant) Representation: Counsel: Mr J Lazarus SC with Mr A Vial (First and Second Plaintiffs) Mr R Marshall SC with Mr D F Elliott (First Defendant) Solicitors: Lazarus Legal (First and Second Plaintiffs) Piper Alderman (First Defendant) File Number(s): 2020/163342 Publication restriction: N/A Judgment Introduction 1. Fogo Brazilia Franchise Holdings Pty Limited (in liq) (the Company) carried on a Brazilian cuisine restaurant franchise business as franchisor. 2. On 31 January 2018, Mr Henry Kwok and Mr Gavin Moss, both of the firm Chifley Advisory, were appointed joint and several administrators of the Company pursuant to s 436A of the Corporations Act 2001 (Cth) (the Administrators). 3. On 28 March 2018, the Company entered into a Deed of Company Arrangement (DOCA) and Messrs Kwok and Moss were appointed deed administrators (the Deed Administrators). 4. The DOCA was terminated on 23 August 2018, following which the Company went into liquidation and Messrs Kwok and Moss were appointed joint liquidators. Mr Kwok resigned with effect from 2 October 2018, and Mr Moss has been the sole liquidator of the Company since that date. Mr Moss is the only defendant since the plaintiffs discontinued the proceedings against the second defendant. In these reasons I shall refer to Mr Moss either by his name or as the Liquidator. 5. The first plaintiff, Fogo Brazilia Holdings Pty Ltd (Holdings), and the second plaintiff, Mr Ian Dresner, are creditors in the winding up of the Company. 6. Mr Dresner is also a director of the Company. 7. Mr Stewart Levitt of Levitt Robinson Solicitors was engaged to act for the Liquidator in the conduct of public examinations pursuant Part 5.9 of the Corporations Act concerning the Company's affairs. 8. The public examinations were funded by Galactic Fogo Litigation Liquidators LLC (the Funder) pursuant to a Funding Agreement between the Funder, Levitt Robinson and the Liquidator and a Deed of Indemnity between the Funder and the Liquidator. 9. At the time the Funder offered to fund the examinations, and at the time the Funding Agreement was entered into and Levitt Robinson were engaged to act for the Liquidator, Levitt Robinson were also acting for certain former franchisees of the Company in relation to claims or potential claims against the Company, Holdings, Mr Dresner and certain other persons (the Franchisee Claims and the Franchisee Claimants). The Franchisee Claimants had lodged proofs of debt in the winding up of the Company on 19 November 2018 in respect of debts totalling $4,784,597, representing 56.5% of the total creditors' claims in the winding up of the Company. 10. The plaintiffs allege that Mr Levitt continued to act for the Franchisee Claimants thereafter, including when the Liquidator applied to this Court for the issue of examination summonses on 10 December 2019 and during the public examinations that were conducted between 17 and 20 March 2020 and on 1 May 2020. 11. In a confidential affidavit sworn in support of the application for the examination summonses, the Liquidator deposed: "I propose to instruct Levitt Robinson Solicitors to represent me in the examinations. Levitt Robinson Solicitors will brief David Pritchard SC and Daniel Krochmalk of counsel. My solicitors have acted for the Fogo Franchisees who are creditors or potential creditors of the Company. I have retained independent solicitors, Piper Alderman, to advise me. I have turned my mind to whether there is a conflict or possible conflict in my retaining solicitors who have acted for the Fogo Franchisees. I am satisfied that there is no conflict which impairs my independence as liquidator of the Company. For abundant caution, the solicitor in the record in these proceedings, Stewart Levitt, gives an undertaking that, subject to order or further order of the Court, he will not disclose the documents obtained during the public examinations to any person other than the solicitors within his firm, counsel retained by the liquidator, the liquidator and members of his staff and the litigation funder." 1. The examination summonses were issued on 18 December 2019. 2. At a hearing in the examination proceedings on 3 February 2020, the Court's attention was drawn to the Liquidator's evidence set out above and the Court formally noted Mr Levitt's undertaking there referred to. 3. The plaintiffs seek orders under ss 90-15(1) and (3) of the Insolvency Practice Schedule (IPS) [1] removing the Liquidator and appointing an independent liquidator selected by the Court. [2] On the penultimate day of the hearing, the plaintiffs tendered a consent of Mr Adam Farnsworth, registered liquidator, to be appointed by the Court and to act as liquidator of the Company. [3] 4. In their Further Amended Points of Claim, the plaintiffs allege that: 1. the Funder had control, or at least partial control, over the conduct of the examinations under the terms of the Funding Agreement; 2. the Funder has a financial interest in the Franchisee Claims, in respect of which Levitt Robinson acts for the franchisees; 3. by acting for the Franchisee Claimants in respect of the Franchisee Claims, Levitt Robinson has a financial interest in the Franchisee Claims; 4. by: 1. engaging Levitt Robinson to act for him in the conduct of the public examinations; and 2. entering into the Funding Agreement in circumstances where the Funder had a financial interest in the Franchisee Claims and the Funding Agreement gave the Funder control over the conduct of the examination in return for payment of the Liquidator's legal expenses, and facilitating the Funder's financial interests by agreeing to gather through the examinations information concerning the Franchisee Claims for the benefit of the Franchisee Claimants and Funder and to the detriment of the Company, its contributories and other creditors, the Liquidator placed himself in a position of conflict in breach of his fiduciary duty owed to the Company, its contributories and creditors not to place himself in a position of conflict; 1. by retaining Levitt Robinson, by entering into the Funding Agreement and by subsequently using his powers to conduct examinations to, inter alia, gather information in relation to the Franchisee Claims against the Company and others to the benefit of the Franchisee Claimants, the Liquidator has facilitated the Franchisee Claims to the detriment of the Company and its contributories and other creditors, in breach of the Liquidator's duties, including his duty to exercise his powers in good faith in the best interests of the Company and for a proper purpose, his duties not to use his position or information obtained by him to gain an advantage for someone else (namely the Funder, the Franchisee Claimants and Levitt Robinson), his duty not to improperly use his position to cause detriment to the Company and his duty to be impartial and independent; 2. by swearing the confidential affidavit on 10 December 2019 and relying on that affidavit at the hearing on 3 February 2020, the Liquidator knowingly misled the Court by stating that Levitt Robinson "have acted for" the Franchisee Claimants, in circumstances where the Liquidator knew that Levitt Robinson were continuing to act for the Franchisee Claimants, in breach of his duties referred to above; 3. alternatively, the Liquidator breached those duties by making the statement referred to immediately above with reckless disregard as to its truth; 4. the Liquidator breached his duty to be impartial and independent and his fiduciary duty not to obtain an unauthorised profit by requesting Mr Dresner in September 2018 to contribute $26,000 to the Liquidator's remuneration in circumstances where no such contribution was payable by Mr Dresner under the Deed of Company Arrangement which had already been terminated and the Liquidator had not notified Mr Dresner of that termination; 5. the Liquidator breached his duty to preserve and realise the assets and ascertain the liabilities of the Company and his duty to be impartial and independent by not taking steps or using his examination powers to recover or ascertain the nature and quantum of debts owed by the Franchisee Claimants to the Company, or the extent of any offsetting claim in respect of the Franchisee Claims; 6. the Liquidator breached his duty to be impartial and independent and his duty of care and diligence in failing to serve his report dated 29 August 2019 on Holdings and Mr Dresner; and 7. the matters above amount to actual bias or give rise to a reasonable apprehension of bias in respect of the Liquidator's conduct in the winding up of the Company. 1. In his Points of Defence to Further Amended Points of Claim, the Liquidator: 1. denies that the Funding Agreement, properly construed, gave the Funder control or partial control over the conduct of the examinations; 2. does not admit that the Funder and Levitt Robinson had a financial interest in the Franchisee Claims (although the Liquidator's closing submissions accepted that the Funder and Levitt Robinson each had a financial interest in those claims); 3. denies that he breached his fiduciary duty owed to the Company, its contributories and creditors not to place himself in a position of conflict by engaging Levitt Robinson to act for him in the conduct of the public examinations and by entering into the Funding Agreement, and refers to (inter alia) the legal advice that he received before entering into the Funding Agreement, disclosures made to creditors concerning the Funding Agreement and the role of Levitt Robinson before creditors approved his engagement of Levitt Robinson and entry into the Funding Agreement pursuant to s 477(2B) of the Corporations Act at a meeting on 13 September 2019, the disclosure made to the Court when the examination summonses were issued and the fact that he was advised by solicitors independent of Levitt Robinson throughout the public examinations; 4. denies that his retainer of Levitt Robinson and execution of the Funding Agreement and his subsequent conduct of the public examinations facilitated the Franchisee Claims to the detriment of the Company and its contributories and other creditors, in breach of his duties, relying on the matters referred to immediately above; 5. denies that he knowingly misled the Court or acted with reckless disregard for the truth when swearing his 10 December 2019 affidavit; 6. denies the allegations concerning Mr Dresner being requested to contribute to his remuneration in September 2018; 7. denies that he failed to take steps to recover the debts owed by Franchisee Claimants or to ascertain the nature and quantum of those debts or any offsetting claims against the Franchisee Claims; 8. denies that he breached his duties by allegedly failing to serve his report dated 29 August 2019 on Holdings and Mr Dresner and maintains that the report was sent to each of Holdings, Mr Dresner and their solicitors; and 9. denies the allegations of actual bias and denies that his conduct in the winding up of the Company gives rise to a reasonable apprehension of bias. 1. Mr Levitt was formerly the second defendant in the proceedings. The plaintiffs discontinued their claims against him on 28 September 2020. Salient facts Management of the Company prior to administration 1. The Company was incorporated on 28 March 2012. Mr Dresner was a director of the Company, together with Mr Hilton Seskin. The shareholders were Monekim Pty Limited (Monekim) and Julisa Pty Ltd (Julisa). 2. Mr Seskin resigned as a director and Julisa's shares in the Company were transferred to Monekim in 2017. 3. Mr Dresner has been the sole director and Monekim has been the sole shareholder of the Company since that time. Mr Dresner is a director of Monekim. 4. Mr Dresner gave evidence that Holdings had been incorporated on 4 July 2008 for the purpose of establishing and operating restaurants specialising in Brazilian food under the "FOGO Brazilia" name. The Company was established in March 2012 for the purpose of operating as a franchisor to franchisees operating restaurant businesses under the "FOGO Brazilia" name. By January 2018, approximately twelve "FOGO Brazilia" restaurants were operated by franchisees, one restaurant at Greenwood Plaza in North Sydney was operated by the Company, and restaurants at Bondi Beach and Chippendale were operated by companies related to the Company. According to Mr Dresner, the intellectual property in the "FOGO Brazilia" logo that franchisees were permitted to use was transferred from the Company to himself at some time that he was unable to identify and for reasons that he said he was unable to recall. Other evidence suggests that the intellectual property was never owned by the Company and that trademarks had been registered in the name of Holdings. In addition to being the franchisor under franchise agreements with "FOGO Brazilia" restaurant operators, the Company was the lessee of some of the premises from which those restaurants operated. The Company required the franchisees to pay the rent for those premises, either directly to the lessors, or as an occupation fee paid to the Company. 5. In practice, the Company and its related entities did not operate their respective businesses in accordance with the corporate structures described above. Mr Dresner gave evidence that all of the Company's transactions "went through" Holdings and revenue earned and GST collected in the course of the Company's operations was reported to the Australian Taxation Office as revenue earned and collected by Holdings. Invoices for franchise fees were sometimes issued by the Company and sometimes issued by Holdings to franchisees. Franchisees were directed to pay amounts invoiced by the Company into a bank account of Holdings. 6. The Administrators described the arrangements in the following terms in their second report to creditors: "We were advised that the Company was 'traded' and was fully depended [sic] on the financial support of Fogo Brazilia Holdings Pty Ltd since its incorporation. The Company had never prepared its own accounting records and financial statements, all financial transactions were conducted and recorded in the financial statements and records of Fogo Brazilia Holdings Pty Ltd. The Company did operate bank accounts in its own right, but these accounts had very limited transactions." Voluntary administration and the DOCA 1. Towards the end of 2017, some of the franchisees fell into dispute with the Company and ceased paying franchise fees and the occupation licence fees or rent for their restaurant premises. Some franchise restaurants were abandoned. The Company was liable to the landlords of those restaurant premises. One of those lessors served a statutory demand on the Company. 2. In January 2018, Mr Dresner attended a series of meetings with his solicitor, Mr Barry Lazarus of Lazarus Legal Group Pty Ltd (Lazarus Legal), and Mr Moss to discuss the Company's predicament. As sole director of the Company, Mr Dresner made the decision to place the Company into administration with a view to the Company entering into a deed of company arrangement. On 31 January 2018, Mr Moss and Mr Kwok were appointed Administrators pursuant to s 436A of the Corporations Act. 3. On 1 February 2018, the Administrators wrote to Mr Dresner concerning the administration. The letter enclosed, inter alia, a notice under s 438C(3) of the Corporations Act requiring Mr Dresner to deliver the Company's books and records to the Administrators together with a checklist of books and records that were required. The categories of books and records in the checklist included the sales journal and sales invoices. I reject Mr Dresner's evidence that Mr Moss told him not to bother producing the books and records required by the notice. It is inherently unlikely that any administrator in Mr Moss' position would have told Mr Dresner that he need not comply with the notice and Mr Dresner's recollection of relevant events is generally poor. [4] In any event, the Liquidator issued subsequent demands and requests for books and records. Mr Dresner failed to respond, or failed to provide a full response, as referred to later in these reasons. 4. The Administrators issued their first report to creditors on 2 February 2018. 5. On 5 February 2018, the Administrators wrote to franchisees advising of their appointment on 31 January 2018 and terminating the franchise agreement between the Company and each franchisee with immediate effect. The letters also advised that the Administrators had issued the landlord of the relevant restaurant premises with notice of their intention not to exercise the Company's property rights and that it was open to the landlord to take action with respect to the premises. Each letter also stated: "We also understand that you may owe outstanding franchise fees and other costs to the Company, these outstanding amounts must be paid directly to the Company's Administration bank account as follows … Should you fail to pay the outstanding franchise fees within 7 days, we may consider further legal action and/or debt collection action without further reference to you." 1. On 5 February 2018, Saleam Lawyers replied to the Administrators' letter on behalf of one of the franchisees, Laith and Fadi Investments Pty Ltd (LF Investments). The letter stated that LF Investments accepted the termination of the franchise agreement. In relation to the alleged outstanding franchise fees, the letter stated that the Company held a sum of $15,000 on trust for LF Investments and was indebted to LF Investments in the sum of $12,000. It reserved the right to rely on s 553C of the Corporations Act. The letter also enclosed a copy of a dispute notice issued by LF Investments dated 25 January 2018 which alleged misrepresentations and lack of good faith on the part of the Company and sought full compensation for LF Investments' total investment in the business and all monies paid to the Company to date. 2. That correspondence from Saleam Lawyers and a subsequent letter dated 9 April 2018 from Levitt Robinson, who had by then taken over acting as the solicitors for LF Investments, were the only responses that the Administrators received to their 5 February 2018 letters to franchisees. 3. On 9 February 2018, Mr Dresner provided a report as to affairs under s 438B(2) of the Corporations Act to the Administrators (the RATA). According to the report, the Company's assets were limited to $4,500 in stock, plant and equipment with an unspecified value and amounts totalling $204,768 plus rent of $78,152 that the Company claimed was owing by franchisees as at 31 January 2018. The RATA did not identify any debtors of the Company other than franchisees. 4. Mr Dresner reported that the Company had no liabilities to employees or other preferential creditors and had no secured or partly secured creditors. The Company's reported liabilities were amounts to be confirmed owing to landlords and to Lazarus Legal. Mr Dresner reported that the Company had no liabilities to the Australian Taxation Office, Office of State Revenue or its external accountants. Mr Dresner did not include himself or Holdings in the list of the Company's creditors. 5. In his affidavit affirmed on 1 June 2020, Mr Dresner gave evidence that he and Mr Seskin met with Mr Moss in about early to mid-February 2018 to discuss the creditors and debtors of the Company. According to Mr Dresner, he gave Mr Moss a "rough estimate of the franchise royalty fees owed to the Company the franchisees in the vicinity of $170,000". Mr Dresner has identified an undated handwritten list of franchise locations with a single amount next to each restaurant location as the estimate that he discussed with Mr Moss at the meeting. There is no breakdown or calculation accompanying each amount. Mr Dresner deposed that Mr Moss told him at this meeting that he did not intend to pursue the franchise fees and that he (Mr Dresner) should ask Mr Lazarus to attend to this. Mr Moss denies that any such meeting occurred. 6. Mr Dresner adhered to his evidence in cross-examination: "A. … I did a list because I wanted him to be aware that the only debtors that we had was the franchisees and he straightaway said, 'I'm not going to bother collecting them from the franchisees. You do it yourself.' Well, I couldn't believe when he said that initially and then he said afterwards, 'Ask Barry Lazarus to do it' and that was the last thing that was mentioned. Q. You did not provide a copy to Mr Moss of the invoices that were outstanding of the franchisees, did you? A. He didn't ask me. Q. You didn't provide them, did you? A. He did not ask me, I'm not going to provide something that I haven't been asked for." 1. Mr Dresner also said in cross-examination that: "If he [Mr Moss] had asked me for invoices, I would have produced them but he had no interest at all in chasing up the franchisees. I don't know how many times I have to tell you that." 1. Although Mr Moss denies that the meeting described by Mr Dresner took place, he does recall conversations with Mr Dresner relating to the debts allegedly owing by the former franchisees. Mr Moss gave evidence in cross-examination that he advised Mr Dresner during those conversations that Mr Lazarus, who had knowledge about those matters due to his role as solicitor for the Company prior to the appointment of the Administrators and Deed Administrators, was best placed to pursue those debts on behalf of the Company. Mr Moss denied that the Deed Administrators had declined to pursue those debts. Rather, they intended to instruct Lazarus Legal to do so. Mr Moss accepted that it was in the Company's best interests to pursue its claims against former franchisees. 2. I reject the plaintiffs' submission that Mr Moss' evidence about the conversations referred to above is essentially consistent with Mr Dresner's evidence that Mr Moss declined to pursue the debts allegedly owing by the former franchisees. There is a substantial difference between Mr Moss declining to pursue those debts at all (according to Mr Dresner) and Mr Moss forming the view that, given the dearth of information about the alleged debts, the Administrators should instruct Lazarus Legal to take steps to pursue the debts as they had prior knowledge of the Company and its business. 3. I reject Mr Dresner's evidence that Mr Moss told him in early to mid-February that he did not intend to attempt to collect amounts said to be owing by franchisees. It is inherently implausible that Mr Moss said this to Mr Dresner in early to mid-February 2018 in circumstances where the Administrators had in fact written to franchisees demanding payment of all amounts owing on 5 February 2018, [5] the Administrators requested further information from Mr Dresner about "outstanding debtors/franchisee fees" on 26 February 2018, [6] the Deed Administrators later used that information as the basis for instructing Lazarus Legal to commence recoveries against former franchisees on 10 April 2018 [7] and the Deed Administrators also sought copies of the invoices for the purpose of seeking to recover the amounts allegedly owing by the former franchisees. [8] Mr Moss's evidence referred to at [36] above is consistent with those contemporaneous events and I accept his evidence. 4. As referred to above, a manager from Chifley Advisory sent an email to Mr Dresner on 26 February 2018 requesting that he provide the "full listing of all outstanding debtors/franchisee fees owing to the Company as at 31 January 2018" as a matter of urgency. Mr Dresner sent the following reply by email that evening: "1. Liverpool (Arvin Australia Pty Ltd) … $2,718.87 plus any rent due to Westfield 2. Darling Harbour (R&F Innovation) … $32,531.15 plus any rent owing to Mirvac 3. Macarthur Square (Swapno Pty Ltd) … $26,232.14 plus rent owing to Lend Lease 4. Wetherill Park (Laith & Fadi Investments) … $55,457 5. Rouse Hill (Active Food & Beverage) … $16,875.21 plus rent owing to GPT 6. Narellan (DOAA & JAWAD Pty Ltd) … $1,790.41 7. Bondi Junction (Golden Peak Australia Pty Ltd) … $4,786.47 8. Rhodes (Waseemu Pty Ltd) … $2,991.91 9. Bankstown (RRZ Pty Ltd … 26,617.09" 1. I note that the amount of $55,457 listed in Mr Dresner's email as owing by Laith and Fadi Investments varied considerably from the amount of $78,874 stated in the RATA and the amount of $45,000 stated in the handwritten list that Mr Dresner says he discussed with Mr Moss in mid-February 2018. There were also material variations between the amounts stated in each of the three documents in respect of several other franchisees. 2. In their second report to creditors dated 27 February 2018, the Administrators set out their estimated asset and liability position of the Company. 3. In relation to assets, the Administrators' assessment was that the Company had no cash at bank. The Administrators had sold the Company's plant and equipment for $15,000 (plus GST) and were investigating whether the Company had any stock. Mr Dresner had advised that no amounts were owing to the Company by its related entities, but the Administrators were making their own inquiries. The Company owned no real property or motor vehicles. Its only other asset was amounts allegedly owing by franchisees. 4. The report provided no detail concerning the sale of the Company's plant and equipment, other than the fact of the sale and the price. The plant and equipment, which was located at the North Sydney restaurant operated by the Company, had been sold by the Administrators to Holdings. The price of $15,000 (plus GST) had not been paid to the Administrators at the time of the report. As will become apparent later in these reasons, Holdings did not ever pay the price. 5. The Administrators' estimate of the realisable amount of debts allegedly owing by franchisees was yet to be determined. In relation to those alleged debts, the report stated: "Pre-Appointment Debtors (Franchise Fees) Upon our appointment, the director has advised in his Report as to Affairs ('RATA') that the Company has pre-appointment debtors totalling $282,290. These debtors consist of franchise and marketing fees owing to the Company from its franchisees. We note that these amounts were subjected [sic] to disputes prior to our appointment. Due to the limited Company books and records received to date, we are unable to confirm the Company's total debtor amounts at this stage. Notwithstanding this, the director has provided us with a listing of the franchise fees owing to the Company as at 31 January 2018 totalling $170,000.25. We have issued demands to all the franchisees requesting payment of their outstanding amounts. To date, we have not recovered any funds from these franchisees. Based on the fact that the franchise agreement has been terminated by the Administrators upon our appointment, it is anticipated we will encounter substantial resistance and disputes from franchisees in the collection of these franchise fees. Consequently, it will be difficult to estimate with any certainty the additional amount which may ultimately be recoverable from these franchisees." 1. At the time of the second report, the Administrators had received formal proofs of debt from three creditors – two landlords (for a total amount of $399,928) and Holdings (in the amount of $1,189,000). These amounts were included in the Administrators' estimate of the Company's liabilities, although the report stated that the Administrators were investigating the nature and validity of Holdings' claim. Other liabilities of the Company were yet to be determined. 2. The second report also stated: "Despite our requests for the delivery of the Company's books and records from the director and the external accountant, at the date of this Report, we have not received any financial records of the Company. The director has advised that the Company did not maintain any financial statements or electronic records since its incorporation and that the Company's financial records were incorporated into Fogo Brazilia Holdings Pty Ltd's financial records as a loan account against the Company. Consequently, we have not been able to ascertain any financial information pertaining to the Company's historical trading operations." 1. A deed of company arrangement proposed by Mr Dresner was enclosed with the Administrators' second report to creditors (the Proposal). The key features of the Proposal were: 1. the Administrators were to be appointed as administrators of the proposed deed; 2. control of the Company was to pass back to Mr Dresner as the director during the period of the proposed deed; 3. the deed administrators would hold on trust and administer a deed fund, which would include: 1. the Company's "collectible pre-appointment debtors" (being the amounts allegedly owing by the franchisees), the amount of which could not be determined at the time of the Proposal; 2. if less than $70,000 was collected from the pre-appointment debtors, a contribution of up to $70,000 to be paid by the deed proponent in one instalment of $4,000 on execution of the deed followed by twelve monthly instalments of $5,500; 3. the proceeds of sale of the Company's plant and equipment that had been sold by the Administrators, being $15,000 (plus GST); and 4. "[a]ny other pre-Administration circulating assets" (although that the Administrators had not identified any such assets); 1. the deed administrators would be responsible for assessing and adjudicating on all proofs of debt and claims against the deed fund; 2. Mr Dresner and his related parties would be excluded from participating in the deed fund, except in relation to any employee entitlements afforded priority under s 556(1)(e) to (h) of the Corporations Act, but the claims of those excluded creditors against the Company would not be released or extinguished upon distribution of the deed fund in accordance with the proposed deed; 3. the deed fund would be distributed in the following order of priority: 1. in payment of the remuneration of the Administrators and deed administrators; 2. in payment of any other priority creditors in accordance with s 556 of the Corporations Act; and 3. pari passu to participating unsecured creditors other than related entities as referred to above; 1. all unsecured claims against the Company would be subject to a moratorium during the period of the proposed deed; 2. the deed administrators would pay a final dividend to creditors upon making a "commercial determination that he is [sic] in receipt of all debtors that can reasonably be collected"; and 3. the proposed deed would terminate after the deed fund had been distributed. 