FEDERAL COURT OF AUSTRALIA

Australian Capital Territory Commissioner for Revenue v Slaven
[2009] FCA 744

CORPORATIONS –– powers of the Court in a winding up –– creditor’s voluntary winding up –– application by creditor for order authorising it to commence and prosecute proceedings in the name of insolvent company as co-plaintiff –– creditor also bringing claims in own right –– source of Court’s power to make order –– Corporations Act 2001 (Cth) –– statutory grants of jurisdiction must be construed broadly –– ss 511 and 477(6) of the Corporations Act give the Court jurisdiction over matters arising from the exercise of liquidator’s powers in a winding up –– whether power is an incident of inherent or implied jurisdiction of superior court of record –– ss 511 and 477(6) give Court power to authorise third party to use name of company being wound up to commence and prosecute proceedings

CORPORATIONS –– order authorising creditor to commence and prosecute proceedings in company’s name –– appropriate terms of order –– whether creditor/plaintiff should be permitted to amend pleadings, add or remove parties and causes of action –– order limited to authorise commencement and conduct of the proceedings identified in the evidence

CORPORATIONS –– entitlement of liquidator to be properly informed of nature and basis of proceedings sought to be brought by creditor in company’s name prior to application to the Court

HIGH COURT AND FEDERAL COURT –– federal jurisdiction –– Federal Court’s jurisdiction to make order authorising creditor to commence and prosecute proceedings in name of company being wound up –– creditor’s right to apply to Court for order in winding up under ss 511 and 477(6) –– right exists by virtue of federal law

EQUITY –– trading trust –– entitlement of trustee or corporate trustee of trading trust who has incurred liabilities in performance of duties to indemnification out of trust property –– enforcement of entitlement of trustee to proprietary interest in trust property against beneficiaries or directors of trading trust who caused payments to be made before trustee or corporation had paid likely or known debts

Held: the plaintiff be authorised at its own expense and risk as to costs, to commence and prosecute proceedings in the name of the company as a plaintiff or co-plaintiff 

Words and Phrases: ‘inherent or implied jurisdiction’

Corporations Act 2001 (Cth), ss 477, 511
Federal Court of Australia Act 1976 (Cth), s 5(2)
Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), s 9
Judiciary Act 1903, s 39B(1A)(c)
Federal Court (Corporations) Rules 2000, 2.13(1)
Jurisdiction of Courts (Cross-Vesting) Act 1993 (ACT), s 4

Agar v Hyde (2000) 201 CLR 552 discussed
Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250 followed
Australian Securities and Investments Commission v Edensor Nominees Pty Ltd (2001) 204 CLR 559 discussed
Chahwan v Euphoric Pty Ltd (2008) 245 ALR 780 cited
Christianos v Aloridge Pty Limited (1995) 59 FCR 273 cited
Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 cited
Federal Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) (2005) 220 CLR 592 cited
Ferguson v Wallbridge [1935] 3 DLR 66 discussed
Lloyd-Owen v Bull [1936] 4 DLR 273 followed
LNC Industries Ltd v BMW (Australia) Ltd (1983) 151 CLR 575 applied
Magarditch v Australian & New Zealand Bank Group Limited (1999) 32 ACSR 367 followed
Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333 noted
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 applied
Owners of the Ship “Shin Kobe Maru” v Empire Shipping Co Inc (1994) 181 CLR 404 applied
Promaco Conventions Pty Limited v Dedline Printing Pty Limited (2007) 159 FCR 486 cited
Re Wakim;  Ex parte McNally (1999) 198 CLR 511 applied
Russell v Westpac Banking Corporation (1994) 61 SASR 583 discussed
Wenham v General Credits Ltd (unreported 16 December 1988 Supreme Court of New South Wales;   BC8801203) followed

AUSTRALIAN CAPITAL TERRITORY COMMISSIONER FOR REVENUE v MICHAEL SLAVEN AS LIQUIDATOR OF PAAN INVESTMENTS PROPRIETARY LIMITED (IN LIQUIDATION)

ACD 14 of 2009

RARES J

10 JULY 2009

SYDNEY (VIA VIDEOLINK TO CANBERRA)

THE COURT ORDERS THAT:

1.         Subject to the plaintiff providing an indemnity to the defendant and to PAAN Investments Pty Ltd (In Liquidation) (the company) in respect of costs to be incurred by the company or which it may be ordered to pay in the proceedings described in the schedule to these orders (the Proceedings), and providing security in respect of that indemnity, the terms of such indemnity and the nature and amount of such security to be agreed between the plaintiff, the defendant and the company or, failing agreement, settled by the registrar:

(a)        the plaintiff be authorised at its own expense and risk as to costs, to use the name of the company as a plaintiff or co-plaintiff in the Proceedings;

(b)        the plaintiff indemnify the defendant for all costs reasonably incurred by the defendant in respect of the Proceedings.

SCHEDULE

Proceedings to be brought by the company and the plaintiff against Peter Georgiou, Angela Georgiou and Peter Beames by filing in this Court an application seeking relief limited to the matters pleaded in a statement of claim in the form of the draft statement of claim being annexure “C” to the affidavit of Russell Thomas Bayliss sworn 23 March 2009 accompanied by that statement of claim (after making such amendments as are consistent with the reasons of the Court published today).

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                          PAAN Investments Pty Ltd was placed into a creditor’s voluntary winding up on 22 December 2004.  Michael Slaven was appointed liquidator.  During the course of the liquidation, the liquidator was represented in a public examination of a number of persons conducted pursuant to Div 1 of Pt 5.9 of the Corporations Act 2001 (Cth).  The public examinations commenced in August 2006 and ran over 10 days until March 2007.  The examinations were funded and conducted by the Australian Capital Territory Commissioner for Revenue.  PAAN owed a significant amount under an assessment for payroll tax.  The Commissioner used the public examinations to make an assessment of the prospects of success of claims to recover the unpaid tax against the former directors and shareholders of PAAN, Peter and Angela Georgiou, and PAAN’s accountant, Peter Beames.

2                          The Commissioner applied to the Court for leave to commence proceedings in the company’s name, as part of proceedings he wishes to bring in his own name.  Mr Beames applied under r 2.13(1) of the Federal Court (Corporations) Rules 2000 for, and I granted him, leave to appear to oppose the relief sought by the Commissioner.  This application raises the following issues:

            (1)        Whether this Court has jurisdiction to make an order that a person other than the liquidator be authorised to bring proceedings in the name of a company in liquidation under s 511 of the Act or has an inherent or implied power to make orders ancillary to the conduct of a winding up.

