Supreme Court New South Wales Medium Neutral Citation: In the matter of BBY Limited (recs and mgrs apptd) (in liq); In the matter of BBY Holdings Pty Ltd (recs and mgrs apptd) (in liq) [2019] NSWSC 352 Hearing dates: 8 February 2019 Decision date: 08 February 2019 Jurisdiction: Equity - Corporations List Before: Black J Decision: Dismiss the Interlocutory Process filed on 15 October 2018 by the First and Second Defendants. The First and Second Defendants to pay the Liquidators' costs of the application, as agreed or as assessed. Catchwords: CORPORATIONS – leave under s 500(2) of the Corporations Act 2001 (Cth) – where various claims made in interlocutory process – where claims are against companies not presently joined to the proceedings – whether leave should be granted under s 500(2) of the Corporations Act 2001 (Cth) – whether the companies the subject of the claims should be joined. Legislation Cited: - Corporations Act 2001 (Cth) Pts 5.7B, 7.8, ss 477, 477(2)(c), 500, 500(2), 556, 588FF - Supreme Court (Corporations) Rules 1999 (NSW) - Trustee Act 1925 (NSW) s 60 Cases Cited: - Eopply New Energy Technology Co Ltd v EP Solar Pty Ltd [2013] FCA 356 - Jones (Liquidator) v Matrix Partners Pty Ltd; Re Killarnee Civil and Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40 - Matrix Group Ltd (in liq) (Trustee) v Oates, in the matter of Matrix Group Ltd (in liq) (Trustee) (No 5) [2018] FCA 303 - Re BBY Ltd (recs and mgrs apptd) (in liq) (No 2) [2018] NSWSC 346 - Re BBY Ltd (recs and mgrs apptd) (in liq) (No 3) [2018] NSWSC 1718 - Re DSHE Holdings Ltd (recs and mgrs apptd) (in liq) [2018] NSWSC 82 - Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484 - Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2018] NSWCA 139 - van Royden v DSHE Holdings Ltd (recs and mgrs apptd) (in liq) [2018] NSWSC 1773 Category: Procedural and other rulings Parties: Ian Hall and Stephen Vaughan in their capacity as joint and several liquidators of BBY Limited (recs and mgrs apptd) (in liq) and BBY Holdings Pty Ltd (recs and mgrs apptd (in liq) (First Plaintiff/Respondent) BBY Limited (recs and mgrs apptd) (in liq) (Second Plaintiff/Respondent) BBY Holdings Pty Ltd (recs and mgrs apptd) (in liq) (Third Plaintiff/Respondent) Glenn Rosewall (First Defendant/Applicant) G.A.R.F. Pty Limited (Second Defendant/Applicant) Representation: Counsel: D Greenberg (Solicitor) (Plaintiffs/Respondents) Solicitors: Ashurst (Plaintiffs/Respondents) G Rosewall (self-represented) (Defendants/ Applicants) File Number(s): 2018/151973 Judgment – ex tempore (revised 8 february 2019) 1. By Interlocutory Process filed on 15 October 2018, the First Defendant, Mr Rosewall, and the Second Defendant, G.A.R.F Pty Ltd ("GARF") seek a range of relief, which appears to be in the nature of a substantive Cross-Claim. I proceed on the basis that substantive relief may be sought in an interlocutory process in proceedings in the Corporations List, by reason of the approach to interlocutory processes adopted in the Supreme Court (Corporations) Rules 1999 (NSW). 2. Mr Rosewall has appeared for himself in the application today and I have dispensed with the rules which would restrict his representing GARF in the application, for the purposes of today only, on the basis that his entitlement to represent that company in substantive proceedings may need to be determined at some future date. I have also dispensed with the need for Mr Rosewall and GARF to file an Interlocutory Process seeking leave to proceed under s 500(2) of the Corporations Act 2001 (Cth) or to join additional parties to the proceedings. 3. I should note, by way of background, that the substantive proceedings brought by the Liquidators, Messrs Hall and Vaughan as joint and several liquidators of "BBY" and by the Second and Third Plaintiffs, BBY Limited (recs and mgrs apptd) (in liq) ("BBYL") and BBY Holdings Pty Ltd (recs and mgrs apptd) (in liq) ("BBYH"), are in the nature of claims under s 588FF of the Corporations Act, seeking orders for payment of moneys to BBYL and BBYH. Mr Greenberg, who appears for the Plaintiffs in the application, has confirmed that the reference to "BBY" is a reference to BBYL and BBYH. That is apparent from the structure of the Originating Process, so far as it seeks relief under s 588FF of the Corporations Act in respect of the named companies, and Part 5.7B of the Corporations Act contemplates that proceedings will be brought by a liquidator seeking relief for the benefit of the relevant companies. It is therefore clear that the Plaintiffs in the proceedings are the liquidators in their capacity