1. The Administrators estimated that the Proposal offered a return of approximately eight cents in the dollar to unsecured creditors (based on total contributions to the deed fund of $85,000, being the $70,000 to be realised from the debts allegedly owed by franchisees or otherwise paid by Mr Dresner and a further $15,000 realised from the sale of plant and equipment). The Administrators estimated a potential nil return in a liquidation of the Company. The Administrators expressed the opinion that it would be in creditors' best interests for the Company to execute the deed proposed by Mr Dresner. 2. Resolutions were passed at the second meeting of creditors that the Company execute a deed of company arrangement in the form detailed in the Administrators' second report to creditors and that Messrs Moss and Kwok be appointed as deed administrators. The resolutions were carried by the proxy votes given to Mr Kwok as Chairperson of the meeting by Mr Dresner, Holdings, Monekim, Lazarus Legal and the Company's external accountants. The Chairperson admitted the proofs of debt of all of those alleged creditors for voting purposes. The proofs of debt had been submitted on 6 March 2018. No other creditor was present at the meeting in person or by proxy. 3. The DOCA contained terms to the effect outlined above. 4. Clause 4 provided that control of the Company reverted to Mr Dresner as its director upon execution of the DOCA. Whilst this excluded any power to deal with any property of the Company required to be contributed to the deed fund, that exclusion did not apply to the extent that the dealing was in order to give effect to that requirement. 5. The deed fund contributions to be paid by Mr Dresner and the Company to the Deed Administrators under clause 7.1 of the DOCA were described as follows in item 8 of the schedule to the DOCA: "The Deed Fund shall comprise of contributions made up as follows: (a) $70,000, which amount is to be paid by the Deed Proponent from the collection of the Company's collectable pre-appointment debtors; (b) if insufficient pre-appointment debtors are collected (if less than $70,000), the Deed Proponent shall pay the following amounts into the Deed Fund: (i) $4,000 on the date of execution of the Deed followed by twelve (12) monthly instalments of $5,500; (ii) The proceeds from the realisation of the plant and equipment in the amount of $15,000 (plus GST); (iii) Any other pre-Administration circulating assets of the Company will be realised into the Deed Fund." 1. The term "Deed Proponent" is not defined in the DOCA, but Mr Dresner was in fact the proponent of the DOCA. 2. Clause 7.4 of the DOCA provided: "In addition to any monies received from the Deed Fund Contributions, the property of the Company described at Item 9 of the Reference Schedule shall be realised by the Deed Administrators and contributed to the Deed Fund as soon as practicable after execution of this deed." 1. Item 9 of the schedule listed the following property of the Company: "(i) The Company's pre-appointment cash at bank (if any); (ii) The Company's pre-appointment trade Debtors; (iii) Any unpaid franchise fees; (iv) Any other pre-administration circulating assets of the Company; (v) Any contribution required from the Deed Proponent as set out in this Deed." 1. There is an inconsistency between: 1. clause 7.1 and item 8(a) of the schedule, which plainly envisage that the "Deed Proponent" (Mr Dresner) will collect and pay into the deed fund amounts allegedly owing to the Company by franchisees; and 2. clause 7.4 and item 9 of the schedule, which provide that the Deed Administrators will collect pre-appointment trade debts and any unpaid franchise fees. 1. Pursuant to clause 15.3 of the DOCA, the Deed Administrators were entitled in their sole discretion to terminate the DOCA in the event that certain events occurred, including if the Company or Mr Dresner did not comply with any of the provisions of the DOCA. Upon termination, the Deed Administrators would automatically become the liquidators of the Company. 2. Clause 20 of the DOCA provided that the remuneration of the Administrators Deed Administrators, as fixed by creditors or by the Court, would be paid from the deed fund. The Administrators and Deed Administrators were entitled to be indemnified out of the deed fund for their remuneration and expenses and were granted a lien over the property of the Company and the deed fund as security for that indemnity. The DOCA period: Breaches of the DOCA by Mr Dresner and the Company 1. There is an obvious tension between paragraphs (a) and (b)(i) of item 8 of the schedule to the DOCA, referred to at [52] above. Whilst paragraph (a) envisages that the $70,000 deed fund is to be paid out of moneys yet to be collected from pre-appointment debtors, and paragraph (b) sets out the amounts payable only in the alternative scenario that the collection efforts do not raise $70,000, paragraph (b)(i) requires payment of $4,000 on the date of execution of the DOCA if the whole of the $70,000 has not been collected on that date. Mr Moss gave evidence that it was his understanding that the alternative scenario payments commenced from the date of execution of the deed and at monthly intervals thereafter because the pre-appointment debts were unlikely to be collectible from the franchisees. The plaintiffs do not dispute that $4,000 was payable on execution of the DOCA and that instalments of $5,500 were payable each month thereafter for 12 months. 2. Mr Kwok requested Mr Dresner to pay the $4,000 referred to in paragraph (b)(i), together with the $16,500 (including GST) referred to in paragraph (b)(ii), at the same time as the DOCA was executed. On 9 April 2018, Mr Kwok followed Mr Dresner up about these payments, which had not yet been received into the deed administration bank account. Mr Dresner made the payment of $4,000 on 10 April 2018. He sent an email to Mr Kwok on that date confirming the payment and stating that he would call Mr Kwok about the $16,500 proceeds from the sale of the plant and equipment to Holdings. 3. On 24 April 2018, the Deed Administrators sent a further email to Mr Dresner chasing payment of the $16,500 for the plant and equipment. The email stated that continued non-payment of those sale proceeds may constitute a contravention of the DOCA, which "may result in the failure of the Deed and the subsequent liquidation of the Company". 4. The Deed Administrators' email of 24 April 2018 attached a letter to Mr Dresner reminding him that control of the Company rested with him during the period of the Deed Administration pursuant to clause 4 of the DOCA and reminding him of his obligations as director of the Company to pay contributions to the deed fund under clause 7.1 of the DOCA, including the monthly instalments of $5,500. 5. The letter set out Mr Dresner's obligation under s 445HA of the Corporations Act to give notice to the Deed Administrators of any material contravention or likely material contravention of the DOCA by a person bound by the DOCA. Mr Dresner, as a party to the DOCA with obligations to pay the deed contributions under clause 7.1, was bound by the DOCA. The letter stated that failure to remit deed contributions in accordance with the terms and conditions of the DOCA and within the time frames specified in the DOCA may be considered material contraventions of the DOCA. The letter continued: "In light of the above, it is imperative that all DOCA contributions are up-to-date and that all future DOCA contributions are made in accordance with the provisions of the DOCA. If you believe that you may not be able to make a DOCA contribution within the specified time frame, you must advise this office as soon as practicable. Failure to do so, may result in a breach of Section 445HA of the Act. A breach of s 445HA of the Act is an offence of strict liability. Please note that failure to comply with your duties under Section 445HA, may also result in a breach of your obligations as a director of the Company, which may be reported to the Australian Securities and Investments Commission. In addition to the above, the Company's creditors will be notified of any material contravention or likely material contravention of the DOCA, which may result in the termination of the DOCA/liquidation of the Company." 1. The Deed Administrators' letter also stated: "Please note that the Clause 7.4 also stipulates that that the Company's property is forfeited to the Deed Fund, which includes all cash held in the Company's pre-appointment cash at bank, the Company's pre-appointment trade Debtors and related party Debtors, and any surplus from the Voluntary Administration period after payment of costs incurred. As mentioned above, the Deed Contributions will include all pre-appointment debtors up to the execution of the DOCA, being 28 March 2018. As such please provide this office with copies of all outstanding invoices for services rendered by the Company prior to 28 March 2018." 1. Mr Dresner replied by email dated 26 April 2018, stating: "The reason we have not paid for the Greenwood Plaza Fixtures and Equipment is that the Lease is still in the process of being assigned to Fogo Brazilia Holdings. Once the Lease is assigned, we will pay the invoice." 1. There is no evidence that the terms on which the Administrators sold the plant and equipment to Holdings made the sale conditional on the assignment of the lease of the North Sydney premises from the Company to Holdings. Nor was Mr Dresner's obligation under clause 7.1 of the DOCA to pay the sale price into the deed fund expressed to be conditional on the assignment of the lease. 2. Mr Dresner's reply of 26 April 2018 made no mention of the $5,500 instalment of the deed fund contributions that was due on 28 April 2018 under clause 7.1 of the DOCA and did not respond to the Deed Administrators' request for copies of the invoices issued for services rendered by the Company in the period prior to 28 March 2018. 3. Neither Mr Dresner nor the Company paid the $5,500 instalments due on 28 April and 28 May 2018. 4. On 1 June 2018, the Deed Administrators sent an email to Mr Dresner attaching a letter referring to these overdue contributions and urging him to ensure that the overdue contributions were paid by 15 June 2018 to avoid any material contravention to the terms of the DOCA and a breach of s 445HA of the Corporations Act. The letter again outlined Mr Dresner's obligations under s 445HA and expressly referred to the possibility of the DOCA being terminated by the Deed Administrators, in which event the Company would be placed into liquidation immediately. The letter also explained that liquidators, if appointed, would conduct further detailed investigations into the affairs of the Company and its transactions prior to the date of administration and would consider potential recovery actions, including actions concerning insolvent trading and voidable uncommercial transactions. 5. Mr Dresner's reply sent by email on 1 June 2018 stated: "will get paid ASAP". 6. In his affidavit affirmed on 1 June 2020, Mr Dresner deposed that he recalled making two payments of $5,500 towards the deed fund as requested in the Deed Administrators' letter dated 1 June 2018. However, in a further affidavit affirmed on 23 June 2020 after reviewing his records, Mr Dresner deposed: "Whilst I intended to pay the two (2) tranche payments of $5,500.00 and had understood that I paid the two (2) tranche payments of $5,500.00 under the DOCA, I cannot find sufficient records of me transferring those amounts to Chifley Advisory. During the period of May and June 2018, my wife Sharon Dresner was suffering from a mental illness, and I was preoccupied by this personal matter." 1. At the time he swore his first affidavit on 1 June 2020, Mr Dresner had apparently forgotten that he had checked his records in September 2018 and sent an email to Mr Moss on 20 September 2018 confirming that the only payment made under the DOCA was the $4,000 contribution that was paid late some weeks after the execution of the DOCA as referred to at [60] above. 2. The outstanding contributions were not paid by 15 June 2018 and no further monthly contributions were paid by Mr Dresner or the Company under clause 7.1 and item 8 of the schedule to the DOCA. 3. Mr Dresner took the opportunity in cross-examination to complain that the Deed Administrators had not telephoned him to chase up the $5,500 instalment payments when they were not paid by the extended deadline of 15 June 2018. He complained that, if only he had been followed up, he would have paid the instalments. These complaints were not responsive to the questions asked of Mr Dresner and are not relevant to any pleaded issue in the proceedings, but were expressed in a way that linked them to the plaintiffs' allegations concerning Mr Moss's receipt of a $26,000 payment from Mr Dresner in September 2018 as a contribution to the fees of the Administrators and Deed Administrators. [9] 4. The Deed Administrators were under no obligation to remind Mr Dresner of the obligations he had entered into under the DOCA, yet they did so in their letters dated 24 April and 1 June 2018 referred to above. The Deed Administrators bear no responsibility for Mr Dresner's conduct in "not concentrating on what was in the DOCA" (as he said in cross-examination) and his failure to take all of the necessary steps to arrange the payments after receiving the reminders on 24 April and 1 June 2018. I formed the impression that, in raising the complaints referred to above in cross-examination, Mr Dresner was seeking to advocate his own cause in relation to the $26,000 contribution that he paid towards the Administrators' and Deed Administrators' fees. That impression was confirmed when, a short time later in his cross-examination, Mr Dresner gave evidence entirely inconsistent with those complaints that "I spoke to Henry Kwok a couple of times and one lady from the office who called to remind me that the 5,500 due payments were outstanding". This inconsistency demonstrates the unreliability of Mr Dresner's evidence and casts doubt on his credibility as a witness. The DOCA period – Efforts to recover debts allegedly owing by franchisees and dealings with Levitt Robinson in relation to debts allegedly owing by LF Investments 1. Mr Kwok wrote to Mr Barry Lazarus of Lazarus Legal on 10 April 2018 instructing him on behalf of the Deed Administrators to commence recoveries against the franchisees. The email set out the totality of the information that Mr Dresner had provided to the Deed Administrators about the alleged debts – namely the list of franchisee names and restaurant locations and amounts allegedly owing according to Mr Dresner's 26 February 2018 email – and requested that any amounts recovered be paid into the deed administration bank account. 2. It will be recalled that Lazarus Legal were the solicitors acting for Mr Dresner. 3. As referred to at [28]-[29] above, there had been an exchange of correspondence on 5 February 2018 between the Administrators and the solicitors then acting for LF Investments concerning alleged outstanding franchisee fees and other matters. 4. On 9 April 2018, Mr Stewart Levitt of Levitt Robinson wrote to the Deed Administrators advising that the firm now acted for LF Investments, raising questions about whether funds of the Company were held in accounts that had not been mentioned in the Administrators' reports to creditors (including the bank account into which LF Investments had been directed to pay franchise fees and the franchisor's marketing fund account that the Company was required to establish under the franchise agreement). The letter also requested a copy of the DOCA. 5. On 10 April 2018, Levitt Robinson wrote to Lazarus Legal referring to letters from Lazarus Legal dated 9 February 2018 and 4 April 2018 demanding that LF Investments undertake to cease using the "FOGO Brazilia" brand name. Levitt Robinson disputed the existence of any basis for that demand and disputed Mr Dresner's claim to be the owner of the intellectual property (contrary to the provisions of the franchise agreement which referred to the Company as the owner). Levitt Robinson also questioned whether Lazarus Legal were acting for the Administrators and Deed Administrators or for Mr Dresner. 6. Lazarus Legal sought instructions concerning the response to Levitt Robinson's 10 April 2018 letter from both the Deed Administrators and Mr Dresner. The response sent to Levitt Robinson 13 April 2018 stated that Lazarus Legal was acting for both the Deed Administrators and Mr Dresner, noted that LF Investments had refused to provide the undertakings to cease using the "FOGO Brazilia" brand name, threatened to commence proceedings seeking an injunction restraining LF Investments from using the brand name, and demanded payment of the amount of $55,159 which was described in the letter as "fitout fees owing to the Franchisor since the opening of the franchise in December 2015, together with unpaid franchise fees over the period February 2017 to January 2018". The letter stated that Levitt Robinson were instructed to commence proceedings against LF Investments and its directors (as guarantors under the franchise agreement) to recover that amount if it was not paid into Levitt Robinson's trust account by 20 April 2018. 7. On 17 April 2018, Levitt Robinson replied to Lazarus Legal's letter of 13 April 2018. Levitt Robinson stated that a reasonable apprehension of bias arose from Lazarus Legal acting for both the Deed Administrators and for Mr Dresner, particularly in circumstances where the Administrators had recommended the DOCA proposed by Mr Dresner without disclosing to creditors that they were being advised by solicitors who were also acting for Mr Dresner. Levitt Robinson reiterated the contention in their 9 April 2018 letter that funds belonging to the Company had been paid into certain bank accounts not referred to in the Administrators' reports to creditors and requested information about the status of those bank accounts and whether their existence had been disclosed by Mr Dresner to the Administrators. Finally, the letter stated that LF Investments disputed the allegation that it was indebted to the Company in the amount of $55,159 and requested a "full reconciliation of the alleged amount owing, by reference to all amounts invoiced by the Franchisor and all amounts paid or not paid by the Franchisee". 8. Lazarus Legal forwarded Levitt Robinson's letter to Mr Moss on 18 April 2018. Following a discussion with Mr Barry Lazarus and Mr Mark Lazarus, Mr Moss advised them that: "I agree with both of you that there is no conflict issue but to take this issue 'off the table', the Deed Administrators will be instructing other lawyers to represent them". Mr Jonathan Hidayat of Piper Alderman then wrote to Levitt Robinson later that day advising that his firm now acted for the Deed Administrators and would respond to Levitt Robinson's letters of 9 April and 17 April 2018 "in due course". 9. Mr Dresner gave evidence that Lazarus Legal took no action on the Deed Administrators' instructions issued on 10 April 2018 to recover amounts allegedly owing by franchisees before their retainer was terminated on 18 April 2018. That is incorrect. Lazarus Legal issued the letter dated 13 April 2018 referred to above demanding payment of $55,159 allegedly owing by LF Investments and threatening to commence proceedings if that amount was not paid. 10. Moreover, the termination of Lazarus Legal's retainer did not mark the end of the Deed Administrators' efforts to recover amounts allegedly owing by franchisees. The Deed Administrators did not instruct Piper Alderman to commence recovery action against the former franchisees. However, as I have mentioned earlier in these reasons, the Deed Administrators did write to Mr Dresner on 24 April 2018 requesting invoices issued by the Company in respect of the alleged debts. [10] Mr Dresner did not respond to the Deed Administrators' request. It is plain from Piper Alderman's holding response to Levitt Robinson's request for a "full reconciliation" of the amount allegedly owing by LF Investments that the Deed Administrators required the invoices in order to take any further steps to recover the amount allegedly owing by LF Investments. However, Mr Dresner never provided those invoices to the Deed Administrators or Liquidators. 11. I note that the Liquidator ultimately managed to obtain directly from the former franchisees a small number of invoices issued to franchisees during the period from 2015 to 2018. However, some of those invoices were issued by entities other than the Company and/or were issued after the Company went into administration. It is not clear whether other invoices provided to the Liquidator by former franchisees relate to amounts that Mr Dresner asserted were owing to the Company by former franchisees. 12. Thus, the only information that the Deed Administrators had to work with was the names of franchisees and amounts listed by Mr Dresner in his 26 February 2018 email referred to at [39] above. The Deed Administrators had no documentation supporting the amounts that Mr Dresner asserted were owed to the Company by each franchisee and the Company had not maintained financial records, as explained in the Administrators' second report to creditors. LF Investments disputed that it owed the Company the amount asserted by Mr Dresner, and the Administrators expected that the alleged debts would also be disputed by other franchisees. The resolution of such disputes would turn on, inter alia, evidence of each franchisee's gross sales revenue which was the starting point for the calculation of some of the fees payable under the franchise agreements. The Administrators also lacked that information. Mr Moss has given evidence that the absence of this information and the invoices were among the reasons why he formed the view in about December 2018 not to take further steps to recover the amounts allegedly owing by the former franchisees. His other reasons included that he did not have funds to commence any recovery proceedings against the former franchisees, and expected that any such proceedings would be met with applications for security for costs. 13. It was put to Mr Moss in cross-examination that it "might have been" an option for the Deed Administrators (and subsequently Liquidators) to retain a law firm on a no win no fee basis to commence recovery actions against the former franchisees. Mr Moss accepted that this option had not been pursued. The cross-examiner did not put to Mr Moss that this was an option that was realistically available to the Deed Administrators or Liquidators notwithstanding the dearth of information available concerning the alleged debts. As senior counsel for the Liquidator submitted, the prospect of solicitors accepting instructions on a no win no fee basis to pursue recoveries on behalf of a Company in liquidation that had not maintained financial records and based only on Mr Dresner's assertions as to amounts owing, with no substantiating documentation or information, was fanciful. Termination of the DOCA 1. As referred to at [69]-[73] above, Mr Dresner failed to pay the outstanding deed fund contributions identified in the Deed Administrators' letter dated 1 June 2018 by 15 June 2018. On 19 June 2018, Mr Kwok sent an email to Mr Moss the question whether they should terminate the DOCA. Mr Moss reply on the same date: "Yip – I spoke to Barry last week. Go ahead and terminate." 2. In his affidavit affirmed on 5 May 2021, Mr Moss gave evidence that he had a conversation with Mr Barry Lazarus in about June 2018 in which he informed Mr Lazarus that Mr Dresner was not paying the contributions due under the DOCA. According to Mr Moss, he discussed with Mr Lazarus the possibility of terminating the DOCA so that there would then be no need to pay the $70,000 contributions to the deed fund and the Company would be allowed to go into liquidation. Mr Lazarus "thought this would be a good idea and asked me to call Ian about it". Mr Moss deposed that he then telephoned Mr Dresner and explained to him what he had discussed with Mr Lazarus. According to Mr Moss, Mr Dresner "said if Barry was ok with it so was he". 3. Mr Lazarus and Mr Dresner deny having any such conversations with Mr Moss. Mr Lazarus gave evidence that he had not been told that the contributions required under the DOCA had not been paid into the deed fund and that he had no conversations with Mr Moss relating to the Company after Mr Moss terminated the retainer of Lazarus Legal. That retainer was terminated on 18 April 2018. 4. The Deed Administrators exercised their discretion to terminate the DOCA for non-compliance by Mr Dresner and the Company on 23 August 2018. As at that date, the following payments were outstanding under the DOCA: 1. $5,500 that had been due on 28 April 2018; 2. $5,500 that had been due on 28 May 2018; 3. $5,500 that had been due on 28 June 2018; and 4. $16,500, being the sale price of the Company's plant and equipment sold to Holdings (including GST). 1. The evidence does not explain the two month delay between Mr Moss' email to Mr Kwok in 19 June 2018 stating that the DOCA should be terminated and the termination on 23 August 2018. 2. Pursuant to clause 15.3 of the DOCA and s 446AA of the Corporations Act, the termination of the DOCA had the effect that the Company was taken to have passed a special resolution under s 491 that it be wound up voluntarily and the Deed Administrators were appointed as liquidators. Creditors were notified of the termination of the DOCA and the winding up on 28 August 2018. The heading of the notice read: "NOTICE TO CREDITORS – FOGO BRAZILIA FRANCHISE HOLDINGS PTY LTD (IN LIQUIDATION) CAN 156 541 025 ('THE COMPANY') ABN 65 156 541 025". The first two paragraphs of that notice stated: "As creditors are aware, on 31 January 2018, the Company was placed into Voluntary Administration and Gavin Moss and I were appointed as Joint and Several Voluntary Administrators. On 28 March 2018, the Company executed a Deed of Company Arrangements ('DOCA'), and Gavin Moss and I were appointed Joint and Several Deed Administrators. Creditors are advised that the Deed Proponent/Director of the Company defaulted on the terms of the DOCA, and on 23 August 2018 the Deed was terminated in accordance with the terms and conditions of the DOCA. Upon the termination of the DOCA, the Company was automatically placed into liquidation on 23 August 2018 and Gavin Moss and I were appointed Joint and Several Liquidators of the Company." 1. The notice requested creditors to submit formal proofs of debt and to advise the Liquidators by 24 September 2018 if they would be willing to fund the Liquidators' investigation of potential recovery actions. 2. In his first affidavit affirmed on 1 June 2020, Mr Dresner deposed that he received a copy of the notice to creditors on or about 28 August 2018. In his second affidavit affirmed on 23 June 2020, Mr Dresner deposed that he could not be certain when he first received the notice to creditors because mail sent to his residential address was being forwarded to him at another address at that time. However, contemporaneous email correspondence tendered in the proceedings reveals that Mr Dresner replied on 29 August 2018 to an email received from Chifley Advisory on 28 August 2018 attaching the notice to creditors. Mr Dresner queried the differences in the amounts of some of the projected creditor claims in the materials accompanying the notice to creditors compared to "the Projected Creditor Claims on the Deed of Company Arrangement on 24 April 2018". Plainly, Mr Dresner received the notice to creditors dated 28 August 2018 on that date and read it on that date or on 29 August 2018, and I so find. 3. Mr Dresner gave evidence that: "Whilst I read that Notice to Creditors dated 28 August 2018, I did not understand or take cognisance that there was a default under the DOCA and that the Company was automatically placed into liquidation. I did not appreciate that the term administration and liquidation had different meanings (which has now been explained to me)." 1. I reject that evidence. It is inherently implausible that Mr Dresner read the notice and failed to comprehend from the first two paragraphs set out at [94] above that there had been a default (about which the Deed Administrators had written to him and, on his own evidence, telephoned him previously) and that the Company had been placed into liquidation on termination of the DOCA. The Deed Administrators' letters to him dated 1 June 2018 had explained to him that the Company would be placed into liquidation immediately if the DOCA was terminated for default. Mr Dresner's evidence that he did not appreciate that there was a difference between administration and liquidation is equally implausible having regard to his own evidence in his affidavit affirmed on 1 June 2020 that he had taken advice from Mr Moss (facilitated by Mr Lazarus) in January 2018 about the options for the Company and he gave evidence that the reasons for his decision to appoint the Administrators on 31 January 2018 included putting the appointment in place prior to the expiry of the 21 day period in which to apply to set aside the statutory demand that had been served on the Company on 10 January 2018. In cross-examination, he said that he thought that the point of the DOCA was to "try to recover money from the debtors and pay the creditors as much as they could" and to give the Company a clean bill of health to allow it to turn over a new leaf. The Deed Administrators' letter to Mr Dresner dated 1 June 2018 had explained the detailed investigations that a liquidator would undertake into the Company's affairs and any insolvent trading or voidable transactions if the DOCA was terminated and the Company went into liquidation. 