            (2)        Whether the Commissioner has established that it is appropriate for the Court to grant the relief so as to displace the liquidator in discharge of his functions.

            (3)        Whether the Commissioner has established that the action proposed to be taken by him in the company’s name has some arguable foundation:  Magarditch v Australian & New Zealand Bank Group Limited (1999) 32 ACSR 367 at 384 [70]-[71] per Spender, French and Kenny JJ.

THE CONDUCT OF PAAN’S BUSINESS AND HOW IT INCURRED THE PAYROLL TAX LIABILITY

3                          The Commissioner relied in support of his application on evidence given by his solicitor, Russell Bayliss.  I was taken to only a few of over 850 pages of the transcripts of the public examinations in the course of the hearing.  The following account of facts is based on Mr Bayliss’ assertions in his affidavit so as to provide the background in which the application can be considered and the passages in the transcripts to which I was taken.  There was no cross-examination or other evidence.  Thus, any findings or opinions on the evidence that I express in these reasons should not be understood as final conclusions arrived at after a contested trial.  Rather, I have assumed the material on which the Commissioner relied could be proved in a trial in order to assess whether it established that the claims have some arguable foundation:  Magarditch 32 ACSR at 384 [70]-[71].

4                          Between about 1992 and 1 September 2003 PAAN conducted a security business, called Star Security.  Mr Georgiou became a director of PAAN in 1995 and has remained in office since according to a company extract of the Australian Securities and Investments Commission in evidence.  Mr Bayliss said that Mrs Georgiou was a director and company secretary from around 1996 until 2000.  When she ceased to hold office, Mr Georgiou also assumed the role of company secretary.  Each of Mr and Mrs Georgiou held 10 of the 20 issued ordinary shares in PAAN.

5                          In either 1995 or 1998, PAAN established a trading trust of which it was trustee.  Mr and Mrs Georgiou were beneficiaries of the trust.  Mr Bayliss said that PAAN, as trustee, purported to grant a licence to itself in its own right, to operate the security business.  Thus, it appeared that PAAN, as trustee, held the assets of the security business on trust, and obtained a licence, from itself, to operate the business for its own benefit in consideration of the payment of the consideration due under the licence.  Mr Bayliss said that this arrangement had led Mr and Mrs Georgiou to be confused about how to implement the differing rights of PAAN as operator of the business in its own right and trustee.  He said that this confusion was evident from the public examination of Mr Georgiou.

6                          In his examination Mr Beames said that his firm had recommended to Mr Georgiou that the trust grant a licence to the company to operate the business for administrative reasons.  He said that one reason for this arrangement was to overcome the need to make new employment declarations for several hundred guards that were used in the security business from time to time.  Mr Beames said that he advised Mr Georgiou to register PAAN for payroll tax effective from 1 July 2001 and to set up systems to capture the guards’ employment information on an ongoing basis.  He said that subsequently he and his firm provided advice to Mr Georgiou about payroll issues and, at Mr Georgiou’s request, conducted negotiations with officers of the Commissioner. Mr Beames said that his role was that if Mr Georgiou had issues, including the need to make representations to the Commissioner about payroll tax, they would meet and discuss them.  In his examination Mr Georgiou said that Mr Beames advised him to sign the trust deed to assist in the administration of PAAN’s taxation affairs.

7                          Mr Bayliss claimed that in early 2001 PAAN had entered into an agreement to sell the security business to MIL Security.  The sale fell through and a deposit of $50,000 paid by MIL was forfeited to PAAN.  The deposit had been banked in a separate trust account but in 2002 it was paid, together with interest, to Mrs Georgiou by way of a distribution to beneficiaries.

8                          In mid 2003 PAAN agreed to sell the security business to Sydney Night Patrol and Inquiry Co Pty Ltd.  On completion on 1 September 2003, $1,327,847.85 was paid to PAAN.  On 14 October 2003, Mr Georgiou attended a meeting with Mr Beames and officers of the Commissioner and they discussed the amount the Commissioner was then claiming for payroll tax due by PAAN.  Mr Georgiou said in his examination that he understood from that discussion that the potential liability of PAAN for payroll tax exceeded the then amount held in PAAN’s cheque account (which I infer to be in the order of $600,000 paid out between 20 and 23 October 2003).  PAAN used the settlement money to pay business creditors their debts, but no payment was made to the Commissioner.  The surplus of about $750,000 was distributed as follows:

            (1)        On 20 October 2003, Mrs Georgiou was paid an eligible termination payment of $326,781, even though she had not been an employee of the business for at least the previous 2 years.

            (2)        On 23 October 2003, a total of $264,861 said to be in respect of loans owing to Mr and Mrs Georgiou were paid to them.

            (3)        On 5 December 2003, a tax refund of $130,598 was received by PAAN, and on the same day this was paid to Mr and Mrs Georgiou.

9                          In his examination, Mr Georgiou said that he was not sure how the company would pay the payroll tax liability if it came to be assessed in the amount discussed with the officers.  He claimed that Mr Beames had advised him to make the above payments to his wife and himself notwithstanding that both he and Mr Beames had been told by the Commissioner’s officers that the likely payroll tax assessment would be in the order of $800,000.  And, Mr Georgiou admitted that it was obvious that PAAN would not have been able to pay such an assessment because it would not have had sufficient funds after those payments.

10                        Mr Bayliss also said that a number of PAAN’s documents made inconsistent assertions about the ownership of assets.  He said that the licence agreement provided that the trust owned the assets of the business such as cars, firearms, uniforms and the like.  He claimed that, in contrast, PAAN’s tax returns declared that the income and expenditure of the business had been received and incurred by PAAN as licensee, not as trustee, and that it, as licensee for the trust, owned the assets and had claimed depreciation for them.  He claimed that no tax returns had been filed until 2008.  Mr Bayliss also claimed that in the contract for sale to Sydney Night Patrol, PAAN, as trustee, transferred title to the assets used in the conduct of the business to the purchaser, but that there was no evidence of a transfer of those assets by PAAN back to the trust for the purposes of the sale.

11                        On 1 November 2004 the Commissioner issued an assessment by way of estimate pursuant to s 11(2) of the Taxation Administration Act 1999 (ACT) claiming a total amount of $578,291.34 in respect of unpaid payroll tax together with penalty tax.  The amount was payable within 30 days of the notice.  PAAN did not pay the amount of the assessment and the resolution for the creditor’s voluntary winding up followed shortly afterwards.

