Botafogo Pty Ltd, Re [1992] QSC 453

#!J~t~;(' ....., #• .. : State Reporting BureauSe.. 9.3/~,eS3 .,,~----------------------------------- ~~/~------~---------------------------------------------------- TRANSCRIPT OF PROCEEDINGS ! ' r :(Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold -l'Ni.thout the written authority of the Director, State Reporting Bureau.) · i ! .. I SUPREME COURT OF QUEENSLAND CHAMBERS SHEPHERDSON J REVISED COPIES ISSUED State Reporting Bureau Date 1111 I 4':> !I No 298 o£ 1992 I;_ I l ' ' I 'I I I: IN THE. MATTER OF THE CORPORATIONS LAW· IN THE MATTER OF BOTAFOGO PTY LTD BRISBANE •• DATE 09/12/92 JUDGMENT ·•L' ------------------------------------- ~.~~- 4th Floor, The Law Courts, George Street, Brisbane, -Q. 4000 Telephone: (07) 227 4360. Facsimile: (07) 227 5532 -- 1 of 12 -- 091292 (EX TEMPORE JUDGMENT) HIS HONOUR: The ANI Corporation Limited trading as Steelmark - Eagle & Globe has applied for the following orders: 1. That a copy of the written record of examination of persons in relation to the affairs of Botafogo Pty Ltd (in liquidation) held on 27 and 28 July 1992 pursuant to section 597 of the Corporations Law be provided to the applicant. 2. That the person or persons who prepared the record of examination or under whose supervision the record was 10 20 prepared certify in writing signed by that person or those persons that the record is a true transcript of 30 the record of examination pursuant to regulation 61 of the Companies (Queensland) Regulation. There is a third stage to the application, but that has not been actively canvassed. On 18 May 1992 this Court ordered that Botafogo Pty Ltd be wound up. One of the liquidators is Ernest George Harris. The applicant is a creditor of Botafogo in the sum of $136,382.39. Its debt is said to relate to steel supplied by the applicant to Botafogo on credit prior to the winding-up order. In fact, the applicant was the petitioning creditor who sought and obtained the winding-~p order. 2 JUDGMENT 40 50 \: -- 2 of 12 -- 091292 On 24 November 1992 the applicant sent a letter to the official liquidator posing a number of questions in relation to Botafogo and its affairs. The ~etter further asked whether investigations or examinations had taken place and, if so, whether they had dealt with a number of issues, one 10 of which was whether Botafogo was insolvent for any substantial period of time prior to the filing of the application for winding up. Mr Harris by letter dated 30 November 1992 responded to this 20 .request. He gave an estimate of possible distribution of funds to unsecured creditors of the company. He concluded that there was a possible dividend of five cents in the dollar, but made it clear that this was an estimate only. That letter of 30 November showed unsecured creditors were 30 ·estimated to total $700,000, so it can be readily seen that the applicant's debt forms quite a substantial part of those. ·. ·Now, in response to certain of the questions, Mr Harris informed the app~icant that the liquidators had held a public examination of two Westpac employees and an external accountant. They named the Westpac employees as Me~srs Kennedy and Edwards and the accountant as a Mr Skelton. In response to the question whether Botafogo was insolvent for any substantial period prior to the filing for application for winding up and, if so, for about how long, Mr Harris said, "In sworn testimony Mr Edwards said that Westpac thought that the company was insolvent in July 1991." 3 JUDGMENT 40 50 60 -- 3 of 12 -- ------- -- - - - ----~---~~ ----- -----------~------ 091292 Mr David Andrew Fischer, the manager of the applicant in Queensland, has sworn that the applicant knew nothing about the liquidator proposing to obtain an order for the public examination of any persons or knowing anything of the order or the public examination having taken place. In fact, he 10 has sworn that the applicant was unaware that a public examination had taken place until some considerable time after it had occurred. There is before me an affidavit of Garry John Hamilton, a member of the firm of Minter Ellison Morris Fletcher retained in this matter by Mr Harris as official liquidator. Exhibited to that affidavit is what is called a settlement agreement prepared by Feez Ruthning and entered into between Westpac Banking Corporation, Ernest George Harris and John Robert Reeves as liquidators, Neill Michael Mulholland Kennedy, Allan Peter Edwards and Botafogo Pty Ltd (in liquidation) • It is unnecessary to go to this document in any detail, but its presence has caused Mr Harris quite some concern because the agreement refers to in part 4(a), "Section 592 Investigation". It specifically provides that the liquidators shall not encourage, agitate or promote an action or claim by any of the creditors of Botafogo against Westpac or any of its officers, employees or agents including, but without limitation; Kennedy and Edwards pursuant to- section 592 of the Corporations Law or any 20 I '\ jl ~ 30 40 _ r ~ r( ~ f-' :'' amendment of or substitute therefore to the extent that they "\ 60 4 JUDGMENT -- 4 of 12 -- I, ! i 091292 are able to covenant to this effect without fettering their statutory duty to the creditors of Botafogo. Paragraph 4 o£ this agreement referred to recital G which referred to a letter from the liquidators' solicitors to 10 Westpac's solicitors dated 15 September 1992 described as a letter of demand whereby the liquidators had made certain claims against