as liquidators of BBYL and BBYH, and BBYL and BBYH, and not other entities within the "BBY" group. That matter has some significance, as I will note below. The evidence led in the application 1. Mr Rosewall did not lead evidence in respect of the application although, as matters emerged, it was likely not necessary that he do so. The relevant background facts are established by the Liquidators' affidavit evidence. Mr Rosewall indicated his assessment, which seems to me likely to be correct, that, although there are differences between him and the Liquidators as to various matters, those differences are "administrative" in nature and not likely to have any impact on the relief sought today. I have expressly reserved Mr Rosewall's ability to lead evidence, both for himself and GARF (if he is permitted to appear for it), in the substantive proceedings, and I have pointed out to him that it is likely that he will then need to lead evidence to establish any factual matters on which he then seeks to rely. 2. The Plaintiffs in turn rely on Mr Vaughan's affidavit dated 6 February 2019, which sets out the background to the Liquidators' appointment, initially as voluntary administrators, to several companies within the BBY Group including BBYL and BBYH; to the appointment of other persons as receivers and managers to certain of the companies within the BBY Group; and to the liquidators becoming voluntary liquidators of those companies, when those companies passed from voluntary administration to a creditors' voluntary winding up. Mr Vaughan also outlines the nature of the BBY Group's business as a financial services group providing a range of financial services to clients, including stockbroking and associated services. He identifies the extent of creditors of the BBY Group, which include, it appears, trade creditors; employees and subcontractors; related party creditors; lessors of property; a shortfall in client entitlements; and St George Bank which has appointed receivers but anticipates a shortfall in respect of its secured debt. It is plain from Mr Vaughan's evidence that there is likely to be a significant shortfall in the liquidation. Mr Vaughan also refers to the assets which are available to several companies in the BBY Group in the liquidation, where the receivers and managers appointed by St George Bank have control over secured assets of BBYL to the liquidators' exclusion. 3. Mr Vaughan also refers to the role of another entity, BBY Nominees Ltd ("BBY Nominees"), which is not presently party to the proceedings, but which, Mr Vaughan indicates, was used as a trustee company to hold assets on trust for clients of the BBY Group. Mr Vaughan refers to that entity holding shares in two entities, Invigor Group Ltd ("Invigor") and Regeneus Ltd ("Regeneus"), which are in turn the subject of claims by GARF to which I will return below. Mr Vaughan's evidence is that he is willing to consider and adjudicate in claims made by Mr Rosewall and GARF to those shares. There is evidence, to which Mr Rosewall refers, of correspondence sent by the liquidators in July 2017 attaching a notice under s 60 of the Trustee Act 1925 (NSW) inviting the addressee to identify any claims to relevant assets. That letter was not addressed to Mr Rosewall or GARF. Mr Rosewall also submits that that letter was sent to the specified address, at a time that he was represented by solicitors and had requested that correspondence be sent to them. It seems to me that nothing turns on that matter, where it is apparent, from the liquidators' affidavit evidence, that they have committed to adjudicating any claims that may be lodged by Mr Rosewall and GARF in respect of the shares held by BBY Nominees, and there is no suggestion that they would not do what they have told the Court they will do. There is also no suggestion that those shares had been distributed to third parties, or sold, in a way that now will prevent Mr Rosewall or GARF asserting any claim to beneficial ownership of them. I will return to that particular claim below. 