12                        The Commissioner has applied by an originating process under the Corporations Rules seeking to excuse the liquidator from the proposed proceedings.  Following the first hearing on 2 June 2009, the liquidator (who had filed a submitting appearance) has reviewed the available materials including the transcripts of the public examinations, and has formed the view that the relief sought by the Commissioner is appropriate.  The liquidator appeared at the hearing on 3 July 2009 and tendered his solicitor’s letter to the Court of 1 July 2009.  The liquidator gave his consent under s 588R of the Corporations Act to the Commissioner, as a creditor of PAAN, beginning proceedings under s 588M in relation to PAAN’s having incurred debts for payroll tax owed to the Commissioner.

DRAFT STATEMENT OF CLAIM

13                        The Commissioner has prepared a draft application together with a draft statement of claim in which PAAN and the Commissioner were named as applicants, and Mr and Mrs Georgiou together with Mr Beames as respondents.  The statement of claim alleged that:

·                      Mr and Mrs Georgiou were shareholders of PAAN at all relevant times and that Mr Georgiou was the guiding mind of the company;

·                      Mrs Georgiou is a trustee of the trust;

·                      Mr Beames was the accountant and chief advisor to PAAN on matters including the preparation of its annual accounts both in its own right and as trustee, its payroll tax liability, solvency, role and responsibilities as trustee of the trust and general financial matters.  He was the accountant and chief adviser to Mr and Mrs Georgiou in their capacities as directors of PAAN and the company’s financial affairs to which I have referred;

·                      from July 1992 until 1 September 2003 PAAN carried on the business of providing security guard and patrol services under the business name “Star Security”, and employed people in the course of that business;

·                      in either June 1995 or March 1996 or December 1998 PAAN became a trustee of all of its assets relating to the conduct of Star Security or the right to conduct Star Security’s business.  There was a written trust deed executed by Mr Beames for the Peter Georgiou family trust and PAAN accepted office as trustee in December 1998;

·                      Mr and Mrs Georgiou were objects of the trust;

·                      from 1 July 1998 to 1 September 2003 PAAN paid wages and incurred payroll tax liabilities to the Commissioner;

·                      in September 2001 PAAN registered with the Commissioner as an employer subject to payroll tax;

·                      from a time between September 2001 and August 2003, PAAN was aware that it was likely that the Commissioner would issue an assessment for it to pay payroll tax for the period beginning 1 July 1998 and thereafter.  In August 2003 the Commissioner issued an assessment for the two years ending 30 June 2003 which included penalty tax and interest, in a total amount of $13,597.31, due and payable by 15 September 2003.  From 15 August 2003 to 31 December 2003 PAAN paid that amount in instalments;

·                      on 1 November 2004 the Commissioner issued an assessment for $578,291.34 in respect of payroll tax for the period between 1 July 1998 and 31 August 2003, including a reassessment for the period the subject of the earlier notice of assessment, penalty tax and interest, due and payable by 1 December 2004.  PAAN did not pay any of the second assessment (and this appears to be common ground);

·                      about $58,000 was paid into a trust accout for the trust, including $25,000 paid as a deposit by the purchaser under the 1999 sale agreement that became forfeited to PAAN as a result of the sale falling through;

·                      on 11 August 2000 PAAN transferred $58,000 to Mrs Georgiou as, either, a distribution to her of trust assets as a beneficiary, or alternatively, if the monies were held by PAAN in its own right, the payment to her was either a dividend or an uncommercial transaction within the meaning of s 588FB of the Corporations Act;

·                      a number of loans had been made to Mr and Mrs Georgiou by PAAN in the period from 1996 to 30 June 2003, at which time the outstanding balance was a total of over $400,000;

·                      PAAN had agreed with Sydney Night Patrol on 20 August 2003 to sell the Star Security business for $1,387,000 and that Sydney Night Patrol paid a deposit to PAAN’s solicitors on that day.  The sale was completed on 1 September 2003 and the balance of the purchase money was paid on that day. After sale expenses, PAAN received $1,327,847.85.  In addition, one year later, Sydney Night Patrol made a payment of $75,000 to Mr and Mrs Georgiou and paid a further sum of $75,000 to them on 22 November 2004, both of which formed part of the consideration for the sale;

·                      from 1 September 2003 PAAN ceased to operate a business but received the two further payments of $75,000 for the sale of Star Security and other payments from the business’ trade debtors for debts due prior to the completion date, as well as refunds of taxation paid to the Commonwealth;

·                      the proceeds of the sale and subsequently received monies were applied to discharge PAAN’s liabilities incurred in the ordinary course of operating the business, other than its liabilities to the Commissioner;

·                      in October and December 2003 the transfers to Mrs Georgiou and to her and her husband jointly totalling around $730,000 were made to which I have referred.  These were distributions of trust assets to Mr and Mrs Georgiou as beneficiaries of the trust or alternatively made as dividends or uncommercial transactions within the meaning of s 588FB of the Corporations Act;

·                      as at 22 December 2004 PAAN had insufficient assets to pay the debt owed to the Commissioner under the latest notice of assessment and PAAN’s creditors had resolved that it be wound up;

·                      PAAN had incurred various liabilities to the Commissioner in respect of payroll tax, penalty tax and interest, either in its own right or as trustee.  In the event that it was liable for those amounts as trustee, PAAN had a right to be indemnified out of trust property.  The Commissioner had a right of subrogation to PAAN’s right to be indemnified for liabilities it had incurred as trustee out of trust property.  Because PAAN had ceased to be the trustee and Mrs Georgiou had been appointed as a new trustee in 2004, PAAN had the right to be indemnified by Mrs Georgiou as the new trustee and to exercise her powers in that capacity to recover property of the trust in the hands of beneficiaries to satisfy the indemnity;

·                      PAAN had an equitable lien over the monies that had been distributed to Mrs Georgiou in 2000 (about $58,000) and the monies that had been distributed in 2003 and 2004 in consequence of the sale of the business to Sydney Night Patrol.  The equitable lien was enforceable in respect of the outstanding monies due to the Commissioner, pre and post judgment interest and the full costs of PAAN in pursuing the claims for enforcing its lien;

·                      alternatively, Mr and Mrs Georgiou were aware or ought to have been aware of PAAN’s liability to pay the amounts due to the Commissioner, as they had requested or caused PAAN to carry on its business so as to attract the liability to payroll tax and that the payments to them by PAAN (whether in its own capacity or as trustee) gave rise to a liability in each of them to compensate PAAN for its liabilities to the Commissioner, pre and post judgment interest and the full costs of PAAN in pursuing the claim for the lien;