Westpac, namely, and this is one of the claims: "The liquidators have advised that they have been investigating possible claims against Westpac and its officers, including Kennedy and Edwards, under section 592 of the Corporations Law." Recital H said that Westpac had denied all allegations and claims made by the liquidators. That sets out the background to this application. I should, I think, add that Mr Fischer in paragraph 7 of his affidavit has said: "The applicant is now investigating avenues for the recovery of Botafogo's debt to it." i ', 1 In paragraph 14 he has said: "If this honourable Court grants the applicant a copy of the transcript and the relevant exhibits, the applicant proposes to review them and obtain advice regarding any causes of action that it may have against persons or companies to recover its debt from Botafogo. In particular, the applicant is considering whether any actions for insolvent trading may lie against any person or company pursuant to section 592 of the Corporations Law." 5 JUDGMENT 20 30 40 50 60 -- 5 of 12 -- 091292 Section 592 which, it will be noted, was referred to in the recital to the Westpac settlement deed relevantly says: 592 (1) where (a) A company has incurred a debt (b) immediately before the time this debt was incurred there were reasonable grounds to expect the company would not be able to repay all 10 its debts as and when they became due, or, there were reasonable grounds to expect that if the company incurred the debt it would not be able to pay all its debts as and when they became due and the company was at the time when the debt was incurred, or at a later time, a company to 20 I which that section applied, then any person who was a director of the company, or took part in the management of the company at the time when the debt was incurred contravenes that section and the company and that person, or if there are two or more such persons, those persons are 30 jointly and separately reliable for the payment of debt. Subsection 2 thereof refers to certain matters of defence. The transcript in the present case was made under section 597 of the Corporations Law. Under section 597 (14) subject to subsection 12A thereof any written record of an examination so signed by a person or any transcript of an examination of a person that is authenticated as provided by the rules may be used in evidence in any legal proceedings against the person. Rule 71(3) of the Companies (Queensland) Rules enables me.to authorise the applicant to inspect the transcript of the two 6 JUDGMENT 40 50 il . I -- 6 of 12 -- -·- .. ... 091292 days proceedings on 27 and 28 July 1992. It is clear from earlier material that the persons examined were the two Westpac officers, Kennedy and Edwards, and also an accountant, Skelton. Today Mr Traves has appeared for Messrs Kennedy, Edwards and ' Westpac Corporation, and his appearance has been allowed pursuant to an order made by Mr Justice Cullinane on 17 November 1992. Mr Beale, solicitor from Minter Ellison 10 Morris Fletcher, has appeared for the liquidators and, in 20 effect, has taken a neutral position. I should perhaps at this stage point out that the transcript of these proceedings is not on the file which, as I understand the rules, is where it should be. It may well be that the liquidator himself holds a transcript. The argument has been between Mr Dunning, for the applicant, and Mr Traves, the latter relying on authority to submit, in effect, that as no proceedings have been commenced this is simply a · fishing expedition, and should be dismissed. the application is premature Both parties referred me to the decision of Acting Justice Needham, as he then was, in re Spedley Securities (1990) 8 Australian Company Law Cases 669. His Honour referred to relevant legislation. At p 671 he said: "It seems to me that the Court, in determining whether it should grant leave to any person to inspect the transcript of examinations under sec. 541 7 JUDGMENT 30 40 50 60 -- 7 of 12 -- ~~~~--~----~-.1 )091292 of the Code, should satisfy itself that the person making the application has a legitimate interest in inspecting either that transcript or a particular part of that transcript." His Honour went on to say: "I have no doubt that, if a party to litigation can show that evidence given in those examinations relates to or could be relevant to a claim made by that party or by the opposing party in legal proceedings, prima facie that party or those parties should have leave to inspect that transcript, or that portion of the transcript." I should also say that at p 670 in the right-hand column - His Honour referred to a change in the legislation from the provision of a private to a public examination as having to be given considerable weight. In re Spedley Securities Limited ex parte Ahrens & Others (1991) 9 Australian Company Law Cases 118 Mr Justice Young of the New South Wales Supreme·court, in effect, followed the views of Mr Justice Needham and applied his test, namely, whether the applicants had shown a sufficient legitimate interest in~ the proceedings to be given access to the transcript. However, it seems to me that Mr Justice Young went a little further. At p 120 he referred to a submission by the applicant before him that they had a legitimate interest in seeing the whole of the transcript and other material in order " (a) to. work out what their real position is" • His Honour went on in dealing with that matter to say: "The Courts have usually considered