Re Network Welding Pty Ltd (In liq) (No 2) [2001] NSWSC 809

New South Wales Supreme Court

CITATION : Re Network Welding Pty Ltd (In liq) (No 2) [2001] NSWSC 809 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 3511/01 HEARING DATE(S) : 28/08/01 JUDGMENT DATE : 28 August 2001

PARTIES : QBE Mercantile Mutual Insurance Ltd and John Mewburn (Applicants) Roderick MacKay Sutherland (Liquidator) JUDGMENT OF : Young CJ in Eq

COUNSEL : D R Pritchard (Applicants) A J Abadee (Liquidator) SOLICITORS : PricewaterhouseCoopers Legal (Applicants) Peter Kemp (Liquidator) CATCHWORDS : CORPORATIONS [316]- Winding up- Examination orders- Duty of candour of liquidator when applying ex parte for orders- Result if liquidator declines to inform court on review of relevant facts. LEGISLATION CITED : Corporations Act 2001 (Cth), s 596B Re Ezishop.Net Ltd (2001) 38 ACSR 349 CASES CITED : Re One Twenty Seven Corp Pty Ltd (1995) 13 ACLC 1600 Sherlock v Permanent Trustee Australia Ltd (1996) 22 ACSR 16 DECISION : Orders made.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3511 of 2001 YOUNG CJ IN EQ

Tuesday 28 August 2001 RE NETWORK WELDING PTY LIMITED (IN LIQUIDATION) (NO 2)