·                      Mr Georgiou was liable to the Commissioner for insolvent trading under s 588M of the Corporations Act in respect of the liabilities and contingent liabilities for payroll tax, the payments of monies to Mr and Mrs Georgiou as loans and distributions of receipts from the failed and successful sale of contracts.  These liabilities and payments were “debts” within the meaning of s 588G(1) and (1A) of the Corporations Act;

·                      when each of the “debts” was incurred by PAAN it was insolvent or became insolvent by incurring that “debt” (including the payment of money to Mr and Mrs Georgiou complained of);

·                      Mr Georgiou failed to prevent PAAN from incurring each of those “debts” and, at that time he, or a reasonable person in his position, was, or would be, aware of the fact that PAAN was either then insolvent or, would become insolvent by incurring those “debts” or further “debts” together with those “debts”;

·                      Mr Georgiou had contravened s 588G(2) of the Corporations Act and because the Commissioner had suffered loss and damage by reason of the liquidation of PAAN, including incurring legal costs pursuing the investigation of PAAN and its affairs and paying monies to the liquidator, he could recover loss and damage in the amounts of the unpaid assessments and the associated costs.  The liquidator had given the Commissioner written consent under s 588R of the Act to begin the proceedings under s 588M(3) (I note that this consent has now been given);

·                      alternatively, Mr Georgiou was liable to PAAN for the amounts owing to the Commissioner together with the liquidator’s costs incurred in investigating PAAN’s affairs and the prospects of recovering monies owed by the Commissioner.

14                        Finally, the statement of claim alleged that:

·                      Mr Beames was liable either in contract or tort for his negligent failure to advise PAAN of the likely incurring of payroll tax liabilities in each relevant year of income and of its need to make provision in its accounts for the likelihood of an assessment for payroll tax liabilities;

·                      alternatively, Mr Beames had been negligent in:

·          advising that it was not likely that PAAN would be assessed for payroll tax liability in any financial year ending 30 June between 1999 and 2004;

·          his failure to warn PAAN that non-payment of its likely payroll tax liabilities would incur penalties;

·          failing to make provision in the accounts for the likely payroll tax, penalty tax and interest liabilities;

·          advising PAAN to enter into the facility agreements to lend monies to Mr and Mrs Georgiou in 2001, 2002 and 2003 and to make the payment of $58,000 in 2000;

·          advising PAAN to make payments to creditors other than the Commissioner, including Mr and Mrs Georgiou in distributing the sale receipts in late 2003;

·                      in consequence, Mr Beames was liable in damages to PAAN because it had incurred liability for penalty tax and interest and made the distributions of monies in late 2003 so as to be left insolvent and it continued to incur the costs of winding up over and above what would have been incurred had PAAN been able to pay all its debts at the time of the winding up.

THE PRESENT POSITION

15                        At the hearing on 2 June 2009, there was no evidence that Mr and Mrs Georgiou had been served.  Mr Beames opposed the Commissioner’s application for leave to commence proceedings in PAAN’s name.  During the course of that opposition his counsel identified a matter that raised some concerns in relation to the Commissioner’s conduct.  Prior to the bringing of this application the Commissioner’s legal representatives, including Mr Bayliss, and the liquidator and his legal representatives had been in discussions.  An offer had been made by Mr Georgiou to the liquidator, which the liquidator had passed on to the Commissioner.  The details of that offer were excluded from evidence by me, because they appeared to be the subject of without prejudice privilege pursuant to s 131 of the Evidence Act 1995 (Cth).

16                        In late December 2008 a meeting occurred between representatives of the Commissioner and the liquidator, but there is no direct evidence of what happened in it.  Then, on 19 December 2008 the Australian Capital Territory Government Solicitor wrote to the solicitors for the liquidator confirming that the Commissioner proposed to apply to the Court for leave to bring the proposed litigation in the name of the company.  The letter referred to a number of authorities supporting the existence of the jurisdiction to permit that to occur.  It noted that because the proposed litigation involved two applicants only one of which was the company in liquidation there were advantages of efficiency and avoidance of duplication flowing from having only one active moving party with one set of legal advisors.  It asserted that the liquidator was unfunded and that the Commissioner was the only creditor.  The letter noted that for the liquidator to take any independent steps to pursue the company’s claims he would require funding from the Commissioner and that would involve a duplication of the analysis that the Commissioner had already undertaken.  The letter acknowledged the possibility of a challenge to the notice of assessment.  The letter said that the authorities dealing with the grant of leave would involve the liquidator being, in effect, excused from any involvement in litigation and from responsibility for its conduct.  The Commissioner indicated that he would offer indemnity to the liquidator for the reasonable costs of the proposed litigation, even though it seemed improbable that the liquidator would incur any.  The letter asked for the liquidator’s views.  Later the same day, the Government Solicitor sent a further letter seeking consent of the liquidator for the insolvent trading allegations to be brought by the Commissioner.

17                        On 28 January 2009, the liquidator’s solicitors responded, having referred to the meeting held on 18 December 2008.  The liquidator proposed rejecting Mr Georgiou’s offer on the basis that a release of claims against Mrs Georgiou was not appropriate.  The liquidator’s position was that he had a duty to perform and while he understood that the likely scope of the duty would reduce were the litigation conducted as proposed, he had incurred costs in investigating how he ought to proceed in the circumstances.  He noted that his investigations had elicited a substantive offer from Mr Georgiou and had provided assistance in the consideration of the case that the Commissioner was interested in bringing.  The letter asserted that the investigation and matters underlying that case was part of the discharge of the liquidator’s duties.  The letter then discussed various aspects of the claim as then formulated by the Commissioner’s lawyers.  It noted that there were a number of legal and factual difficulties with the claims proposed to be made in the company’s name by the Commissioner.  It concluded by saying that the liquidator had what he then believed were clear causes of action available to PAAN against Mr Georgiou for which he believed a substantial offer of payment would be made without the need for litigation together with a strong case against Mrs Georgiou to recover the alleged early termination payment of $326,781 made in October 2003.  The liquidator’s solicitors accepted that the case could well be carried forward by the Government Solicitor, particularly having regard to their previous efforts in gathering information.  But the letter noted that the liquidator had a duty to form a view about the matters and that his costs of doing so ought reasonably to be covered by the creditor, should the liquidator relinquish control of the proceedings.  The letter sought a proposal from the Commissioner.