a mere desire to know what one's position is as opposed to some real 8 JUDGMENT ., \ 10 20 \i 30 40 50 -- 8 of 12 -- )' 091292 apprehension that one is going to take an adverse step against one as too ephemeral to be favourably protected by the law." His Honour then referred to a passage in the judgment of Mr Justice Brennan in re an application by Tooth & Company 10 Limited (1978) 19 Australian Law Reports 191 at p 209. It seems to me that one should construe that passage in the judgment of Mr Justice Young as indicating if an applicant can show a real apprehension that he will be prosecuted or otherwise have some step taken against him then that is 20 sufficient. Another way of putting it is to say if the applicant can show that he has a legitimate interest to see the transcript that will suffice. This is a matter referred to at p 123 in the judgment of Mr Justice Young. It seems to me that the authorities to which I · have been referred 30 have indicated rather a move away from what may be thought to have been a rather restrictive approach taken by acting Justice Needham. Mr Dunning has referred me to a decision of Mr Justice McLelland of the New South Wales Supreme Court equity division in re BPTC (in liquidation) (1992) 10 Australian Company Law Cases 877. The matter there under consideration was quite distinguishable from the present case. His Honour said at p 885 in considering the question now before me: "The examinations in question are to be held in public (sees 597(4)). There is no reason in principle why any person with a legitimate interest should not be able to obtain, at his own expense, a copy of the transcript of any such public examination." 9 JUDGMENT 40 50 60 -- 9 of 12 -- I I I ------·-- ~·- ------------) 091292 It seems to me that that view has a lot to commend it. Next is a decision of Senior Master Mahony re MMC Pty Ltd (in liquidation) (1992) 6 Australian Companies and Securities Reports, p 741 and the comment on that case by 10 Professor 0 'Donovan. in Companies and Securities Law Journal October 1992 at pp 346 to 348. A matter considered by the Senior Master was the undesirable waste of costs which would ensue if the order sought was denied and the applicant left to attempt to inspect documents consequent upon discovery, which I gather was third party discovery. The next matter to which both parties referred was an unreported decision of Mr Justice McPherson in the matter of Suncoast Tile Merchants Pty Ltd (in liquidation) {Application No 98 of 1985) judgment. delivered 17 June 1987. His Honour in that case refused to permit inspection of the transcript saying at p 6 of the reasons: "If the purpose of the inspection is to enable therespondent to prosecute those proceedings then I do not consider it is sufficient reason for permitting inspection of the tran~cript at this stage." In my respectful view, the judicial approaches to this question have shifted from those in vogue at the time His Honour gave his judgment in 1987. The final judicial statement to which I wish to refer is that of Chief Justice Mason in Hamilton v Oades {1989) 166 10 JUDGMENT 20 30 ;i -- 10 of 12 -- ' :. 091292 CLR 486 at p 494, in which His Honour appears to have approved the following statement by Windeyer J in Rees v. Kratzmann (1965) 114 CLR 63 at 80: "The honest conduct of the affairs of companies is a 10 matter of great public concern today. If the legislature thinks that in this field the public interest overcomes some of the common law's traditional considerations for the individual, then effect must be given to the statute which embodies this policy." This statement although made in considering a different 20 aspect of s 541 appears to have been adopted by the Full Court of the Victorian Supreme Court in Friedrich v. Herald and Weekly Times Limited & Anor (1990) 8 Australian Company Law Cases 109 at p 115. I revert to the comment of Mr Acting ~ustice Needham that considerable weight must be 30 given to the change in the legislature from these examinations being private to public. I do not think the applicant should be disadvantaged because he was not present at the public examinations. The applicant was quite unaware until well after the event that the hearings and 40 examinations were to be held. As I said, the applicant's debt is quite a substantial part of all the unsecured creditors of the company Botafogo. I have decided that in the present case the applicant should . 50 be permitted to inspect the written transcript of examination of the persons Edwards and Kennedy in relation to the affairs of Botafogo Pty Ltd (in liquidation) held on 27 and 28 July 1992. 60 11 JUDGMENT -- 11 of 12 -- I \' 091292 Mr Dunning sought to have Skel ton included in the above order and I agreed to this: I will formally adjourn the balance of the summons to a date to be fixed to be brought on on four clear days written notice to the other parties. (Argument on costs). HIS HONOUR: The orders on costs I make are these: I order Westpac, Edwards and Kennedy to pay the applicant's costs of and incidental to the appearances on 17 November 1992 and of today to be taxed. I order Westpac, Edwards and Kennedy.to pay the liquidator's costs of and incidental to its appearance on 17 November 1992 ·-to be taxed. I order the applicant to pay the liquidator's costs of 16 November 1992 and today to be taxed. So I effectively 1 Westpac and the applicant bear their own costs · of . 16 · November. 12 JUDGMENT I }) ' ·~ ., , :i -- 12 of 12 --