4. Mr Vaughan also refers to another entity, Broker Services Australia Pty Limited (in liq) ("BSA"), which is also not party to the proceedings, as to which Mr Rosewall also identifies claims. Mr Vaughan also deals with the position in respect of convertible notes in Firestone Energy Ltd (in liq) ("FEL") and to a regime established by judgments of this Court in respect of the distribution of client property. Mr Vaughan also refers to the circumstances of dealings with certain loans and to his assessment that certain notes were transferred to GARF in its capacity as trustee for the GA Rosewall Family Trust in satisfaction of those loans. It will ultimately not be necessary to deal with the substance of that assessment for the purposes of determining this application. Applicable legal principles 1. The initial question which arises is whether Mr Rosewall and GARF should be granted leave to proceed in respect of the various claims under s 500(2) of the Corporations Act and whether they should be permitted to join companies that are not presently party to these proceedings, if such leave is granted, rather than pursuing separate proceedings against those companies. 2. The principles applicable to a grant of leave under s 500(2) of the Corporations Act were summarised in my judgment in Re DSHE Holdings Ltd (recs and mgrs apptd) (in liq) [2018] NSWSC 82 at [18], where I observed that: "Broadly, the purpose of this section is to prevent a company's assets being dissipated by unnecessary litigation, and an applicant for leave will be required to show why it should not be left to prove its debt in the winding up: Re Gordon Grant & Grant Pty Ltd [1983] 2 Qd R 314; (1983) 7 ACLR 669; (1983) 1 ACLC 742; HFPS Pty Ltd (Trustee) v Tamaya Resources Ltd (in Liq) (No 1) [2016] FCA 442 at [18]. The claimant must establish that the claim has a solid foundation and gives rise to a serious question to be tried; factors relevant to the exercise of the court's discretion may include the degree of complexity of legal and factual issues and the prospect that a proof of debt will be rejected; and the power to grant leave is discretionary and other factors may be relevant to its exercise. ... Leave under this section will more readily be granted where a claim is likely to be, or is arguably, covered by insurance." [Footnotes omitted] 1. That summary of the relevant principles was applied by Ball J in van Royden v DSHE Holdings Ltd (recs and mgrs apptd) (in liq) [2018] NSWSC 1773 and approved by Sackville AJA in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2018] NSWCA 139 at [16]. Sackville AJA also there referred to the observations of Foster J in Eopply New Energy Technology Co Ltd v EP Solar Pty Ltd [2013] FCA 356 at [22(b)] that: "In determining whether leave should be granted, the Court considers whether the balance of convenience lies in allowing the applicant to proceed by way of action to judgment, or whether the applicant should be left to pursue his or her claim by lodging a proof of debt with the liquidator. The matter is one of discretion and the onus is on the applicant to demonstrate why it is more appropriate in respect of the particular claim, to proceed by way of action." 1. I have not neglected the fact that the leave sought by Mr Rosewall and GARF relates to the pursuit of an Interlocutory Process with which, in substance, seeks to bring a cross-claim in the proceedings. There is no suggestion that the requirement for leave under s 500(2) of the Corporations Act does not apply for the pursuit of a cross-claim, and the Federal Court of Australia proceeded on the basis that leave was required for the pursuit of a cross-claim in, inter alia, Matrix Group Ltd (in liq) (Trustee) v Oates, in the matter of Matrix Group Ltd (in liq) (Trustee) (No 5) [2018] FCA 303. Where leave is sought to bring a cross-claim, it is, however, also necessary to have regard to whether the matters raised by the cross-claim have sufficient connection with the matters raised in the proceedings to provide a factor supporting the grant of leave. Claims against BBY Nominees 1. I turn now to the particular matters raised by Mr Rosewall and GARF, for which leave for the joinder of additional parties will be required. Since those matters are of a different character, it is desirable to deal with them sequentially. First, in paragraphs 1, 2 and 4 of the Interlocutory Process, Mr Rosewall and GARF seek orders that relate to BBY Nominees which, as I noted above, is not presently party to the proceedings. In order to proceed with that aspect of the Interlocutory Process, Mr Rosewall would require both an order joining BBY Nominees as party to the proceedings, and leave under s 500(2) of the Corporations Act in order to pursue the claims against it. 2. The first order sought is for the transfer of 3,125,000 shares in Invigor to GARF by BBY Nominees; the second is for the transfer of 120,000 shares in Regeneus to GARF by BBY Nominees; and the fourth is for the transfer of "$50,000 worth of" shares in "Go Catch" to GARF by BBY Nominees. Each of these orders is sought, as I understand it from Mr Rosewall's submissions