2. Mr Dresner also received an email from the Liquidators on 29 August 2018 attaching a letter addressed to him advising that the DOCA had been terminated and the Company had been placed into liquidation by reason of the failure to pay the outstanding deed contributions identified in the Deed Administrators' letter dated 1 June 2018. The letter enclosed a notice requiring Mr Dresner to deliver the Company's books and records and any money or property to the Liquidators and to provide a Report as to Affairs. The letter also enclosed a notification to Mr Dresner of his responsibilities as a director of the Company in liquidation. 3. Mr Dresner initially denied receiving the 29 August 2018 email. Upon being shown his own reply to that email, he acknowledged that he had received it but said that his wife was very ill at the time and "I might have looked at it initially and then forgot about it". 4. I find that, by 29 August 2018, Mr Dresner was aware that the DOCA had been terminated, the Company had been placed into liquidation, the opportunity presented by the DOCA for the Company to turn over a new leaf had been lost and that the Liquidators may investigate the Company's affairs, including whether it had traded whilst insolvent. 5. Mr Dresner paid the sum of $26,000 to Chifley Advisory on 21 September 2018. Mr Dresner gave evidence that he made this payment after Mr Moss telephoned him in about mid-September 2018 and told him "You need to pay $26,000 for my outstanding fees". 6. In his affidavit sworn on 24 July 2020, Mr Moss gave evidence that he made a request, rather than a demand, for Mr Dresner to pay his fees. According to Mr Moss, he said to Mr Dresner: "Ian, I have done all this work. Can you please transfer me something around $26,000 towards my fees." Mr Dresner replied: "Let me speak to Barry and get back to you." Mr Dresner then paid the sum of $26,000 on 21 September 2018. 7. Mr Dresner gave evidence that, at the time he made the payment, Mr Moss had not informed him that the Company had defaulted under the terms of the DOCA, that the DOCA had been terminated on 23 August 2018 and that the Company had been placed into liquidation on that date. According to Mr Dresner: "Mr Moss and Mr Kwok pursuant to clause 16.1 of the DOCA had a discretion to extend time for any payment due under the DOCA. Notwithstanding this, I was not informed further nor put on notice by Mr Moss or anyone else that I was behind payments in respect of the Deed Fund Contribution under the DOCA. I was not also given advance notice of Mr Moss' intention to put the Company into liquidation as a result of the non-payment of the Deed Fund Contribution under the DOCA. Had Mr Moss requested to pay these amounts, I would have done so immediately." 1. Mr Dresner deposed that he emailed Mr Moss on 20 September 2018 "indicating my intention to bring the payments under the DOCA up to date". Mr Dresner's email to Mr Moss simply stated: "A payment of $4000 was made on 10 April 2018. I cant [sic] find any further payments. Please confirm and send me an invoice for amount owing and I will pay asap." Mr Moss' reply explained that a tax invoice would not be provided as the work of administrators and liquidators is not a taxable supply, but that he would provide Mr Dresner with "confirmation of the receipt of the $26,000 as a contribution towards my fees". Mr Moss set out the bank account details to which the payment was to be made. The name of the account was "Fogo Brazilia Franchise Holding Pty Ltd (In Liquidation)". 2. In cross-examination, Mr Moss accepted that he did not specifically say to Mr Dresner that he had no legal obligation to make any payment for the fees of the Administrators and Deed Administrators, but he assumed that Mr Dresner knew that because Mr Moss was asking for a contribution to those fees. 3. In an updated Declaration of Independence, Relevant Relationships and Indemnities lodged with ASIC on 2 October 2018 and provided to creditors together with the statutory report dated 22 November 2018 referred to below, the Liquidators disclosed Mr Dresner's payment of $26,000. The declaration stated: "After the commencement of the Liquidation, we requested and the director agreed to provide a voluntary contribution of $26,000 to cover our professional remuneration and expenses associated with the Administration/Deed Administration/Liquidation of the Company under the circumstance as there is no realisation of assets available to cover the same. I have received funds of $26,000 as at the date of this report. The money will not be drawn to meet our remuneration until such time that it is approved either by creditors or the Court. There are no conditions on the conduct or outcome of the Liquidation attached to the provisions of these funds." 1. The issues to be determined in these proceedings do not call for any finding as to whether Mr Moss discussed the termination of the DOCA with Mr Lazarus and Mr Dresner before the Deed Administrators exercised the discretion under clause 15.3 to terminate the DOCA, although Mr Moss' email referred to at [89] above suggests that such a conversation did take place between Mr Moss and Mr Lazarus in June 2018. 2. In relation to the conversation between Mr Moss and Mr Dresner in September 2020 concerning the $26,000 payment, I prefer the evidence of Mr Moss. Mr Dresner's recollection of events at this time is unreliable as referred to at [74]-[75] and [99]-[100] above. Mr Moss's evidence that he requested, rather than required or demanded, a contribution towards his fees is consistent with the disclosure of this contribution in the updated declaration lodged with ASIC on 2 October 2018 referred to at [107] above. Mr Dresner's evidence that, when he paid the contribution, Mr Moss and Mr Kwok had not informed him that he was behind in payments to the deed fund and that he would have made the payments immediately if Mr Moss had requested him to do is wholly inconsistent with the contemporaneous records of the communications between the Deed Administrators/Liquidators and Mr Dresner. The Deed Administrators letter of 1 June 2018 informed Mr Dresner that he was behind in the payments to the deed fund and the potential consequences of continuing default. Payment was requested and was not made. As referred to above, Mr Dresner had been informed in very clear terms on 28 August 2018 and again on 29 August 2018 that the DOCA had been terminated due to default and the Company had been placed into liquidation. I have found that Mr Dresner was aware of those matters by 29 August 2018. I also note that the account into which Mr Moss requested Mr Dresner to pay the contribution to his fees was in the name of the Company "in liquidation". 3. Even if Mr Dresner had not known that the DOCA had been terminated and that the Company was in liquidation (contrary to my findings above), this would not have been attributable to any failure of the Deed Administrators and Liquidators to inform him of those developments. There is no evidence to suggest that Mr Moss had any reason to suspect that Mr Dresner was unaware of those matters. The conduct of the winding up during the period from September 2018 until 19 August 2019 and discussions with Levitt Robinson concerning proposed public examinations 1. As referred to above, the notice issued by the Liquidators to creditors on 29 August 2018 requested any creditors willing to fund the Liquidators to investigate potential recovery actions to advise the Liquidators in writing by 24 September 2018. No creditors contacted the Liquidators with offers or proposals of funding by that date. However, Levitt Robinson wrote to the Liquidators on 25 September 2018 advising that it was acting for "former Fogo franchisees" who were unsecured creditors of the Company and who were interested in funding "a s 596A mandatory examination of the director and former director of the company with our firm to conduct the examination in cooperation with the liquidators". 2. Mr Moss replied on 26 September 2018 stating that offers from potential creditors to fund investigations were appreciated but that it was common for the liquidator to engage a solicitor independent from the creditor's solicitor and that Mr Moss would propose to engage Piper Alderman in this instance if any funding arrangement were entered into. 3. Levitt Robinson replied on 28 September 2018: "Our funding will only be available if Levitt Robinson is appointed to conduct the examinations. On this basis, we ask you to reconsider the position and repeat the request that you agree to examinations with Levitt Robertson [sic] as the conducting solicitors. If this is agreed to, our funder is prepared to fund the liquidator's reasonable costs for their involvement and I note the figure for your estimated costs at $10,000 plus GST." 1. Mr Kwok resigned as a liquidator of the Company on 2 October 2018. Mr Moss has been the sole liquidator of the Company since that time. 2. On 4 October 2018, Mr Kwok replied to Levitt Robinson's email of 28 September 2018 in terms that he had discussed and agreed with Mr Moss: "I refer to your below email in relation to a potential examination against the director and your client's request that the Liquidator to [sic] appoint your firm to represent the Liquidator and on behalf of the Company to conduct an examination against the director. After consideration, the Liquidator has rejected your client's request to appoint. Based on the Liquidator's preliminary enquiries, a few matters came to the Liquidator's attention: • Your client may have unsecured claim against the Company, however the Company's records also indicated that the Company may have a claim against your client for outstanding debts; • Your firm has been representing your client in previous legal matters between the Company and your client and other legal matters; • There appears to be a history of litigations/disputes between your client and the Company/its director; and • Your client and your firm have commenced separate legal proceedings against the director and/or other related parties, and the examination process may not in the best interest of the creditors of the Company as a whole; etc. In this circumstance, the Liquidator believes that it would be inappropriate to engage your firm as the legal representative of the liquidator in an examination and relevant legal proceedings. However, the Liquidator will accept any potential creditor funding and will engage his separate legal representative to conduct the examination and other legal proceedings as soon as possible, should funding is [sic] available. Please seek your client's instruction in this regard." 1. The Company was not a party to the separate legal proceedings referred to in the fourth bullet point in Mr Kwok's email above. The former franchisee for whom Levitt Robinson was acting had sued Holdings and Mr Dresner. 2. Mr Moss gave the following evidence in cross-examination about Mr Kwok's 4 October 2018 email: "Q. In effect, what Mr Kwok was saying, with your approval, was that Levitt Robinson was in a serious position of conflict in, on the one hand, acting for a number of franchisees, including in court proceedings and, on the other hand, seeking examinations against the director of the company. That's what Mr Kwok was saying, wasn't he? A. You can ask Mr Kwok. My reading of it and discussing it with Henry was that we had issues in terms of engaging Levitt Robinson at the time for those reasons, correct. Q. Yes and what I'm suggesting to you is that you understood, at that time, that engaging Levitt Robinson for the purpose of conducting the proposed examinations was a matter fraught with difficulty from a conflict perspective? A. Yes. Q. You understood, at that time, that engaging Levitt Robinson to carry out examinations on your behalf might well imperil your independence as a liquidator, didn't you? A. My independence? Q. Yes? A. Not sure about my independence part but, yes, I had issues in terms of conflict. So, independence, yes, okay. Q. In particular, the concern expressed in this email is that, as a result of all those matters, the examination process may not be in the best interests of the creditors as a whole? A. Utilising Levitt Robinson, correct, yes." 1. Levitt Robinson replied to Mr Kwok's email by letter dated 23 October 2018: "We confirm that we act for a group of former franchisees of Fogo Brazilia Franchise Holdings Pty Ltd. Our clients would like public examinations to take place of officers and associates of the Company under sections 596A and 596B of the Corporations Act 2001. We have obtained third party funding for the proposed examinations from Galactic Fogo Litigation LLC. However, the funder is only prepared to fund examinations on the condition that the examinations be conducted by Levitt Robinson Lawyers and Mr Pritchard SC and Mr Krochmalik of counsel. Enclosed is a letter from Galactic Fogo Litigation LLC to this effect. If this is agreed to, our funder is prepared to fund the liquidators reasonable costs for their involvement and we note the figure for your estimated costs from previous correspondence at $10,000 plus GST. If you are not prepared to allow our clients to rely on your powers under ss 596A and 596B, we will approach ASIC for authorisation to apply for examination summonses and we will provide a copy of this correspondence to ASIC." 1. On 8 November 2018, Mr Stewart Levitt of Levitt Robinson sent a further email to Messrs Moss and Kwok in the following terms: "We consider your current position with respect our engagement to conduct a public examination of the examinable persons funded by Galactic to be unreasonable and inconsistent with your statutory obligations. However, rather than initiate proceedings to have you removed as liquidators at this stage, we would appreciate the opportunity of meeting with you to discuss the way forward. Please contact the writer for the purpose of setting up such a meeting." 1. Mr Moss gave evidence that he did not regard Mr Levitt's position set out in that letter as a threat but merely "part of the usual cut and thrust of insolvency". Mr Moss adhered to that evidence in cross-examination and said that the prospect of Levitt Robinson having him removed as liquidator of the Company had "zero impact" on his deliberations about whether to accept the funding proposal for public examinations. I accept Mr Moss' evidence. It is inherently implausible that a liquidator would regard the prospect of being removed as liquidator in an unfunded winding up of a company which had no assets and had maintained no books and records as a "threat". 2. In circumstances where Mr Levitt was the solicitor acting for a number of potential creditors who may have substantial claims against the Company and who had offered the only source of funding for investigations in the winding up, Mr Moss considered that he should meet with Mr Levitt to hear what he had to say notwithstanding the reservations expressed in correspondence with Levitt Robinson. 3. Messrs Moss and Levitt met over breakfast on 14 November 2018. Mr Moss gave evidence that their meeting included exchanges to the following effect: "Mr Levitt: Gavin. I am not satisfied with your conduct and I'm considering reporting you to ASIC for dismissing our offer to fund the examinations for the benefit of creditors. Mr Moss: I'm not here to discuss that matter. If you are going to report to ASIC, that is a matter for you. I'm here to discuss your offer and my concerns." "Mr Moss: The concern that I have with this is that you have proceedings on foot. It seems to me that you want to go ahead with examinations to gain evidence for those proceedings. I'm not prepared to be party to that. Mr Levitt: I understand your concern. The proceedings have been discontinued. Mr Moss: That's a good development. I still have other concerns but that goes a long way to meeting them." 1. According to Mr Moss: "Mr Levitt then explained to me why it was the benefit of all creditors and consistent with my statutory obligations as liquidator of the Company to undertake the examinations. I cannot now recall the exact words used during that conversation. It is my recollection that Mr Levitt focused on potential recoveries that the Company may have and there was little mention of the franchisee creditor claims. I recall Mr Levitt saying to me words to the following effect: 'The funder is interested in seeing whether there are any recovery actions available against the directors. It funds those sorts of actions by liquidators and may be interested in doing so in this matter if the examinations produce helpful evidence. You have an obligation as liquidator to conduct the examinations if there is a funding offer and you will not be performing those duties properly if you don't.'" 1. Mr Moss gave evidence that, in circumstances where the proceedings on foot had been discontinued but he still had some concerns about whether retaining Levitt Robinson to act for him in public examinations would be a conflict of interest, he decided to consult a lawyer about that issue. His previous responses to Levitt Robinson's funding proposals had not been informed by legal advice but "based upon my own intuition". 2. Mr Moss also gave evidence that, at the meeting on 14 November 2018 or on a subsequent occasion, Mr Levitt told him: "I will not act for the franchisee creditors if I am acting for you in the examination proceedings". 3. Neither Mr Moss' account of what Mr Levitt said to him at the 14 November 2018 breakfast meeting referred to at [122] above nor his evidence referred to immediately above were challenged in cross-examination. Mr Moss was cross-examined about his state of mind at the time of the breakfast meeting concerning whether it was appropriate to instruct Levitt Robinson to conduct public examinations. Mr Moss gave the following evidence: "Q. Do you see at paragraph 46 you say this, "the concern that I have with this is that you have proceedings on foot. It seems to me that you want to go ahead with examinations to gain evidence for those proceedings. I'm not prepared to be a party to that". Just stopping there. You understood by this time, Mr Moss, that Mr Levitt - or Levitt Robinson - acting for his franchisee clients wished to use the examination proceedings at least in part to assist their franchisee clients in potential claims that they might bring, didn't you? A. Yes. Q. You also were of the view, weren't you, that that was not an appropriate purpose for examination proceedings, weren't you? A. I was of the view that it was not appropriate to solely have an examination for the benefit of Levitt Robinson, yes. Q. No, what I'm suggesting to you quite specifically is that you were aware, Mr Moss, that it was not an appropriate use of the examination procedure for Levitt Robinson to gain evidence for the purpose of potential claims that might be brought via their franchisee clients, weren't you? A. Yes. Q. And that view that you had limited, I suggest to you, to the one particular franchisee client that had proceedings on foot at that time; do you agree? A. Yes. Q. So the fact that the proceedings by A&L Dominguez had been discontinued as you were told made no difference in terms of the inappropriateness of the examination procedure, did it? A. I believe it did, yes. Q. Mr Moss, you've just told me, haven't you, that it was an inappropriate use of the examination procedure for Levitt Robinson to use it for the purpose of gathering evidence for claims that may be brought by their franchisee clients; correct? A. Yes. Q. So the fact that one set of proceedings by one franchisee had been discontinued didn't, I suggest to you, fix the problem because there were still a whole lot of potential claims that were on the table at that point in time that might be brought by the other franchisees; do you agree? A. The fact that they had proceedings on foot was a red line for me. It didn't make sense to me to have proceedings on foot and then come and examine whilst those proceedings were on foot and then perhaps get some information from the examinations for the benefit of those proceedings and I wasn't comfortable with that at all. That was a red line for me. Q. What I'm suggesting to you is that actually makes no difference, or ought to have made no difference, from the perspective of whether the examination procedure was appropriate or not, whether there were proceedings on foot or not-- A. Yes. Q. --do you agree? A. Yes, I agreed. Q. And that is because gathering information or using the examination proceedings for the purpose of gathering information for proceedings whether on foot or potential proceedings that might be brought by the franchisees was not appropriate. That must be the case, mustn't it? A. There are - sorry, can you repeat the question? Q. Yes. It must be the case, mustn't it-- A. Yes. Q. --Mr Moss, that using the examination procedure to gather evidence - this is by Levitt Robinson - to gather evidence for the purposes of bringing proceedings or present proceedings on behalf of their franchisee clients was inappropriate. You knew that, didn't you? A. If the proceedings were held accordingly and there was a dual purpose for them, so be it, but if they were solely to be used to gather evidence for the benefit of the franchisee creditors, I agree with you, yes. Q. What I'm suggesting to you is you understood Mr Levitt's purpose was to gain evidence for the purposes of those future proceedings, didn't you? A. Yes. Well that was my - yes, that was what going through my thought at the time, correct. Q. And you understood therefore that that was an inappropriate use of the examination procedures? A. In my view, it was, yes correct." 1. Mr Moss sent an email to Mr Levitt later on the morning of 14 November 2018 advising that he had withdrawn his instructions from Piper Alderman, requesting that any further communications from Levitt Robinson be addressed to himself and Mr Desmond Teng of Chifley Advisory, and requesting "a detailed background and reasons for examining the Director and I will reconsider your request". In cross-examination, Mr Moss said that "withdrawn" was perhaps not the right word and that Piper Alderman did not have any current instructions from him at that time (and for some time prior to the breakfast meeting). Mr Moss did not want Levitt Robinson to correspond with Piper Alderman in relation to matters concerning the Company because he had already decided to use another solicitor. Mr Moss did in fact instruct Mr Andrew Clachers of Edwards Kirby Lawyers within a few weeks after the breakfast meeting, although he had returned to Mr Jonathan Hidayat of Piper Alderman by the time the public examinations commenced in March 2020. 2. On the afternoon of 14 November 2018, Mr Levitt sent an email to Mr Moss attaching a letter setting out the detailed background and reasons requested by Mr Moss. The letter identified twelve former franchisees for whom Levitt Robinson was acting and set out the claims of those franchisees to be entitled to damages or compensation against the Company and Messrs Dresner and Seskin for alleged misleading or deceptive conduct and/or unconscionable conduct in contravention of the Australian Consumer Law. The alleged misleading representations included representations that the Company was the true owner of the intellectual property of the Fogo franchise and representations that the Company was solvent or in a sound financial position, with no proper basis. The letter stated: "Our clients also allege that: 6. the Company did not apply marketing contributions to the costs of marketing the Fogo franchise, either properly or at all; and 7. most payments made to the Company were directed to the Company's related body corporate, Fogo Brazilia Holdings Pty Ltd, thereby undermining the Company's financial position and leading inevitably to the Company's insolvency and the termination of our client's franchise agreements." 1. The amounts of compensation to which the franchisees claimed to be entitled varied between $188,577 and $1,061,751. The total of the amounts claimed by the franchisees was $5,857,906. 2. The letter stated that the proposed examinees included Mr Dresner and the former director Mr Seskin, and various other persons in respect of whom the issue of an examination summons would be discretionary under s 596B of the Corporations Act. Those other persons included the former general manager and former franchise manager of the Company and Mr Barry Lazarus of Lazarus Legal who had acted as the Company's solicitor at all relevant times. 3. The letter continued: "As presently envisaged, the examinable affairs of the Company that will be the subject of the proposed examination include the following matters: 1. How the Company's income was applied while it was trading. We have evidence indicating that payments to the Company (for example, franchise fees payable by our clients) were paid into a bank account in the name of the Company's related body corporate, Fogo Brazilia Holdings Pty Ltd. This income could have been applied to repayment of the Company's unsecured creditors. Absent a satisfactory explanation for this conduct, the payments might be recoverable from Fogo Brazilia Holdings Pty Ltd or there might be a claim available against either or both of Mr Dresner and Mr Seskin. 2. Identification of other assets of the Company that might be recovered and realised by the Liquidator for the benefit of the Company's creditors. 3. Ownership of intellectual property relating to the Fogo Franchise. According to the franchise disclosure documents provided to our clients when they entered into their franchise agreements with the Company, the intellectual property associated with the Fogo Franchise was said to be owned by the Company. However, since the Company was placed into administration, other entities (including the Company's related body corporate Fogo Brazilia Holdings Pty Ltd, and Mr Dresner personally) have asserted ownership of that intellectual property. Further, if it can be confirmed that the relevant intellectual property is indeed owned by the Company, evidence will be sought as to why Fogo Brazilia Holdings Pty Ltd or Mr Dresner asserted ownership over it and whether this gives rise to any claims to recover property of the Company. 4. The solvency of the Company, including the timing of the incurring of debts by the Company, in order to determine whether proceedings might be brought against either or both of Mr Dresner and Mr Seskin for causing the Company to trade and incur debts whilst insolvent. 5. Representations as to the profitability of the Fogo Franchise and its franchisees, which were made by the Company and its director, Mr Dresner, prior to our clients entering into the various franchise agreements with Company. The Franchisees contend that they incurred substantial losses (including, in most cases, the failure of their Fogo Franchise business) by relying on those representations which were subsequently proven to be false." 1. The letter concluded by confirming that the previously pending proceedings commenced in the Federal Circuit Court by one of the franchisees, A&L Dominguez Pty Ltd, against the Company and Mr Dresner had been discontinued on 12 November 2018. 2. On 23 November 2018, the Liquidator issued a notice to creditors dated 22 November 2018 which provided a link to download a report to creditors of the same date. 3. The report set out the circumstances that had resulted in the winding up of the Company and the Administrators' report to creditors dated 27 February 2018. The report set out a summary of the Company's assets and liabilities as estimated by Mr Dresner in the RATA completed on 9 February 2018 and as estimated by the Liquidator, noting the variances between the two estimates. Mr Dresner's estimate for "Accounts Receivable (Debtors)" was $282,920 and the Liquidator's estimate was nil. It will be recalled that the franchisees were the only debtors of the Company identified in the RATA. 4. Consistently with the Liquidator's nil estimate of the value of debtors, the report stated: "The Director's RATA stated outstanding debtors balance of $282,290. At the date of drafting this report, the Director has provided my office with a listing of the franchise fees owing to the Company as at 31 January 2018 totalling $170,000.25. I have issued demands to all the debtors requesting payment of their outstanding amounts. Due to the cessation of the Company's operations, I have also issued a Letter of Termination of Franchise Agreement to all franchisees with the Company. Due to the termination of both the Fogo Group's lease agreements with its landlords and the franchise agreements with its franchisees, all franchisees were to cease trading under the Fogo Group's intellectual properties and trademarks (effective 5 February 2018). All landlords of the Company's former trading premises were advised to contact the respective former franchisees for any discussions relating to potential future lease arrangements. As a result of the termination of the franchise agreements, I have encountered substantial resistance and disputes from franchisees in the collection of the said outstanding franchise fees. It will be difficult to estimate with any certainty the amount (if any) which may ultimately be recoverable from these franchisees. No realisations have been made from this class of asset." 