18                        On 19 February 2009, the liquidator’s solicitor, Mark Love, had a telephone conversation with Mr Bayliss that resulted in an exchange of correspondence between them.  First, Mr Bayliss wrote saying that he had been instructed to file an application by 27 February to obtain the approval of the Court for the Commissioner to conduct the proposed proceedings.  Mr Bayliss’ letter indicated that the liquidator had not yet provided any costs estimates, but had said in the meeting of 18 December 2008 that they were between $6,000 and $8,000.  The Commissioner was prepared to pay $7,000 to meet them.  The letter then continued:

“I am further instructed that should the Liquidator not consent to the subject application referred to above, to file an application to remove the Liquidator.”

19                        The liquidator’s solicitors responded stating that they did not know of anything that would give the liquidator concern that an application for removal would succeed and that it would be vigorously opposed.  They sought particulars of the complaint which the Commissioner had and indicated that they would seek instructions to address that.  They noted that the liquidator had endeavoured to co-operate with the Commissioner in the course of investigating the circumstances of PAAN and had supported the Commissioner undertaking the public examinations of officers and persons concerned in or having knowledge of the management of the company.  They then said that:

 “As yet, our client has not been provided with a copy of the transcript and has relied, to the extent he deems reasonable, on your interpretation of those findings.”

20                        The letter noted that this information had been in the form of a summary of findings and the draft statement of claim that they had been sent in August 2008.  Further information was sought in November 2008, after the offer had been received from Mr Georgiou.  The letter noted that in August 2008 the liquidator had been asked by the Government Solicitor to execute a contract under which litigation would be taken in his name against officers of PAAN.  The liquidator had indicated that would be an abrogation of his role and would be contrary to his public duty.  The liquidator sought funds to enable him to understand the proposal properly and sought and obtained funding to do so from the Commissioner (although the Commissioner had apparently withheld the amount of GST payable).  The letter referred to the meeting on 18 December as having clarified a number of concerns relating to the claims against Mrs Georgiou.  However, Mr Love observed that the liquidator was not then convinced that Mr and Mrs Georgiou could not avail themselves of a defence that they had relied on Mr Beames’ advice to them to act in the way they did.  The letter continued:

“The Liquidator simply has not had the opportunity to explore that matter.  Whilst your client is convinced, we are not in a position yet to be convinced.”

The solicitors relied on their letter of 28 January as setting out concerns they held and asked for a response to their proposal.  Subsequently, the liquidator filed a submitting appearance.

21                        At the hearing on 2 June, counsel for Mr Beames drew attention to the Commissioner’s threat to seek the liquidator’s removal and the limited information that the liquidator had been given.  He argued, after reading that correspondence, that the liquidator was entitled to be concerned at the apparently pre-emptory conduct of the Commissioner.  Senior counsel for the Commissioner informed me that the government of the Territory considers itself to have a model litigant policy.  I informed the parties that the apparent inference on that exchange of correspondence (which I was not told was incorrect) was that at the time that the Commissioner had threatened to remove him, the liquidator had not been given access by the Commissioner to the transcripts obtained at the public examinations held into the affairs of PAAN, which had been conducted in the name of the liquidator.

22                        The liquidator had the primary responsibility for considering what proceedings were open to be brought by PAAN or himself pursuant to rights vested in a liquidator under the Corporations Act.  The liquidator was entitled to access to the material and to be put in a position in which he could give proper consideration to the question of how he, consistently with his duties under the Act, should progress the liquidation of PAAN, and recover its outstanding assets, if any.

23                        In Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333 at 342 Griffith CJ lamented:

“I am sometimes inclined to think that in some parts--not all--of the Commonwealth, the old-fashioned traditional, and almost instinctive, standard of fair play to be observed by the Crown in dealing with subjects, which I learned a very long time ago to regard as elementary, is either not known or thought out of date. I should be glad to think that I am mistaken.”

24                        After I had raised in the hearing on 2 June my concerns that the evidence suggested that he had not appeared to meet that standard, the Commissioner, appropriately, undertook to:

·                      request the liquidator to obtain his own advice about the causes of action which he or PANN may have, the subject of the proposed statement of claim;

·                      fund the liquidator for his reasonable costs of obtaining that advice;

·                      give access to any documents in the Commissioner’s custody that the liquidator required.

25                        In addition, the Commissioner informed the Court that the transcript of the public examination and the proposed statement of claim had been provided to the liquidator when Mr Bayliss’ affidavit and the statement of claim were served.

26                        Since then, the liquidator informed the Court by his solicitors’ letter of 1 July 2009 that he has had a proper opportunity to consider matters and consents to the application.  The liquidator also informed the Court that at the time he filed the submitting appearance, he was satisfied that there were serious causes of action available against Mr Georgiou both in respect of insolvent trading and failing to place the interests of PAAN above his personal and other interests, together with causes of action to recover funds paid to Mrs Georgiou.  The liquidator was also satisfied that causes of action existed in respect of preferential payments made to some of PAAN’s creditors and that there were causes of action relating to advice given by Mr Beames, associated with PAAN’s exposure to its liability to payroll tax and the separation of the affairs of PAAN in its own right and PAAN as a trustee.

27                        The liquidator, at that time, had had access to sufficient information to form those views and that the evidence available, in his view, would sustain a prima facie case for each of the causes of action and would warrant bringing proceedings, in the absence of compelling evidence to the contrary.  The liquidator considered, at that time, that there might be a possible conflict for PAAN to be arguing in favour of the existence of a payroll tax liability and considered it preferable that the Commissioner take over the running of the proceedings to contend for that case, as the question went to the heart of most of the substantive causes of action giving rise to PAAN’s claims for damages.

28                        As at 1 July 2009, the liquidator, after receiving the transcript of the examinations and the hearing of 2 June 2009, had the view that the Commissioner was best placed to bring the proposed proceedings.  The liquidator considered that the proposed claims by PAAN should be brought and he consented to the Commissioner doing so in the company’s name.

JURISDICTION

29                        Both the Commissioner and Mr Beames submitted that the Court had jurisdiction to grant leave to the Commissioner to bring the application.  They addressed submissions on the basis that this jurisdiction may be an implied or inherent jurisdiction or power of the Court in a winding up.

30                        Part 5.5 of the Corporations Act deals with voluntary windings up.  And under s 511 (which is within Pt 5.5) any of the liquidator, any contributory or creditor is given the right to apply to the Court to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court (s 511(1)(b)).  If satisfied that the determination of the question or exercise of the power will be just and beneficial, the Court may accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the applications it thinks just (s 511(2)).

31                        The powers of a liquidator appointed by the Court are contained in Div 2 of Pt 5.4B of the Corporations Act.  Powers enumerated in s 477 entitle a liquidator of a company, subject to exceptions in s 477, to bring or defend any legal proceeding in the name and on behalf of the company (s 477(2)(a)) and to do all such other things necessary for the winding up of the affairs of the company and distributing its property (s 477(2)(m)).  The exercise by the liquidator of the powers conferred under s 477 is expressly made subject to the control of the Court by s 477(6).  Any creditor or contributory or the Australian Securities and Investments Commission may apply to the Court with respect to any exercise or proposed exercise of any of those powers.