and Mr Vaughan's evidence, on the basis that the shares are the beneficial property of GARF. 3. The Liquidators submit that leave should not be granted to pursue that claim, and BBY Nominees should not be joined as a cross-defendant, where a process is in place for clients of the BBY Group to notify the Liquidator of claims they may have to assets held on trust by BBY Nominees, and where BBY Nominees is not a plaintiff in the proceedings, and the claims against it have no connection with the matters in issue in the present proceedings. I accept both of those submissions. Here, the Liquidator's evidence is that it is open to Mr Rosewall and GARF to seek to establish their entitlement to the shares, so far as a claim against BBY Nominees is concerned, by advising the Liquidators of that claim. There is no reason to think that any claim by Mr Rosewall and GARF in that respect is different from that of other clients who may also contend that they have beneficial ownership of shares held by BBY Nominees and purchased with their funds. It seems to me that it would not promote the orderly conduct of the winding up, and would indeed encourage unnecessary litigation and the waste of the BBY Group's resources, if clients were permitted to bring proceedings to assert beneficial title of the shares, without first seeking to establish that entitlement by providing the relevant information to the Liquidators and allowing them an opportunity to determine that claim. If, ultimately, the Liquidators reject GARF's claim, and GARF is dissatisfied with that determination, it can apply for review of that determination in the usual way. 4. It also seems to me that the just, quick and cheap resolution of the real issues in dispute in these proceedings, which are in the nature of claims under Part 5.7B of the Corporations Act, will not be promoted by introducing into them an entirely separate claim, in respect of the proprietary interest asserted by GARF in these shares. If that matter is ultimately to be determined by litigation, then it seems to me that it will be more efficiently determined by separate litigation, likely, as I have noted above, arising from any application for review of a Liquidator's decision rejecting GARF's relevant claims to the shares. These claims can also have no impact on the quantum of GARF's liability in the proceedings, where they are brought against an entity other than the Plaintiffs. In these circumstances, I do not make orders for the joinder of BBY Nominees as a party to the proceedings, and I do not grant leave to pursue the relevant claims against it under s 500(2) of the Corporations Act. Client money claims 1. In paragraph 3 of the Interlocutory Process, Mr Rosewall and GARF seek an order that $80,000 be paid to GARF by BBYL, referable to an amount said to have been paid by GARF to BBYL's trust account. Mr Rosewall's submissions refer to a payment of that amount to BBYL to purchase shares in a particular company. Mr Vaughan submits that such money would be client money, subject to the client money regime under Part 7.8 of the Corporations Act. Mr Vaughan points out that the Court has approved a process to determine claims in respect of client moneys, by complex judgments delivered by Brereton J in Re BBY Ltd (No 2) (recs and mgrs apptd) (in liq) [2018] NSWSC 346 and Re BBY Ltd (No 3) (recs and mgrs apptd) (in liq) [2018] NSWSC 1718. The Liquidators submit that GARF's claim, so far as it is a claim of that character, should proceed under that process. 2. It seems to me that that submission is plainly correct. Where a process for determining claims by clients has been established, in respect of a significant amount of client moneys as to which there may be a shortfall, then it would not promote the interests of the winding up for GARF to step outside that process. I should note, for completeness, that if the funds were not client moneys, then I would reach the same result. If, instead, GARF was claiming funds advanced to BBYL on some other basis, then the interests of the winding up will be promoted by it being treated as a creditor in the liquidation, and lodging a proof of debt in the usual way. Moneys lent to BBYH and BBYL 1. Paragraphs 5, 6, 7 and 8 also relate to claims for moneys said to be advanced to BBYH and BBYL by Mr Rosewall and for interest on those funds. The Liquidators submit that leave should not be permitted to pursue the proceedings, where the evidence establishes that BBYH and BBYL do not presently have sufficient funds to pay a dividend to unsecured creditors. The Liquidators also advance a further