1. The amount of $170,000.25 referred to in the report is the total of the amounts listed in Mr Dresner's email dated 26 February 2018. [11] 2. It was put to Mr Moss in cross-examination, and he accepted, that the statement that he had "encountered substantial resistance and disputes from franchisees in the collection of the said outstanding franchise fees" was incorrect except insofar as it related to LF Investments. The true position was that the franchisees had stopped paying fees due to disputes they had with the Company in late 2017 prior to the appointment of the Administrators, [12] those disputes had not been resolved by the Company going into external administration, the Franchisee Claimants were alleging that they had been misled into entering into the franchise agreements (which the Administrators had terminated), [13] none of the former franchisees had made any payment in response to the Administrators' demand issued on 5 February 2018 [14] and the only information available to the Liquidator to consider further recovery steps was the list of franchisee names and amounts that Mr Dresner had provided in February 2018. [15] The Liquidator had no invoices or other documents substantiating the alleged debts (despite having sought invoices and other relevant records from Mr Dresner on several occasions), [16] and the Company had not maintained any financial records. [17] The Administrators' letter dated 5 February 2018 had drawn a response from only one franchisee, LF Investments, which disputed the alleged debt and sought particulars of its calculation. [18] No such particulars could be provided in the absence of the invoices, books and records that had not been produced to the Liquidator. 3. In relation to liabilities, the report stated that Mr Dresner had not identified any amounts owing to employees of the Company in the RATA but the Liquidator estimated that the Company was liable for $187,500. That is the amount claimed by Mr Dresner for wages and superannuation in his proof of debt dated 6 March 2018. The report stated that Mr Dresner was yet to provide the Liquidator's office with any documents to support his wages claim. The full amount of Mr Dresner's claim was nevertheless included in the list of projected creditors' claims accompanying the report. 4. The report stated that the RATA had not quantified amounts owing to unsecured creditors of the Company. The report set out the Liquidator's estimate of the total amount of $8,573,360.75 owing to unsecured creditors. The report explained that this included claims totalling $4,524,597.88 in proofs of debt submitted by eight of the Company's former franchisees. The report noted that those former franchisees were yet to provide the Liquidator's office with any supporting documents for their claims. Nevertheless, and consistently with the approach taken in relation to Mr Dresner's claim, the eight franchisees' claims were included in the list of projected creditors' claims accompanying the report. 5. The report set out the Liquidator's preliminary assessment that the Company was insolvent from the date of its incorporation on 28 March 2012 and that the Liquidator would be entitled to rely on a rebuttable presumption of insolvency in any insolvent trading action due to the Company's failure to maintain books and records in accordance with s 286 of the Corporations Act. Further investigations would be required to ascertain the financial capacity of the directors or holding entities to meet any successful insolvent trading claim. However, there had been no realisations and the Liquidator had insufficient funds to conduct any further investigations into the financial affairs of the Company. 6. At some stage after receiving Levitt Robinson's letter dated 14 November 2018 referred to at [128]-[132] above, Mr Moss instructed Mr Andrew Clachers of Edwards Kirby Lawyers. On or about 12 December 2018, Edwards Kirby Lawyers wrote to Levitt Robinson requesting details of the basis of the foreshadowed applications for examination summons under s 596B of the Corporations Act in respect of the proposed examinees other than Mr Dresner and Mr Seskin. Levitt Robinson's reply dated 14 December 2018 reiterated the matters that had been set out in its letter of 14 November 2018, including the proposed topics for examination, and providing additional detail and some documents relevant to each of the proposed topics. The letter referred to invoices issued by Holdings and Fogo Brazilia Trading Pty Ltd after the Company had been placed in administration for fees described as "royalty fees", "franchise fees" and "marketing fees", notwithstanding that the franchise agreements had been entered into with the Company. The question whether these entities had purported to operate the Company's business after it was in administration, and whether that might amount to "illegal phoenixing", was raised as a proposed additional examination topic. 7. Levitt Robinson's letter also enclosed a statutory declaration by an officer of LF Investments setting out at a high level the evidentiary basis of that franchisee's claim for compensation under the Australian Consumer Law. The letter noted that ten of the twelve franchisees had submitted proofs of debt, and enclosed copies of those proofs dated 15 November 2018 (in the case of eight of the franchisees, including LF Investments), 3 December 2018 (in the case of one franchisee) and 6 December 2018 (in the case of one franchisee). Each proof of debt was for damages or compensation under the Australian Consumer Law for alleged misleading or deceptive conduct and/or unconscionable conduct causing the franchisee to enter into the franchise agreement with the Company and thereafter paying royalty fees and other fees and incurring losses in the operation of the franchise business. 8. Mr Moss gave evidence that he formed the view after receiving Levitt Robinson's letter of 14 December 2018 that the information provided supported the proposed examination and that information obtained through examining on the topics identified would assist the liquidation of the Company. 9. However, Mr Moss did not make a decision about the proposed examinations immediately and Levitt Robinson wrote to Edwards Kirby Lawyers on 7 January 2019 chasing the Liquidator's response and requiring that there be final agreement by 21 January 2019 concerning funding, remuneration and issues involved with the conduct of the proposed examination proceedings. 10. Mr Moss gave evidence of a telephone conversation with Mr Clachers in January 2019 during which he recalls that Mr Clachers said to him words to the following effect: "In circumstances where you have been offered funding to carry out examinations that might reveal claims available to you and the company, I don't think you can say no even if you have to retain a solicitor who acts for the franchisee creditors. You must do it." 1. Mr Moss also deposed that: "I had also had informal discussions with other solicitors in relation to the issue who expressed a similar opinion as Mr Clachers and as a result didn't see any reason as to why I should not accept the funding offer." 1. Mr Moss gave evidence in cross-examination that, by December 2018, he knew that there were a substantial number of former franchisees proposing to make claims against the Company and that those claims were potentially worth millions of dollars. He also knew that Levitt Robinson was acting for those former franchisees and that the firm's principal interest in pursuing the examination proceedings was to assist their franchisee clients in their potential claims. However, whilst Mr Moss knew that Levitt Robinson was attempting to get information that may benefit the Franchisee Claimants, Mr Levitt made it clear to him that the Funder would also look at other potential claims that emerged from the public examinations. According to Mr Moss, the Funder was very interested in the insolvent trading claim that subsequently emerged from the examinations. 2. Mr Moss accepted that, as at December 2018, the Company had no assets available to meet the claims proposed by the former franchisees and there was therefore no utility for him as liquidator to investigate those claims because the claims could not make any difference to the position of any other creditor of the Company. Mr Moss accepted that this remained the case at all times from December 2018 until the commencement of the public examinations in March 2020. However, Mr Moss also referred to the prospect of assets being available to meet the claims for the former franchisees if, at the time those claims were made, there were recovery actions available to him as liquidator. Plainly, if moneys were recovered through such actions and it became necessary to adjudicate creditors' proofs of debt, any information relevant to the Franchisee Claims obtained through the public examinations would be likely to be relevant to the Liquidator's adjudication of the franchisees' proofs of debt. As referred to at [219]-[233] below, topics relevant to the Franchisee Claims did not dominate the conduct of the public examinations. The examinations did in fact identify potential actions available to the Liquidator, including for insolvent trading. 3. On 16 January 2019, Edwards Kirby Lawyers sent an email to Levitt Robinson on the instructions of Mr Moss responding to Levitt Robinson's letters of 14 December 2018 and 7 January 2019. The email stated that, after reviewing the information in the letter dated 14 December 2018, the Liquidator agreed that it was appropriate to apply for the proposed examination summonses. The email set out the details of the arrangement proposed by the Liquidator as to his costs and legal fees, including a stipulation that instructions regarding the conduct of the examinations would come from the Liquidator. 4. Levitt Robinson replied by email dated 17 January 2019 seeking confirmation that the Liquidator agreed that the public examination would be conducted on his instructions by Levitt Robinson and counsel briefed by them. Mr Clachers of Edwards Kirby Lawyers replied later that day: "Subject to what is set out below, that is the case. In considering the approach to this matter I have considered the following authorities: 1. RE: Kala Capital Pty Ltd [2012] NSWSC 1073 ('Kala'); Accord Pacific Holdings Pty Ltd v Gleeson [2011] NSWSC 1021; and 2. Sandhurst Trustees Ltd v Harvey (2004) 88 SASR 519 ('Sandhurst'); Evans v Wainter Pty Ltd (2005) 145 FCR 176. My role in this matter will be similar to that of the independent solicitor in Kala. I note the comments of the Court at [29] in Kala. I would give similar evidence (if a challenge were to arise) as the independent solicitor gave in Kala (see [22]) supplemented by the fact that, as far as I am aware, there are no present proceedings on foot by your clients. Implicit in the above however is that both the Liquidator and me, as officers of the Court, will need to pay careful attention to what is set out by the Court at [29] in Kala and act in the event that a conflict were to arise." 1. In the matter of Kala Capital Pty Ltd (in liq) [2012] NSWSC 1073 was a case in which the solicitors acting for the liquidator in examination proceedings were also acting for a substantial creditor who, together with the company, was suing the examinee in separate proceedings. The liquidator had also retained another solicitor (a Mr Hayter) to advise him in relation to the examination proceedings. Black J dismissed the examinee's application to set aside the examination summons and remove the liquidator. His Honour made the following observations at [29] that Mr Clachers referred to in his email above: "… I accept that it is generally undesirable for a liquidator to engage solicitors who act for a substantial creditor: Smarter Way (Aust) Pty Ltd v D'Aloia (2000) 35 ACSR 595. This is, however, not an absolute rule, and I accept Mr Hayter's evidence as to the practical utility of that course in the present circumstances, particularly where Mr Hayter has been retained to provide an independent overview. The Court would expect the Liquidator, as its officer, to maintain continued alertness, with Mr Hayter's assistance, to whether this position needs to change. However, I do not consider that the present position is one that warrants an order for the Liquidator's removal or for setting aside the examination summonses or orders for production." 1. Mr Clachers forwarded his email referred to at [150] above to the Liquidator immediately after it was sent to Levitt Robinson on 17 January 2019. Mr Clachers also forwarded to the Liquidator the response received from Levitt Robinson on 18 January 2019 advising that the Liquidator's terms were agreed and that they would commence preparation of a draft summons and draft affidavit to be provided to the Liquidator. 2. In his affidavit sworn on 5 May 2021, the Liquidator gave the following evidence about the reasons for his decision to proceed with the examinations instructing Levitt Robinson and funded by the Funder: "63 I formed the view that it was in the best interests of the Company and its creditors for me to accept the proposal because: a) I had identified potential claims against Holdings and Mr Dresner and Mr Seskin in my report to creditors dated 27 February 2018 and 22 November 2018 and it was in the interests of creditors that those potential claims be investigated by examinations, if possible; b) Levitt Robinson had identified various matters in relation to the Company which I believed ought to be investigated including: (i) why all invoices to the franchisees appeared to be issued by the Company to franchisees while the bank details in those invoices were Holdings' bank details; and (ii) whether misrepresentations were made to franchisees by Mr Dresner; c) the only funding offer received was from Galactic and it was conditional upon Levitt Robinson acting as my solicitors in respect of the examination proceedings. It has been made clear to me previously that the Funder's offer was conditional upon Levitt Robinson being its solicitors; d) the Company did not have any assets in order to fund examination or recovery proceedings. If I did not accept the proposal, as I was without funds, it is highly likely that I would have finalised the liquidation of the Company and caused it to be deregistered (unless I was able to secure an alternative source of funding which at the time I considered highly unlikely because I had not received any offers from other creditors, and based on my significant experience I considered it unlikely that an independent funder would have funded an examination); e) I would be the person providing instructions regarding the conduct of the examinations; f) although I was initially concerned that there may be a conflict of interest retaining Levitt Robinson as my solicitors in the examination proceedings, I had received advice from Mr Clachers that it was appropriate for me to do so with him acting as my independent solicitor; g) Mr Levitt informed me that he would not act for the franchisee creditors while the examinations occurred (as I set out at paragraph 49 above); h) the examinations would: (i) allow me to further understand the nature of the Company's business and how it operated; (ii) assist me to obtain books and records of the Company which had not been provided by Mr Dresner; and (iii) assist me to identify potential claims available to the Company, or me in my capacity as liquidator of the Company, against Mr Dresner, Holdings, Lazarus Legal Pty Ltd and others; (iv) assist me to determine whether the claims made by the franchisee creditors against the Company had any merit as that would be of assistance in the liquidation of the Company because it would allow me to determine the validity of their claims as creditors of the Company; and (v) assist me to determine whether the director/former director had assets in order to meet any judgment. 64 At the time, the main purpose of agreeing to conduct the examinations on the basis offered was to investigate the affairs to which I have referred to above. I was aware that the examinations would likely benefit the franchisee creditors as it seemed obvious to me that there must be something in it for them for the funder to make the offer. However, despite that I was of the view that it would be advantageous for me to know what the strength of the creditor claims would be together with the other topics referred to above. 65 I decided to accept the offer with Levitt Robinson to be retained as my solicitors as it was to my mind the only way that any examinations were able to proceed – there being no other offers to fund examination proceedings. I was of the view that at the time that was in the interests of the Company, its creditors and contributories to undertake examinations that investigated possible claims against the directors or former directors for insolvent trading and breach of director's duties and possible phoenix activity because, if evidence was revealed which supported those claims, there might be a prospect of recovering funds to pay creditors. 66 My decision to accept the proposal was heavily influenced by Mr Clacher's [sic] advice that I should proceed with the examination if I had independent solicitors acting for me, and that a solicitor from Piper Alderman would attend the examinations each day, and would advise me (or my delegate appearing on the day) as to whether the examinations were being conducted properly in relation to the examinable affairs of the Company. 67 If Mr Clachers had advised me that I should not proceed with the examinations, noting the position of the Funder that Levitt Robinson had to be the solicitors, I would have declined the proposal and refused to undertake the examinations unless by a solicitor of my choice." 1. Mr Clachers resigned from Edwards Kirby Lawyers in February or March 2019 and it is the Liquidator's understanding that he no longer works as a lawyer and suffers from a serious health issue for which he receives workers' compensation. 2. Mr Clachers' resignation may account for the delay between the agreement reached between Levitt Robinson, the Funder and the Liquidator on 18 January 2019 and the negotiation of the funding agreement for the public examinations. That negotiation appears to have commenced on about 25 April 2019, when the Funder wrote to the Liquidator enclosing a draft Funding Agreement and draft Deed of Funding and Indemnity Agreement for his review. The letter stated: "[W]e also fund a number of former franchises of FOGO and their lawyers, Levitt Robinson, who propose to bring claims against the director and former director of FOGO, Mr Dresner and Mr Seskin and possibly against FOGO itself (albeit that FOGO is in liquidation)." Mr Edwards of Edwards Kirby Lawyers advised the Liquidator throughout the negotiation which resulted in the execution of the Funding Agreement on 19 August 2019. 3. I note the statement in the Funder's letter of 25 April 2019 referred to above that "we" also fund former franchisees proposing to bring claims. The name and address of the entity that entered into funding agreements entered into with former franchisees in March 2018 and May 2019 was Galactic Fogo Litigation LLC of 400 Rella Boulevard, Suffern, New York, USA. As referred to at [118] above, Galactic Fogo Litigation LLC is the entity that Levitt Robinson informed the Liquidators on 23 October 2018 had offered to fund the public examinations. However, the name and address of the Funder under the first draft of that Funding Agreement executed on 25 April 2019, all subsequent drafts and the Funding Agreement executed on 29 August 2019, is Galactic Fogo Litigation Liquidators LLC of 30 N Grould St R Sheridan, WY 82801. In his affidavit affirmed on 1 June 2020, Mr Dresner referred to "[t]he Galactic Litigation Partners LLC website" which he described as identifying "a number of well-known and publicised Australian class action lawsuits which purportedly involved that litigation funder", including the proceedings described on that website as "FOGO – Twelve franchisees of FOGO are seeking compensation for an alleged breach of their franchise contract." 4. The plaintiffs did not adduce any evidence of the relationship between Galactic Litigation Partners LLC, Galactic Fogo Litigation LLC and the Funder (Galactic Fogo Litigation Liquidators LLC). Mr Dresner's affidavit affirmed on 1 June 2020 referred to a company search and filing information for the Funder, but the plaintiffs did not tender those pages of the exhibit to Mr Dresner's affidavit. Both parties conducted these proceedings on the understanding or assumption that the Funder was the same entity as the entity that was funding the Franchisee Claims against Messrs Dresner and Seskin and (possibly) the Company. That assumption or understanding was incorporated into questions put to Mr Moss in cross-examination, to which no objection was taken. [19] It was also embraced in the defendant's written closing submissions, which stated that "the Funder" was a party to the funding agreements with the Franchisee Claimants and the Funding Agreement for the examination proceedings and that "the Funder" (and Levitt Robinson) therefore had a financial interest in the Franchisee Claims. [20] In those circumstances, I proceed on the basis that either Galactic Fogo Litigation LLC and Galactic Fogo Litigation Liquidators LLC are different names of the same entity or, if they are different entities, then the relationship between them was such that the Funder (Galactic Fogo Litigation Liquidators LLC) had some financial interest in the Franchisee Claims that were being funded by Galactic Fogo Litigation LLC. Liquidator enters into Deed of Funding and Indemnity and Funding Agreement 1. On 19 August 2019, the Liquidator entered into a Funding Agreement with the Funder and Mr Levitt and a Deed of Funding and Indemnity with the Funder. 2. The Liquidator is referred to in the Funding Agreement as "the Client" and Mr Levitt is described as practising in partnership as Levitt Robinson solicitors, referred as "the Representatives". The Funding Agreement defines the "Proceedings" as the examinations (including preparation for and all things incidental to the examinations) "in which the Representatives act as the Client's legal representatives". 3. Clause 2.1 of the Funding Agreement requires the Levitt Robinson to prepare for and commence the examination proceedings. 4. Clause 2.2 provides that the Funder will provide funding to the Liquidator to pay the following costs in respect of the examination proceedings: 1. the Liquidator's Professional Costs (as defined); 2. the Legal Costs of Levitt Robinson (as defined); 3. other specific disbursements (including counsel's fees and the fees of any other lawyers reasonably required by the Liquidator to assist him); and 4. any other costs disclosed to the Liquidator in writing and incurred by Levitt Robinson with the written consent of the Funder. 1. Clause 4 of the Funding Agreement contains an acknowledgement by the parties that the Liquidator is required by s 477(2B) of the Corporations Act to obtain the approval of the Court or a resolution of creditors to enter into the agreement. 2. Clause 5 provides: "5.1 The Parties agree that the Final Amount (if any) and any other amount received by the Client in the Proceedings will be paid directly into the Trust account on trust for both the Funder and the Client, to be paid and applied in accordance with Clause 5.2, subject to any contractual lien for fees, maintainable by the Representatives. 5.2 Subject to clause 4.1, on or before the Repayment Date, the Representatives will apply the Final Amount as follows: 5.2.1 First – in payment of any unpaid professional disbursements reasonably incurred on or behalf of the Representatives or by the Client as per the Deed of funding and Indemnity (Annexure "B") through the provision of legal services to the Client in connection with the Proceedings; 5.2.2 Second - in repayment to the Funder of an amount equivalent to the Agreed Funding, paid by the Funder; 5.2.3 Third ‑ in repayment to the Funder of: (a) thirty-five percent (35%) of the Final Amount ("the Funder's Premium"); 5.2.4 Fourth in payment of the balance to the Client, to be dealt with according to law. 5. 3 The client agrees that he will not accept an offer to settle the Proceedings of any part thereof other than by way of a payment to him, made or to be made by, for or on behalf or any one or more of the Examinees. The Client further agrees that he will not accept an offer of non-monetary compensation in consideration of the settlement or release of his rights in the Proceedings or in any Claim against any one or more of the Examinees." 1. Clause 1.1 defines the following terms used in clause 5: (1) "Final Amount" is defined as any gross amount received or due to be received by the Liquidator "whether by way of or through settlement, judgment, award or any other process, from or on behalf of, or at the direction of any or all of the Examinees"; (2) "Examinees" is defined as including Mr Dresner and Mr Seskin and the other persons identified in Levitt Robinson's letters dated 14 November 2018 and 14 December 2018. (3) "Trust Account" is defined as Levitt Robinson's trust account; (4) "Repayment Date" is defined as ten business days after the date of receipt of the "Final Amount"; and (5) "Claims" is defined as meaning "all current or contingent actions, suits, causes of action, debts, costs, cross-claims, demands". 1. Clause 9.1 of the Funding Agreement provides: "9.1 The Funder may, from time-to-time, request such information as it reasonably requires concerning the conduct and progress of the Proceedings. The Representatives agree that they will not settle or otherwise compromise the Proceedings without prior consultation with the Funder and acknowledge the Funder's right under Clause 10.2." 1. Clause 10 of the Funding Agreement provides: "10.1 The Client will disclose to the Representatives forthwith, who will in turn disclose to the Funder, any information which comes to their knowledge which may have a material impact on the continuing conduct, resolution or result of the Proceedings. 10.2 The Client will promptly notify the Representatives if he receives any offer of settlement from any one or more of the Examinees or made on behalf of any one or more of the Examinees. 10.3 The Client agrees to consult with the Funder through the Representatives on any issue arising in relation to the conduct and progress of the Proceedings and in particular, in relation to any offer to settle or otherwise compromise the Proceedings. 10.4 The Client will not, without reasonable cause, fail to commence the Proceedings and/or maintain the Proceedings to conclusion." 1. As the plaintiffs' submissions acknowledged, the "Proceedings" as defined in the Funding Agreement are confined to the examination proceedings. 2. Pursuant to clause 2 of the Deed of Funding and Indemnity, the Funder unconditionally and irrevocably indemnified the Liquidator for and against any loss suffered by him arising from or in connection with the application to the Court for the examination summonses, any liability for legal costs in any proceedings in which he is involved as a result of that application and any monetary award made against him in any such proceedings. The Funder also agreed under clause 4 to pay the Liquidator's costs relating to and arising from the application on the basis that the Liquidator's costs would be charged in accordance with Chifley Advisory's schedule of rates, the Liquidator's legal advice in relation to the examinations would be provided by Edwards Kirby Lawyers and the Liquidator was at liberty to change lawyers (in which event the Fund agreed to pay the new lawyers' costs in place of the costs of Edwards Kirby Lawyers). 3. Clause 4.2 of the Deed of Funding and Indemnity provides: "The parties agree that instructions regarding the conduct of the examinations will be given by the Liquidator (by way of his solicitors) on the basis that, subject to any conflict arising and/or order of the Court, Levitt Robinson will conduct the Activity instructing Mr Pritchard of Senior Counsel and Mr Krochmalik of Counsel." 1. Clause 10 of the Deed of Funding and Indemnity provides that it is subject to and conditional upon approval of the Court or creditors pursuant to s 477(2B) of the Corporations Act. Liquidator's notice and report to creditors: 29 August 2019 1. Mr Moss gave evidence that his office issued a notice to creditors dated 29 August 2019 which contained a link to a further statutory report to creditors dated 29 August 2019 and notice of a meeting of creditors to be held on 13 September 2019 for the purpose of discussing the report and the status of the liquidation, considering and passing resolutions concerning the Liquidator's past and future remuneration and considering and passing resolutions in relation to "the Liquidator entering into cost agreements as well as litigation funding agreement for the purpose of public examination proceedings of the Company". 