32                        The statutory predecessors of these provisions were identified by the Privy Council in Ferguson v Wallbridge [1935] 3 DLR 66 at 83-84 (in a quotation cited in related proceedings by their Lordships in Lloyd-Owen v Bull [1936] 4 DLR 273 at 275-276) as evincing a statutory policy that all claims competent to a company should be brought within the scope and control of the winding up.  In Lloyd-Owen [1936] 4 DLR at 276 Lords Blanesburgh, Thankerton and Roche said that the approach of the Court to an application under the analogue of s 511 was as follows:

“A Judge in winding-up is the custodian of the interests of every class affected by the liquidation.  It is his duty even if it be in a voluntary liquidation that opportunity offers to see to it that all assets of the company are brought into the winding-up.  In authorizing proceedings, especially if they may or will involve some drain upon the assets, he must satisfy himself as to their probable success;  where, as in the present case, they involve no possible charge on assets, he will nevertheless be careful to see that any action taken in the company’s name under his authority is not vexatious or merely oppressive.”  (emphasis added)

33                        In that case, proceedings had been taken earlier by minority shareholders claiming fraud and oppression against them by members of the majority.  Those proceedings had been dismissed as incompetent by the Privy Council in Ferguson [1935] 3 DLR 66 because the company had not been party to the proceedings and, subsequent to their commencement, it had gone into liquidation.  The judge to whom the later application had been made to bring the action in the company’s name (following the failure of the earlier proceeding) took into account all of the evidence tendered in the previous proceedings and concluded from the success of the majority shareholders there that the action proposed in the new proceedings would equally fail.  Their Lordships held that the approach of that judge was wrong.  Their Lordships’ reference to vexatious or oppressive proceedings that I have emphasised above, had regard to unsustained allegations of conspiracy and fraud in the previous proceedings.  They took the view that there was enough in the arguments presented to them to warrant allowing the contributories to bring the action in the name of the company because the liquidator had refused to do so. 

34                        It is significant that the principle applied by their Lordships derived from the analogue of s 511.  I am satisfied that that section is the source of the Court’s undoubted jurisdiction and power to permit a person other than the liquidator to commence proceedings in the company’s name when it is in voluntary liquidation.  Likewise, where the liquidation is compulsory, s 477(6) is the source of the Court’s jurisdiction and power in such a matter.

35                        In Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250 at 252 McLelland J applied what their Lordships had said in Lloyd-Owen [1936] 4 DLR at 276 as to the approach to be taken by the Court.  His Honour had noted in an earlier decision (Wenham v General Credits Ltd (unreported 16 December 1988 Supreme Court of New South Wales at pp 21-22;   BC8801203)) that there were two procedural methods by which the joinder as a plaintiff or co-plaintiff of a company being wound up could be made.  The first method was by the Court giving a direction to the liquidator to cause the company to be joined as a co-plaintiff pursuant to the analogue of ss 477(6) or 511(2).  The second method was to order that the creditor or contributory be authorised to use the company’s name as a co-plaintiff in the proceedings.  McLelland J said that that procedure was “… of respectable antiquity and is sanctioned by high authority” citing among others the decisions in Lloyd-Owen [1936] 4 DLR 273 and Cape Breton Co v Fenn (1881) 17 Ch D 198 at 207, 208, where Jessel MR had said that the principle was based on the same one in the old Court of Chancery that permitted a beneficiary to bring a bill against his trustee so as to use the trustee’s name to recover trust property.

36                        McLelland J said that ordinarily the first course (of directing the liquidator to sue in the name of the company) would be preferable to the second, “… in order that the conduct of the litigation may remain under the control or supervision of an officer of the Court”.  He pointed out that, in particular circumstances, the alternative course of permitting the creditor or contributory to sue in the name of the company could also have advantages.  He said that the making of an order could be supported where the company was not to be the only plaintiff or applicant and, in practical terms, the conduct of the litigation would be in the hands and at the expense and risk of the other plaintiff (or applicant) and its solicitors.  His Honour also considered it may be relevant that if the liquidator had expressed an unwillingness to take the proceedings and, if ordered to do so, would no doubt obey, it may be convenient to permit the creditor or contributory to bring the proceedings in the company’s name.  He applied similar reasoning in Aliprandi 6 ACSR at 252.  There he said that the second method had the disadvantage that the conduct of the litigation in the name of the company would be taken out of the control and supervision of the liquidator as an officer of the Court.

37                        It is important to appreciate that the procedure is an incident of the winding up and has been treated as being distinct from an action either, at general law under what was known as the rule in Foss v Harbottle (1843) 2 Hare 461;  67 ER 189 and, since that rule’s abolition, under Pt 2F.1A of the Corporations Act;  Chahwan v Euphoric Pty Ltd (2008) 245 ALR 780 at 815-817 [124]-[125] per Tobias JA, with whom Beazley and Bell JJA agreed;  see also Promaco Conventions Pty Limited v Dedline Printing Pty Limited (2007) 159 FCR 486 at 496-497 [37]-[38] per Siopis J.

38                        In Russell v Westpac Banking Corporation (1994) 61 SASR 583 at 586 King  CJ, with whom Bollen and Mullighan JJ agreed, discussed the rationale of permitting a creditor or contributory to bring proceedings in the name of the company in liquidation where the liquidator had refused to do so.  He said that the failure of a liquidator to institute proceedings to recover assets or debts of the company ought not to operate to the prejudice of the persons in whose interests the winding up is carried out and who are entitled to benefit from the assets of the company.  The Chief Justice concluded that where an applicant sought an authorisation, entirely at its own risk and expense, to join the companies as plaintiffs and upon it providing a satisfactory indemnity to the companies and liquidators, the companies’ assets would then be at no risk.  He held that the absence of any potential benefit to third persons, other than the applying creditor or contributory, was not relevant to the exercise of the power:  Russell 61 SASR at 587.

39                        In Magarditch 32 ACSR at 377 [43], 384 [70]-[72] Spender, French and Kenny JJ applied the above authorities and principles.  They held that the Court had a responsibility to see that any action taken in the company’s name under the Court’s authority was not vexatious or merely oppressive, even where there would be no drain on the assets of the company.  The Court had to consider whether the action proposed to be taken in the company’s name had some arguable foundation;  see also Christianos v Aloridge Pty Limited (1995) 59 FCR 273 at 281B-282B, 284A-B per Beaumont, Whitlam and Tamberlin JJ.