claim that, in effect, these claims could not succeed, where it is contended that Mr Rosewall accepted the transfer of secured convertible notes in FEL in satisfaction of the loans. In my view, this is a money claim, which can readily be addressed by the usual proof of debt process in a liquidation. There is no reason to grant leave for it to be brought outside that proof of debt process. It is not necessary to determine the position in respect of the further contention that convertible notes in FEL were transferred in satisfaction of those loans, where I would not grant leave to pursue these claims under s 500(2) of the Corporations Act in any event. Claims against Broker Services Australia Pty Ltd 1. Paragraph 9 of the Interlocutory Process in turn seeks an amount of annual leave, long service leave and superannuation entitlements in the amount of $415,268 owed by another entity, Broker Services Australia Pty Ltd ("BSA") which Mr Rosewall acknowledges would be capped at $3,500 under s 556 of the Corporations Act. The Liquidators submit that that claim should not be permitted to proceed, where BSA is not a plaintiff, and on the basis that BSA is in liquidation and the Liquidators will, in the ordinary way, advertise for proofs of debt. The Liquidators submit that Mr Rosewall should be left to submit a proof of debt, like other creditors of BSA, and have his claim adjudicated in that way. 2. I accept each of those submissions. It would not be appropriate that BSA be joined as party to the proceedings, and that costs be incurred in its participation in the proceedings, still less in respect of a claim for $3,500. There is no reason to think that that claim may not properly be addressed in respect of the usual proof of debt process. Claim in respect of Firestone Energy Limited ("FEL") 1. Finally, Mr Rosewall and GARF seek to bring a somewhat more complex claim, described as the "Firestone Energy Limited Convertible Notes Remedy Claim". The relief sought is treated as having elements; that $4,517,800 be transferred to GARF in repayment of FEL secured convertible notes; that $519,198 cash be paid to GARF in lieu of expired notes held by BBY Nominees as trustee for GARF; and that $1,611,839.36 be transferred to GARF, being interest owing on FEL secured convertible notes at 8% per annum for four years. 2. The relevant matters are pleaded in paragraph 10 of the Interlocutory Process, which pleads that FEL was a coal exploration company listed on the ASX and the Johannesburg Stock Exchange, and that its primary asset consisted of shares in another entity. The interlocutory Process then refers to the terms of the FEL convertible note deed, and in turn refers to a request made by Mr Rosewall, who claims to have represented the majority note holders, to FEL to be paid accrued interest on the notes. The Interlocutory Process then indicates that KPMG, which I infer is intended to be a reference to the Liquidators, took control of the notes held by BBY; contends that KPMG (presumably again a reference to the Liquidators) had instructed FEL to capitalise interest owing on the notes, or at least that FEL claimed that KPMG had given such an instruction; that KPMG (again, presumably meaning the Liquidators) had sold notes held by BBY Nominees, and contends that the sale of those notes contravened s 477 of the Corporations Act. What is then sought is a remedy "to compensate for losses that have arisen as a result of the Liquidators' improper exercise of their authority." 3. Mr Vaughan in turn refers in his affidavit dated 6 February 2019 to the circumstances in which BBY Nominees acquired convertible notes in FEL and to the transfer of a significant number of those notes to related parties of BBYL, including GARF between December 2014 and January 2015. The Liquidators' evidence is that BBY has not received any payments from FEL, which is itself in liquidation. 4. In submissions, Mr Rosewall repeats matters that are pleaded in the Interlocutory Process and associated pleading, and advances a further submission, which may underpin the claim for a contravention of s 477 of the Corporations Act, that a liquidator does not have the power to dispose of assets subject to an equitable lien under s 477(2)(c) of the Corporations Act. That submission may be arguable, by reference to the decision of Brereton J in Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484, although it does have the significant difficulty that the Courts have regularly appointed liquidators as receivers of trust property, where a liquidator would otherwise not have the power to deal with trust property, and have regularly done so regularly retrospectively, where liquidators have mistakenly dealt with trust property on the misunderstanding that they were entitled to do so under s 477 of the Corporations Act. Indeed, that prospect was specifically noted by the Full Court of the Federal Court in Jones (Liquidator) v Matrix Partners Pty Ltd; Re Killarnee Civil and Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40, a decision on which Mr Rosewall relies. Mr Rosewall, in submissions, in turn identifies a personal claim against the Liquidators, said to relate to the improper exercise of their authority, in respect of the FEL convertible notes. 