2. Mr Moss gave evidence that the process within his office for sending notices and reports to creditors involved a staff member being provided with a soft copy of the relevant notice and/or report and that staff member printing copies of those documents, preparing a label to place on each envelope containing those documents to be sent to each creditor, placing the documents into each franked envelope and then attending the nearest post office box to post the envelopes. The staff member then prepares a statement of posting in writing, signs the statement and scans a copy of the statement into the relevant file. 3. Ms Kaitlyn Li of Chifley Advisory prepared and signed a document entitled "Statement in writing of posting of notices of creditors meeting – Fogo Brazilia Franchise Holdings Pty Ltd (in liquidation)" dated 29 August 2019. The statement records that, on that date, a notice of the time and place of the meeting of creditors in the form annexed and marked "A" was sent by prepaid post to each person appearing in the books of the Company or otherwise known to the convenor of the meeting as a creditor of the Company. The copy of the statement that was tendered in evidence does not include any Annexure A. However, there is no evidence to suggest that any notice or other document was mailed to creditors of the Company on or about 29 August 2019 other than the notice referred to at [171] above. I therefore infer the notice dated 29 August 2019 is the document to which Ms Li's signed statement relates. A "Label Listing" for the Company dated 29 August 2019 records names and addresses for 29 creditors. The listed creditors include Mr Dresner, Lazarus Legal, and Holdings. The address listed for Holdings is care of the Company's external accountants, Rosenfeld Kant. Copies of the notice dated 29 August 2019 addressed to those three creditors were tendered in evidence. The work in progress records maintained by the Liquidator's office in relation to the Company record that "Kaitlyn" spent time on 29 August 2019 preparing and amending a "600G for general report", uploading that report to "ato portal and creditors portal" and "folding envelopes for 600G". I infer that the reference to "600G" is a reference to s 600G of the Corporations Act, which provides for electronic methods for giving and sending notices. I infer that the "Label Listing" document records the substance of the labels that were affixed to 29 envelopes into which Ms Li placed the notice to creditors containing the link to the statutory report. Ms Li's signed statement bears the handwritten annotation "29 x $1.490" and "29 x 3 double sided pgs". I infer that this records the postage paid on each of the 29 envelopes. 4. Ms Li was subpoenaed to give evidence. Under examination by senior counsel for Mr Moss, Ms Li said that the signature on the statement appeared be her signature although she had no specific recollection of signing this particular statement. That is understandable some two years after the event. Later during her examination, Ms Li said that she did not know whether the signature was her signature. I infer that this reflects her lack of any recollection of signing the statement two years earlier. There is no evidence to support an inference that some other person affixed a signature to the statement so as to give it the appearance of having been signed by Ms Li. I find that the statement was in fact signed by Ms Li. Ms Li also gave evidence that the name "Kaitlyn" in the time records referred to above appeared to be a reference to her name. Understandably, she had no specific recollection of making those entries or carrying out the administrative work recorded in them approximately two years ago. 5. As the plaintiffs accepted, the statement signed by Ms Li is a business record. On the basis of that statement, together with the evidence of the work done inserting the notices into envelopes, the labels affixed to the envelopes and the postage paid on those envelopes and Mr Moss's evidence referred to at [172] above, I find that the notice to creditors dated 29 August 2019 was in fact prepared and sent to creditors of the Company by pre-paid post on that date, including Mr Dresner, Lazarus Legal and Holdings: Brown v Bluestone Property Services Pty Ltd [2010] NSWSC 689 at [13]. That finding does not invoke rule 75-15(2) of the Insolvency Practice Rules, which provides that "a statement in accordance with the approved form" made by a person acting on behalf of the convenor of a meeting is sufficient proof of the notice having been sent to a person at the address specified in the notice. As there is no "approved form", s 75-15(2) would not apply to the statement signed by Ms Li even if the "Annexure A" referred to in the statement had been attached to the statement. 6. Mr Dresner denies having received a copy of the notice dated 29 August 2019. That denial carries no weight given the demonstrated unreliability of Mr Dresner's recollection of events relating to these proceedings and his willingness to assert that he did not receive or was not told about things, even where contemporaneous correspondence, including his own correspondence, demonstrates the contrary: see in particular [75], [96] and [100] above. 7. There is no dispute that Lazarus Legal Group received the 29 August 2019 notice by email from Mr Moss to Mr Mark Lazarus on 19 December 2019. Mr Barry Lazarus gave evidence that he personally did not receive the notice at any earlier time. Ms Thi Tran, the Account Manager and Office Manager at Lazarus Legal, gave evidence about her standard practice for collecting, sorting and distributing mail which is solely her responsibility at the firm. Ms Tran's evidence was to the effect that she was aware at all times that Mr Barry Lazarus was the solicitor with carriage of the Fogo Brazilia matter and that if she had received and opened "a letter purporting to provide a notice to creditors for Fogo Brazilia Holdings Pty Ltd" she would have provided that notice to Mr Barry Lazarus in accordance with her usual practice. I infer that Ms Tran would have done the same in relation to a notice addressed to creditors of the Company. The defendants rely on Ms Tran's evidence, together with the evidence of Mr Barry Lazarus that he did not receive the 29 August 2019 notice, as demonstrating that it was not received by Lazarus Legal. 8. Mr Moss' email sent to Mr Mark Lazarus on 19 December 2019 attaching the 29 August 2019 report to creditors stated: "I'm available anytime to discuss". There is no evidence of Lazarus Legal (either on their own behalf as a creditor of the Company or in their capacity as Mr Dresner's solicitor) discussing with the Liquidator at any time between 19 December 2019 and the commencement of the public examinations in March 2020 the allegation now made that they had not received the report dated 29 August 2019 and the notice of the creditors' meeting to be held on 13 September 2019. It is inherently unlikely in my opinion that Lazarus Legal would not have made that complaint in strong terms in December 2019 if the firm had not in fact received the notice on or about 29 August 2019 and had thereby lost the opportunity to vote on the resolutions which had been passed at the meeting and a result of which Mr Barry Lazarus was among the examinees to whom summonses had been issued on 18 December 2019. 9. Mr Valois, one of the principals of Rosenfeld Kant, gave evidence that he personally did not receive the notice and that he understands that it was not received by his firm on the basis that mail concerning the Company would have been directed to him by the firm's receptionists in accordance with their usual mail sorting practices in August and September 2019 because he was listed within the firm's database as the principal responsible for the Company. It would have been a relatively simple matter for Mr Valois to have checked his firms files and records to ascertain whether the notice had been received, albeit not directly internally to him. There is no evidence that he made any such check. In those circumstances, his conclusion that the notice was not received by his firm and did not find its way to him personally, carries little weight. 10. In short, Mr Dresner's assertion, the evidence of Mr Lazarus (taken together with the very general evidence of Ms Tran) and Mr Valois is of insufficient weight to displace the presumption under s 160 of the Evidence Act 1995 (NSW) that the notices were received at their respective addresses on the seventh working day after being posted on 29 August 2019. Even if I had found that they did not receive the notices, that would not have established that the Liquidator's staff did not send the notice to their addresses, let alone that any failure to do so was attributable to a lack of independence and impartiality on the part of the Liquidator as opposed to administrative error. 11. Mr Moss emailed a copy of the 29 August 2019 notice and report to Levitt Robinson. He did not send those documents to the plaintiffs by email. In cross‑examination, Mr Moss was not asked why he sent the notice to Levitt Robinson by email. It was put to him and he denied that this was a clear case of him favouring the Franchisee Claimants over other creditors. I accept Mr Moss' denial. Levitt Robinson was not a creditor of the Company to whom the notice was sent under the process documented in Ms Li's statement and referred to above. Nor was Levitt Robinson listed as the address care of which notices to any creditor of the Company were to be sent. Whilst the plaintiffs were covered by the process documented in Ms Li's statement, Mr Moss needed to send the notice to Levitt Robinson via other means if they had an interest in receiving it. The notice was relevant to Levitt Robinson because it called a meeting for creditors to vote, amongst other things, on whether to approve the Liquidator's retainer of the firm for the conduct of the public examinations and his entry into the Funding Agreement with the Funder and Levitt Robinson. Contrary to the plaintiffs' submissions, the evidence does not support an inference that Mr Moss emailed the notice to Levitt Robinson in order to provide some advantage to the Franchisee Claimants (to whom the notice had been sent by prepaid post in any event) rather than to keep Levitt Robinson informed of the steps being taken by the Liquidator to obtain the s 477(2B) approval referred to in clause 4 of the Funding Agreement to which Levitt Robinson was a party. 12. The Liquidator's report to creditors dated 29 August 2019 contained no new information in relation to the Company's assets and liabilities, save that the former franchisees' claims as unsecured creditors had increased from $4,524,597.88 (in the Liquidator's report dated 22 November 2018) to $4,784,597.88. The plaintiffs' submissions referred to this increase as "inexplicable". However, it is readily explicable by the fact that, as recorded in the report, the number of franchisee creditor claimants had increased from eight at the time of the 22 November 2018 report to nine at the time of the 29 August 2019 report. The proof of debt submitted by former franchisee RRZ Pty Ltd in the amount of $260,000 after 22 November 2018 accounts for the difference between the total unsecured creditors' claims in the 22 November 2018 and 29 August 2019 reports. 13. The plaintiffs also submitted that the 29 August 2019 report omitted any reference to the "franchisee debtor claims proposed by Mr Dresner" and that the Liquidator had provided no explanation for this. That submission is wrong. As referred to at [134]-[136] above, the amounts that Mr Dresner asserted were owing by former franchisees had been included in the Company's assets in the 22 November 2018 report, albeit that the Liquidator estimated a nil recovery for the reasons explained in that report. As the Liquidator submitted, the 29 August 2019 report stated that no additional assets had been identified or realised for the Company since the 22 November 2018 report and referred creditors to that earlier report for information relating to the Company's assets. 14. The 29 August 2019 report stated: "I have received a funding offer from a litigation funder, namely Galactic Fogo Litigation Liquidators LLC, for the purpose of conducting public examination action against various relevant parties concerning examinable affairs of the Company under Sections 596A and 596B of the Corporations Act 2001, in which Levitt Robinson Solicitors would act as the Company's legal representatives. It should be noted that Levitt Robinson Solicitors are currently the acting solicitors for the former franchisees who have lodged claims exceeding $4.78 million in this liquidation (concerning a quantum of loss incurred by the former franchisees arising from the establishment and eventual failure of the Company's Fogo franchise restaurant business). As far as I am aware, there are no current proceedings on foot by the former franchisees against the Company and/or its related parties. Implicit in the above however is that I will need to pay careful attention to which is set out by the Court at [29] in Kala Capital Pty Ltd [2012] NSWSC 1073 and act in the event a conflict were to arise. I have engaged Levitt Robinson as my lawyers in respect to the Company's public examination action against various examinees." 1. The report proceeded to set out the key terms of the draft costs agreement with Levitt Robinson and the scope of work to be undertaken by that firm for the Liquidator, including applying to the Court for the issue of examination summonses and orders for production, the conduct of the examinations and necessary work in relation to those examinations. The report stated that the Liquidator had engaged Piper Alderman to act as his solicitors for the purpose of overseeing the public examinations, including attending the examinations and advising the Liquidator in relation to the examinations. Subject to one qualification, the report then set out the key terms of the Funding Agreement that the Liquidator had entered into with the Funder. The qualification is that the summary stated that the Liquidator was required not to conclude, discontinue, settle or withdraw any proceedings or claim without obtaining the Funder's prior written consent. The Liquidator has given evidence that this statement was included in the report in error. I accept that evidence, as the statement is plainly inconsistent with the terms of clauses 5, 9 and 10 of the Funding Agreement set out at [163]-[167] above. Those clauses preclude the Liquidator from accepting non-monetary settlements (which would undermine the Funder's rights to be repaid out of and to receive a percentage of any "Final Amount") and otherwise merely require the Liquidator to inform and consult with the Funder in relation to (relevantly) any offer of settlement. 2. The report referred to the requirement for approval under s 477(2B) of the Corporations Act for the Liquidator to enter into the Funding Agreement and costs agreements with Levitt Robinson and Piper Alderman and set out the resolutions to be tabled in relation to those matters at the meeting of creditors on 13 September 2019. Meeting of creditors: 13 September 2019 1. The creditors meeting on 13 September 2019 was attended by eight Franchisee Claimants by proxy. Ms Georgiou of Levitt Robinson held a general proxy for those claimants and their proofs of debt were admitted for voting purposes each for $1.00. The meeting was not attended by Mr Dresner, Holdings or Lazarus Legal. 2. Resolutions pursuant to s 477(2B) of the Corporations Act authorising the Liquidator to enter into a costs agreement with Levitt Robinson, a costs agreement with Piper Alderman and the Funding Agreement were put to the meeting by the Chairperson, moved by Ms Georgiou as proxy for one of the former franchisees and passed unanimously. 3. Resolutions were also passed approving the Liquidator's past and future remuneration and internal disbursements. Commencement of examination proceedings commenced and Mr Levitt's undertaking to the Court: December 2019 – February 2020 1. As foreshadowed in the Liquidator's report to creditors dated 29 August 2019 and approved at the meeting on 13 September 2019, the Liquidator engaged Piper Alderman prior to the commencement of the examination proceedings and throughout the examinations to provide him with independent legal advice, including (but not limited to) advice in relation to the individuals to be examined, the scope of orders for production and questions to be asked of examinees. Piper Alderman's scope of engagement included attendance at the public examinations to ensure that the questions put to examinees were appropriate. A Deed of Variation executed by the Funder, Mr Levitt and the Liquidator at some time in 2020 replaced references to Edwards Kirby Lawyers in the Funding Agreement with references to Piper Alderman. 2. The application for the issue of the examination summonses was made by originating process filed by the Liquidator in this Court on 10 December 2019 in proceeding 388855 of 2019. I will refer to those proceedings as the examination proceedings to distinguish them from the present proceedings. Levitt Robinson were named in the originating process as the solicitors for the Liquidator. The application was supported by a confidential affidavit sworn by the Liquidator on 10 December 2019. 3. Mr Moss has given evidence in the present proceedings that his confidential affidavit identified the following topics for examination: "(a) how the Company's income was applied while it was trading; (b) ownership of intellectual property relating to the Fogo Franchise; (c) possible phoenixing activity; (d) the solvency of the Company; (e) representations as to the profitability of the Fogo Franchise to its franchisees; (f) identification of other assets of the Company that might be recovered and realised by the Liquidator for the benefit of Company's creditors; and (g) financial position of the examinees." 1. Mr Moss did not consider that there were any other examination topics that needed to be covered. 2. The confidential affidavit was not tendered in evidence in the present proceedings, save for paragraph 74 of that affidavit which stated: "I propose to instruct Levitt Robinson Solicitors to represent me in the examinations. Levitt Robinson Solicitors will brief David Pritchard SC and Daniel Krochmalk of counsel. My solicitors have acted for the Fogo Franchisees who are creditors or potential creditors of the Company. I have retained independent solicitors, Piper Alderman, to advise me. I have turned my mind to whether there is a conflict or possible conflict in my retaining solicitors who have acted for the Fogo Franchisees. I am satisfied that there is no conflict which impairs my independence as liquidator of the Company. For abundant caution, the solicitor in the record in these proceedings, Stewart Levitt, gives an undertaking that, subject to order or further order of the Court, he will not disclose the documents obtained during the public examinations to any person other than the solicitors within his firm, counsel retained by the liquidator, the liquidator and members of his staff and the litigation funder." 1. Mr Moss gave evidence that Levitt Robinson were responsible for the drafting of the originating process and the confidential affidavit, and that it was Levitt Robinson who drafted paragraph 74 which first appeared in the final draft of the confidential affidavit on 6 December 2019. In his affidavit sworn on 5 May 2021, Mr Moss gave evidence that he read the whole of the final draft of the confidential affidavit, including paragraph 74, and noted the statement that: "My solicitors [that is, Levitt Robinson] have acted for the Fogo Franchisees …". Mr Moss deposed that he understood paragraph 74 to mean that Levitt Robinson was no longer acting for the franchisee creditors. He did not have any reason to doubt that this statement, which Levitt Robinson had drafted, was true and correct. It was consistent with what Mr Moss says Mr Levitt had told him during their discussions in about November 2018 that Levitt Robinson would not act for the franchisee creditors if they were acting for the Liquidator in the examination proceedings. I note that Mr Moss' evidence that Mr Levitt had said this to him was not challenged in cross-examination. Mr Moss deposed that he also took comfort from the fact that his independent solicitors, Mr Jonathan Hidayat of Piper Alderman had reviewed the draft confidential affidavit and confirmed that it was acceptable for Mr Moss to swear. 2. Mr Moss gave evidence to the same effect in cross-examination. He was pressed about what information had come to his attention between his report to creditors dated 29 August 2019 in which Levitt Robinson were described as "currently the acting solicitors for the former franchisees who have lodged claims exceeding $4.78 million in this liquidation" and swearing his confidential affidavit on 10 December 2019 to suggest that Levitt Robinson had ceased acting for the former franchisees. Mr Moss said that the statement in paragraph 74 of the draft confidential affidavit prepared by Levitt Robinson was the information that had come to his attention. He did not make any inquiries because he was satisfied with what Levitt Robinson had written in that paragraph. 3. Mr Moss denied that paragraph 74 of his confidential affidavit was misleading. 4. The Court issued the examination summonses and orders for production on 18 December 2019. 5. At a short hearing before Gleeson JA in the Corporations List on 3 February 2020, Mr Krochmalik of counsel appeared for the Liquidator and asked the Court to note the undertaking offered by Mr Levitt and referred to in paragraph 74 of the Liquidator's confidential affidavit. The circumstances that gave rise that hearing are not disclosed by the evidence in these proceedings. However, it is clear from the transcript that the object of the hearing was for Mr Levitt to offer the undertaking to the Court and to have the undertaking formally noted by the Court. During the short hearing, Mr Krochmalik (instructed by Levitt Robinson) drew Gleeson JA's attention to paragraph 74 and stated (my emphasis): "In particular, your Honour will see that the liquidator's solicitors, my instructing solicitors who act in relation to these examination proceedings, have previously acted for either creditors or potential creditors of the company, and further, as it was explained to the registrar, one of the issues in the proceedings is determining whether or not those persons may indeed be creditors of the company to the extent they have claims. In effect they were franchisees who alleged they may have entered into franchise agreements on the basis of misrepresentations amongst other things. Your Honour will see the liquidator has independent solicitors who have provided advice in relation to that issue, and he specifically turned his mind to the possibility of a conflict. He's satisfied there's no conflict which impairs his independence but he notes that my instructing solicitor proposes to give a particular undertaking about disclosure of the documents obtained during the public examination process to prevent, in particular, there being the appearance of a conflict that arises vis-à-vis the position of the creditors." 1. Mr Krochmalik then referred to In the matter of Ji Woo International Education Centre Pty Ltd [2019] NSWSC 93 and continued (my emphasis): "… to the extent there could be some complaint that my instructing solicitors have previously acted for creditors or potential creditors of the company, what we're proposing to do, at least with material that's been provided during the course of the orders for production, to not disclose that material other than to the prescribed persons who are referred to in the undertaking, and that obviously does not include the creditors or potential creditors at least at this point in time, and what we're seeking to do is to have the Court in effect accept the undertaking out of abundance of caution so as to attempt to preserve any possibility that it could be suggested that the liquidator's independence is somehow impaired or prejudiced, and I should say there hasn't been a suggestion that is independence has been." 1. Contrary to the plaintiffs' submissions, the evidence does not establish on the balance of probabilities that the statement in paragraph 74 of Mr Moss' confidential affidavit that Levitt Robinson "have acted" for the franchisee claimants was not true when the affidavit was sworn on 10 December 2019 and at the time of the hearing on 3 February 2020. Such a finding would require the Court to infer that Levitt Robinson was in fact acting for the franchisee claimants as at 10 December 2019 yet drafted the confidential affidavit for their client, the Liquidator, to swear containing an incorrect statement to the effect that the firm had acted for franchisee claimants in the past. The evidence does not support such an inference. On the contrary, it is more likely than not that Mr Krochmalik's statement to the Court on 3 February 2020 that Levitt Robinson had previously acted for the franchisee claimants reflected his instructions received from Levitt Robinson who had briefed him to appear. As senior counsel for the Liquidator submitted, it is inherently improbable that Levitt Robinson would have prepared an incorrect or misleading affidavit for their client to swear and given false or inaccurate instructions to counsel about the status of their own retainer in respect of which they were making the disclosure to the Court on behalf of the Liquidator. 2. Even if Levitt Robinson was continuing to act for the franchisee claimants as at 10 December 2019 and/or 3 February 2020 (and I make no such finding), there is no reason why the Liquidator was not entitled to accept as accurate and to rely on the statement in paragraph 74 of his confidential affidavit (drafted by Levitt Robinson) and the statement made to the Court on 3 February 2020 by counsel briefed by Levitt Robinson. If it was Levitt Robinson's intention as at 10 December 2019 and 3 February 2020 to resume acting for the Franchisee Claimants after the public examinations (as later occurred), that should have been disclosed to the Court. However, it was not put to Mr Moss that he knew or suspected that Levitt Robinson held any such intention as at 10 December 2019 or 3 February 2020. 3. I note that the statement made by Mr Krochmalik of counsel to the Court on 3 February 2020 that Levitt Robinson had previously acted for the franchisee claimants was repeated in written submissions prepared by Mr Krochmalik dated 10 March 2020 for the purpose of an interlocutory application in the examination proceedings in which he appeared for the Liquidator instructed by Levitt Robinson. 4. In an ex tempore judgment delivered at the conclusion of the hearing, Gleeson JA recorded that: 1. Levitt Robinson had previously acted for a number of franchisees who were creditors or potential creditors of the Company; 2. in those circumstances, the Liquidator had sought and obtained legal advice from Piper Alderman, solicitors, as to whether there was a conflict or possible conflict in his retaining Levitt Robinson to act as his solicitors in relation to the examinations; 3. the Liquidator deposed that he was satisfied that retaining Levitt Robinson did not give rise to any conflict that impairs his independence as liquidator of the Company; and 4. for abundant caution, Mr Levitt offered an undertaking to the Court not to disclose documents obtained during the public examinations to any person other than the Liquidator and members of his staff, solicitors within Levitt Robinson, counsel retained by the Liquidator and the Funder. 1. Gleeson JA then stated: "In Re J Woo International Education Centre Pty Ltd [2019] NSWSC 93, Black J at [39]-[40] referred to authorities concerning the need for a liquidator in the performance of his or her duties to be note only independent but also seen to be independent, and to the circumstances in which a liquidator may retain the same solicitors for a substantial creditor of the company or retain solicitors who had acted for a substantial creditor of the company. The relevant issue in all such cases is whether or not that retainer might be seen to prejudice the liquidator's independence. On the material presently before the Court, there is nothing to suggest that the retainer of Levitt Robinson would impair the independence of the liquidator in carrying out his functions and duties, and in particular, with respect to the proposed examination of various persons. The liquidator has taken the prudent step of seeking independent advice in relation to his proposed course of action, and although that advice is not before the Court, there is nothing to suggest that the proposed course of action the liquidator intends to take would impair his independence or is otherwise unreasonable. Of course the liquidator will need to remain alert to whether circumstances arise that might require him to take advice from another solicitor on a particular aspect of the investigations or any proceedings or more generally: Re 77738930144 Pty Ltd (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452 at [73]." 1. His Honour then formally noted Mr Levitt's undertaking referred to above. 2. The plaintiffs submitted that the undertaking was incapable of remedying any conflict of interest between Mr Moss and the Funder because "it did nothing to hinder the flow of information between Mr Moss and the Funder in circumstances where the Funder also funded the Franchisee Creditor Claims against the Company". 3. Even assuming that the Funder was also funding the Franchisee Claims (as to which I repeat my observations at [156]-[157] above), I reject the plaintiffs' submission. 4. First, for the reasons explained at [251] and following below, there was no relevant conflict of interest between the Liquidator and the Funder, or the Franchisee Claimants in relation to the conduct of the public examinations. 