40                        The Commissioner and Mr Beames argued that the Court’s jurisdiction to make an order authorising the Commissioner to bring the proceedings in the name of PAAN was part of its inherent powers as a superior court of record and a court of law and equity created pursuant to s 5(2) of the Federal Court of Australia Act 1976 (Cth).  Because of the conclusion to which I have come, it is not necessary for me to determine whether the power is inherent or implied as an incident of the Court’s jurisdiction. Jurisdiction and power are not discreet concepts as Gleeson CJ, Gaudron and Gummow JJ explained in Australian Securities and Investments Commission v Edensor Nominees Pty Ltd (2001) 204 CLR 559 at 590 [64]-[65].

41                        The Commissioner raised an argument that if s 5(2) did not apply, these proceedings could be brought in the inherent jurisdiction of the Supreme Court of the Australian Capital Territory and, in turn, in this Court under s 9(3) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth).  That provides that this Court may exercise jurisdiction conferred on it by s 4(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1993 (ACT).  In my opinion this argument is not to the point.

42                        The Court is exercising federal jurisdiction in this matter because claims for relief are being sought under the Corporations Act.  Proceedings are in federal jurisdiction where, as here, they involve rights, liabilities and obligations that arise under, or owe their existence to, or depend upon, federal law for their enforcement:  LNC Industries Ltd v BMW (Australia) Ltd (1983) 151 CLR 575 at 581 per Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ;  see also Edensor 204 CLR at 585-586 [51]-[52] per Gleeson CJ, Gaudron and Gummow JJ, 638 [216] per Hayne and Callinan JJ.  Here, the Commissioner also seeks to exercise rights to recover preference payments under Pt 5.7B of the Corporations Act through use of the liquidator’s rights, or in the Commissioner’s own right as a creditor.  Those rights exist solely as a result of an Act of the Parliament, the Corporations Act.  In addition, the right of the Commissioner to bring the proceedings in the name of PAAN, including relief in the form of authorising proceedings to be taken in the name of PAAN against its directors and officers and advisers in respect of the conduct of its affairs, arises pursuant to a law made by the Parliament:  s 511 of the Corporations Act.  This Court has jurisdiction to decide any matter arising under any law made by the Parliament (except in respect of certain criminal matters) pursuant to s 39B(1A)(c) of the Judiciary Act 1903 (Cth).

43                        There is no reason to read down the statutory power in s 511 of the Corporations Act or to search elsewhere for some other explanation of a source of power to make the orders sought by the Commissioner, when the clear words of the statute are apt to ensure that the Court may do justice in the case.  It is quite inappropriate to construe provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words of the statute:  Owners of the Ship “Shin Kobe Maru” v Empire Shipping Co Inc (1994) 181 CLR 404 at 421 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ. 

44                        I am of opinion that the power which the Court is exercising in an application such as the present is now to be found in s 511 of the Corporations Act, in the case of a voluntary winding up, and s 477(6), in the case of a winding up by the Court.  The power conferred by these provisions is ample to ensure that, where a liquidator does not cause the company to bring proceedings, the Court can permit those proceedings to be brought so as to achieve the purposes discussed in the authorities to which I have referred.  For these reasons I am satisfied that the Court has power to make the orders sought.

SUFFICIENTLY ARGUABLE CASE

45                        Because I was not satisfied that the liquidator had had a proper opportunity in which to consider his role in bringing the proposed proceedings on behalf of the company, the proceedings were adjourned on 2 June 2009 to allow him to consider and inform the Court of his position.  I did not consider it appropriate, having regard to the then state of the evidence, to act on the liquidator merely submitting to whatever order the Court might make.  His responsibility was to consider for himself whether the proceedings ought properly be bought in the name of the company. I am now satisfied that the liquidator has exercised that responsibility having regard to his solicitors’ letter of 1 July 2009.

46                        I am satisfied that there is a sufficiently arguable case to justify the Commissioner using PAAN’s name to proceed against each of Mr and Mrs Georgiou as is proposed, based on the evidence that I have summarised above ([3]-[11]).

47                        Mr Beames argued that the proceedings were vexatious and oppressive in the sense discussed in the authorities and ought not to be authorised to be brought against him.

48                        I reject this argument.  It appears that a part of the defence likely to be raised by Mr and Mrs Georgiou will be to allege that they acted on Mr Beames’ advice.  Also the case that the Commissioner seeks to bring in PAAN’s name against Mr Beames alleges that he did advise the company to act in the way it did.  Thus, Mr Beames will be a proper and necessary party to the proceedings.  The controversy between the other parties will involve an examination of Mr Beames’ role in the events leading to the payments of the various sums complained of to Mr and Mrs Georgiou and of the company’s failure to pay or provide for the payment of payroll tax at various times.  The other claims which the Commissioner seeks to bring in his own right appear also to be part of the one matter or controversy:  see Re Wakim;  Ex parte McNally (1999) 198 CLR 511 at 585-586 [140]-[142], 587-588 [145]-[147] per Gummow and Hayne JJ, with whom Gleeson CJ and Gaudron J agreed at 546 [25]-[26].

49                        Mr Beames argued that there was not enough evidence that there was a real dispute to which he was a party and that the affidavit of Mr Bayliss went no further than a series of unsubstantiated assertions which did not identify the facts upon which they were made with any precision.

50                        During the course of argument, I was taken to passages in the transcript of the examinations which indicated, as I have set out above, a sufficiently arguable basis on which the claims could be made.  In the examinations, Mr Georgiou swore that he acted in reliance upon Mr Beames advice.  That raises a sufficiently arguable case to justify Mr Beames’ joinder in the proposed proceedings.

51                        The trustee of the trading trust who has incurred liabilities in the performance of the trust is entitled to be indemnified against those liabilities out of trust property and for that purpose is entitled to retain possession of the property as against the beneficiaries.  The trustee’s interest in the trust property amounts to a proprietary interest because it is no longer property held solely in the interest of the beneficiaries of the trust.  The trustee’s interest in that property passes, in the case of a bankruptcy, to a trustee in bankruptcy.  In the case of a trading trust, the trustee of which is a corporation, the corporate trustee’s interest remains the property of that company under the power of the liquidator:  see Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 369-370 per Stephen, Mason, Aickin and Wilson JJ.  Their Honours continued (Octavo 144 CLR at 370):

“The fact that the trust property itself cannot be taken in execution by the creditors of the trustee is not to the point.  Those creditors are nevertheless subrogated to the rights of the trustee in relation to that property, and in the event of the trustee becoming bankrupt, it is those rights which are to be realized in their favour.”