Judgment 1 His Honour: This is an application to discharge orders made by the Registrar under s 596B of the Corporations Act 2001 (Cth) for the examination of an insurance company and one of its officers on the basis that they may be able to give information about the examinable affairs of the corporation in liquidation. 2 The basal facts are that the company had a commercial package insurance policy with the first applicant, QBE Mercantile Mutual Insurance Limited. The policy covered a number of risks "including loss or destruction of contents and stock by fire". 3 On 4 January 2000 there was a fire at the premises and the company allegedly suffered loss. The fire was notified to QBE on 5 January 2000. From then until 5 April 2000 there was considerable correspondence between the company's solicitors and QBE's agents and solicitors as to the supply of information relative to the claim. The policy, which was one of those new fangled plain English policies which is, accordingly, a little hard to construe, says under "Claims", section 2(c): "2. If You want to make a claim You must... (c) give Us all the information and documentation which We request. If We ask for it, You must provide us with a statutory declaration verifying the truth of Your claim and any matters connected with it; and …" 4 QBE would seem to have thought that there was something suspicious about the fire and the circumstances of the company. 5 On 20 January 2000 the company's solicitors refused to allow interviews with its employees unless the questions were put in writing, or the interviews were conducted in the presence of an officer of the company and its solicitor. Various questions were asked by the insurance investigators as to the phone call that may have been made to the insured on the date of the fire, but the only response these requests got was to say that the insured could not see any relevance in them. There were other questions asked of the company in order to elicit whether there was some motive for having a fire, which again elicited the response that this just could not possibly be so. 6 The correspondence indicated that in the case of the solicitor for the company, the company was failing because the insurer would not pay the claim. The insurer indicated that it had not denied the claim, but it would not be able to process it until it got the required information. At this stage a voluntary administrator was appointed to the company on 5 April 2000. On 9 May 2000 the voluntary administrator became a voluntary liquidator in a creditors' voluntary winding up under s 446A of the Corporations Act. 7 There were various letters written by the insurer to the liquidator on 30 May 2000, 5 July 2000, 23 August 2000 and 29 November 2000, none of which received any answer from the liquidator at all. 8 It would appear on the evidence that there was absolutely no communication from the liquidator to the insurer prior to 12 July 2001 when the liquidator applied, on an ex parte basis, to the Registrar to have the insurance company and its officer publicly examined to give information. 9 It would appear that the same solicitor who now appears for the liquidator also acted for a company Westend Aeronautical Consultants Limited, which has a charge over the assets, and which asked for details of the insurance claim on 11 April 2001. There is evidently also a letter of 17 May 2001 from that same solicitor to the insurer, but that was not put in evidence. 10 I do not know what material was before the learned Registrar when he made the order under s 596B of the Corporations Act on 12 July 2001. The liquidator has declined to let me see it or put any evidence before the Court at all. I do not know what was in that affidavit. I know it exists because it was almost tendered at one stage by counsel for the liquidator and the original is almost certainly in a sealed envelope in the Registry. I do not know whether the learned Registrar was told that the liquidator had declined to answer any correspondence for over a year before he made the application. I do not know whether the Registrar was told about s 15 of the Coroners Act 1980 which requires there to be a Coroner's Inquest with respect to all fires in New South Wales, unless the inquest is dispensed with under s 15 or s 16 of that Act. I do know that on 19 June 2001 the insurance company's solicitors wrote to the Coroner's Office indicating that they were still anxious for an inquest to be appointed, stating that if the matter goes on much longer this Court will be troubled by a writ of mandamus to compel the Coroner to hold an inquest. 11 Accordingly, the Court just does not know what material was before the learned Registrar. This makes it almost impossible for the liquidator to succeed as the Court could hardly, in the light of the applicants' evidence, find that the liquidator has been candid in his disclosure to the Registrar of all the relevant facts and circumstances. As Brownie J noted in Re One Twenty Seven Corp Pty Ltd (1995) 13 ACLC 1600, a liquidator has a duty of utmost good faith to put before the Court all the facts that the absent parties would presumably put before the Court had they been present. 12 The liquidator in the instant case is a voluntary liquidator. Accordingly, he is not an officer of the Court. Thus, the Court cannot direct the liquidator to do what is just, right and proper in the circumstances. The liquidator is entitled to take a position that he is an officer of the corporation and that either, as such an officer, on his own account or because he is influenced by a secured creditor, he can deprive the Court of all information if that appears advantageous. Further, his counsel may be instructed to submit to the Court that, within fairly strict limits, whenever the liquidator says that it is necessary to get information from a third party, then the Court should almost as a matter of course make the order. 13 I examined that sort of contention in Re Ezishop.Net Ltd (2001) 38 ACSR 349 and noted that because of decisions such as Sherlock v Permanent Trustee Australia Limited (1996) 22 ACSR 16, that indeed was basically the case. 14 I indicated, however, in the Ezishop case that the Court did expect liquidators to act far more responsibly in this sort of case. However, even though the Ezishop case was actually cited by his counsel, and even though I put as much pressure on the liquidator as I could, he resolutely declined to give me any information at all. 15 As I indicated in an interlocutory judgment in this matter, the Court, when it is considering whether to grant a discretionary order under s 596B of the Corporations Act, takes into account as one of the factors that the person seeking the order is a voluntary liquidator and the person was nominated initially by the directors, if that in fact was the case. The Court is more concerned about giving that sort of person a forensic advantage in litigation than it is the liquidator who, for all purposes, is completely independent. 16 It is clear that it is quite legitimate in the ordinary case for a liquidator to use an examination to see whether there are sufficient prospects of success in contemplated litigation and that the mere fact that there may be a forensic advantage in such an application is not enough to disqualify it. 17 The structure of the law governing corporations as to public examinations has undergone radical changes in recent years. The revised structure now makes it mandatory for the Court to order examinations on application by an eligible applicant in respect of officers of the corporation. Section 596B makes it a discretionary matter for the Court to order examinations of persons who otherwise would be able to give information. The view is taken by many liquidators that just because they ask, therefore there are very strong reasons for granting the application. 18 I have already commented on that attitude and it is supported to some extent by the authorities. However, the Registrar at first instance, and the Court on review, must make sure that its orders do not operate oppressively on the facts and circumstances by which an individual case must be seriously considered. It is a great interference with the normal rights of people to be publicly examined. It is inconvenient and it conveys to the liquidator an advantage. That sort of advantage, and that inconvenience is fully justified where the person sought to be examined, whilst not an officer of the corporation, has a close association with it. Where, however, the person is an outsider in the real sense of the term, then one very much takes into account the effect on the outsider. 19 Accordingly, in the instant case, the Registrar should have been given the appropriate information by the liquidator who normally would owe a duty of candour to the Court, even though he is not an officer of the Court, so that the Registrar could weigh up the relevant matters, including the fact that the liquidator was a voluntary liquidator, that he has the same solicitor as the secured creditor, and the persons being examined were complete outsiders. Where a voluntary liquidator refuses to allow the Court to know what material has been put before the Registrar, I think I can assume that there was nothing in the material that was put before the Registrar that would assist submissions in this regard. 20 One then adds to this that the policy in the instant case was insurance against a fire. As I said earlier, all fires in New South Wales need to be the subject of inquests and information about fires can be obtained as a result of the inquest. Some submissions were made that the Coroner's office seemed to be very dilatory in holding an inquest but, as I have said, that does not appear to be the fault of any of the parties to these proceedings and the duty can be enforced by mandamus in any event. 21 It would not seem that the insurer's officers can provide any further details about the fire that would not come out at an inquest. Of course, we don't know what, if anything, the Registrar was told about the inquest. We should be able to assume that the Registrar was told, but it just disturbs me that despite pressure the liquidator has refused to tell me. 22 The whole of these circumstances, the liquidator's refusal ever to answer correspondence for a year, the refusal to take the Court to anything about the case, the fact that the information is available at an inquest, leads to the conclusion that the Court should not give its oath to this voluntary liquidator. 23 Accordingly, the order of the Registrar must be discharged. 24 The usual awkward question arose in these proceedings as to whether the affidavit that was before the Registrar should be made available to counsel for the applicants. In early days such information was never allowed but in more modern times, at least under controlled situations, it is usually allowed when there is no real basis for the thought that the examinee could be influenced in any way by knowing the liquidator's reasons for seeking a public examination. 25 This sort of case is completely different to the case where a person associated with a company who is not an officer is sought to be examined. In such a case there are very good reasons why the examinee should not see the affidavit. However, when the Court has not even been asked to consider the affidavit without showing it to counsel for the applicants, then it is very difficult indeed for the Court to come to the conclusion that what happened before the Registrar was a decision made for candid exposure by the liquidator of all relevant material.