5. Second, Mr Levitt's undertaking concerned documents obtained during the public examinations. The examinees were compelled to produce those documents by orders made under s 68 of the Civil Procedure Act 2005 (NSW). The Liquidator to whom the documents were produced, and Levitt Robinson as his solicitors, were under an obligation not to use them other than for the purpose of the examination proceedings in which they were produced. That obligation is frequently referred to as an "implied undertaking". If and to the extent that it became necessary for Levitt Robinson to disclose any documents obtained pursuant to the orders for production to the Funder for the purpose of the examination proceedings, the Funder would be subject to the same obligation not to use those documents except for the purpose of the examination proceedings: Hearne v Street (2008) 235 CLR 125; [2008] HCA 36 at [1], [3] (Gleeson CJ), [95]-[97], [102]-[126] (Hayne, Heydon and Crennan JJ). By contrast, answers given by examinees to questions asked during the public examinations are disclosed to any other persons attending the public examinations and a transcript of the examination is available to any person paying the applicable fee and may be used in evidence in legal proceedings against the examinee: Corporations Act, s 597; Walton v ACN 004 410 833 Limited (formerly Arrium Limited) (in liq) [2022] HCA 3 (Walton) at [195] (Edelman and Steward JJ). 6. The terms of Mr Levitt's express undertaking did not permit him to disclose documents to the Funder save to the extent that such disclosures complied with the "implied undertaking". Only an order of the Court could release Mr Levitt from the "implied undertaking". Both the Liquidator and Levitt Robinson were aware of the "implied undertaking" as is clear from the correspondence referred to at [234]-[237] below. There is no evidence to suggest that they failed to comply with that undertaking. 7. On 11 February 2020, Mrs Dresner applied for an order discharging the examination summons issued to her or postponing her examination. There was a difference of views between the Liquidator and Mr Hidayat as his independent solicitor on the one hand, and Levitt Robinson and the Funder on the other hand, concerning the response to this application. In a letter to Mr Hidayat dated 27 February 2020 concerning those issues, Levitt Robinson referred to "[t]he Funder and indeed Levitt Robinson on behalf of the creditors whom we represent…". The plaintiffs' submissions rely on this statement as informing the Liquidator that Levitt Robinson was continuing to act for the Franchisee Claimants and that paragraph 74 of his confidential affidavit was incorrect in stating that Levitt Robinson "have acted" (in the past tense) for the Franchisee Claimants. The plaintiffs also rely on the Liquidator's response to the 27 February 2020 letter on 2 March 2020, in which no issue was taken with the reference to "the creditors whom we represent", as demonstrating that the Liquidator had already been aware prior to 27 February 2020 that Levitt Robinson were continuing to act for the Franchisee Claimants contrary to paragraph 74 of his confidential affidavit. 8. Mrs Dresner's application and the substance of the 27 February 2020 and 2 March 2020 correspondence is not directly relevant to the issues to be determined in these proceedings. However, it is necessary to take into account the context in which the relevant statement was made in the 27 February 2020 letter in order to determine what (if any) inferences about the facts and the Liquidator's knowledge can be drawn from his response to the 27 February 2020 letter and in order to assess the Liquidator's evidence given in cross-examination. 9. Levitt Robinson's letter to Mr Hidayat dated 27 February 2020 opened with a criticism of Mr Hidayat for allegedly straying beyond his role of providing legal advice. The letter continued: "The Funder is also concerned that Mr Moss, because of his prior relationship with the Dresners, as disclosed in the copy of declaration of 'Relevant Relationships and/or Declaration of Indemnities', may not be exhibiting the requisite independence required to continue to act as liquidator, which has been the subject of prior correspondence. The Funder and indeed Levitt Robinson on behalf of the creditors whom we represent, agreed to relax our objections to Mr Moss' continuing in his role, notwithstanding that Mr Barry Lazarus of Lazarus Legal, had represented both the Liquidator and the directors at one stage, and Mr Seskin and Mr Dresner and Barry Lazarus along with Mark Lazarus, all met in Mr Moss' office with Mr Moss and Mr Kwok ahead of the latters' appointment as joint administrators. Impressions Do Matter It is well known that Mr Moss along with Mr and Mrs Dresner and Mr and Mrs Seskin are members of the small and close-knit South African expat Jewish Community in Sydney. Hence, there is a question mark that hovers over the independence of any of them from each other. The position is exacerbated where there is a credibility issue which arises from the fact that the Funder's principals and Mr Levitt are also Jewish, though not ex pat South African to boot. All of the creditors whom we have represented are Muslims and seriously aggrieved by the alleged conduct of the board(s) of the Fogo companies. Hence, it is of prime importance that justice must not only be done but must also be seen to be done, without special favours or concessions being extended to witnesses from the Dresner or Seskin families. The Registrar has already been persuaded of the appropriateness of issuing a summon [sic] to Mrs Sharon Dresner, she being the wife of the referrer of the administration to Mr Moss and Mr Kwok. The Funder has agreed to fund this matter for the creditors who have instructed us that they want to see this public examination conducted with a straight bat. Sharon Dresner is a director and major shareholder of an associated entity of both the franchisor and of Monekim Pty Limited and Fogo Brazilia Holdings Pty Ltd ('FBH'), FBH being the recipient of franchising fees and revenue, notwithstanding that it was not the franchisor. The fact that Mrs Dresner claims to have a psychiatric illness which renders her unfit to testify, might also have rendered her unfit to carry out her important fiduciary duties as a company director. Has she notified ASIC of such incapacity? The group members have sought a public examination of an examinable person involved in the examinable affairs of the corporation in liquidation. That is what the Funder agreed to fund. It is important that Mr Moss disclose any direct or indirect relationship which he might have with Mrs Dresner." 1. The Liquidator replied to Mr Levitt by email on 2 March 2020: "As you are aware, I had my reservations engaging you to conduct the Public Examinations on behalf of the Liquidator. When you approached me regarding the funding for Examinations, you were acting on behalf of a 'group' of creditors in a Court action that was in progress at the time. It therefore appeared to me that the Examinations may not be conducted for a proper purpose. Subsequently, the Court action was withdrawn and I did agree to engage you as Liquidator to conduct the Examinations on the basis that the Liquidator had legal representation external to Levitt Robinson for obvious reasons. Independence I refute any question regarding my independence. The fact that I met the Directors before being appointed as Administrator to the Company (and that was the only time I had ever met them), does not conflict me at all. I have a professional relationship with the referrer, Mr Barry Lazarus. … I have no social relationship with Mr Lazarus whatsoever. I do not have any relationship with Mrs Dresner and have never met or spoken to her. My partner Mr Mohammad Najjar (Palestinian Arab) and I refute the ridiculous suggestion that religion or background is somehow an issue in this matter. Way forward If you or the Funder have different views as to my decisions, such as regarding Mrs Dresner, let's, in the first instance, attempt to resolve these issues in good faith via constructive communication. You are being instructed by the Liquidator and you are also responsible to the Funder, whom I understand is a large part of your Legal Practice, so this must be difficult for you to manage. If you cannot reconcile this it may be best for you to be replaced with another Legal Firm that is agreeable to both the Liquidator and the Funder. There is always the option of creditors replacing me as Liquidator at a meeting of creditors, if they so choose." 1. In cross-examination, Mr Moss readily acknowledged that the 27 February 2020 letter describes Levitt Robinson as acting for Franchisee Claimants. However, he gave evidence that this did not "register" with him when he received and read that letter because his attention was drawn to the allegations that he lacked independence from the Dresner family by reason of his religion and country of birth. Mr Moss said that he therefore did not draw any connection between the 27 February 2020 letter and paragraph 74 of his confidential affidavit in which he had deposed that Levitt Robinson "have acted" (which he understood to mean "have previously acted") for Franchisees Claimants. Mr Moss accepted that, if Levitt Robinson were acting for the Franchisee Claimants as at the date of the 27 February 2020 letter, as the letter indicated, then the statement in paragraph 74 of his confidential affidavit would no longer be correct. To my observation, Mr Moss made that concession candidly and without hesitation once he understood the temporal components of the questions being asked of him. I formed the impression from his demeanour in the witness box at that time that Mr Moss had not previously appreciated that the reference in the 27 February 2020 letter to Levitt Robinson acting for Franchisee Claimants (if accurate) meant that paragraph 74 of his confidential affidavit was no longer correct insofar as it conveyed that Levitt Robinson had previously acted for Franchisee Claimants. 2. I accept Mr Moss' evidence that, when he received and responded to Levitt Robin's letter of 27 February 2020, his attention was focussed on the allegations concerning his independence and that the reference to Levitt Robinson acting (in the present tense) for franchisee claimants did not "register" with him. As senior counsel for the Liquidator submitted, it is not surprising that the incendiary statements made in the letter as the basis for questioning his independence distracted him from other statements in the letter, particularly as Mr Moss had no reason at that time to be scrutinising correspondence from Levitt Robinson to ensure that the firm was not continuing to act for Franchisee Claimants. They had informed the Court in clear terms on 3 February 2020 that they were not. I find that Mr Moss did not realise the inconsistency between the 27 February 2020 letter and paragraph 74 of his confidential affidavit sworn on 10 December 2019 prior to his cross-examination in these proceedings. In those circumstances, Mr Moss took no steps to update or correct paragraph 74 of his confidential affidavit after receiving the 27 February 2020 letter, as he readily conceded in cross-examination. 3. For the avoidance of doubt, I do not consider that the 27 February 2020 letter establishes on the balance of probabilities that Levitt Robinson was acting for the Franchisee Claimants as at the date of the letter. First, the unfortunate tone of the letter suggests that it was written in haste and sent without pausing to consider the appropriateness or accuracy of its contents. Second, and more importantly, counsel instructed by Levitt Robinson made statements to the Court on 3 February 2020 and again on 10 March 2020 to the effect that Levitt Robinson had acted for the Franchisee Claimants in the past. As I have observed at [201] and [203] above, it is inherently unlikely that Levitt Robinson permitted those statements to be made to the Court and to stand uncorrected if they were not true. Preparation for and conduct of the public examinations: March – May 2020 1. During the weeks prior to the commencement of the public examinations on 17 March 2020, the Liquidator (through his staff and Mr Hidayat) was engaged in the process of determining in greater detail the topics and questions to be addressed at the examinations. This included a conference on 12 March 2020 between Mr Hidayat and members of the Liquidator's staff with representatives of Levitt Robinson together with Mr Pritchard SC and Mr Krochmalik. Mr Hidayat advised the Liquidator following that conference that he was content with the way in which the examinations were to proceed. 2. The public examinations were conducted between 17-20 March and on 1 May 2020. Ms Natalie Abraham (an associate of the Company), Mr Gabriel Rodriguez (former franchise manager of the Company) and Mrs Susan Seskin were examined on 17 March 2020, Mr Barry Lazarus was examined on 18 March 2020, Mr Dresner was examined on 18 and 19 March and 1 May 2020 and Mr Seskin was examined on 20 March and 1 May 2020. Pursuant to orders made by the Court on 30 April 2020, Mrs Dresner answered questions in writing on oath and was excused from attending Court for oral examination. 3. Mr Moss was personally present in Court during the examinations of Mr Lazarus and Mr Dresner on 18 and 19 March 2020. He has given evidence in these proceedings that he was satisfied that the questions asked of those examinees related to the examinable affairs of the Company and were not solely for the benefit of the Franchisee Claimants. Mr Moss adhered to that evidence in cross-examination. Mr Moss also gave evidence in cross-examination that he had control of the examinations in the sense that he was instructing Levitt Robinson, who were in turn briefing the senior and junior counsel conducting the examinations. Mr Moss could call a halt to the examinations at any time had he seen any reason to do so. He did not simply leave it to Levitt Robinson and counsel to decide how to conduct the examinations. In addition to Mr Moss personally attending some of the examinations, his staff and independent solicitor were involved in the preparation of topics and questions for the examinations as I have mentioned above. Of course, as the Liquidator submitted, ultimate control over the public examinations in fact rested with the Registrar of the Court before whom they were conducted: Walton at [191] (Edelman and Steward JJ and the authorities there referred to). The Registrar saw no cause to stop the examinations and nor did counsel appearing for any examinee submit that they should be stopped. 4. The transcripts of the public examinations were in evidence in these proceedings. The plaintiffs prepared an analysis which they submit demonstrates that the examinations were primarily devoted to gathering information relevant to the Franchisee Claims. With respect, that analysis was not helpful because it compared the number of topics said to relate to the Franchisee Claims to the number of other topics and did not address the time or number of questions dedicated to each of the topics. Moreover, some of the topics that the plaintiffs' analysis characterised as gathering information for the Franchisee Claims were plainly relevant to other issues in the winding up of the Company. For example, the plaintiffs' analysis characterised examination concerning the reasons for the failure of the Company's business and questions about the role of Holdings in relation to franchisees as relating to the Franchisee Claims. In circumstances where monies due to the Company were paid into Holdings' bank account and the Liquidator's preliminary assessment indicated that the Company had traded insolvently from the time it was incorporated in March 2012, the relevance of those topics is not limited to the Franchisee Claims. 5. My review of the examination transcripts revealed that Ms Abrahams and Mr Rodriguez were examined about the circumstances in which they invested in Holdings. Mr Rodriguez, the Company's former franchise manager, was also examined about the Company's operations, including the roles and responsibilities of Mr Dresner and Mr Seskin, fees payable by franchisees (including royalties and marketing fees) and the information about franchisees' turnover that the Company had access to in order to calculate those fees, and payments made into the bank account of Holdings. Mr Rodriguez was also asked questions about statements made by Mr Dresner to franchisees or potential franchisees. The examinations of Ms Abrahams and Mr Rodriguez were of short duration as was the examination of Mrs Seskin. 6. Each of Mr and Mrs Seskin was examined about the period of time during which Mr Seskin had been a director of Holdings and the Company, the circumstances in which Julisa sold or transferred its shares in the Company to Monekim and the assets of Mr and Mrs Seskin. Mrs Seskin was asked some questions about the nature of her involvement in the Company's business which she described as being limited to providing advice to some franchisees about food presentation. Mr Seskin was taken to numerous franchisee disclosure documents in the context of the Liquidator challenging his evidence that he had intended to resign as a director of the Company in March 2012 and had not realised until late 2016 or early 2017 that he remained a director of the Company. Mr Seskin was shown numerous statements in the disclosure documents referring to him as a director of the Company and describing his experience. He was also taken to references in the disclosure documents to resolutions said to have been passed by the directors (plural, which would have been an error if Mr Seskin had resigned in March 2012) concerning the Company's solvency. The apparent object of these questions was to establish who the directors of the Company were at times relevant to potential insolvent trading claims and other potential claims against directors. 7. The examination of Mr Lazarus was dominated by questions about his role in the preparation of franchise agreements and disclosure documents on behalf of the Company and the sources of the information contained in disclosure documents. It is clear from an exchange between the Registrar and senior counsel for the Liquidator during the course of the examination that these questions related to the Company's potential claims against Lazarus Legal for negligence in addition to the Franchisee Claims. 8. Mr Dresner's examination was of the longest duration. Based on my review of the transcripts, the Liquidator's analysis of subject matter of the questions asked of Mr Dresner is broadly correct. That analysis demonstrates that approximately half of the questions asked were directed to the background to the establishment of the Company and its franchise business and the Company's financial position, including its financial relationship with Holdings. Other topics that were the subject of less extensive (but nevertheless significant) questioning were Mr Dresner's failure to produce books and records for the Company, the role of Lazarus Legal in drafting and advising in relation to the franchise agreements and disclosure documents, Mr Dresner's financial position and the proofs of debt lodged by him in the winding up of the Company, and representations made to franchisees. Relatively few questions were asked about ownership of the Company's intellectual property. On the final day of his examination on 1 May 2020, questions asked of Mr Dresner were principally concerned with when Mr Seskin had held office as a director. In the course of that questioning, Mr Dresner was taken to various documents provided to franchisees during the period between 2012 and 2016 that described Mr Seskin as a director. 9. I have described the Liquidator's analysis of the transcripts of Mr Dresner's examinations as broadly correct because many of the questions are capable of being characterised in several different ways. For example, many questions about disclosure documents provided to franchisees were directed to the substance of statements in those documents about the solvency of the Company. 10. Based on my review of the examination transcripts, I reject the plaintiffs' submission that "barely any questions were asked in relation to the solvency of the Company". 11. Contrary to the plaintiffs' submissions, some questions asked of Mr Dresner also related to the debts allegedly owed to the Company by its former franchisees. Mr Dresner was asked about the different fees payable by franchisees and he described a franchise fee, a royalty payable as a percentage of the franchisee's monthly turnover, and a marketing fee. He described fees owing by franchisees as "Bit difficult to, to realise". That description was given in relation to franchisee fees generally rather than any specific amount said to be owing at the time the Company went into administration. Mr Dresner was asked questions about the manner in which fees paid by franchisees were recorded and accounted for within the financial records of Holdings. He was asked about whether the rental cost of the premises for each franchise restaurant was included in the franchisee fees or whether the franchisees were required to make additional payments in respect of the rent for which the Company was liable to the landlord. He was also asked about the period of time which franchisees had failed to pay fees and rent prior to the Company going into administration. Finally, Mr Dresner was pressed on several occasions about whether there any books and records of the Company that he had not produced in response to the orders for production and he was directed to make further searches after he indicated that he had not yet taken the trouble to search in all of the places where relevant books and records may be stored. 12. For those reasons, I reject the plaintiffs' submission that the examinations were conducted in a manner that was primarily directed to gathering information for the Franchisee Claims. 13. The Liquidator's evidence is that, as a result of the examinations, he has identified potential claims available to him: 1. against Messrs Dresner and Seskin for breach of directors' duties and insolvent trading; 2. against Holdings, to set aside as uncommercial transactions and/or unreasonable director related transactions Holdings' receipt of funds that were payable to the Company; and 3. against Lazarus Legal for negligence in advising the Company in relation to franchise law and in the preparation of franchise agreements. 1. The Liquidator's evidence about the causes of action identified through the examinations is consistent with advice that he received from Levitt Robinson on 29 April 2020 and referred to below and with the Liquidator's report to creditors dated 7 April 2021. That report advised creditors that any dividend to creditors was dependent on those actions being successfully prosecuted, but that those actions would require funding and the Liquidator considered that it would not be prudent or commercial for him to progress the actions pending the resolution of the current proceedings that had been commenced on 1 June 2020. 2. The Liquidator's evidence that these potential claims have been identified was not the subject of challenge in cross-examination. Rather, it was put to him that there was no utility in identifying these claims because the Liquidator lacked funding to pursue them. The Liquidator gave evidence that the Funder has expressed some interest in pursuing them and that he intends to explore the possibilities for progressing the claims after these proceedings have been determined. Mr Levitt's request to be released from his undertaking: April 2020 1. On 29 April 2020, Levitt Robinson wrote to the Liquidator (care of Mr Hidayat) referring to the conclusion of the public examinations on 1 May 2020 and stating: "After the hearing on 1 May 2020, David Prichard SC and Daniel Krochmalik of Counsel will prepare a report on the examinations which will identify the causes of action available to the Company as against the directors of the Company and any other associated parties. Having had the benefit of reading the examination transcripts and attending the hearing, we expect the causes of action will relate to insolvent trading, misleading or deceptive conduct, breaches of directors' duties and negligence, inter alia. We also understand that the report from Counsel will address causes of action available to the franchisee creditors. It has come to our attention that one of the franchisees' claims may be statute barred from June 2020. For this reason, we consider it is imperative that at least his claim is filed by that time. In order to prepare that franchisee's claim, we will need to have access to and refer to documents obtained during the course of the public examination proceedings. At the moment, that cannot take place. As you are aware, Stewart Levitt has provided an express undertaking to the Court not to disclose documents obtained by the Plaintiff pursuant to any Orders for Production except to: 1) other partners, solicitors or employees of Levitt Robinson Solicitors or Counsel briefed by the plaintiff in the proceedings; 2) the plaintiff in the proceeding and members of his staff; 3) a Judge or Registrar (or members of his or her staff) in connection with the proceeding; 4) any litigation support provider for the purposes of copying the documents; and 5) the litigation funder funding the proceeding. We confirm that Mr Levitt has complied with that undertaking. No documents have been provided to any of the franchisees or to any other person other than to certain individuals within the scope of the undertaking (e.g. members of Gavin Moss' staff, Counsel etc). … Mr Levitt must now seek to be released from his express undertaking and from the implied undertaking to allow him to use the documents obtained in the examination proceedings to prepare the claims for the franchisees. Accordingly, we seek your instructions to prepare an application for a release from the undertakings or for a variation to the terms of the undertakings to be briefed to new Counsel, not to Counsel currently involved in the examinations. We will also brief such Counsel to consider and advise on whether Mr Moss should also seek to be released from his undertaking in order to pursue causes of action available to him. We note that the vast majority of documents produced during the examination proceedings are in fact Company documents; books and records to which Mr Moss was always entitled as the liquidator, but which the directors failed to provide to him. Despite the impecuniosity of the Company, a concern Mr Moss may have about the instructions we presently seek is that the franchisees may add the Company as a defendant to their claims. If that were to take place, the Company would only be a nominal/technical defendant. They would not be able to recover anything in a practical sense from the Company. Ultimately, the franchisees would be looking to pursue the directors to recover their losses." 1. I note the statement in the letter that Mr Levitt had complied with the undertaking. No evidence to the contrary was adduced in these proceedings. 2. I also note, for completeness, that the Franchisee Claimants would require leave under s 471B of the Corporations Act before inducing the Company in liquidation as a defendant to any proceedings, even as a "nominal/technical defendant", whatever that may mean. 3. The Liquidator attended a meeting with Levitt Robinson, together with Mr Hidayat, within a few days after receiving the letter dated 29 April 2020. At that meeting, Mr Hidayat informed Levitt Robinson that the Liquidator would not be giving instructions to Mr Levitt to apply to be released from his express and implied undertakings. 4. As the plaintiffs submitted, Levitt Robinson's letter dated 29 April 2020 clearly alerted the Liquidator to the fact that Levitt Robinson was acting for at least one of the Franchisee Claimants at that time in circumstances where the public examinations had not yet concluded. Mr Moss accepted this in cross-examination and also accepted that he took no steps to correct paragraph 74 of his confidential affidavit at the time. It was not put to Mr Moss that this was anything other than an oversight on his part. Commencement of these proceedings on 1 June 2020 and subsequent events 1. As I have already mentioned, the present proceedings were commenced on 1 June 2020. Mr Hidayat wrote to Mr Barry Lazarus (as the solicitor for the plaintiffs) on 9 June 2020 advising that he was acting for the Liquidator in the proceedings and noting that the plaintiffs had not provided a consent of another registered liquidator to act as liquidator of the Company in the event that the application to remove Mr Moss succeeded. The letter stated: "If your clients have a [sic] obtained a consent to act from a registered liquidator together with a DIRRI and wish to hold a creditors meeting, our client will convene a meeting of creditors to consider replacing him as liquidator in accordance with the provisions of the Corporations Act 2001." 