52                        Their Honours held that in the case of the winding up of the company, the legal title to all company property, including trust property, remains in the company and does not pass to the liquidator:  Octavo 144 CLR at 371;  see also Federal Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) (2005) 220 CLR 592 at 612-163 [54]-[55],  614 [58] per Gleeson CJ Gummow, Hayne, Callinan and Heydon JJ;  Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at 246-247 [48]-[51] per Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ.  Because the right of indemnity is a proprietary right of the trustee, it follows that the retirement of a trustee does not extinguish that retired trustee’s proprietary right to resort to the assets of the trust, including any chose in action against overpaid beneficiaries to indemnify a trustee for liabilities properly incurred in the execution of the trust while the trustee held office.

53                        I am satisfied that the Commissioner has a sufficiently arguable claim of his being entitled to be subrogated to any right of indemnity PAAN may have as a trustee of the kind alleged in the draft statement of claim.

WIDTH OF THE AUTHORITY TO BRING PROCEEDINGS IN THE COMPANY’S NAME

54                        The Commissioner sought an order, in wide terms, allowing him to amend the proposed pleadings in the proceedings once commenced, including the freedom to add or remove parties and causes of action.  Mr Beames sought that any order be confined to authorising proceedings to be commenced only in the terms of the proposed statement of claim annexed to Mr Bayliss’ affidavit.

55                        Under the judicature system form of pleading, a plaintiff must plead the material facts which are relied on to entitle the plaintiff to the relief claimed.  There is no need also to assert or identify a legal category or cause of action that the material facts pleaded may illustrate, involve or demonstrate.  The role of pleaded material facts is to evince (at a high level) the factual basis on which the Court can grant the relief sought;  it is not a set of submissions demonstrating the legal pathway to the desired result.  In Agar v Hyde (2000) 201 CLR 552 at 577-578 [64] Gaudron, McHugh, Gummow and Hayne JJ noted there that it may be difficult for a court to say from the pleadings that a claim by a plaintiff that a defendant is liable in negligence is bound to fail because it is not arguable that the defendant owed the plaintiff a duty of care.  In that example, the material facts pleaded will frequently be an assertion of the broad relationship between the parties and that in that scenario the defendant owed a duty of care to the plaintiff.  Often the evidence given at the trial will become critical in ascertaining whether the material facts pleaded can be established.

56                        I am of opinion that a party granted leave to bring proceedings in a company’s name under s 511 is not authorised under the grant to make a substantive expansion of the proceedings by adding new parties or significant new material facts (which may give rise to a new cause of action).  The role of the Court in giving its authorisation requires it, not the party, to determine whether the proposed use of the company’s name by the applicant is appropriate.  The grant of authority to a party to bring proceedings in a company’s name is not a delegation of the important role the Court plays in determining how the winding up is conducted.  The later joinder of a new party, or the exploration of significantly new material facts, outside the broad area for which the authorisation was sought, involve the assertion, in the company’s name, of rights that the Court has not examined.

57                        Under the Act, the liquidator remains in control of the company’s other assets, including its other choses in action against a new defendant/respondent or the existing defendant/respondent.  The grant of leave to commence proceedings in the company’s name is a specific authorisation for a particular purpose that has been established to the Court’s satisfaction in accordance with the tests that I have discussed above.

58                        An unconfined grant of authority to an applicant to add parties and causes of action could enable the applicant to assert the company’s rights in relation to matters that may be unrelated to the matters that the court considered in making the original orders.  For that reason the expansion of proceedings by the party authorised to bring them in the company’s name into a substantively new area (by adding a new party or significantly different material facts), ordinarily, must be considered afresh both by the Court and by the liquidator, whose interests, as the person in control of the company’s assets, may be affected.

CONCLUSION

59                        Nothing that I have said in these reasons is intended to express any view as to the underlying merits of the allegations which the Commissioner proposes to make either in his own right or in the name of PAAN.  The nature of these proceedings could not permit any such finding to be made.  The purpose of the material is to demonstrate that a sufficiently arguable case exists that ought to be allowed to go to trial in connection with the winding up of PAAN.  The conduct alleged by the Commissioner in the proposed proceedings has arguably directly affected the recovery of payroll tax penalties and interest owed by PAAN to him as the principal, and possibly only, creditor in the winding up.

60                        These proceedings are not a rehearsal for a trial.  The limited question, identified in the authorities, is whether a sufficiently arguable claim has been brought by a proper applicant to warrant the exercise of the power to authorise that person to litigate in the company’s name.  It would be wrong, as their Lordships pointed out in Lloyd-Owen [1936] 4 DLR at 277, to pour over the examination transcripts or other material with a view to determining prospects of success.  That is not the role of the Court in such applications.  Rather, the Court’s role is to be satisfied that it is a proper use of the procedure afforded in the winding up to allow the company or its name to be used to recover debts, damages or assets, or to otherwise protect the interests of the company so as to realise the company’s property for the purposes of the winding up.

61                        I am satisfied that the claim sought to be made against each of the proposed respondents by PAAN in the draft statement of claim is not vexatious or oppressive.  I am satisfied that I should make an order to the effect that, subject to the Commissioner providing an indemnity to the liquidator and to PAAN in respect of costs to be incurred by PAAN or which it may be ordered to pay in the proposed proceedings and providing security in respect of that indemnity, the terms of such indemnity and the nature and amount of such security to be agreed between the Commissioner, the liquidator and PAAN or, failing agreement, settled by the registrar:

(a)        the Commissioner be authorised at his own expense and risk as to costs, to use the name of PAAN as a plaintiff or co-plaintiff in the proposed proceedings;

(b)        the Commissioner indemnify the liquidator for all costs reasonably incurred by PAAN in respect of the proposed proceedings.

62                        The Commissioner should be allowed to file a pleading in the form of the draft statement of claim.  There was no accompanying draft application in evidence.  Before the draft statement of claim is filed some typographical and consequential amendments may need to be made to it that will not affect the substance of the pleading.  Once the proceedings are commenced they will be in the control of the Court which will be able to regulate any subsequent applications to amend and, if necessary, any consequential requirement to vary the authorisation I have granted.

63                        Mr Beames was not a party.  He provided assistance on the jurisdictional question and properly raised the concerns that the state of the evidence on 2 June 2009 had left open.  Each party had played an appropriate and proper role in this application.  It is not appropriate to make any order in respect of the costs of this application.

Associate:

Dated:         10 July 2009