5. In response, the Liquidators submit that the claim should not be allowed to proceed in this liquidation, again because BBY Nominees is not a plaintiff in the proceedings; second, because the claims have no connection to the matters raised in the proceedings; and third, because BBY Nominees is in liquidation, and the Defendants have not sought leave to pursue the claim against it. The Liquidators also emphasise Mr Vaughan's evidence that BBY Nominees, or the Liquidators, have not received any of the payments to which the Interlocutory Process refers. 6. The position in respect of this claim is more complex, because the claim itself is more complex, and the Interlocutory Process does not make entirely clear what is sought. Doing the best I can with the Interlocutory Process in its present form, it is unclear whether the claim is brought against BBY Nominees, so that leave would be required under s 500(2) of the Corporations Act. I would not grant leave, for the reasons I have not granted leave in respect of other claims against BBY Nominees above. It may be more likely that the claim is a claim against the Liquidators personally, alleging a breach of their duties in respect of the conduct of the liquidation, so far as reference is made to a suggested dealing with the convertible notes outside their powers, and so far as Mr Rosewall's submissions refer to authorities dealing with the obligations of liquidators in respect of their functions. If the claim is brought against the Liquidators personally, then it seems to me that there is strong reason why it should not be brought in these proceedings, which are brought by the Liquidators on behalf of BBYL and BBYH, under Part 5.7B of the Corporations Act. To the extent that Mr Rosewall or GARF consider that they have claims against the Liquidators personally, then such claims would not require leave under s 500 of the Corporations Act, but can be brought in separate proceedings and would need to be pleaded in a proper manner. As a matter of first impression, particularly if allegations of misconduct are made against the Liquidators, then it seems to me that the pleading in its present form would not be permitted, and would likely be struck out on an application to do so. 7. For these reasons, I do not grant leave, if leave is sought, to pursue a claim against BBY Nominees in these proceedings, and I would not grant leave to join Mr Hall and Mr Vaughan in their personal capacities, if leave was sought to do so, in order to advance any claim for breach of their duties against them in these proceedings. Set-off 1. I have not neglected the possibility that Mr Rosewall, or GARF, may ultimately assert some form of set-off against the amounts that are sought to be recovered from them under Part 5.7B of the Corporations Act. The availability of such a set-off in claims under Part 5.7B of the Corporations Act will be a question for a substantive hearing, and that is not a matter that need be addressed now. That question does not seem to arise in respect of the claims for transfer of shares, so far as beneficial ownership in those shares is concerned, since what is there sought is the transfer of shares and not any money equivalent of them. It does not arise in respect of claims against entities other than the Plaintiffs. So far as other claims are concerned, there is no reason to think that the adjudication of such claims, and indeed any appeal from them, could not be determined prior to this matter going to hearing. In any event, any proposed set-off can be raised and determined by way of a defence in the proceedings. Outcome 1. For these reasons, I am satisfied that the Interlocutory Process filed by Mr Rosewall and GARF on 15 October 2018 should be dismissed. Mr Rosewall and GARF must pay the Liquidators' costs of the application, as agreed or as assessed. ********** 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: 03 April 2019