1. The plaintiffs did not request Mr Moss to convene a meeting of creditors. There is no evidence that the plaintiffs had obtained a consent from any registered liquidator to be appointed as liquidator of the Company prior to the penultimate day of the hearing of these proceedings when the plaintiffs tendered a consent of Mr Adam Farnsworth, as referred to at [14] above. [21] 2. The plaintiffs tendered a document prepared by Levitt Robinson entitled "Galactic Funded Matters Progress Report No. 13 - 11 August 2020" which stated under the heading "Fogo Franchisees Action": "Public Examinations The public examination hearings have concluded and no further examinations are required. The evidence that was obtained at the hearings will be used in the Class Action proceedings to be commenced shortly (see below). We will be seeking advice from Nick Kidd SC about terminating our retainer with Gavin Moss and finalising this matter in the next few days." 1. Levitt Robinson wrote to the Liquidator on 27 October 2020 expressing the view that no further hearings were required in the examination proceedings and seeking instructions about whether he required the directors or any other examinable officer to be called for further examination and, if not, seeking instructions that Levitt Robinson could close its file. The letter continued: "As you may be aware, one of the franchisees, RRZ Pty Ltd, commenced proceedings against Fogo Brazilia Holdings Pty Ltd, the Company and the Directors of those companies. RRZ Pty Ltd is currently being represented by other solicitors, Neville Hourn + Borg in those proceedings. Post receipt of your instructions to close our file in this matter, we expect to be instructed to take over carriage of that matter and to commence acting for the other franchisees of the Fogo Brazilia franchise. Please let us know if you have any objection to this proposed course of action." 1. Mr Hidayat replied on behalf of the Liquidator on 29 October 2020 confirming that no further examinations were required and that Levitt Robinson could now close its file for the examination proceedings. No objection was raised to Levitt Robinson commencing to act for RRZ Pty Ltd or the other Franchisee Claimants. 2. The proceedings referred to in Levitt Robinson's letter of 27 October 2020 had been commenced in this Court by RRZ Pty Ltd on 17 June 2020 against the Company, Holdings, Mr Dresner, Mr Seskin and Lazarus Legal. The relief sought included leave pursuant to s 471B of the Corporations Act to commence and proceed with the action against the Company. However, RRZ Pty Limited did not pursue that application for leave and the Company was removed as a defendant to the proceedings in an amended statement of claim filed on 8 March 2021. 3. As at February 2021, Levitt Robinson held instructions on behalf of the other former franchisees to commence proceedings in the Federal Court of Australia against Holdings, Mr Dresner, Mr Seskin and Lazarus Legal. 4. The Liquidator issued a further report to creditors on 7 April 2021. The report stated that public examinations had been conducted in March 2020 and May 2020 and listed the names of the examinees. The report then stated: "The main purposes of public examinations were to obtain further information or evidence with respect to potential legal recovery claims against various parties who were previously involved in the Company's financial affairs, and to obtain further information to determine the substance of various franchisees' purported claims against the Company. The public examinations were conducted for the best interests of the Company as well as its creditors (all creditors), and the process has resulted in valuable information being obtained in relation to potential legal recovery actions against some of the examinees, including but not limited to potential claims associated with breach of the director's duties by Mr Dresner and Mr Seskin and a potential negligence claim against the Company's external solicitor, namely Lazarus Legal. The public examinations also provided valuable information regarding the financial capacity of Mr Seskin and Mr Dresner." 1. The report then listed the potential claims available to the Liquidator that had been identified through the public examinations. In cross-examining Mr Moss, senior counsel for the plaintiffs sought to make much of the fact that this list made no reference to the former franchisees' claims for alleged misleading or deceptive conduct. However, that is unremarkable, given that it is a list of potential claims available to the Liquidator. 2. Senior counsel for the plaintiff put to Mr Moss that "nowhere in this entire report is there a single reference to the misleading conduct, or misrepresentation claims, brought by the franchisees". Mr Moss answered: "Well, I – yes, I don't think so." The proposition put by senior counsel is wrong. The Franchisee Claims are referred to in the first paragraph of the extract from the report set out at [246] above. Those claims are described there as one of the purposes of the examinations. 3. The report also attached a listing of creditors of the Company and the amount of each formal proof of debt that had been submitted. The total amounts claimed in proofs of debt submitted by former franchisees was $5,059,062. The total amounts claimed in proofs of debt submitted by other creditors was $3,412,135, of which $1,189,000 was claimed by Holdings and $404,689 was claimed by Monekim. That is to say, creditors who were not former franchisees and were not associated with the Company, had submitted proofs of debt totalling approximately $1,818,446. Issues for determination 1. The proceedings raise the following issues for determination: 1. Did the Liquidator breach his fiduciary or statutory duties by engaging Levitt Robinson to conduct the examinations, by entering into the Funding Agreement and by conducting the examinations? 2. Did the Liquidator knowingly or recklessly mislead the Court by paragraph 74 of his confidential affidavit sworn on 10 December 2019? 3. Did the Liquidator obtain an unauthorised profit or breach his obligation of independence and impartiality by requesting Mr Dresner to contribute to his remuneration? 4. Did the Liquidator fail to take steps (including through the public examinations) to recover or ascertain the nature and quantum of debts owed to the Company by the Franchisee Claimants? If so, did that constitute a breach of the Liquidator's duty to preserve and realise the assets and ascertain the liabilities of the Company or a breach of his obligation of independence and impartiality? 5. Did the Liquidator fail to serve his 29 August 2019 report to creditors on Mr Dresner and Holdings? If so, was that a breach of his duties? 6. Do any or all of the matters above constitute actual bias on the part of the Liquidator or give rise to a reasonable apprehension of bias? 7. Should an order be made under s 90-15(1) and (3) of the IPS removing the Liquidator from office and appointing Mr Farnsworth or another liquidator as liquidator of the Company? The plaintiffs rely on all of the six matters referred to above as warranting the Liquidator's removal from office. However, they contend that it is not necessary for them to establish the alleged breaches of duty by the Liquidator in order to demonstrate a case for removal. The plaintiffs submit that actual bias on the part of the Liquidator or a reasonable apprehension of bias is a sufficient ground for removal. Consideration and determination Issue 1: Did the Liquidator breach his fiduciary or statutory duties by engaging Levitt Robinson to conduct the examinations, by entering into the Funding Agreement and by conducting the examinations? 1. As referred to at [156]-[157] above, it is not in dispute that the Funder and Levitt Robinson each had a financial interest in the Franchisee Claims. However, the Funder's financial interest was an interest in earning fees and a proportion of any judgment or settlement in favour of the Franchisee Claimants in return for funding the proposed proceedings. Levitt Robinson's financial interest was an interest in earning fees for providing legal services in respect of those proceedings. That is to say, the financial interests of the Funder and Levitt Robinson were wholly derived from the financial interest of the Franchisee Claimants in investigating and pursuing their claims. 2. It was open to the Franchisee Claimants to apply to ASIC for eligible applicant status and, if granted, to apply to the Court for the issue of examination summonses and to examine Messrs Dresner and Seskin and others about the allegedly misleading or deceptive representations made by them and by the Company when negotiating franchise agreements. Those alleged representations are within the scope of the Company's "examinable affairs", which includes the management, administration, business, trading, transactions and dealings of the Company, the property of the Company and the liabilities of the Company. [22] Section 596A of the Corporations Act would have required the Court to issue examination summonses to Messrs Dresner and Seskin on the application of the Franchisee Claimants (as eligible applicants). The Court would have had a discretion to issue summonses to the other examinees under s 596B. Examinations about that subject matter for the purpose of the Franchisee Claimants obtaining information relevant to their proposed proceedings would not have been extraneous to the objects of Part 5.9 of the Corporations Act: Walton at [94]-[127] (Gageler J), [135]-[137], [140], [169]-[196] (Edelman and Steward JJ). 3. The ultimate purpose of examinations by the Franchisee Claimants would have been the same as the purpose of the examinations in Walton as described in different terms by Gageler J (at [95]) and by Edelman and Steward JJ (at [143], [170], [185]-[186]). 4. Adopting the language of Gageler J, the purpose of the Franchisee Claimants would have been to investigate and pursue a potential action or actions against the director and former director of the Company (and possibly against the Company in the unlikely event that leave were granted under s 471B) in which the franchisee claimants would seek to recover losses sustained as a result of events that occurred during the course of the examinable affairs of the Company. 5. At the same time, adopting the language of Edelman and Steward JJ, the Franchisee Claimants' purpose would have been properly characterised as including the administration or enforcement of the law concerning the public dealings of the Company and its officers, which includes the bringing of proceedings against examinable officers and other persons in connection with the examinable affairs of the Company. 6. Gageler, Edelman and Steward JJ held that the purpose of the examinations in Walton was not extraneous to the objects of Part 5.9 of the Corporations Act and the examinations were not an abuse of process: Walton at [118], [125]-[126] (Gageler J) and [160], [190]-[196] (Edelman and Steward JJ). 7. It matters not that the Franchisee Claimants would have been pursuing their own financial interests in conducting the examinations for the purpose of obtaining information relevant to their proposed claims. Part 5.9 does not require that an examination be for the benefit of the company, or the general body of creditors or contributories: Walton at [118] (Gageler J) and [160] (Edelman and Steward JJ). As Edelman and Steward JJ emphasised (especially at [190] and [195]), the enforcement of the law concerning the public dealings of a company in external administration and its officers, including by bringing proceedings against examinable officers and other persons in connection with the examinable affairs of the company, serves the public interest because (at [195]): "The exposure of any wrongdoing may well encourage greater compliance with the law. In that respect, the record of the examination will also be open for inspection, as well as for use in subsequent legal proceedings." 1. I reject the plaintiffs' submission that Edelman and Steward JJ held in Walton that the purpose of s 596A is confined to the enforcement of the Corporations Act. As the Liquidator submitted, their Honours stated (at [175]) that legitimate purposes under s 596A include the enforcement of the Corporations Act. Their Honours held that (at [190], my emphasis): "… examining an officer of a company for the purpose of pursuing a claim against the company or one of its officers or advisers for the enforcement of the law can be an entirely legitimate use of the power conferred by s 596A. It should not matter whether the claim relates to all creditors or all contributories, or only a smaller group." 1. It is plain from their Honours reasons for judgment at [173] and [185]-[186] that proceedings for the "enforcement of the law concerning the corporation and its officers in public dealings" include proceedings by creditors against the company, current and former officers of the company and others (such as professional advisors to the company) in connection with the examinable affairs of the company which, as I have already mentioned, include the management, administration, business, trading, transactions and dealings of the company. 2. The plaintiffs emphasise that Edelman and Steward JJ regarded it as important that the potential claims of the appellants in Walton would be brought in their capacity as shareholders and former shareholders against the company's former officers and auditors. However, their Honours regarded those matters were important because they were features of that particular case that demonstrated that "the appellants' purpose in seeking the examination included the administration or enforcement of the law concerning the public dealings of the corporation in external administration and its officers" (at [143]). It is clear from their Honours' judgment read as a whole, including the passages I have referred to immediately above, that those features need not be present in every case. 3. The examinations in the present case covered the topics that had been discussed between Mr Moss and Levitt Robinson from the outset and that were disclosed to the Court in the application for the examination summonses: [23] 1. the manner in which the Company's income was applied while trading and why that income was paid into a bank account of Holdings; 2. identification of any assets of the Company that be recovered and realised by the Liquidator for the benefit of creditors; 3. ownership of intellectual property relating to the Fogo franchise; 4. the solvency of the Company and potential insolvent trading actions against Mr Dresner and Mr Seskin; and 5. representations as to the profitability of the Company and its franchisees made by the Company and by Mr Dresner prior to the Franchisee Claimants entering into franchise agreements with the Company. 1. The inclusion of topic 5 was drawn to the Court's attention at the hearing on 3 February 2020 when the Court determined that there was nothing in the material then before the Court to suggest that the retainer of Levitt Robinson to conduct the examinations would impair the Liquidator's independence or was otherwise unreasonable. [24] 2. The plaintiffs accept that topics 1 to 4 were "at least in principle … matters that could be the subject of a liquidator's examination". For the reasons I have explained above, the plaintiffs' submission that topic 5 "stands out as not in any way falling within that area of legitimacy" is contrary to the judgments of the majority of the High Court in Walton and I reject that submission. Gageler J and Edelman and Steward JJ described the purpose of the examinations in Walton in different ways, as referred to at [254] and [255] above. Gageler J described the purpose of those particular examinations in narrower or more specific terms than Edelman and Steward JJ. In this case, topic 5 conforms to both the narrower and broader descriptions and, in my opinion, is not extraneous to the objects of Part 5.9 as described by Gageler J (at [94]-[127]) and by Edelman and Steward JJ (at [135]-[137], [140] and [169]-[196]). Contrary to the plaintiffs' submissions, differences between the reasons for judgment of the members of the majority of the High Court in Walton do not cast doubt on whether topic 5 in this case was a legitimate topic for examination pursuant to Part 5.9 of the Corporations Act. 3. The plaintiffs also submitted that it was "not insignificant" that topic 5 in the present case was directed to claims of the Franchisee Claimants against the Company as well as against its director and former director, whereas the appellants' potential claims in Walton were only against the former officers and auditors of the company. I reject that submission because it overlooks the passages from the judgment of Edelman and Steward referred to at [258]-[259] above. It is clear from those passages that proceedings against the company in external administration in connection with the examinable affairs of the company which are proceedings for the "enforcement of the law concerning the corporation and its officers in public dealings". 4. Referring to Mr Moss' evidence in cross-examination set out at [126] above, the plaintiffs submitted that Mr Moss accepted that "to the extent the examination procedures were to be used by Levitt Robinson to advance the claims of their franchisee clients, such use was illegitimate and improper". The plaintiffs submitted that, even if topic 5 was within the scope of Part 5.9 (as I have held), "that does not detract from Mr Moss' concessions in cross-examination, the effect of which was in broad terms that he knew that what he was authorising was improper." The plaintiffs submitted that Mr Moss' answers to the questions set out at [126] above "are sufficient in and of themselves to warrant his removal as liquidator, even leaving aside all the other incidents of conduct upon which the Plaintiffs continue to rely." 5. I reject those submissions for the following reasons. 6. First, as senior counsel for the Liquidator submitted, the plaintiffs' submission misstates Mr Moss's evidence. 7. Mr Moss's evidence was that, in October 2018, he had concerns about whether Levitt Robinson would have a conflict of interest in acting for him in examination proceedings given that they were also acting for franchisees. Given that apparent conflict, he also had concerns about whether examinations conducted by him with Levitt Robinson as his solicitors would be in the best interests of creditors as a whole. Mr Moss nevertheless decided to meet with Mr Levitt to hear what he had to say, given that there was no other potential source of funding for investigation of potential recovery actions that may be available to him as liquidator. [25] 8. At the time that he met with Mr Levitt on 14 November 2018, Mr Moss considered that it would not be appropriate for public examinations to be conducted solely for the purpose of Levitt Robinson gathering information for the franchisee claims. However, in his view, the position would be different if there was a "dual purpose". [26] 9. Mr Moss gave further consideration to the position following the information provided by Mr Levitt at the breakfast meeting and in subsequent correspondence on 14 November 2018 and 14 December 2018 and after taking legal advice. [27] It was plain from Levitt Robinson's letters of 14 November 2018 and 14 December 2018 that the examinations would not be limited to matters relevant to the Franchisee Claims and would cover a range of matters directly relevant to potential recovery actions available to the Liquidator. Moreover, the Franchisee Claims raised issues that were directly relevant to such potential actions by the Liquidator. I refer in particular to the franchisees' allegations that their payments to the Company had been directed into Holdings' bank account, resulting in the Company's insolvency and the termination of their franchise agreements. [28] 10. The plaintiffs' submission referred to at [265] above is an inaccurate gloss on Mr Moss' evidence concerning his state of mind as at 14 November 2018 and ignores his evidence concerning how his state of mind changed after considering the further information provided by Levitt Robinson in November and December 2018 and after taking legal advice. Mr Moss' evidence concerning his state of mind at the time that he made the decision to instruct Levitt Robinson to conduct the public examinations is set out at [153] above. 11. Second, as the plaintiffs' submissions acknowledged and as Gleeson JA observed in his judgment delivered in this matter on 3 February 2020, there is no absolute rule against a liquidator engaging solicitors who also act for a substantial creditor of the company in liquidation. The question is whether the engagement offends the requirement for the liquidator to be and be seen to be independent, and that depends on all the circumstances: In the matter of Kala Capital Pty Ltd (in liq) [2012] NSWSC 1073 at [29] (Black J); In the matter of 77738930144 Pty Ltd (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452 at [68]-[72] (Gleeson JA and the authorities there referred to). 12. The requirement for a liquidator to be independent, and to be seen to be independent, in the conduct of the external administration of the company, follows from the fiduciary and statutory responsibilities of liquidators, their role as officers of the Court and the public interest in the proper conduct of the external administration of insolvent companies: Australian Securities and Investments Commission v Edge (2007) 211 FLR 137; [2007] VSC 170 (Edge) at [44]; Australian Securities Commission v Franklin (2014) 223 FCR 204; [2014] FCAFC 85 (Franklin) at [61]. 13. It is well established that a liquidator is the agent of the company and occupies a fiduciary position in relation to three groups of stakeholders in the winding up - the company, its creditors and contributories: Commissioner for Corporate Affairs v Harvey [1980] VR 669 (Harvey) at 695; Edge at [43]. Where the interests of those stakeholder groups, or interests within the groups, come into conflict, the liquidator's duty is to stand firmly and independently between those competing interests and discharge his or her essential functions, which are to identify, take possession of and realise the company's assets, investigate and determine the claims against the company and apply the assets to the satisfaction of those claims in accordance with the statutory order of priority: Harvey at 691-696; Smarter Way (Aust) Pty Ltd v D'Aloia [2000] VSC 408 at [26]; Edge at [40]. 14. The plaintiffs submit that the Liquidator's engagement of Levitt Robinson offended the requirement for him to be, and be seen to be, independent, and also put him in a position of conflict between the financial interests of Levitt Robinson and/or the interests of the Franchisee Claimants on the one hand and the interests of other creditors of the Company on the other hand. The plaintiffs submit that, by putting himself in this position of conflict, Mr Moss breached his fiduciary duty as liquidator to avoid a "conflict between duty and duty". 15. I reject the plaintiffs' submission that the Liquidator's engagement of Levitt Robinson to conduct the public examinations offended the requirement for him to be independent in the discharge of his essential functions referred to above and placed him in a position of conflict in breach of his fiduciary duty. 16. Levitt Robinson were bound to conduct the examinations in accordance with the Liquidator's instructions. As between the Liquidator and Levitt Robinson, the Liquidator had control over the examinations, which he would exercise with the benefit of independent legal advice. As the evidence referred to at [219]-[233] above demonstrates, Mr Moss did in fact exercise that control by monitoring (through his staff) the topics to be addressed during the examinations and the questions to be asked and by observing the conduct of the examinations. 17. As the Liquidator submitted, all of the examination topics were legitimate topics for examination for the reasons I have already explained. That is so, irrespective of whether or how the Company or the general body of creditors might stand to benefit from the examinations. Contrary to the plaintiffs' submissions, the inclusion in the examination topics of matters relevant to the Franchisee Claims cannot meaningfully be said to have been to the detriment of the Company or other creditors of the Company. Neither the Company in liquidation nor the general body of creditors had any legitimate interest in the examinations not being used to gather information that might be used in proceedings against the Company and its current and former directors for the enforcement of the law concerning the public dealings of the Company in the conduct of its examinable affairs. In any event, the franchisees could not prosecute any such proceedings against the Company except with the leave of the Court under s 471B of the Corporations Act. As counsel for the Liquidator submitted, there was no realistic prospect of the Franchisee Claimants being granted leave to sue the Company rather than being limited to submitting proofs of debt in the winding up. Neither the Company nor its creditors had any legitimate interest in any funds that might be recovered by the Liquidator through causes of action identified in the public examinations being distributed otherwise than to those creditors whose proofs of debt were admitted by the Liquidator and in accordance with the statutory order of priority. There was no suggestion that Levitt Robinson would act for or advise the Liquidator in relation to the adjudication of proofs of debt if and when the Liquidator successfully pursued such causes of action and came into funds to undertake those adjudications. As referred to at [222]-[233] above, the examination topics included matters directed to identifying causes of action available to the Liquidators and the capacity of Messrs Dresner and Seskin to meet any judgment that might be awarded against them if such actions were successfully pursued. As the Liquidator submitted, he lacked funding to investigate the potential recovery actions against Messrs Dresner and Seskin and/or Holdings by any means other than by entering into the Funding Agreement and engaging Levitt Robinson to conduct the examinations on his instructions. The prospect of the Liquidator obtaining funding to prosecute any causes of action identified through the examinations cannot be dismissed having regard to Mr Moss' evidence referred to at [233] above and the fact that non-franchisee creditors who were not associated with the Company claim to be owed $1,818,446 as referred to at [249] above. 18. For those reasons, I also reject the plaintiffs submissions that the creditors' resolution on 13 September 2019 approving the engagement of Levitt Robinson was passed without full and frank disclosure to the creditors of the alleged conflict of interest. There was no relevant conflict for the reasons I have explained above. Moreover, the plaintiffs' submissions focus on the alleged non-disclosure of the concerns raised in Mr Kwok's email to Levitt Robinson dated 4 October 2018 referred to at [115] above. There was no cause for the Liquidator to disclose those concerns, which had dissipated by September 2019. The concerns had been dissipated by the further information concerning the manner in which Levitt Robinson proposed that the examinations be conducted, including that the examinations address topics directly relevant to the potential recovery actions that the Liquidator wished to investigate, Levitt Robinson's acceptance of Mr Moss' requirement that the examinations be conducted on his instructions, and Mr Moss' engagement of an independent solicitor to advise him concerning the conduct of the examinations. [29] 19. The plaintiffs' submissions also criticise the Liquidator for failing to disclose in the 28 August 2019 report that "there would be nothing stopping Levitt Robinson" from deploying information obtained during the examination proceedings to further the Franchisee Claims or from providing information obtained during the examination proceedings to the Funder who could then use that information to advance the interests of the Franchisee Claimants. Insofar as that criticism is directed to documents obtained under the orders for production issued in the examination proceedings, it is misconceived because it fails to take into account the "implied undertaking" referred to at [209]-[211] above. Contrary to the plaintiffs' submissions, Levitt Robinson's letter dated 29 April 2020 referred to at [234]-[235] above demonstrates that Levitt Robinson understood their obligations in that regard. There is no evidence that they failed to comply with those obligations. Moreover, the Liquidator declined to instruct them to apply to the Court to be released from those obligations. There is no evidence that Levitt Robinson conveyed any information obtained in the examinations to the Funder save for information about the answers elicited from the examinees and (I infer) advice based on the answers. [30] That involves no wrongdoing. The evidence was given in a public hearing and the transcripts were available for inspection. Each examinee's answers were able to be used in any subsequent proceedings against them: Corporations Act, s 597; Walton at [195] (Edelman and Steward JJ). 20. Contrary to the plaintiffs' submissions, clauses 5.3, 9.1 and 10.2 of the Funding Agreement did not preclude the Liquidator from being able to accept any offer of settlement from any of the examinees. The terms of clause 5.3 are set out at [163] and [165]-[166] above. Clause 5.3 merely constrains the Liquidator to structure any settlement with an examinee as a monetary payment by the relevant examinee to the Liquidator. A settlement structured in a way that did not involve monetary payment would defeat the Funder's interest in receiving any fees to which it was entitled under clause 5.2. Clause 9.1 requires Levitt Robinson to consult with the Funder before compromising the examination proceedings, but does not preclude Levitt Robinson (on behalf of the Liquidator) from making any such compromise that complies with clause 5.3. Consistently with Levitt Robinson's consultation obligation under clause 9.1, clause 10.2 requires the Liquidator to notify Levitt Robinson of any settlement offer received from an examinee. 21. In any event, the prospect of the Liquidator compromising the examination proceedings was unlikely in this case having regard to the deficiency of Mr Dresner's production of books and records. 22. Clause 9.1 and 10.3 of the Funding Agreement entitled the Funder to request such information as it reasonably required concerning the conduct and progress of the examination proceedings and required the Liquidator to consult with the Funder (through Levitt Robinson) on any issue arising in relation to the conduct and progress of the examination proceedings. I repeat my observations at [209]-[211] and [280] above in relation to the "implied undertaking". I reject the plaintiffs' submissions that clauses 9.1 and 10.3, together with the clauses concerning settlement above, gave the Funder "a form of de facto control" over the examination proceedings. As was submitted on behalf of the Liquidator, there is no requirement for him to obtain the Funder's agreement on matters relating to the conduct and progress of the examination proceedings. The plaintiffs submit that it cannot seriously be suggested that the Liquidator could have prevailed in any dispute with the Funder as to whether the franchisee claims should be included in the topics for examination. However, the Liquidator could have prevailed in relation to that or any other dispute by withdrawing his instructions for questions to be asked about that topic, or by withdrawing his instructions to conduct the examinations at all if there was reasonable cause to do so (clause 10.4). 23. The question whether the Liquidator's engagement of Levitt Robinson to conduct the public examinations and his entry into the Funding Agreement offends the requirement for him to be seen to be independent falls to be determined by asking whether a fair minded lay observer might reasonably apprehend that the Liquidator might not bring an impartial mind to the discharge of the Liquidator's functions (including in the conduct of the examinations): Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd atf The Albans Unit Trust (1994) 14 ACSR 230 at 234 (Santow J, as his Honour then was); Franklin at [59]-[62]; In the matter of Ji Woo International Education Centre Pty Ltd [2019] NSWSC 93 at [39] (Black J). 24. I reject the plaintiffs' submission that Mr Moss' engagement of Levitt Robinson to conduct the public examinations and his entry into the Funding Agreement gave rise to a reasonable apprehension of bias. An allegation of apprehended bias must identify the logical connection between the those matters and a feared deviation from the independent discharge of the Liquidator's functions in the winding up of the Company. For the reasons already explained above, no such logical connection is identified by the plaintiffs' contentions that the engagement of Levitt Robinson and the terms of the Funding Agreement facilitated the conduct of the examinations in the interests of the Franchisee Claimants (and in the financial interests of Levitt Robinson and the Funder), to the detriment of the Company and other creditors of the Company: Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337; [2000] HCA 63 at [8] (Gleeson, McHugh, Gummow and Hayne JJ); see also Franklin at [59]. 25. To the extent that the purpose of the examinations was to gather information that may assist the Franchisee Claims, that purpose was not "illegitimate" or "improper" for the reasons explained at [251]-[264] above. The examinations served the public interest in the manner explained by Edelman and Steward JJ in Walton at [195] and were not contrary to any legitimate interest of the Company or its creditors as a whole for the reasons explained at [278] above. 26. For all of the reasons at [251]-[286] above, I reject the plaintiffs' contention that the Liquidator compromised his independence or appearance of independence or placed himself in a position of conflict in breach of his fiduciary duty by engaging Levitt Robinson to conduct the public examinations on his instructions with funding provided in accordance with the terms of the Funding Agreement. 27. For the same reasons, I reject the plaintiffs' contentions that the Liquidator breached his statutory duties under ss 180(1), 181(1), 182(1) and 183(1) of the Corporations Act by engaging Levitt Robinson and entering into the Funding Agreement. Those contentions rested on the plaintiffs' submissions that the gathering of information relevant to the franchisee claims was not a proper purpose for examinations under Part 5.9 of the Corporations Act, that the conduct of examinations for that purpose would cause detriment to the Company and could not benefit the Company because there was no utility in investigating or adjudicating the franchisees' proofs of debt in circumstances where the Company had no assets to make any distribution to creditors and there was no funding for the Liquidator to prosecute any cause of action that might be identified during the public examinations for the benefit the Company and its creditors. My reasons for rejecting those submissions have been explained above. 28. Insofar as the actual conduct of the examinations is concerned, the plaintiffs rely on all of the matters referred to above together with their contention that the questions asked at the examination were directed predominantly to matters that were relevant to the Franchisee Claims. I have rejected that contention at [222]-[230] above. For the reasons there stated, and for all of the reasons at [251]-[288] above, I reject the plaintiffs' contentions that the Liquidators' use of his powers or position to conduct the public examinations breached his statutory duties, compromised his actual or perceived independence and impartiality or placed him in a position of conflict in breach of his fiduciary duties. 29. I now turn to the remaining issues, which can be addressed more succinctly. Issue 2: Did the Liquidator knowingly or recklessly mislead the Court by paragraph 74 of his confidential affidavit sworn on 10 December 2019? 1. I emphasise that the plaintiffs rely on the alleged knowing or reckless character of Mr Moss' alleged non-disclosure of Levitt Robinson's role in relation to the Franchisee Claims. 2. The evidence establishes that Levitt Robinson were acting for the Franchisee Claimants at all relevant times up to 13 September 2019. In particular, the Liquidator's report to creditors dated 29 August 2019 contained a statement to that effect [31] and a solicitor from Levitt Robinson attended the creditors' meeting on 13 September 2019 as proxy holder for the Franchisee Claimants. [32] 3. Levitt Robinson were responsible for the drafting of paragraph 74 of Mr Moss' confidential affidavit. [33] For the reasons explained at [201]-[203] above, the evidence does not establish that Levitt Robinson were continuing to act for the Franchisee Claimants as at 10 December 2019, much less that Mr Moss knew or had any reason to suspect that the statement in paragraph 74 that Levitt Robinson "have acted" for the Franchisee Claimants was wrong or misleading. Mr Moss was entitled to rely on the solicitors who had drafted the affidavit to correctly state the position concerning their relationship with the Franchisee Claimants. In my opinion, the "heavy obligation upon the person applying for the examination summons to make full and frank disclosure of all matters which may impact upon the decision to summon a person for examination about a corporation's examinable affairs" [34] does not require the applicant to assume that statements drafted by the solicitors acting for them in an affidavit to be relied on in support of the application about matters that relate to the solicitors' retainer and within the solicitors' knowledge may be wrong or misleading. I reject the plaintiffs' contention that Mr Moss knowingly or recklessly misled the Court by swearing his confidential affidavit containing paragraph 74. 4. The plaintiffs also rely on Levitt Robinson's letter of 27 February 2020 as alerting Mr Moss to the fact that Levitt Robinson were continuing to act for the Franchisee Claimants and requiring him to take steps to correct paragraph 74 of his confidential affidavit. For the reasons explained at [218] above, the letter does not establish on the balance of probabilities that Levitt Robinson were in fact acting for the Franchisee Claimants at that time. The letter was capable of conveying that impression to Mr Moss, but I have accepted his evidence that he did not read it that way at the time for the reasons explained at [216]-[217] above. I reject the plaintiffs' contention that Mr Moss knowingly or recklessly misled the Court by failing to take steps to correct paragraph 74 of his confidential affidavit after receiving Levitt Robinson's letter dated 27 February 2020. 5. As referred to at [234]-[238] above, Levitt Robinson's letter dated 29 April 2020 did alert Mr Moss to the fact that Levitt Robinson were, at that time, acting for at least one of the Franchisee Claimants. The public examinations had been substantially, but not entirely, completed at that time. Mr Moss took no steps to bring to the Court's attention that the position stated in paragraph 74 of his confidential affidavit had changed in that Levitt Robinson were now acting for one or more Franchisee Claimants. 6. However, it was not put to Mr Moss in cross-examination that, when he received the 29 April 2020 letter, he was cognisant of the fact that it altered the position described in paragraph 74 of his confidential affidavit sworn more than four months earlier. Nor was it put to him that he knew that Levitt Robinson re-commencing acting for Franchisee Claimants (or one of them) was a material matter that required disclosure to the Court. Nor was it put to him that he ought to have known, or that he refrained from turning his mind to or seeking advice about, the materiality of that fact. 7. The evidence does not support an inference that Mr Moss knew that the changed circumstances should be disclosed to the Court or deliberately refrained from turning his mind to whether disclosure was required. There is no evidence that Levitt Robinson or Piper Alderman alerted the Liquidator to the need to consider whether disclosure was required. Neither Levitt Robinson nor the Funder had control over the public examinations, which had already been substantially completed. The examinations were being conducted for a proper purpose and on the instructions of the Liquidator, given with the benefit of independent legal advice. Levitt Robinson were subject to both the "implied undertaking" and the express undertaking noted by the Court on 3 February 2020 and referred to at [210]-[211] above. Levitt Robinson's letter dated 29 April 2020 informed the Liquidator that they had complied with the undertaking, and there is no evidence that suggests otherwise. It was clear from that letter that they were aware that they remained bound by the undertaking unless and until the Court released them and they required the Liquidator's instructions to apply to the Court to be released. The Liquidator, unswayed by any objective of Levitt Robinson, declined to give those instructions. In all of those circumstances and putting the benefit of hindsight to one side, it is regrettable but understandable that the Liquidator did not think to notify the Court of the changed circumstances before the public examination resumed on 1 May 2020. 8. For those reasons, the plaintiffs have not established that Mr Moss knowingly or recklessly misled the Court by failing to bring the changed position to its attention after receiving Levitt Robinson's letter dated 29 April 2020. 9. As the plaintiffs submitted, liquidators are held to high standards of honesty, probity and impartiality: Edge at [44]-[50] and the authorities there referred to. For the reasons above, I reject the plaintiffs' contention that the Liquidator knowingly or recklessly misled the Court, falling short of those standards and breaching the duties pleaded by the plaintiffs, by swearing his confidential affidavit including paragraph 74, or in failing to make any further disclosure to the Court upon receiving Levitt Robinson's letter dated 27 February 2020 and 29 April 2020. For completeness, I note that there is no evidence that Levitt Robinson re-commencing acting for a Franchisee Claimant adversely affected the Liquidator's independence and impartiality in the conduct of the examinations on 1 May 2020 or in any other aspect of the winding up. Issue 3: Did the Liquidator obtain an unauthorised profit or breach his obligation of independence and impartiality by requesting Mr Dresner to contribute to remuneration? 1. The plaintiffs allege that the Liquidator's receipt of the $26,000 contribution to fees was a breach of his fiduciary duty not to obtain an unauthorised profit and a breach of his duty of impartiality and independence. The plaintiffs' submissions in support of those allegations characterise Mr Dresner's payment of $26,000 on 21 September 2018 as an unauthorised profit on the basis that Mr Dresner was under no legal obligation to make that payment towards the Deed Administrators' remuneration in circumstances where the DOCA had been terminated and the payment was not made voluntarily because Mr Dresner had not been informed that the DOCA had been terminated. 2. The Liquidator correctly accepts that Mr Dresner was under no legal obligation to make the payment. However, I have found for the reasons explained at [92]-[110] above that the Liquidator requested rather than demanded the payment, and that Mr Dresner knew at the time that he made the $26,000 payment that the DOCA had been terminated for default and the Company had been placed into liquidation. Thus, the payment was neither unauthorised nor involuntary. Mr Dresner authorised it by acceding to the Liquidator's request and transferring the funds. If Mr Dresner did so under some misapprehension that the DOCA remained on foot, he alone is responsible for failing to read and comprehend the plain terms of the correspondence that the Liquidator had sent to him on 1 June 2018, 28 August 2019 and 29 August 2019. There is no evidence to suggest that the Liquidator had any reason to suspect that Mr Dresner did not understand the true state of affairs. 3. As referred to at [107] above, the Liquidator's receipt of the $26,000 payment from Mr Dresner was immediately disclosed in an updated Declaration of Independent, Relevant Relationships and Indemnities lodged with ASIC on 2 October 2018 which was subsequently included in the statutory report to creditors dated 22 November 2018. As the updated declaration makes plain, the Liquidator could derive no benefit from the payment unless until remuneration was fixed by the creditors or the Court. The Liquidator's conduct as one of the Administrators and Deed Administrators and as Liquidator would be laid open to scrutiny in any application for creditor approval or to the Court in respect of his remuneration. The plaintiffs did not articulate how his receipt of the payment allegedly affected or would allegedly affect the Liquidator's independent and impartial discharge of his functions in the winding up of the Company. Nor did they articulate the nature of the deviation from the proper performance of the Liquidator's functions that a fair-minded observer might reasonably apprehend might result from his receipt of the payment. In my opinion, there is no logical connection between the payment (noting the constraints on the Liquidator's ability to benefit from it) and Liquidator's discharge of his powers and functions in the winding up of the Company. 4. For those reasons, I reject the plaintiffs' contention that the Liquidator's receipt of the $26,000 contribution to fees was a breach of his fiduciary duty not to obtain an unauthorised profit and a breach of his duty of impartiality and independence. Issue 4: Did the Liquidator breach his duty to preserve and realise the assets of the Company or breach his obligation of independence and impartiality by failing to take steps to investigate and recover any amounts owed to the Company by the Franchisee Claimaints? 1. I reject the plaintiffs' allegation that the duties owed by Mr Moss as Administrator, Deed Administrator and Liquidator required him to do more than he did to attempt to recover amounts allegedly owing to the Company by its former franchisees. 2. I have referred at length to the evidence concerning the amounts allegedly owing by former franchisees earlier in these reasons. The substance of the evidence is summarised at [137] above and it is convenient to repeat that summary here: "… the franchisees had stopped paying fees due to disputes they had with the Company in late 2017 prior to the appointment of the Administrators, [35] those disputes had not been resolved by the Company going into external administration, the franchisees were alleging that they had been misled into entering into the franchise agreements (which the Administrators had terminated), [36] none of the former franchisees had made any payment in response to the Administrators' demand issued on 5 February 2018 [37] and the only information available to the Liquidator to consider further recovery steps was the list of franchisee names and amounts that Mr Dresner had provided in February 2018. [38] The Liquidator had no invoices or other documents substantiating the alleged debts (despite having sought invoices and other relevant records from Mr Dresner on several occasions), [39] and the Company had not maintained any financial records. [40] The Administrators' letter dated 5 February 2018 had drawn a response from only one franchisee, LFI Investments, which disputed the alleged debt and sought particulars of its calculation. [41] No such particulars could be provided in the absence of the invoices, books and records that had not been produced to the Liquidator." 1. I reject the plaintiffs' submission that Mr Moss showed no interest "from the outset" in chasing the amounts allegedly owing by former franchisees. Mr Moss and his office were plainly interested in recovering any such amounts owing. They sought further information from Mr Dresner, which elicited only the paltry and inconsistent information referred to at [33] and [47]-[48] above which was in turn inconsistent in some respects with the RATA that Mr Dresner had completed at the commencement of the administration. They made demands and requests for books and records, including invoices. Mr Dresner produced no invoices. I reject Mr Dresner's evidence that Mr Moss did not ask him for invoices as it is plainly wrong in light of the contemporaneous documents referred to at [26], [64], [85] and [99] above. Notwithstanding the absence of any information other than Mr Dresner's inconsistent lists, the Deed Administrators wrote to the former franchisees seeking recovery of any amounts owing. 2. As referred to at [36]-[38] above, the Deed Administrators also instructed Lazarus Legal to take steps to recover the alleged debts in the hope that the firm, with its history of acting for the Company, might have some familiarity with relevant facts that would compensate for the absence of any documentation supporting the alleged debts. 3. It would plainly have been futile to instruct Piper Alderman to undertake this work, as they had no such historical involvement in the dealings between the Company and the franchisees. Contrary to the plaintiffs' submissions, these were not simple debts to recover in the absence of any supporting documentation. Amongst other reasons, the calculation of any amount owing depended in part of the franchisee's gross turnover. [42] Mr Moss did not even have the invoices setting out the Company's calculation and basis of calculation of the amounts allegedly owing, let alone the source information on which any such calculation had been based. 4. The plaintiffs' submissions inconsistently criticise Mr Moss for: 1. retaining Lazarus Legal to attempt to recover the alleged debts in circumstances where more information was needed (which Mr Dresner had failed to provide); and 2. failing to engage Piper Alderman to pursue such recoveries (in circumstances where Mr Dresner never provided any additional information despite the Deed Administrators' further request for invoices on 24 April 2018). 1. These criticisms are unfounded in the unusual circumstances affecting this external administration that I have referred to above. It is telling that the plaintiffs do not identify any additional step that might have been taken by the Deed Administrators (and subsequently by the Liquidator) or by Piper Alderman on their instructions after their correspondence with LF Investments reached the point in April 2018 referred to at [85] above. LF Investments requested a full reconciliation of the amount that the Company claimed to be owed. Mr Dresner persisted in failing to provide invoices despite a renewed request for those documents on 24 April 2018 as referred to at [64] above. As I have said at [88] above, the plaintiffs' assertion that it may have been open to Mr Moss to instruct some other law firm to attempt recovery action against the former franchisees on a "no win no fee" is fanciful in all the circumstances. 2. The high point of the plaintiffs' argument is the submission that Mr Moss did not specifically request copies of invoices issued by the Company to former franchisees and that Mr Dresner would have provided the invoices if only he had been specifically asked to do so. That submission is without merit. Mr Dresner was required to produce the Company's books and records, and was specifically asked on 24 April 2018 to produce invoices issued for services rendered by the Company prior to the date of the DOCA. In circumstances where the Company's sole business was as franchisor to the franchisees, that request related solely or primarily to invoices for the amounts that Mr Dresner claimed the former franchisees owed to the Company for franchise fees. This would have been obvious to Mr Dresner given his knowledge of the Company's business. 3. Contrary to the plaintiffs' submissions, there was no "preferential treatment of the franchisee creditor claims over the franchisee debtor claims" in the Liquidator's statutory report to creditors dated 22 November 2018 referred to at [133]-[140] above. In the circumstances referred to at [305] above, the Liquidator's nil valuation of the "franchisee debtor claims" was plainly reasonable. There is no evidence to suggest that the Liquidator would not have revisited that valuation if Mr Dresner had belatedly provided invoices or any other information that would provide a starting point for that inquiry. As referred to at [138]-[139] above, the Liquidator adopted the same approach to the Franchisee Claims as to the claims of Mr Dresner and Holdings in the 22 November 2018 report. All claims were included in the list of projected creditors' claims, notwithstanding that all claimants were yet to provide the Liquidator with documentation supporting their claims. 4. I reject the plaintiffs' submission that Mr Moss's true reason for not taking any action against the franchisees was that he had "disabled himself from being able to bring those claims by aligning himself with the interests of the franchisees in their dispute with the Company and its associated parties". For all of the reasons explained at [251]-[289] above, the arrangements pursuant to which Mr Moss instructed Levitt Robinson to act for him in the public examinations that were funded under the terms of the Funding Agreement did not amount to Mr Moss aligning himself with the interests of the Franchisee Claimants in pursuing their claims. 5. The plaintiffs also criticise the Liquidator for not seeking to examine the former franchisees and to investigate the amounts allegedly owing by them to the Company at the public examinations. In my opinion, that criticism lacks substance in circumstances where Mr Dresner's failure to maintain financial records for the Company and his failure to supply even the relevant invoices issued by the Company to the franchisees deprived the Liquidator of the starting point for any questions that might have been asked of franchisees about these alleged debts. As referred to at [229] above, questions were asked of Mr Dresner during the examinations in relation to the components of the alleged debts and in relation to the location of any further books and records he may have. Issue 5: Did the Liquidator fail to serve the 29 August 2019 report to creditors on Mr Dresner and Holdings? If so, was that a breach of his duties? 1. The Liquidator did not fail to serve the 29 August 2019 report to creditors on Mr Dresner and Holdings. My reasons for this finding are explained at [171]-[180] above. Issue 6: Do any or all of the matters the subject of issues 1 to 5 constitute actual bias on the part of the Liquidator or give rise to a reasonable apprehension of bias? 1. The plaintiffs rely on the substance of the allegations and criticisms that I have rejected above as constituting actual bias or giving rise a reasonable apprehension of bias. For all of the reasons already addressed under Issues 1 to 5 above, I reject the plaintiffs' contention that the Liquidator was biased or that his conduct gave rise to a reasonable apprehension of bias. Issue 7: Should the Liquidator be removed from office? 1. Under s 90-15(1) and 3(b) of the IPS, the Court has power to make an order removing a liquidator. That power may be exercised on the Court's own initiative during proceedings before the Court. The Court may take into account the matters in s 90-15(4), including whether the liquidator has faithfully performed or is faithfully performing their duties and the seriousness of the consequences of any action of failure to act by the Liquidator. It is well established that "it should not be seen to be easy to remove a liquidator merely because it can be shown that in one or possibly more respects, his or her conduct has fallen short of the ideal" and that an order for removal will only be made if it is demonstrated that this would be "for the better conduct of the liquidation having regard to the need for confidence in the integrity, objectivity and impartiality of a winding up": Re St Gregory's Armenian School (in liq) [2012] NSWSC 1215 at [24] – [25]; Re FW Projects Pty Ltd (in liq) [2019] NSWSC 892 at [87]-[88]; Sands Contracting Pty Ltd v Foodcorp (Vic) Pty Ltd [2020] FCA 1274 at [78][-[82]. 2. The plaintiffs accept that they bear the onus of establishing that it is in the interests of the Liquidation for Mr Moss to be removed. They rely on the alleged breach of duty addressed under Issues 1 to 5 above and also on alleged actual bias or reasonable apprehension of bias (even if the alleged breaches of duty are not established) as the basis for removing the Liquidator from office. It follows from my rejection of those allegations that the plaintiff's claim for an order removing the Liquidator must be dismissed. 3. For completeness, I would add that, in my opinion, the evidence and findings do not reveal any other reason for the Court to remove the Liquidator acting on its own initiative. CONCLUSION AND ORDERS 1. For all of the above reasons, there will be an order dismissing the proceedings. I am not aware of any reason why the costs should not follow the event but I will make costs orders in terms that preserve the ability of any party who wishes to apply for a different costs order to make that application. 2. The orders of the Court are as follows: 1. Order that the proceedings are dismissed, save in relation to the question of costs as to which orders 2 to 5 below apply. 2. Subject to orders 3 to 5, order the plaintiffs to pay the defendant's costs of the proceedings on the ordinary basis in such amount as may be agreed or assessed. 3. Grant liberty to any party seeking a costs order different to order 2 above to apply by no later than 16 May 2022 specifying the costs order sought and providing written submissions of no more than 4 pages in support of that application. Any such application is to be made by email to the Associate to Williams J and served on each other party. 4. In the event that any party exercises the liberty to apply granted by order 3 above, direct each other party to provide any written submissions in response to the application by no later 23 May 2022. Any such submissions are to be sent by email to the Associate to Williams J and served on each other party. 5. Stay the operation of order 2 above until 5pm on 24 May 2022. ********** Endnotes 1. Corporations Act, Schedule 2. 2. The plaintiffs' other claims for relief in prayers 3-7 of the originating process were abandoned on the final day of the hearing. 3. Exhibit 9. 4. See, for example, [74]-[75] and [99]-[100] below. 5. See [28] above. 6. See [39] below. 7. See [76] below. 8. See [85] below. 9. See [101]-[108] below. 10. See [64] above. 11. See [39] above. 12. See [24] above. 13. See [128]-[129] above. 14. See [28] above. 15. See [33]-[40] and [44] above. 16. See [26], [64], [85] and [99] above. 17. See [22]-[23] and [46] above. 18. See [29]-[30], [79], [81] 19. For example, T189.36-190.6. 20. Paragraph 18 of the defendants' written closing submissions. 21. Exhibit 9. 22. Corporations Act, ss 9, 53. 23. See [131], [141]-[143], [192] and [219]-[232] above. 24. See [199]-[206] above. 25. See [115]-[121] above. 26. See [122]-[126] above. 27. See [127]-[132] and [141]-[153] above. 28. See [128] above. 29. See [115]-[132] and [141]-[153] above. 30. See [241] above. 31. See [184] above. 32. See [187] above. 33. See [194]-[196] above. 34. Re Southern Equities Ltd (in liq) (1997) 25 ACSR 394 at 422-423. 35. See [24] above. 36. See [128]-[129] above. 37. See [28] above. 38. See [33]-[40] and [44] above. 39. See [26], [64], [85] and [99] above. 40. See [22]-[23] and [46] above. 41. See [29]-[30], [79], [81] 42. See [87] above. Amendments 10 May 2022 - Spacing errors fixed DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 May 2022